Real Estate Basics: Quality Agents NEGOTIATE

Some homeowners, seeking to sell their homes, wonder whether they need the services of a professional, licensed real estate agent/ salesperson, or, if they would be better off doing it themselves (For Sale By Owner. also known as FSBO)! While statistics clearly indicate most sellers will benefit, in terms of selling price, ease (lack of hassle), convenience, etc, when they use an agent, some, mistakenly (in my opinion) believe, they will fare better, by avoiding the sales commission. While it might appear to be a somewhat, logical mindset, studies indicate, in the vast majority of cases, those using agents, net more, than those trying to do it all themselves. However, perhaps even more importantly, the most essential reason for hiring a real estate agent, is his ability to effectively NEGOTIATE, in your behalf. Let’s review, using the mnemonic approach, what this means, for the seller.

1. Needs; nuances: Quality agents recognize and appreciate the needs of his seller. In doing so, he understands the nuances needed, and the marketing niche, to best market to!

2. Expertise; experience: One should hire the best agent for him, who possesses the skills, and expertise, to do the best, for you! How will his experience and skills, get the best negotiating results?

3. Gains: Selling a home, for the best possible price, in the shortest period of time, with a minimum of hassle/ stress, means your agent should balance gains versus losses, and know, how to best negotiate, the terms and needs, you need and deserve!

4. Options; opportunities: Experienced real estate professionals understand the options available, and take advantage of the best opportunities, to serve their clients, professionally and carefully! Unless one fully appreciates what’s positive and/ or negative about a specific property, how can he possibly, get the best possible deal?

5. Today’s trends: One must fully understand today’s trends, market conditions, and competitive forces, if he’s going to be ready, and able, to properly, efficiently and effectively, evaluate a house’s true values. A qualified real estate agent, is best – positioned to offer you valuable ideas and suggestions.

6. Integrity; ideas; imagination: The Code of Ethics demands ethical behavior from real estate agents, which must include absolute integrity, in his dealings with the public! Seek an agent who possesses quality ideas, and the degree of imagination, to bring out the best, in your property!

7. Attitude; aptitude; attention: Great agents possess a can – do, positive attitude, combined with a well – defined, quality aptitude, and the willingness to pay keen attention, in every aspect of their professional lives and dealings!

8. Times; timely: Today’s times requires a relevant marketing plan, taking advantage of every possibility, etc. Be certain, your agent does everything in a timely manner, including responding to you, emails, telephone calls, questions and concerns, and possible offers.

9. Excellence; estimations: Hire someone with a commitment to excellence in everything he does, and the ability to accurately estimate needs, costs, pricing, etc.

If you want to sell your home, find the best agent for your needs! This must include someone who is well – qualified, and knows how to effectively NEGOTIATE!

Six Economic Principles of Real Estate Valuation

Real estate valuation is the process of estimating a single price one would realistically pay to own a particular property. The method for residential property valuation that is most familiar to brokers and agents, of course, is the comparative market analysis (or, CMA). This property valuation process involves an estimate of value based upon the sale prices for other similar properties (or comparables) within the local market area, and/or other similar markets.

When preparing a CMA, a minimum of three recently sold comparable properties and three comparable properties currently for sale, are typically chosen to infer the price of the subject property. Differences between the comparable properties and the subject property are evaluated to add or reduce value in the analysis, and to estimate a fair market value of the subject property by using a comparison approach.

Valuation of commercial properties (i.e. office buildings, apartment buildings, single family communities, and plots of land) is largely influenced by various principles of economics. These principles are not usually factored into the typical CMA report for residential properties. The objective of this article is to shed some light on these principles in because they can be applied to any property valuation effort. They are the basis of our focus in this discussion as we look at and summarize six applied economic principles that can help give you an idea of the impact they can have on the value of a property.

1) Anticipation

This is the expectation of future benefits. In other words, real estate investors measure the value of real estate investment based on the anticipated future income stream generated by the property. They are more likely to value a property on the income it generates rather than the perceived market value inferred by a comparative analysis, or the construction and land costs required to replace the property. The expected, or anticipated, income generation capabilities of the asset is the primary focus.

This approach is not a surprise to those that have some understanding of commercial real estate investing; However, it is not common knowledge to the average property owner or buyer. The focus on purchasing anticipated cash flows can help expand the understanding of value in residential properties as well. For example, instead of thinking “how much is the property worth now”, also think, “how much return would I purchased the property and rented it later”. In a competitive environment, this approach and knowledge can make all the difference.

2) Conformity

This is defined as the need for reasonable similarity and compatibility in a given location. Compatible land uses, for instance, may generate higher values than those with limitations imposed upon the property due to location.

For example, an apartment complex located in a primarily residential area will most likely have more value than one located in a highly industrial area. Savvy commercial real estate investors are keen to this concept, while many residential home buyers may not pay close attention to adjacent or nearby land uses. Taking a broader view of surrounding uses can provide a deeper understanding of value, or perceived value, from an investment perspective.

3) Supply and Demand

This principal encompasses both the scarcity, and the demand for the subject property. Although investment real estate with similar physical and economic characteristics can sell for similar prices, real estate valuation can be greatly affected (higher or lower) within a market that lacks reasonable balance between supply and demand.

For example, land in a metropolitan area where undeveloped land is scarce, would demand greater value than land in a rural area with large parcels of vacant land. Likewise, an apartment complex selling at a time when there is more than enough supply to meet the rental demand, would have less value to a real estate investor than the same complex during a time when the supply of apartments in the area is lower and does not appropriately meet the demand.

4) Highest and Best Use

This is an important concept that relates to the highest possible use, and the best possible use of a property, as opposed to its current use. In other words, when it is legally possible, appropriately compatible, physically possible and financially viable to modify the use of a property, the value of the same property can be significantly increased.

For example, an office building can be enlarged to add more rentable office space or a retail on the first floor; or, an apartment complex can add more units or add mixed use features to the community enhancing its value.

Commercial real estate investors and developers use this principle to create value and to enhance cash flow. The principle can also be used in residential real estate when a buyer or owner of a residential property evaluates the highest and best use of the land per the municipal zoning and building codes, and considers adding or expanding the property’s features and characteristics to enhance its value.

5) Contribution

This, essentially, means that the value of an income property can be impacted when it is physically, legally, and economically feasible to contribute more space to the property at a cost equal to, or less than, the marginal revenue that it generates. In other words, when value added offsets the cost of making the contribution or investment. In contrast to the principle of Highest and Best Use, this principle compares revenues or value to the benefits that the investment or contribution may produce. The question to ask after you’ve identified the highest and best use of your property is, does the investment or contribution required to achieve the highest and best use for the property make financial sense, or is it justifiable. You can add features to a home such as a pool and a deck, and you can add units to a multifamily building; The contribution question is, “will you be able to sell the home for the added value that you perceive you are creating, or will the new apartment units rent?”

6) Substitution

This is an opportunity cost concept. In other words, a rational real estate investor will not pay mor for an investment property than what the next best substitute with similar levels of risk will yield in financial benefit. For the residential buyer, owner or investor this means, examine all other options well. Often, residential home buyers fall in love with the first or second home they see, and can easily forego better opportunities as a result. This principle suggests evaluating and comparing numerous opportunities in the market before making a decision.

The six principles mentioned in this article are intended as an overview, to give you an idea of how other economic factors can affect the valuation of properties. While these principles are demonstrated in commercial real estate valuation, they also affect residential properties and should be observed when analyzing the value of any real estate property.