An Agents Opinion of the Market

An Agent's Opinion of

The Market - For Realtors

Real Estate Opportunity

Within the past year, rarely has a week gone by that the media has not bombarded the public with news of the rising foreclosure rates and its negative effects on the housing market. Many banks, mortgage brokers and investment property lenders are feeling the impact of the so-called housing market collapse. In fact, according to several recent news stories, many of the smaller mortgage brokers and lenders have permanently closed their doors. Realtors, especially, are feeling the brunt of the foreclosure debacle. However, the foreclosure rate has the potential to positively impact your business as a Realtor. In fact, it could mean large amounts of new business to the savvy Realtor willing to learn some new skill sets. Read on to find out how.

Many factors have been cited as to why the foreclosure rate has risen so sharply. Perhaps, the largest contributor has been the widespread use of Adjustable Rate Mortgages (ARM). In a nutshell, these mortgages allow for lower rates during the first 1-5 years of a particular mortgage and then increase during the remaining period. In fact, the rate can sometimes sharply increase in some cases to double the current monthly payment. Unfortunately, many homeowners are often unprepared for the increase and eventually fall behind on their mortgage payments. The ARM allowed for many families to afford homes which they could not ordinarily afford by luring the potential homeowner with low introductory rates. In the ideal scenario, the homeowner would keep the property for a few years, hopefully build equity in the property, and then sell it for a profit.

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In reality, many markets are on a downslide and properties are NOT building equity. Thousands of homeowners are finding themselves “upside down” in their homes or they have virtually no equity. This may sound like bad news, but there are ways to help clients that fall into this category. The scenarios described above pave the way for the homebuyer to work with a trusted professional to initiate a short sale.

The current state of the Chicago market can best be described as stable overall. It has not undergone the volatility of other so-called “hot” markets around the country. Home prices in general have not and do not appreciate 30-40% in one year. On the flip side, prices have not suffered huge declines within recent years, either. Many see the state of the current housing market as nothing more than a long overdue market correction since low interest rates and new mortgage products really stirred things up a few years ago. According to the National Association of Realtors press release dated 1/24/07, “There is no bubble in Chicago. It is fundamentally sound.”

In addition to the issues with foreclosures, there continues to remain the problem of huge amounts of inventory in the Chicago market. New construction single family homes and condominiums continue to be erected at a record pace while current listings continue to sit on the market. It is my opinion that in today's market, properties that sell quickly (within 60 days) have one of two characteristics: 1) they are really spectacular homes with a lot of features that appeal to a lot of buyers or 2) there is enough equity inside the property to entice first-time homebuyers and/or investors to acquire it. As a Realtor operating in today's market, it is critical to be absolutely honest with clients from the initial meeting. As stated, houses are taking a lot longer to sell and it is important that clients have realistic expectations of what Realtors can do from the onset. As much as we try to please, we are not miracle workers.

How can Realtors make money in this market?

Realtors can earn significant com-missions in this market by acquiring new skill sets. This specifically refers to Realtors that can negotiate short sales on behalf of overburdened homeowners AND prevent clients from going into foreclosure and further damaging their credit histories. The Chicago Association of Realtors is currently offering several classes on the ins and outs of short sales at very reasonable pricing.

Besides short sales, the market is now ripe, in my opinion, to upgrade your primary residence. The savvy Realtor should make it a point to contact all previous clients and ascertain whether or not they wish to move into their “dream” home. The current glut on the market has caused marked decrease in prices in many areas. With that being stated, there are currently dozens of properties on the market in move-in condition that can be bought at a discount, thus earning the new buyer a position of “instant equity.”

A third way Realtors can increase their current income is to build relation-ships with active investors. The smart investor is aware that the current market is a great time to acquire great properties at reduced prices. The advantage of Realtors working with investors is very obvious - investors are repeat buyers. Whereas the average homeowner may purchase every 3-5 years, there are investors purchasing 3-5 properties per year or even per month. If you are not already, start attending networking functions and building relationships with active investors. In the past, investors and Realtors have sometimes butted heads so to speak. It is my opinion that both parties need each other and a mutually satisfactory arrangement is possible.

In closing, real estate has historically been cyclical and the market is certain to turn around. The timeframe has been debated and while some feel the market is starting to correct itself already, others foresee the market turning around in a few more years. One thing is sure, the smart Realtor will put the necessary time and effort towards positioning him/herself to remain successful regardless of the current market status.

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Danielle Pierce is an investor and licensed real estate agent with Williams Realty and Investments. She specializes in Time Management, Money Management, and Wealth Creation through multiple streams of income. She can be reached at 773-551-4769.