Buying

How the New Home Building Industry Actually Works

August 10, 2014 By Rick Jarvis

We have talked at length about building a new home in a series of posts.

In this post, we are going to talk about what is really happening when you decide you are going to build a home (or buy a new one) in Richmond. First, we need to offer the following disclaimer – this post is full of generalizations and therefore, not applicable to all situations. We fully recognize that all scenarios will not play out as we describe below…but far more will than will not.

Enjoy…

Reality One – Builders Don’t Love Buyer’s Agents

Builders operate in one of two ways (with regard to sales people) – they either employ a brokerage to represent them OR they hire their own sales people. Regardless of whether or not they pay a salary to their employee or commission to their listing agent, they generally will pay their representative MORE if a buyer’s agent is not involved.

What does this mean? It means that the builder has incentivized their sales team to try to eliminate the buyer’s agent. What does that tell you? Not all builders do this, but most do.
Why do builders do this? Builders win when the consumer has less information and does not understand the process, values or their options.
How to defeat this practice? Get a GOOD and EXPERIENCED buyer’s agent. Every decent builder will have their site agent/representative try to register you…make sure you tell them you are working with a buyer’s agent. Once the site agent knows you have an advocate, they will pester the agent (not you) for follow up and communication will be far more respectful. It changes the tone of the conversation from ‘sales-y’ to ‘informational.’

Reality Two – The Model and the ‘Spec’ Will Tell You What You Need to Know

A nicely decorated model in a subdivision in Chesterfield... — A nicely decorated model in a subdivision in Chesterfield…the kitchen alone probably has $20,000 in upgrades over and above the base price.

Builders tend to fall into two buckets – those who build cheap vanilla boxes and those who build all-inclusive (more) expensive homes. The vanilla box builder will offer a very low entry price, which is attractive, but you will quickly find that everything is an upgrade, and the inexpensive price is not as inexpensive as it seems. (The SPEC home, or speculative home, is a home a builder is building without a buyer, in the hopes one will emerge prior to completion.)

How can you tell quickly? Walk into the model home and then walk into a completed ‘SPEC’ home. If you do not see the same floors, kitchens, backsplash and master baths, you will know you have walked into a situation where everything is an upgrade.
Why does it matter? This is a builder who knows they will win the battle when they get you into their ‘Sales Center’ for your selection session. The ‘selection coordinators’ who help you pick out all of your finishes are trained to upgrade you. Upgrades of $100 here or $500 there don’t seem like a lot until you realize, by the end of the session, you have added 10% or more to the price of your home. The vanilla box at $160/SF just jumped to $180/SF.
How to defeat this practice? You can go to the sales center BEFORE you sign the contract and price the upgrades into the original contract. You do not want to be doing math and feeling pressure while surrounded by the builder’s staff. You will lose. The fewer decisions you have to make on the builder’s turf, the better off you will be.

Reality Three – The Effective Life of Materials

The home was constructed by Lifestyle Builders in and sold in 2005. — The home was constructed by Lifestyle Builders and sold in 2005. It was located by using the MLS access to tax records.

Building codes generally govern how your home is constructed. The improvements to municipal building codes (think – ‘increased regulation’) has helped remove shoddy work from the marketplace (not completely, but largely.) And while instances of true shoddy construction practices have been reduced substantially, the use of subpar materials has not. Almost all materials look good when they are new, but the durability is really what you need to vet, especially on the exterior. The selection of materials is the primary way a builder can cut costs without the consumer having any real idea the practice has occurred.

Why does it matter? The reasons are obvious…you want your home to last. While no home is time proof and all homes require maintenance, siding beginning to fade in 2-3 years from closing is totally unacceptable. Needing to paint trim within 2-3 years means the painter used the least expensive paint they could and wood rot is imminent.
How do you defeat the practice? Realtors have the ability to search for homes based on past owners, making it easy to identify homes built by builders which are 3, 5 or 10+ years old. A quick trip to see a few houses at various ages will tell you a TON about the builder.

Reality Four (and this one is key) – A Buyer’s Agent is an Investment

Many buyers feel that if they do not use a buyer’s agent, the builder will automatically give them a 3% discount. This belief is far from true.

In most cases, the TYPICAL compensation offered to a buyer’s agent for a newly constructed home is 2.5%. Additionally, the listing agent (in most cases) will receive part (or sometimes ALL) of the commission which would have been paid to the buyer’s agent. So, the net effect of forgoing the use of a buyer’s agent is at best 1 – 1.5%…and there is no guarantee that the builder will offer it to you!

Why does this matter? Information matters and so does experience. Having access to perfect information is worth its weight in gold and no matter how much Zillow and Trulia tout their services, their core information is 60-70% reliable (and that is being kind.) Denying yourself access to information and advocacy for a POTENTIAL 1% discount seems foolish. Having an agent who can not only provide you with the most accurate information, but also a deep pool of process and product knowledge, well exceeds the 1%.

How do you find a good Buyer’s Agent?

You already have…meet the One South team

Negotiating with Your Builder

August 9, 2014 By Rick Jarvis

Any successful builder is, by default, an extremely accomplished negotiator. Show me a builder who is poor negotiator and I will show you an ex-builder.

Builders spend most of their waking hours in a confrontational environment. At almost every level of the building process, from lot prices to wood floor pricing to rezoning to salaries to commissions, negotiating is required. Do anything all day every day, especially when your survival depends on it, and you will get better at it. A builder who has been building for any period of time is adept in knowing not only where they stand in any given market, but how to defend their turf with well-honed negotiating skills.

It has been said that builders don’t really negotiate their prices, and while that may be true, it is not necessarily accurate. In reality, they negotiate, just not in the ways that most people think.

Below are some things to keep in mind when entering into negotiations for a new home:

recognize your ‘type’ of builder and know they will fight hard to protect values, especially where they own multiple lots
builders secretly love ‘the change order’ despite what they say
seriously consider buying a ‘spec’
its business, nothing more

Builder Types

Builders tend to fall into two basic categories based on size (or sales volume) and each one will tend to negotiate differently.

Volume Builders (or ‘Track Builders’) sell hundreds of homes a year. They are sophisticated organizations with many moving parts (often in multiple markets) and they behave more like Target and less like Bob’s Used Cars. Volume Builders tend to offer packages or incentives to get homes sold (‘$20,000 in upgrades for all contracts prior to June 30′ or ”hardwood floors in the downstairs for all contract ratified by September 30’) and be less likely to negotiate significantly on any individual home. Their willingness to cut price is driven by a formula and not by a gut feel.

Volume builders also tend to work off of a ‘base + upgrade’ pricing model as opposed to an ‘all-inclusive’ model. They generally build large stripped down boxes inexpensively and then try to sell you every imaginable upgrade when you make your selections. I have seen buyers walk out of selection sessions with 25% higher contract prices than when they walked in. Beware.

A few additional notes – true Volume Builders are managed businesses with quarterly (or yearly) production and sales goals meaning they are typically more aggressive towards the end of a reporting period. Since they buy lots in bulk, they need to protect values in their neighborhood and thus prefer to give upgrades in lieu of price concessions. Volume builders also need efficiency to protect their margins so being able to close out a section and consolidate their crews has value to them. Asking for upgrades, buying the last home in a section and/or towards the end of the quarter (or year) increases the likelihood of a slightly better deal.

The Custom Builder constructs fewer homes but at (hopefully) larger margins. Generally speaking, they build better houses (although not always true) and operate at or above the average price ranges in any metro area. They hate to be in competition with Volume Builders and will leave neighborhoods when the ‘volume guys’ show up.

Custom Builders do not keep a large stockpile of lots and thus less vested in keeping pricing high in a neighborhood. This generally means they don’t really have a strong preference between price concessions or upgrade inclusions. Since they tend to operate in the upper price points, they may have more room to move on price but still maintain a sufficient profit margin. Don’t be afraid to probe a bit with the initial offer.

The Change Order

Builders say they hate change orders but in reality, many take it as an opportunity to renegotiate. A change order is the method by which you and a builder amend the contract to allow for something not in the original contract (add a half bath, change the granite color, put a pedestrian door in the garage, etc.)

When you contract to build a home, the builder prices based on his costs today but delivers the product to you in the future. The 6-12 months of construction time means the builder holds the risk of price increases for materials, labor and interest carry from for a significant period of time. If material prices spike (and make no mistake, prices do fluctuate in the building materials market), the builder does not have the right to come to you and ask for a higher price. Change orders, at least on some level, allow them the opportunity to recapture some lost profit.

Try to keep change orders to a minimum as they benefit the builder far more than they benefit you.

Consider Buying a Spec

The ‘spec’ home (SPECulative home) is a home a builder begins in the hopes a buyer will emerge at some point prior to completion.

[ ‘SPEC’ Homes For Sale ]

Generally speaking, a ‘spec’ will have more options/upgrades included and with a builder more motivated to make a deal. As the home approaches completion, a builder’s motivation will increase. Typically, construction lenders will only allow builders to have a limited number of unsold properties standing at any given time and thus an unsold spec both costs a builder interest carry cost AND prevents them from profiting on another home. One should also note a builder will usually ‘spec’ their better floor plans, meaning the market feels favorably about the design.

While the ‘spec’ may not exactly what you want, it is often the best deal at any given time in the marketplace.

It’s Just Business

Remember, builders not only negotiate with you, the buyer, but with sub-contractors, suppliers and developers. Consequently, their methods may be a bit gruff so don’t be put off by blunt or standoffish behaviors during negotiations. To any good builder, a contract is simply another business decision and they treat it as such. (As a side note, builders are generally pretty straightforward folks and they don’t like tricks…if they feel as if you are not negotiating in good faith, they will be less likely to meet your number.)

For the average buyer, there is far more emotion attached to a home purchase and many times the feelings at the end of the contract negotiation are more contentious than they should be. Odds are, the builder does not feel the same angst as you.

Summary

The decision to build a home should not be taken lightly and requires far more thought and preparation than purchasing an existing home. Entering into negotiations with a builder is also far more complex than buying a resale and in most cases, the builder enters into the engagement with superior experience and knowledge. But remember, ‘negotiating’ with a builder is not what makes the decision to build a good one or a poor one. Making a good decision comes from understanding what you are trying to accomplish, setting limits and knowing where you stand.

We go into far greater detail about many different aspects of home building in the series of posts you can find here...

Things You Should Know When Building a Home

August 9, 2014 By Rick Jarvis

For many, building a new home is still the American Dream.

While some may argue, I strongly believe owning your own home offers a sense of stability, accomplishment and arrival…and owning a NEW home, even more so. Any time a builder hands you a set of keys and you walk through YOUR door into YOUR foyer for the first time is a pretty powerful moment.

That said, with so many options and decisions to be made along the way, the stress associated with building can be overwhelming and having a experienced counselor or advocate to help navigate the process is prudent. Having been in the real estate business since the early 1990’s means I have gone through the new home building process many times…as agent, client and even as a builder. Needless to say, the points made below come from experience, both personal and observational, and I like to think I have a deep reservoir to draw from.

Points to Consider

So what would I like to convey in this post? A lot…

Below is a list of several key points to keep in mind when considering the building process. While this list could be significantly longer, here are a few of the ones I feel are most important:

build with a purpose in mind
know neighborhood norms
spend a ton of time on lot selection
beware the builder’s ‘Selection Center’
know your builder’s reputation
understand cost vs value

We will expand on some of these points in more detail in a series of posts about new home building.

Build with a Purpose in Mind

We commonly ask people ‘is this the house you are going to die in?’ It sounds morbid, but what we are really asking is whether or not you will ever have to sell it.

If you feel you will be in the home for the rest of your life, then build what you want. You can put in his and hers platinum bidets and build the showroom dedicated solely to your antique Bolivian stuffed animal collection without having to worry about resale down the road. In effect, the longer the time horizon of ownership, the more liberal you can be with your decision making.

Homes in the Citizen 6 infill project contained downstairs dens with full baths that could easily become downstairs master bedrooms.

Since few of us are in a such a position, build with an eye to the investment aspects of the home. Treat each choice as a business or investment decision. If you are building a home to take you through the next 10 years of your life, build accordingly. If you are building within a neighborhood of older homes, choose a design which is consistent in style and scale with the surrounding homes. If you are building a home to take you well into your golden years, build a home with flexible interior mobility in mind.

If you know what you are trying to accomplish by building, decision making becomes far easier.

Know Neighborhood Norms

If 90% of the homes in the neighborhood have vinyl siding and laminate tops, do not build a brick front and install granite tops. If you are in a neighborhood with colonial styled homes, then don’t freelance and build a contemporary home. Likewise, if you choose the 3400 SF home in the 2400 SF neighborhood, your ‘per square foot’ value will be limited.

An all brick home with a matching brick retaining wall is inconsistent with the vinyl clad neighboring homes of the subdivision.

The adage about big fish/small pond (at least in real estate) is not necessarily a good thing. Being a little nicer (or bigger) than the norm is probably okay, but when you are 10% or more than the average within your neighborhood, you are approaching a danger zone. (You can read about our study on new versus resale home pricing here.)

Lot Selection is Key

One of the best agents I know (Sarah Jarvis!) drives this point home with her building clients. Buyers tend to focus on the home and less on the lot…which is a mistake. Anyone thinking of building a home should spend a great deal of time on selecting a great lot.

The local county airport is hidden from view but can impact enjoyment of the lots in its flightpath

Remember, the only thing that cannot be duplicated in your home is land upon which it sits. Siding colors, kitchen cabinets, floor plans, deck sizes…all of these items can replicated. A lot is unique (at least in theory) and so many external factors can impact the lot value going forward.

Builders (and developers) often assign ‘lot premiums’ for the lots they feel have more value and I have always felt they get it wrong more than they get it right. It is an opportunity for a shrewd buyer (and agent) to find hidden value. So much goes into a good lot…privacy, orientation, buffer, street layout, future development, drainage, utilities, RPA’s, BMP’s and a host of other factors. Google maps and county websites make this easier than before, but thoroughly vet your lot selection.

Beware the Selection Center

Would you buy a remote for your shower? I saw someone do just that during a selection session... — Would you buy a remote for your shower? I saw someone do just that during a selection session…

Depending on your builder’s size and skill, they may have the dreaded ‘Selection Center.’

The Selection Center is where you go to choose all of the extra bells and whistles you can have in your new home. For new home buyers, it is akin to being an 8 year old at Disney World on Christmas morning who just won the Powerball.

So while you head to the selection center to make many choices (mostly colors of flooring and designs of kitchens), you often times end up finding out what you are NOT getting in the standard package that you thought you were getting (‘But the model had the soft close drawers and central vacuum!!’) Generally speaking, the larger builders will sell the home at a base price and with the goal of increasing your price anywhere from 10-25% at the selection center. Just know that the ‘Design Specialist’ who is there to assist you is pretty skilled at getting you to upgrade.

How you sequence negotiations from the onset can help eliminate the risk of being sold every bell and whistle at your selection session so prepare accordingly. Remember, the fewer decisions you have to make on the builder’s turf (selection center) the better off you will be.

Know Your Builder’s Reputation

The tax record shows a property built by Ryan Homes in 2009. A skilled Realtor knows how to find older examples of a builder's work. — The tax record shows a property built by Ryan Homes in 2009. A skilled Realtor knows how to find older examples of a builder’s work for their clients to by and view and see the type of materials they use.

The internet has made researching a builder far easier…spend time on it (see this set of reviews, for example)

You will never find a builder with a perfect reputation but you will find many are far better than others. Many sites exist with reviews of every aspect of a builder’s processes from material quality to customer service to repair request responses. Understand a builder’s strengths and it will help you achieve a better outcome.

Additionally, I believe that the most powerful way of judging builder quality is to find 5-10 year old homes constructed by the same builder and visit them as ultimately, time reveals flaws. MLS and/or tax records will allow you to search prior owners and ask your Realtor for a list of previous sales roughly 10 years old.

Understand Cost Versus Value

Builders price items based on cost but the market judges items in terms of value…and they are almost never the same. The key in home building is to avoid things whose cost is greater than their value and to build things whose value is greater than their cost.

An experienced agent will have a sense of whether or not a certain feature will add value. Lighting, for example can add panache and impact for a relatively small cost while exotic hardwood floors can be extremely pricy and while interesting, probably do not provide a great cost/benefit ratio. Likewise, the more expensive an upgrade is, the more universally accepted it needs to be. Unique granites and tiles are expensive to install and even more so to change.

Lean on your agent for guidance on the value of upgrades. It is ultimately your decision, but strive to make an informed one.

Summary

Overall, many ways to maximize your new home’s value while minimizing the risk associated with building exist. The items above only scratch the surface.

We go into far greater detail about many different aspects of home building in the series of posts you can find here...

VCU Housing Market

July 30, 2014 By Rick Jarvis

Virginia Commonwealth University (or VCU) is a 30,000 student entity broken down into two campuses.

The Medical School Campus, located near the Broad Street/Interstate 95 interchange in Downtown Richmond, surrounds the VCU Health Center and is known by many old Richmonder’s as MCV. The main campus (Monroe Park Campus) that straddles Belvidere and Broad Streets between Monroe Ward and The Fan District, is home to the non-medical programs in the arts (both performing and visual), business, engineering and advertising. The main campus, sometimes referred to as the Monroe Park Campus, is far larger than the Medical Campus and educates the University’s undergraduate students and non-medical graduate students.

VCU relies heavily on the private sector to provide housing for its students. While there are some dormitory options for students, the large majority of the students live ‘off-campus.’ The term ‘off-campus’ in VCU vernacular means ‘adjacent to campus’ and therefore a short walk, bus trip or bike ride away. Living options targeted at the student population are far more prevalent surrounding the main (Monroe Park Campus) than the Medical Campus Downtown. This makes the housing market for the medical student far more varied and challenging.

The Medical Campus

212-interior — The 212 is one of the closest condo projects to the Medical Campus and located in eastern Jackson Ward.

For the medical students, finding a place close by means considering housing in Richmond neighborhoods that are still in transition. The neighborhoods that immediately surround the Medical Campus are Jackson Ward/Carver, Downtown, Shockoe Bottom and arguably Church Hill. All of these neighborhoods have been in the process of being aggressively redeveloped after receiving historic designations in the early 2000’s. Being designated ‘historic’ makes many federal and state incentive programs available for developers to renovate older structures and it has been used extensively to help bring life back to many blighted sections in Richmond.

Several condo projects are available close to the Medical Campus in both the Jackson Ward neighborhood and Downtown. In Jackson Ward, available for sale condos can be found in The 212, The Marshall Street Bakery and The Emrick Flats. In the Downtown neighborhood, available projects include the Vistas on the James, Riverside on the James and Gotham. The fractured condo project in the old Miller and Rhodes building Is no longer being marketed for sale and is now functioning as apartments. It offers a good option for those seeking close proximity to the Medical Campus.

Monroe Park Campus

The neighborhoods of the Fan District, Oregon Hill, Monroe Ward and Jackson Ward/Carver all surround the main Monroe Park Campus. Tenement styled 3-story walk up apartments (some renovated and some not) surround VCU to the west in the Fan along with many row homes that can be purchased by parents for their children. In the working class neighborhood of Oregon Hill to the south, the housing stock is decidedly less luxurious and therefore popular with the students. Housing in Oregon Hill can be purchased or leased relatively inexpensively. In Carver to the north, many older warehouse structures have been converted into loft styled apartments and offer a more modern option for the undergraduate student. Housing in Carver and Jackson Ward can also be purchased relatively inexpensively. Several condo and townhome projects provide newer options close to the Monroe Park campus including the Cary Mews, The Overlook, Tribeca, Iron House Place, The Windsor and the Cary Flats.

Overall, the housing market surrounding both campuses is very diverse with many shapes, sizes and prices all within a reasonable walk to either. The fact that the private sector provides much of the student housing means more options for parents including single family homes, row homes, town homes, condos, lofts and flats. With interest rates and pricing at some of the lowest points in decades, it means a wonderful option to offset some of the cost of tuition with a strategic purchase.

The Evolution of a Buyer

February 9, 2014 By Rick Jarvis

iStock_000000995347Small — Darwin, obviously…

The word ‘evolution‘ is generally defined by a sense of growth or improvement over time. Living things evolve, as do more theoretical things, such as ideas, processes, societies and technology. Evolution surrounds us.

Applied to real estate, the concept of evolution is most apparent in the stages of growth the best buyers go through on their quest to buy a home.

How Do Buyers Evolve?

It is important to begin with the following statement – the market that exists today has not been seen since approximately 1994 and the home buying experience of the period of 2003-2012 has almost zero resemblance to the buying experience of today. The importance of this cannot be understated and as soon as a buyer understands that what they remember about buying a home 5-10 years ago (or more) will offer little value to the process of home buying today. Even the buying experience from as little as a few years ago differs radically from that of today. The current market has inventory conditions tighter than any period in modern history and the Dodd-Frank Act has permanently altered the mortgage markets in ways we are still discovering.

Evolutionary Stage One | All of the Good Cheap Houses Sold in 2009 and 10

When the market rolled over, demand for housing stopped before production ceased. Effectively, the lag time between when everyone realized the magnitude of what was happening and when nail guns fell silent, meant that we continued to produce homes at an incredible pace for an additional 6-9 months despite demand falling to almost zero. The US created roughly 2 million new homes in 2007. By 2009, we built less than 500,000.

Needless to say, the production which continued created an incredible overhang of quality inventory that the market was forced to absorb prior to it resetting itself. This overhang, many times brand new or recently built (and many times now owned by the local banks), provided a plethora of quality housing available for sale at steep discounts well into 2011. Additionally, special financing options were used to move excess property from the bank balance sheet into the hands of individual buyers.

As prices began to stabilize, largely due to the absorption of this inventory, the buying public began to show up to buy, only to find out that the 20-30% discount on great home was no longer an option.

Evolutionary Stage Two | Every House I am Interested in Sells Before I Can Get to It

I believe each Realtor somehow knew that when the market turned, it would turn quickly (the inventory graph below tells the story better than any words ever could.)

Market values by 2010 were as far below trend as the values had been above trend in 2007. By 2015, the same conditions which drove the market to its heights (far too much demand for the existing supply) were about to occur again, albeit for a different reason (far too little inventory for the existing demand). The spring markets of the last several years brought bidding wars, multiple contracts and escalation clauses (all hallmarks of 2006/7) in many sub-markets of Richmond. The conditions are unlike to change as building has still not caught up with demand and ‘quality’ don’t sit around long, especially in mature neighborhoods.

Expecting to be able to take your time and sit on your decision for several days will result in lost opportunity.

Evolutionary Stage Three | Every Contract Price Seems to Be Higher than I Expect!

iStock_000003466249Small — If you drive while looking out your mirrors, you just might not being paying attention to what is in front of you.

Appraisals, assessments and Trulia/Zillow estimates are all driven by comparable sales. Comparable sales are PAST events and represent where we WERE and not where we ARE. If you are exclusively using events from the past to drive current decisions, your estimates of value will feel low relative to the actual market values. While this may feel slightly disconcerting, the same statement can be said during the free fall of the market in 2009 (albeit in the exact reverse) meaning everyone felt as if they were making great below market deals, only to find out the market was falling faster than they realized. Past events are helpful in establishing where we have been…use them for that purpose.

Evolutionary Stage Four – Every Seller (and/or listing agent) is Becoming Unrealistic Again

Denial of reasonable repair requests, refusal to renegotiate when appraisals miss, ‘shopping’ contracts, missed deadlines for response, pocket listings … they are all starting to occur again. When response times are not honored, contract agreements ignored or other behaviors designed to extract value after the fact, buyers become frustrated and decision making becomes poor. Just remember, when the market was flipped, buyer behaviors exhibited in 2009/10 were exactly the same. When one side of the market has an extreme upper hand, they will act accordingly.

When you are buying into a tight market, expect these behaviors. Being surprised or frustrated by questionable seller behaviors is a recipe to miss the bigger picture.

Evolutionary Stage Five – Trulia and Zillow are Total Crapshoots and Cannot be Trusted, Despite Some Really Great Commercials

Data_Coverage_and_Rent_Zestimate_Accuracy_-_Zillow — In their best markets, Zillow can only estimate the FMV of a $300,000 home within $30k about half the time…

In 2009, Trulia and Zillow were nothing more than websites with funny names. This is no longer the case.

Today, T/Z (unfortunately) represent the housing gospel in many folk’s minds and thus (poorly) impact many buyer and seller decisions. It is one of the most unfortunate developments in our industry in the past 5 years. Simply put, the data that T/Z use is not accurate and thus, their estimates of value are poor (I am being kind) and inventory they represent as available is questionably accurate.

For reasons I am not entirely sure I understand, many feel that a computer in either Seattle or San Francisco knows more about the market than those locals who live it and breathe it daily. T/Z, are amazing technological achievements and offer some great tools, it is just that which they do most poorly (value estimates and availability) is what they tout as their best features.

If you wish to rely on T/Z to help you buy a home, I wish you the best of luck.

Evolutionary Stage Six – Appraisers and Underwriting Departments are Petrified of Mistakes Thanks to Dodd-Frank

Business_Latest__Dodd-Frank_fail___MSNBC-2 — Markets hate uncertainty and Dodd-Frank offers it in droves.

The Dodd-Frank Consumer Protection Act is another classic example of government intervention negatively impacting the market it was created to protect. Dodd Frank increased regulation, capped compensation to lenders, decreased product choices and created additional bureaucracy. It has effectively slowed the market and increased the cost of administration. It was also enacted well after the financial crisis had occurred and largely repaired itself.

In the short run, the act has created an atmosphere where decision makers are waiting for legal precedent to guide their actions (think ‘lawsuits’.) Even several years after passing the law, only half of the over 400 new rules created under the act have been finalized…The level of uncertainty created by Dodd-Frank is staggering. Currently, those in the mortgage business have little guidance and therefore, decision making is stiflingly slow and conservative. Any loan which does not fit nicely into the proscribed box (think ‘most every loan’) represents an unnecessary challenge.

Evolutionary Summary

At the end of the day, the evolution one must go through has more to do with understanding market conditions than anything else. The past 5-7 years has brought about monumental shifts in values, processes and inputs unprecedented in any time in history. Failure to recognize not only the difference in the process, but the impact of the differences will lead to failure.

Nothing about today’s home buying bears any resemblance to the past and those who seek to compare the two are destined to struggle.

Buying

Reality One – Builders Don’t Love Buyer’s Agents

Reality Two – The Model and the ‘Spec’ Will Tell You What You Need to Know

Reality Three – The Effective Life of Materials

Reality Four (and this one is key) – A Buyer’s Agent is an Investment

How do you find a good Buyer’s Agent?

You already have…meet the One South team

Builder Types

The Change Order

Consider Buying a Spec

[ ‘SPEC’ Homes For Sale ]

It’s Just Business

Summary

Points to Consider

Build with a Purpose in Mind

Know Neighborhood Norms

Lot Selection is Key

Beware the Selection Center

Know Your Builder’s Reputation

Understand Cost Versus Value

Summary

The Medical Campus

Monroe Park Campus

How Do Buyers Evolve?

Evolutionary Stage One | All of the Good Cheap Houses Sold in 2009 and 10

Evolutionary Stage Two | Every House I am Interested in Sells Before I Can Get to It

Evolutionary Stage Three | Every Contract Price Seems to Be Higher than I Expect!

Evolutionary Stage Four – Every Seller (and/or listing agent) is Becoming Unrealistic Again

Evolutionary Stage Five – Trulia and Zillow are Total Crapshoots and Cannot be Trusted, Despite Some Really Great Commercials

Evolutionary Stage Six – Appraisers and Underwriting Departments are Petrified of Mistakes Thanks to Dodd-Frank

Evolutionary Summary

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