Subscribe!Welcome! This blog tracks the real estate market in the Central Shenandoah Valley, featuring market data and analysis, an exploration of common buying and selling questions, and candid commentary on all things real estate.
If you are interested in discussing any of the topics on this blog, or the details of your specific real estate situation, call or e-mail me!
Real Estate
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Do Realtors Make Huge Profits On Home Sales? |
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 Josh posed the question of whether Realtors make extraordinary profits on home sales, and suggested I shed some light on the matter. I'd be happy to do so --- and I'll start with Josh's proposed example of a $100,000 home (though there aren't too many of those out there). One Quick Assumption . . . Upon the closed sale, Realtors are typically paid an amount derived from a percentage of the sale price of the property being sold. This percentage (the "real estate commission" or "brokerage fee") varies from company to company, from agent to agent, and can be negotiated. The sellers of all of the properties that I am currently marketing will pay either a 5% or 6% commission. Thus, for this example, we'll split the difference and use 5.5% as the sample brokerage fee. At First You Would Think . . . Many people would simply multiply the sales price ($100k) by the commission (5.5%) and assume that once I sell this fictional $100,000 home, I'd pocket $5,500. Could that be true?? "Sellers Agents" and "Buyers Agents" The total commission that the seller pays is actually split (typically in half) between the Realtor representing the seller and the Realtor representing the buyer. While it is legal for a Realtor to represent both buyer and seller in a transaction, and many Realtors do so quite skillfully, it is not a practice that I encourage, as it can limit the representation that each party receives. As a result, and since in 95% (plus) of my transactions I am only representing one party, we will now divide the $5,500 by 2, and have $2,750 remaining. The Company Has Costs Too The remaining $2,750 is now split (again!) between the Realtor representing the seller (or buyer) and the company for which they work. Different companies have different arrangements as far as this split --- ranging from 50% to the Realtor to as high as 90% to the Realtor. Most companies are within the 50% to 75% range, so I'll average the limits of that range, and use 62.5% for our example. This leaves $1,719 to the Realtor. However, in my case, we pay a small percentage of each commission to Coldwell Banker Corporate (since we are a part of a national franchise), which actually leaves me with $1,616. And Then There Are The Agent's Costs If we are to compare a Realtors income to anyone else's income, we must next take out my business expenses. Last year (2007) my expenses were approximately 21% of my gross income. Some of these expenses are related to a single transaction (marketing costs, for example), and some are related to my overall business (Realtor association membership, MLS membership, office expenses, education/training expenses, etc.). Thus, the figure above ($1,616) is now reduced to $1,277. Let's Extrapolate! That final "profit" on the $100,000 sale was $1,277 --- which is 1.28% of the sale price. Thus, if all of the variables remained the same, here are some additional profit points: $100,000 = $1,277 $185,700 = $2,377 (April 2008's median sales price) $300,000 = $3,840 (a very nice home) $500,000 = $6,400 (a very, very nice home) Let's Compare Again When we began, some might have made the assumption that I would have pocketed $5,500 on a $100k sale --- when in reality, I only profit $1,277. Along the same lines, someone selling a $300,000 home might think I would be pocketing $16,500 (wow!) --- when in reality, I only profit $3,840. The Question At Hand Returning to the original thought/question --- do Realtors make extraordinary profits? In my opinion, no --- in some transactions I am paid appropriately for the service, knowledge, marketing, representation, negotiation and expertise that I provided to my clients. In some transactions, I am underpaid. And in some cases, I provide such services to a buyer or seller for months, and am never compensated at all (if they do not buy or sell). I hope this has shed some light on how compensation works in the real estate world (at least in my real estate world), and I certainly welcome other thoughts, questions, and perspectives! | |
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Now May Be The Best Time To Sell |
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That doesn't mean that it is particularly easy or fast to sell your home right now -- but compared to the last six months, and the coming twelve months, now may be the most likely time that your home will sell. Here's why . . .  Despite lower sales in 2008 than in 2007, and lower sales in 2007 than 2006, sales in Harrisonburg and Rockingham County have continued (in large part) to follow normal month-to-month trends. October-November of 2007 was a bit of an abnormality, but otherwise, you'll see that month-to-month, buyers are coming into and out of the market at the same (proportional) rate as in previous years. This means, that in June, July and August, we will likely have the largest number of closings for the year -- which shouldn't come as any surprise to you. I mention this, however, because some people hear the national news (sales down, prices down), or the local news (sales down by 20%, prices up by 5%), and assume that the month-to-month sales are rather flat, and that it is always a terrible time to sell. Not so. Your home is much more likely to be purchased in the next few months (contract in April, May or June with a closing in June, July or August) than any other time of the year. I'm certainly willing to be proven wrong -- sales during the next few months could defy prior years' month-to-month trends -- but I doubt that will occur. | |
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Print It, Pocket It, Prove Those Skeptics Wrong! |
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Have you been hearing whispers (or shouts) of "home prices are plummeting" or "real estate is a terrible investment" lately? Prove them wrong! Click on the graphic below to download and print my April 2008 Harrisonburg & Rockingham County Home Sales Report.
Lots of caveats:
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Rent To Own --- Balancing the Risks and Benefits . . . |
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 Housing supply in Harrisonburg and Rockingham County is high in many price ranges, and has been for many months now. As a result, some sellers are anxious to sell their homes, and some buyers are hesitant to commit to buying. It has become a standoff of sorts!Additionally, some buyers are having difficulty obtaining financing, as many loan programs have disappeared, or become more restrictive (100% financing, for example). These factors have prompted some buyers to pursue a rent-to-own opportunity, where they would rent a property for a period of time before they purchase it. Sellers aren't always thrilled about the possibility, but some are willing to explore it. Let's take a look at it from a few perspectives: Buyers are typically most excited about obtaining new housing without closing costs, a mortgage, or a long-term commitment. A buyer can, at some point in the future buy the home in which they have been living, without physically moving, and often at a sales price determined at the start of the rental relationship. Aside from the missed opportunity of tax savings, paying down mortgage principal, and appreciation --- a rent-to-own opportunity generally works well for a buyer. Sellers are often very lackluster about the opportunity to lease their property to a buyer and then (possibly) sell it to them at some point in the future, for good reason. Often, the future purchase price is fixed, which eliminates the seller benefit of increases in property values. A buyer typically is not required to buy the property, and thus the seller may be back in the same situation of needing to sell, when the buyer's lease term or option period comes to an end. They only positive aspect of a rent-to-own scenario for a seller is the fact that someone starts providing incremental income immediately. Cash flow can sometimes drive a seller to commit to a rent-to-own relationship. If both the buyer(tenant) and seller are willing to explore a rent to own agreement, here are some of the main questions to consider:
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One Year Builder's Warranty on New Construction |
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 As you consider buying a newly constructed home, it is important to be aware of what is often referred to as a one-year builder warranty. Technically, what we are referring to are "Implied warranties on new homes" per Virginia statute 55-70.1. What is covered by the warranty? The builder warrants that the "dwelling with all its fixtures is, to the best of the actual knowledge of the vendor or his agents, sufficiently (i) free from structural defects, so as to pass without objection in the trade, and (ii) constructed in a workmanlike manner, so as to pass without objection in the trade." Essentially, no structural defects, and workmanlike construction. When does the one year start? The earlier of when the title is transferred, or when the buyer takes possession of the property. I bought a house three months ago and have discovered structural defects. The builder is telling me a warranty doesn't exist, because "as is" was written into the contract. Is this possible? It is possible to modify or exclude the Virginia statute based implied warranty. However --- it is likely that the builder did not follow the statute when selling the property to you as is. To sell a new property "as is" and exclude the implied home warranty, the fact that the house is being sold "as is" must be written on the face of the contract, in capital letters, in a font size at least two points larger than the other type in the contract. This doesn't happen too often. I have a structural issue, what do I do? The statute specifies that you have a cause of action against the builder, but that you must first notify the builder of the defect and allow them a reasonable period of time (no longer than six months) to cure the defect. What about the foundation? The foundation is warrantied for five years (instead of just one) --- though if a foundation issue exists, it must be reported to the builder within two years of when it is discovered. The Virginia statute keeps referring to a "structural defect" --- what is that? Per the code, "a defect or defects that reduce the stability or safety of the structure below accepted standards or that restrict the normal use thereof." Yes, that is about as vague as you can get. My builder is asking me to sign a warranty document at closing --- why? And should I sign it? First, take time to read the document. In most cases, such a document includes verbiage that limits the (vague) rights you would have had under the broad Virginia statute. Builders ask buyers to sign these documents to narrow the scope of buyer's possible warranty requests --- and this desire often comes from past buyers who have been unreasonable in asking the builder to address cosmetic (or other non-structural) issues within the first year. If the document only includes language that restricts or eliminates your rights under the broad Virginia statute, kindly refuse to sign the document. Unless all parties agreed in the sales contract that a warranty document would be signed at closing, the builder can not require you to sign the document --- it is imposing a new contract term on the buyer, when that was not included in the original negotiations. One caveat --- sometimes the document serves both the builder and the buyer --- it can do so by specifically stating items that the builder will indeed repair that might otherwise be in a gray area given the vague nature of the Virginia statute. | |
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The Best of Lenders, The Worst of Lenders |
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 After (just about) five years in real estate, and many transactions with many lenders, I have finally discovered that with the best of lenders, and with the worst of lenders, the experience for my clients can still be fantastic, or terrible!The root of the problem is the many variables involved with a loan, for example:
Scenario #1 --- $300k (+/-) purchase, 80% financing, loan application to closing in approximately 14 days, absolutely no issues in the entire process. Amazing! Scenario #2 --- $100k (+/-) purchase, 100% financing, down payment assistance program, loan application to closing in approximately 35 days (even though 21 was promised), an absolute nightmare with more and more, and more documentation and paperwork requested from the loan underwriter and loan closer up until the closing day. Many of my buyer clients ask for recommendations on which lender they should select in order to make it a smooth and successful purchase. I do indeed have lenders that I recommend. However --- even with one of the stellar lenders I recommend, a buyer can have a terrible financing process, as a result of the underwriter, closer, appraiser, program requirements, etc. And . . . even if you don't select one of the lenders that I recommend, you can absolutely have a fantastic financing process. | |
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Buy Now, Save Big (sometimes) |
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 In two out of my most recent three closings, my buyer clients bought at a fantastic price --- below appraised value. Scenario #1 --- buyers offered a quick closing, with no home sale contingency, and paid $13,000 under the appraised value. Scenario #2 --- buyers bought from a relocation company, and paid $10,000 under the appraised value. Why is it happening? In both cases, the buyers made aggressive offers --- instead of opting not to make an offer based on a higher than reasonable asking price. As I noted a few weeks ago, buyers currently seem to be hesitating to make offers, and sellers are hesitating to lower their prices. For the buyer who is willing to negotiate, this means there are opportunities to buy at great prices! | |
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Harrisonburg / Rockingham Home Sales Report (3/7/2008) |
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See below the report for commentary . . .  Some interesting trends this month include:
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Foreclosure: Mt. Hope Lane, Keezletown |
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Foreclosure: 1121 Rebecca Ridge Court, Harrisonburg |
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February 2008 - Sales are Down, Prices Are Up!?! |
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February 2008 home sales are the lowest on record within the past 5 years (beginning January 2003), according to data from the Harrisonburg-Rockingham Multiple Listing Service. Only 44 properties were transferred in February, down from 50 in January 2008, and down from 63 last February (2007).  The Good News If we compare this February (2008) to last February (2007) we see two conflicting market conditions:
Advice to sellers --- be patient, as it may take longer than you expect, or would like, for your home to sell. | |
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Daily News Record >> Getting Local With Real Estate |
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 I applaud Dan Wright (pictured to the right), and the Daily News Record (DNR) for running some local stories on our real estate market, such as today's "Feeling The Ripples" article on foreclosures.In contrast to today's story about our local market, the DNR will often run AP stories --- which are written from a national perspective, and about markets that are usually quite different than the Shenandoah Valley. As a quick aside --- if it's not immediately apparent whether the article is local, check the "dateline" --- the city that precedes the article. And yet, despite my excitement for seeing a local article today, I can't keep from commenting on a few interesting parts of this story . . .
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NPR Is Right On --- The Potential Real Estate Standoff |
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 Perhaps Jonathan Clements, a personal finance columnist at The Wall Street Journal, has been reading my blog? Unlikely, however he speaks of a possible real estate standoff in a recent NPR interview, making many of the same observations as I made a few weeks ago.In the interview, Jonathan ponders . . . "are we going to see prices drop, which will encourage buyers to step up to the plate and purchase, or are we going to continue with the standoff, where sellers are reluctant to cut prices and buyers are reluctant to commit?" He then makes some other great observations about selling in today's market:
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Deed Details - - - Don't Wait Until Closing! |
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 In a typical purchasing scenario, a buyer may not see the deed that will be recorded at the courthouse to transfer ownership to them for the property that they are purchasing . . . until after the closing, after the deed has been recorded. This could have serious implications!First, to give the benefit of the doubt to local attorneys and title companies, many will briefly show the buyer the deed before having the seller sign the document --- though typically this is only to make sure that the buyers' names are spelled correctly. Again, this could have serious implications! Here are a few recent conversations I have been a part of, or heard about:
Where do we go from here? I am not a title examiner --- thus, though I will begin to pull recorded deeds for my buyer clients, I will not necessarily always be able to pinpoint all of the associated documents. A great solution, however, is to use a title company or closing attorney who will initiate the title search process as soon as the property is under contract. If deed restrictions (of any kind) exist, at least they will be discovered early on, as opposed to after the closing has taken place. | |
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Who Is This Scott Rogers Person?? |
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Do I know you? It has been great to have e-mails and comments on my blog from people that I know --- and also from people that I don't know at all. My intent for my real estate blog is to provide a place for real estate related issues and trends to be discussed in our community. So . . . even if I don't know you, feel free to e-mail me a question, or add a question or thought in the comments section of this, or any other post. Do you know me? Some of you do --- others have never met me. Hopefully, this blog allows you to feel like you are getting to know me better --- and to know what I think and feel about our local real estate market, parts of the real estate transaction, etc. To take it one step further, I added two videos to my web site today (introducing the site, as well as the searching section of my site). You'll find these videos embedded below, as well, and I welcome your feedback. They are, perhaps, a bit on the "serious and professional" side --- so in future videos, I'll try to let a little more of my personality shine through. Despite their imperfections, I hope these videos allow you to get to know me a little better. And, as the name of my blog implies, if you'd like to get together for "Coffee with Scott" some day, just drop me an e-mail, or call me at 540-578-0102. All About My Web Site . . . Searcing On My Web Site . . . | |
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Demolition Underway at Urban Exchange |
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Have you driven by Market Street, Mason Street or Water Street lately? Here's what you have been missing --- lots of demolition on the Urban Exchange site . . .  Urban Exchange will be comprised of retail space, and four floors of condos and apartments.  To see more photos, visit: http://www.ueharrisonburg.com/photos. | |
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Foreclosure: 292 E. Riverside Drive, Timberville |
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Commercial Property Appreciation in Downtown Harrisonburg |
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I was recently asked about the rate at which commercial properties are appreciating (growing in value) in downtown Harrisonburg.  Getting to an answer took quite a bit of data collection and analysis, but here's what I have compiled . . . Methodology Properties meeting the criteria below were considered in this study, which resulted in a data set of 145 properties:
Point-to-point Sales Analysis A point-to-point sales analysis was completed of all properties for which two historical sales prices and dates were available, where the sale dates were at least two years apart. This resulted in a data set of 8 properties:
Five-Year Comparison of Assessed Values The 2003 assessed value and 2008 assessed value were compared for each of the 145 properties.
NOTE: The 12% per year increase in assessed values includes a number of properties purchased and rehabbed by investors (which, in some cases, caused major increases in assessed values). So, added value by investors is part of the 12% (not just perceived market appreciation by the assessor). | |
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Call To Action > > > Save Lake Shenandoah |
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 From today's Daily News Record, Lake Shenandoah, a.k.a. "Shen Lake," needs to be saved! Some key points of this story include:
Again --- read the full story here --- or contact: Steve Reeser, Fisheries Biologist Virginia Department of Game and Inland Fisheries (540) 248-9360 reesers@dgif.state.va.us | |
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Cause & Effect :: Development Patterns & Traffic Problems |
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 Another key thought from last week's Smart Growth Symposium put on the Shenandoah Valley Builders Association is that . . .Distributed neighborhoods, that are not integrated into the community, lead to more driving, and thus, more traffic. Many new residential developments in this area (think of Route 33 East) are:
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Scott Rogers
Coldwell Banker
Funkhouser Realtors
540-578-0102
scott@cbfunkhouser.com
Licensed in the
Commonwealth of Virginia
Thanks for the explanation. I've never seen it broken down like that. And I think you're right...most people assume that the Realtor keeps at least half or more of the commission.
May 24, 2008 6:41 pm
Thanks for posting this!
May 27, 2008 9:40 am
As a reader just pointed out --- I didn't account for the fact that I have a great tax liability (since I am self-employed) than other people would have. The figures above show gross, pre-tax income ---- but my tax burden is greater than if I made that same gross pre-tax income in a traditional job.
June 4, 2008 8:25 pm
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