Monday, May 22, 2017

Appraisals

We are starting to see properties "not appraising out" lately.  That's an early indicator that prices may be increasing, at least in submarkets or areas where supply is limited.  What we mean by that term is that the appraisal number is lower than the amount on the sales contract.  If the buyer needs a mortgage, it's an issue, because he/she may not be able to borrow the full amount that they expected.  In other cases, where the buyer is paying cash, it is not uncommon for the buyer to put in a clause that the sales price cannot exceed the appraised value. 

There are two ways to look at this issue, as with so many things.  One is that the buyer should be willing to pay what a property is worth to him/her, regardless of the appraisal.  The other side of the coin is that the practical value of a property--what it would resell for, and what you could borrow against it--is dependent upon the appraisals.

Appraisals tend to lag the market, because an appraiser can only use comps from within a narrow range of closing dates, and within a very small area around the subject property.  It can be very hard sometimes to find good comps, and adjustments must be made from properties that might not be exactly the same in quality or type.  Since the comps come from recent sales, those prices could be lower, in an increasing market, than the sales prices on contracts that haven't yet closed. 

What advice do I have after all of this discussion?  Appraisal is as much an art as it is a science, and both buyers and sellers should be reasonably skeptical about exactitude.  Given the restrictions on bank lending these days, it is harder for a bank to take the same attitude, so just be prepared to make an independent decision in any given instance.

Friday, April 14, 2017

Another Buyer Broker Story

The right of a consumer to be represented themselves by a real estate agent has been the law in Connecticut for at least a decade now, but it is still not understood by many people.  In the commercial arena, where many buyers are more sophisticated, and are used to buying and selling real estate under earlier regulations, it has been slow to take full effect. The way that the law is currently written, it requires a real estate agent to have a written representation agreement with a buyer, before s/he shows that person any listings other than his/her own company's listings, where the listing agreement with the seller would give the agent representation of at least one of the parties. A dual agency agreement must also be signed by all parties, when the agent represents both the buyer and the seller.

Why am I explaining this again?  Because so many people do not understand the law.  I got a call a couple of weeks ago from an attorney, skilled in real estate, and also licensed as a real estate agent.  He told me that he had recently bought a property, which he had previously called me about (to ask questions about the area, not to represent him on a specific property).  He said that he realized only after the deal was done that the listing broker had gotten paid to represent him, because he didn't have a buyer broker agreement.  He had thought, as many people do, that he would save money if he was not represented.  The way it works, though, is that the agent is (almost always) paid by the seller, as a result of a listing agreement, and that fee is named in that agreement, regardless of whether another agent is involved.  That means that, if there are two agents, the agreement between the two agencies (almost always) divides that commission.  If there is no selling agency, the listing agreement would still be in effect, so the listing agency would get that commission.  While that listing firm would owe certain duties to anyone, and would do the necessary work to put the transaction together, the fee wouldn't change just because the buyer chose to be unrepresented.  Brokers who do not represent a person, though, cannot give advice on value, except to state the listing price.  So that question--what's it worth?--can only be answered legally by an agent who represents you.

So why don't buyers want to sign buyer broker agreements?  Sometimes, they want the right to buy something without the agent, or with another agent.  Sometimes that's fair, although sometimes it isn't, depending upon the amount of ground work that has already been, or is being, done.  Sometimes they aren't authorized to sign, which is a problem that the CT Legislature plans to take up this year--it can be fixed by having a commercial buyer broker agreement signed later in the process.  In some cases, they are dealing with more than one agent in different areas, a problem that can be fixed with the proper documentation.  Many times, though, it's just a knee-jerk reaction against signing anything.  But when's the last time you saw a doctor?  If you declined to sign the HIPAA form, I bet that you didn't get in.  (And, actually, I'd put my money on a bet that you signed it, and never even read it.)  Why should real estate not have paperwork also?  It's good business, and good practice. And, it's the law.

Thursday, March 30, 2017

Big Data

We live in the age of Big Data, and many people make their livings seeking out trends and truisms.  We do a lot of that in real estate, and most clients begin a search for property by trolling the internet for information.  There are many services that compile data (perhaps not surprisingly, many of them are owned by the same parent company).  Some choose to look at the listings themselves.  Others seek out recent sales in a given market, or compare rental rates or vacancies across metropolitan areas. 

Of course, when you Google a property, what comes up may be old, or outdated, or even wrong.  Area averages may not apply in certain cases, for any number of reasons.  That's where agents come in.  At the end of the day, or the transaction, we are still in a people business.  Clients are buying our negotiating expertise and local market knowledge.  Whatever the issue that arises, we've probably seen it before.  If not, we know where to seek the answers.  If you need the help of other professionals, we know them, and can refer you out.  Perhaps the day will come, although I doubt it, when entire transactions will be done on line, with no parties ever laying eyes on each other, but we are certainly not there yet.  So take advantage of what's available on the internet, and then call a Realtor.  We're here to provide the rest of what you need!

Sunday, March 12, 2017

New Haven is a Great Place to Retire

I was scrolling, or trolling, on Facebook today, and I noticed a post about New Haven being third on a list of places that are attracting retirees.  New Orleans was first, but we don't have its weather!  However, when you factor in healthcare, culture, free events, and walkability, New Haven stacks up very well.  We have been selling houses in the suburbs to couples who downsize into apartments downtown.  We have also relocated people from out of the area, many with connections to Yale, who come here for their golden years.

What does this mean for commercial real estate?  Providing services in the center city has become more important than ever, not only for retirees who want to be (mostly) car-free, but for busy millennials, as well as for professionals who may live here during the week, or people who just work in the city.  Food places that deliver seem to be more and more popular, as well as places that offer dining options like takeout and/or prepared foods.  There also seems to be no end to the number of restaurants that are prospering in every corner of downtown, and in every ethnic possibility. 

We already knew that many entrepreneurs want to open businesses in the hub of the region, but we expect that trend both to continue and to accelerate.  We know that convenience is important, and that people will pay for it.  We know that time is at a premium, and that walking or biking have become top of mind reasons to live and work in certain communities.  If you have space that could work for someone to open a business, either stand alone or as part of another enterprise (think of the fast-food chains that team up together in urban and suburban locations), give us a call.  And, if you want to become part of the great wave of small business owners, here's your chance.  We're ready to help.

Monday, February 20, 2017

Follow the Out-of-Town Investors

If you drive around New Haven these days, you will see building after building that is being renovated, remediated, or repurposed.  Many of them have been bought by investors that can no longer afford the prices commanded by properties in New York City or Boston.  Once someone makes his or her first purchase, there is a good chance that he/she will continue to buy other offerings, especially given the prices on some of the older industrial buildings.  In addition to the lower acquisition costs, it's also cheaper to renovate here than in a bigger city. 

Some of these purchases are being driven by the desire to diversify investments, while some are opportunistic, and others are for specific purposes. The rash of new rental options will inevitably lead to other retail and commercial needs in those neighborhoods.  There will be money made, as early adopters get ahead of the curve. Organizations and companies that are renting should consider now the possibility of buying, before prices rise further, even though current rental rates may seem like (and often are) a bargain.

What does this mean for those of us who live here?  Will we continue to watch as others grab what's on the market?  Or will we make the classic mistake of sitting on the sidelines until it becomes so clear that outsiders are making money, that we buy at the end of the cycle, or buy something that is more problematic or risky?  Only time will tell, but it's our job to point this trend out, and the job of readers to think about their own portfolios.