Spring emerges!
Dear Friends,
Happy Spring! All over the East Bay gardens are coming into gorgeous bloom! With abundant magnolias and camellias, beautiful native ceanothus and an array of bulbs blooming at their peak, this coming month is always a gorgeous time in our gardens. I first saw our home at this time of year, when our garden is filled with hundreds of blue wood hyacinths and freesias. I know those flowers contributed to my falling in love with our home!
For those of you who are active gardeners or just like looking at beautiful gardens, and are interested in the possibility of making energy efficient upgrades (I hope that’s many of you!) mark your calendars for April 6-7. From 10 – 3 each day there will be the online version of the Bringing Back the Natives Garden Tour and Green Home Features Showcase. You will get to virtually visit numerous wonderful gardens that are earth- and pollinator-friendly, and homes that upgraded to heat pumps for HVAC and water heating, induction cooktops and other green features.
I only wish that our spring inventory would come into bloom in the same profusion as the local gardens! Each week I anticipate that we will suddenly see a big increase in homes I can show buyers. These past few months I’ve been looking for a property type that many buyers seek: a home with at least three bedrooms, two baths (one for the parents, one for the children), at least some garden space and storage, and at least one off-street parking space. And that combination in Berkeley has been rare.
A Tale of Two Insurance Quotes
I did recently show a home that met all of those conditions and more. It had a fourth bedroom and a charming plus-space upstairs, and a secondary living room/den downstairs opening to a lovely garden – located in a highly desirable location. In addition, these sellers had made many more upgrades than we normally see: the electrical system had been completely upgraded to 200 amp service (and all the knob and tube wiring removed). There were efficient heat pumps for heating and A/C. And perhaps the biggest investment they made after purchasing was to replace ALL of the windows and doors with dual-pane ones. The previous owner had replaced the roof less than 10 years ago, and the foundation had been replaced perhaps 30 years ago, but it was in substantially better condition than the 100+ year old original. Kitchen and baths had been updated, landscaping was lovely, and it was in a terrific location. So what’s not to love?!
A possibly high purchase price started out being the issue, and especially with list price compared to market value. Any of you who have read my newsletters before know that it’s the norm to price below market to attract more interest. This home was an extreme case. The home sold five years ago, commanding $100K over list. After the sellers made all those improvements (perhaps $150K worth, I am guessing) the property was listed at the previous list price(!) So now buyers will need to pay $500K and likely more over list to obtain this property.
My clients might well have been willing to do that, were it not for the ever-worsening state of insurance. I had hoped that because this home had been so substantially upgraded, insurance would not be much of an issue, but I was wrong. All homes that are 100+ years old become very difficult to insure by the major carriers, even when significantly updated like this one. Homes that still have knob and tube wiring are currently not insurable by any of the independent California carriers.
I was also caught off-guard by the premiums. Even though I’ve been tracking and writing about this issue for months, this was the first time one of my buyers was quoted a premium that made my jaw drop: more than $11K per year for a home just over 2,000 sq. ft., even with the many condition improvements. Had those not been made, it would have been worse still.
This home was not in what any of us would consider a risky location for fire. But we are not insurance firms! Each one has their own charting system that determines their risk to fire and flooding. One carrier put homes in the Elmwood neighborhood as too risky because of the Claremont Canyon. Some carriers put the border for “wild fire zones” down as low as The Alameda in Berkeley. Others simply won’t approve any new policies for Rockridge, or eliminate areas by zip code. The message here is that there is not agreement about the areas of risk, and the designations are not logical!
Even more confusing: I had reached out to two insurance brokers, both who are part of the Farmers system. A day later I received a second bid that would be a hybrid approach: liability insurance and theft through Farmers, plus the California Fair plan for fire and wind coverage. The total premium: $4700, less than half of the previous quote! This is a tough environment for buyers, as well as for insurance agents, who now are about as well-liked as dentists!
For those of you who already own your homes, the message is one I’ve shared before: be prepared for changes, both in your premiums and in your ability to obtain coverage. Even if you have had your insurance for many years, do not assume you will be immune. A colleague friend living in the Berkeley hills just got the dreaded cancelation letter from AAA, along with most of her neighbors, even though she had been with that company for 30+ years, and had never filed a claim.
What to do? If your home has any remaining knob and tube wiring, that would be a good starting point, and remove it. It can be a messy job, and do insist that electricians carefully fish the wires if you have original wood paneling in your home. I just had it done at a listing, and it took about two weeks. You might be proactive and talk with you carrier. Which physical features do they care most about being updated? Each carrier has their red flags, but knob and tube is one all the lists!
You should also be prepared for possible changes to your policies, even if not a cancelation. My insurance premiums with State Farm increased by 50% this year, after being their customer for 30+ years as well. If you do receive a cancelation, you will need to reach out to multiple carriers, or better, as I’ve suggested before, using brokers who will give you more options. I am happy to recommend some exceptional brokers.
The NAR Commission settlement
The big news in our industry is of course the law suit filed against the National Assoc. of REALTORS (NAR) regarding the paying of commission for buyer representation. The following article summarizes the current situation, which is still subject to appeal and interpretation. A crucial point is this: commissions have always been negotiable. It was never the case that the NAR mandated or even encouraged any specific percentage for commissions. This is contrary to a great deal of misinformation in the current media coverage of this case. The money to cover commissions has always been part of the funds of the transaction. The buyer pays those funds, and currently the commissions are being deducted from the seller proceeds. Going forward many sellers may choose to continue to have the commissions deducted, recognizing that their home is being compared to other available homes. Other sellers may make other choices.
The quality of representation is not equal, and never has been. My goal is always to give my buyers (as well as my sellers) the best guidance possible, regardless of the price of the home, or the rate of commission. There will likely now be buyer agents who will ask for a lower rate, and are very likely to provide less expert service.
If some sellers decide not to offer commission to agents who represent buyers interested in their home, they are likely to end up losing much more than an amount in the range of 2.5 – 3% of the cost of their home. Some buyers will try to represent themselves, and are very likely to quickly discover the many pitfalls of being their own clients. An educated buyer works with an educated agent. Sellers risk so much if they decide not to offer commission to buyers’ agents, greatly increasing the risk of receiving offers from ill-informed buyers, possibly representing themselves or using the least-expensive agents, or represented by attorneys. The only thing that is certain at this point isuncertainty! But it’s also true that real estate has been through other shake-ups. We weathered moving from using MLS books of listings (much like phone books!), that would come out every two weeks. We all moved to computers, got through the banking collapse and major down turn in 2007-2009, and most recently survived all of the changes that COVID brought to our industry. Now what has changed is that we will not be able to publicize the commission rate paid to buyer agents within the MLS starting in July (unless there is an appeal). So, we will adjust and adapt to this change too!
Let me end on a positive note! As we celebrate the Persian New Year and soon Easter, let’s embrace the spirit of renewal and also celebrate the beauty of this season. With so much pain and division in the world, let us strive to share love, hope, prosperity, and joy with our families and communities. As I enjoy the blossoming signs of spring, I am reminded of the endless cycle of rebirth, and the preciousness of each moment. Happy New Year and New Season to all the birds, bees, trees, flowers and peoples of the world!
Arlene
What the NAR Settlement means for buyers and sellers
There has been significant media coverage of a recent legal settlement regarding the real estate industry. Last week the National Association of Realtors entered into a settlement agreement in the Sitzer-Burnett case, agreeing to pay a $418 million fine. In this month’s article I wanted to clarify what this means for home buyers and sellers.
First, note that the settlement is pending approval by the courts, and if approved won’t go into effect until mid-July. Thus, it has no immediate impact. If it goes into effect, buyers and sellers will likely see brokerages and agents adopting new policies nationwide.
Historically, sellers have paid for the buyer agents’ commissions. This settlement will, in short, encourage buyers to pay for – and possibly negotiate – compensation with their agents. Here’s how this will likely affect buyers and sellers:
Sellers
- The seller does not have to offer compensation to the buyer’s agent. This has always been the case and has not been affected by the settlement. There is no pre-set amount; it can be set at the initial marketing of the property or negotiated directly with the buyer’s representative prior to ratifying a sales contract. There are strategic implications to consider when taking either approach and how they may impact the value, timing and logistics of the sale.
- A seller will still be able to offer compensation for an agent who brings a buyer to the property and facilitates the sale for that buyer. The compensation amount, however, will no longer be published in the MLS, which feeds to all major portals like Zillow and Realtor.com and is the de facto platform for searching available properties. Cooperating commissions can still be shared publicly on brokerage marketing materials including flyers, websites and social media.
- Sellers have always been – and will continue to be – able to negotiate commissions with their agent based on the exchange of services that agent is offering.
- There will be changes made to California Association of Realtors contracts and forms to clearly delineate not only the amount, but how, when and where offers of compensation will be exchanged.
Buyers
- By mid-July, before touring any properties, buyers will be required to enter into a written agreement with their agent representative (if that agent is a participating member of the MLS), which clearly defines the compensation that will be due in exchange for their agent’s service.
- The compensation may be paid by the buyer, offset in the future by a seller willing to cover the amount, or covered within the loan structure in the form of a seller concession as part of the terms of the sales contract. There are limitations to the concession percentage allowance determined by the loan based on the buyer’s down payment that could impact the overall amount received.
Buyer compensation has historically been folded into the purchase price; as these changes go into effect, it remains to be seen how payment will be applied. Furthermore, it is unknown if and how these changes will impact home prices, particularly given the historically low supply and high demand in our competitive market.
Reach out to discuss how these changes may affect your real estate journey.
