Happy Realty Year!

I haven't been able to write a new post for a little bit because of the hectic schedule that Christmas and the New Year festivities engender. Nonetheless, I would like to give some quick thoughts on the Real Estate Market's prospects in this new year.

To put it succinctly, I believe that this year is going to be positive for the market. I know this is counterintuitive considering that every other prediction is different, but let me explain. No matter how you look at it, you will either have an "up market", which everyone would be happy about in almost every field of Real Estate, or the dreaded "down market", with a lot of great deals for those who have the capital and/or credit to buy (up market for them in my opinion!) which will then have the consequence of a lot of great units for rent throughout Miami at competitive prices (up market for those that don't have the capital or credit to buy).

In reality, Real Estate is always good in either type of market, the only exception to this concept is the TRANSITIONAL period between these two points. If you participate in an up market, you only have to worry about a large drop to a down market. If you are in a down market, you have usually not much to worry except an even lower market. But once that transition comes about, which doesn't last that long in real time, you will tend to be in a good position to invest. Later on, I will explain interesting strategies to protect yourself from these transitional shocks in the market.

I wish a very happy and prosperous new year for everyone involved in this business and I hope that we can all participate in the process of lifting our economy up again through the exchange of Real Property.

Real Estate is the most dynamic, exciting, and ancient business that humanity has ever engaged in. Participate in it with the right education and adventurousness and you will always gain.

Why Pay More?

Like in every single negotiation, the objective of both parties is to get the most for the least amount of money possible. Just like every human endeavor, this natural tendency is at the core of Real Estate transactions, irrespective of who is involved. It is thus interesting when you analyze what happens when an agent engages a property owner to list and place his property on the market to sell or rent. Usually, the main point of contention involves percentages and benefits that agents seem to be conferring on themselves contractually and which some owners feel are unnecessary or at least worthy of negotiation. Interestingly enough, most of said elements on the listing contract are there, pre-written usually by the Florida Bar, to protect both parties from a myriad of complex occurrences that will really make your head spin if I started discussing them on this post. What I do want to point out though is the market/business/practical benefits/consequences of some of the most basic clauses in these contracts so that you can get an idea, if you are an owner, of why they are there and how they benefit YOU more than the agent himself in the end.

COMMISSION RATES

One of the most common issues when developing a contract is the percentages or pay terms for the agent if he finds a willing and qualified buyer/tenant (this amount is not one of the pre-written elements in the contract). The usual method of discussing this aspect of the contract is whether or not the owner feels like paying the usual 10% (for rent) or 6% (for selling). All sorts of creative ideas tend to occur to the owners when dealing with this aspect, trying to get the most from the agent with the least amount of pay. I have even heard caping the earning of the listing agent to a low amount unless he cooperates with another, or even putting clauses that imply that payment is contingent on a good relationship with tenant, etc.

What owners don't realize is that the payment that you are conferring on your agent has a direct relation to how many OTHER agents will be willing to promote your unit and get it sold/rented. Those of us who are Realtors utilize the Multiple Listing Exchange to market every single unit, and in it, we have to place our compensation and the one cooperating brokers will get for each property.

The owner MUST be made here to think logically and ask himself: Which property do I think will sell/rent the fastest? The one that pays the most, of course. Specially if you are not the only property with similar characteristics in the market (truly unique properties are almost non existent).

Now the owner may not see much of a difference in these numbers, a couple of hundred dollars at the most in the rentals and a couple of thousands maybe on the sales, but to the agents who move units every day, these amounts add up to a lot of money lost if they could have simply direct their clients to the units that pay a bit better and nothing is lost. In all honesty, and in my experience, the listings that pay more tend to have easier landlords/owners to deal with when negotiating than those that don't, which in the end is better for our clients anyhow (there are of course exceptions, since sometimes these low commission rates are really the fault of a lazy agent who didn't explain these issues to their client in a way that they can comprehend). At the end of the day, it is in the owner's best interest to at least pay the basic commission rates that other units are paying in their area so that they can compete and not be at a disadvantage from the starting gate.

Also, a LOT of agents do MLX searches that exclude units that pay below market, which means that your unit is basically non-existent from the get go.

RENEWALS

Another point of contention in most listing contracts is the pre-written clause in rentals that gives agents the right to a renewal commission. This clause seems a bit expensive to many owners because they feel that once they have a tenant in their unit, the relationship with the agents should be over and thus they shouldn't pay anything more and deal directly with the tenant. But there is a reason for that clause. Technically, the only reason you have that person siting in your unit is because of the work of the agent/s. But, even when looking at it from a practical point of view, there is also the fact that most renters in Miami tend to move out and try new places after a year or two. Many of these use the same agents they used in the past, specially if the agent stays in touch. And if these agents are not getting paid a renewal for the unit that their client is in; what do you think they will suggest? Forget about it if they call a different one! If the agent is getting paid renewal they WILL call to confirm that they are renewing and collect their check, thus helping the process of keeping your tenant in place without having to go out again to get a new place.

From the owner's perspective, the trouble of having the unit rented again, is not only going to cost him the same commission anyway with new agents, they would also have to add the cost of having the unit empty while it is rented again, and now to experiment with a new tenant that they don't know as well, etc. When you take all of these dynamics into consideration, you should begin to realize that paying that possible renewal commission is not that bad of an idea after all.

On top of this, MANY agents also exclude from their searches in the MLX all units that don't pay renewal commissions, again taking your unit out of many possible leads.

CONCLUSION

There are of course, many examples of this type of situation, so as an owner/landlord you have to make sure that when you are making these economic decisions, you are not basically hurting yourself more than anybody else. Your job as an investor/owner is to make the most profit possible from your property, and to achieve this a good Realtor is crucial, and one of the most important characteristics that he/she must have is the ability to logically explain the consequences of your contractual actions. If you then make the decision to save a few dollars by limiting commissions or eliminating their renewal provisions, then at least you understand that you are taking a calculated risk in the entire enterprise.

For those of us who are Realtors, our job is to help our clients understand the dynamics of our business and help them get their goals fulfilled with the utmost speed and effectiveness possible. Letting our clients know how to achieve this contractually not only helps them, it helps you.

The Golden Egg

One of the most frustrating and difficult aspects of being a REALTOR in Miami is what I like to call the "Golden Egg Syndrome". This is the misplaced myth that there is always some other REALTOR that may have a "special", "unique", and/or "private" listing (property) that nobody else has. This mistaken belief is founded on deep seated misconceptions amongst most consumers of what a REALTOR really does and how he/she does it. To the horror of some REALTORS, and to the elation of many other of us, I will give you a slight insight on how our business works so that it can help you understand what you actually have to consider when choosing an agent in any investment or apartment-searching.

Let me put it in very simple terms. Every single REALTOR that you speak to will have access to the exact same properties than any other (this is true at least 99% of the time). Every single REALTOR will be able to show you the same properties. Every single REALTOR can negotiate fairly easily to lower the listing price on any of said mentioned properties on your behalf. This is because MOST properties that wish to be sold/rented quickly and effectively, will be placed on the Multiple Listing System. This system is there to help units move quickly by sharing themselves with every single agent who is a member of a REALTOR association. This is good for EVERYBODY involved and it means that we all have the same "inside scoops" on new properties, status changes, price drops or hikes, etc. The ones that are not listed in this system might exist, but most agents don't deal with them and you as a consumer will probably never come in contact with them.

This means that if you already started with one agent, and he has done the work for you and showed you particular properties, you are truly wasting your time if you really think that by having 4 of us looking simultaneously, you will be able to get any different results. If a REALTOR shows you all available properties within a particular margin you specified, the only difference between him and a "new" one would be how he approaches your requests, or his ability to convince you to step away from some of your harder requisites, etc. But in essence, you are really dealing with professionals who all share the exact same information on the market. You are truly walking in circles without even knowing it.

Is there a difference then? Of course! It is called SERVICE.

As an example, you can buy the same stocks from the same company from any broker in Wall Street, but what you want is the trust, loyalty, and hard work that said broker will provide you. You want somebody who will assure you that he/she has your best interests in mind and that he will guide you through said murky waters to your benefit. Finding this is obviously more difficult than it sounds, like most things worth anything, but when you do find it, you better hold on tight.  A good agent can make the difference between aggressively pursuing listings, creatively coming up with ways of fitting you into the unit that you like, and a good eye to recognize what you will and will not like without making you waste time walking through countless properties.

What you have to look for in a REALTOR is the comfort of somebody you can trust will do all the work for you so that in the end you can find the right match. You need to also learn to listen to your agent when he tells you that certain properties should be taken quickly without much wait, since this means that he/she understands how the market is moving. Do not presume that this is the REALTOR's "sale's pitch" to get you into a property for his benefit, or that he is being "pushy". Usually, most REALTORS will make their commission on your investment no matter how long you take (if you actually use him until the end of course). If you are convinced that your agent is educated and sophisticated, then you have to trust his/her advice and understand that you might be inadvertently wasting your (and his) time searching for that infamous "Golden Egg" that truly doesn't exist.

A lot of times, an agent works hard for you to find the right property, spends his time negotiating trying to find you the best deals, and then the client suddenly finds a listing in some advertising that sounds "amazing" (usually on Craigslist), calls said agent, and he ends up doing exactly the same thing that the other agent did but now gets the commission on the coat tails of the other REALTOR's work.

News Flash folks. Most posts on Craigslist either don't exist to begin with (that is why they sound so great) or they are old listings that are gone already. For most agents, these ads are the only way to get clients calling looking for help. But please trust me on this one, if you have an agent that tells you that there is no 2/2 with direct water views on Brickell for $1100, THERE ISN'T. We all look at the same screen, we will all tell you the same thing, and we have absolutely no "hidden agenda" to screw you out of anything that you really want. On the contrary, such golden eggs would always move fast, something that all agents love.

As a consumer, find an agent that you feel cares enough to listen to your needs, asks all the relevant questions, works hard to tailor said needs to the available properties in your area of interest, and is responsible and diligent enough to get you to the properties quickly so that he can negotiate aggressively on your behalf and get you moved in. You also want somebody who answers your calls or at least responds quickly to your messages. You want somebody who constantly calls you to let you know of any new developments. Somebody who dedicates time to educate you about real estate, how the market is working, and helps you adapt your expectations to it.

The true Golden Egg is not an illusory fake property that you expect will appear eventually around the bend, but the REALTOR who dedicates himself to help you find the right property.

Home Association Foreclosures??

To many people who are new to South Florida (either as investors or second home owners), the concept of a Home Owner's Association (HOA) foreclosing on a property, before the bank even considers doing it for themselves, is a very weird concept. In many states, the HOA is not able to go above the bank in a foreclosure, which is why many attorneys in those states tell their clients to stop paying their HOA while they negotiate with the bank (they rightly assume that the bank will end up paying for your dues anyway). This dynamic is VERY different here in Florida, and it can be both a benefit for interested investors, who may not need to wait for a bank foreclosure to make lower offers to struggling owners (nor have to deal with the complication/strings of a judicial sale), and a headache for an owner who suddenly finds him/herself fighting the association for their properties.

If you are an owner who is underwater on your mortgage, but can pay the HOA, I highly reccomend that you continue to do so. Most properties, even the most expensive in Miami, are not above the cost of paying the mortgage, and you will probably be able to stay in your home for a long time before the bank decides to foreclose.

But, if you make the determination to not pay your HOA, for whatever reason, know that the association will more than likely take you all the way to the foreclosure sale if you don't pay. Every association is different, but the end result is the same.

What can you do? You can force the association to stall their own action against you if you can shortsale the property, since this option will cover most of the dues owed to them without complicating themselves too much. If you want to learn a few tricks that I know of how to achieve this effectively, please contact me and I can help you in the process. My fees as a Realtor are paid by both the buyer/bank, so you don't have to worry about digging into your own (already hurting) pocket.

A lot of people seem to think that because their properties are expensive (above $800,000) their chances of negotiating or selling are more difficult, but I can assure you that this is NOT the case if you deal with the right people.

**If you want help in getting yourself out of your HOA mess, stay in your property for free while we negotiate with the bank and sell your property, please call me and I will help you through the process: (305) 342 9742.

SHOULD I INVEST IN THESE PROPERTIES?


When it comes to those of you who wish to invest in great properties, you can benefit from homeowners that are facing the HOA in court (even better if they are in the earlier stages) and wish to sell before there is a judgement and/or sale date for their properties. I have personal knowledge of a couple of these very high end properties, some owned by corporations, that are ripe for investment. Not every building is great for this kind of purchase. If the building can't keep up with their expenses and are now in bankruptcy, you should always re-consider (or at least you should KNOW about it, so ask your agent).

Smart investing requires FOREKNOWLEDGE.

As a buyer, you may end up paying for some of the HOA dues, splitting fees with the bank, or covering other miscellaneous expenses (they are all contracted so don't worry), but these are clearly offset by the value of the investment. As such, these are part of your calculation. The good thing is that these deals are very flexible in how they come together, giving you a lot more flexibility in the process than most sales.

**If you are an investor and would like me to help you find GREAT investment opportunities in properties that are facing the problems mentioned above, call me and I will guide you through the process. Once you have the firm offer accepted, you will be able to sit and wait for the negotiations to end and acquire your property free and clear. Call: (305) 342 9742

You can also write me at: jcllovet@gmail.com