Study On The Impact of Realtors When Buying New Construction

Home buyers often question if Realtors can actually contribute to a lower sale price on the purchase of a new home. They recognize that Realtors have knowledge of contracts, but other than listing a property on MLS and helping obtain signatures do they actually provide any benefit? This question is no more apparent than in the purchase of new construction where builders have established a process that is effortless permitting potential buyers to visit and purchase their homes. Potential buyers can speak directly with a sales representative and view a breakdown of prices along with the upgrade options. If a Realtor is involved they believe it will potentially reduce the savings potential since they are ultimately paid by a builder. At CCLR we have performed a study using actual homes sales to determine if Realtors really do impact the final sales price for new construction. Below you will find two sets of data. Each set was a random selection of over one hundred new construction sales throughout Houston and the surrounding suburbs. The builders were a mix of national organizations like Toll Brothers and Meritage Homes along with regional builders such as Perry Homes. At first glance the data doesn’t appear to exhibit many trends, however upon closer inspection there are a few. The first trend is that the higher the listing price the higher the probability a buyer will be utilizing a Realtor. Another trend shows that for homes below $200,000 the builder appears less willing to accept an offer that is significantly below the list price. We believe these two trends are not anomalies but instead actual behavior by both buyers and builders. Similar to luxury vehicles the mark-up is generally larger on higher end homes thereby limiting a builder’s ability to drop the price. At the upper end of the market buyers may be less concerned with shaving a few percentage points off the list price. Both of these trends would most likely evident even if additional data points were included in the study. Below is the statistical result and two plots showing a normal distribution of the data utilizing a statistical bell curve. Foregoing a Realtor:

• % of List Price (Average): - 5.37%
• Study Accuracy: 0.495%
• Median: - 4.50%
• Standard Deviation: 5.54%

Employing a Realtor:

• % of List Price (Average): - 6.57%
• Study Accuracy: 0.609%
• Median: - 6.00%
• Standard Deviation: 5.03%

The study clearly indicates that using a Realtor will provide a buyer with a 1.2% savings off the current list price of a new construction home. This amounts to between $1200 and $6000 in savings for the range of home values utilized within this study. Beyond just the average savings there are a few other significant differences as well. The median sale price when foregoing a Realtor was – 4.50% of the list price. Over 50.4% of all sales by these buyers yielded a savings of no more than 4%. Contrasting this with buyers that employed a Realtor only 38.4% of buyers performed as poorly. The data is undoubtedly weighted towards a smaller savings off the list price when foregoing a Realtor. This is primarily caused by the 28.3% buyers that purchased a new construction home that paid more than the advertised list price. Only 9.8% of buyers that employed a Realtor paid above the list price on a new construction home. Lastly, regardless the buyer 17% of the home purchased yielded a savings of over 10%. This would indicate that educated and savvy buyers do have the potential to save significant money regardless if a Realtor is present. By selecting the correct property and having good negotiation skills any buyer has the potential in obtaining a significant reduction in the list price. The data clearly reveals that Realtors actually improve a buyer’s odds in saving money and obtaining a lower sales price on a new construction home. By utilizing a Realtor the buyer will most likely yield a savings between 1-10% off the list price with the average between 6 and 7 percent. For those buyers determined to purchase without the aid of a Realtor our suggestion is to not accept just any offer provided by the builder especially if the savings is below 4%. Becoming emotionally attached to a new construction home is the worst possible scenario for a buyer and places the builder in a position of control. There are numerous homes for sale so shopping combined with skilled negotiating tactics is critical in obtaining a savings on a home. In closing, new construction contracts provided by builders are meant to favor the builder so don’t accept everything you are told by a sales representative. Read the contract, understand each section fully, and feel free to seek changes. You also have the right to take a copy of the contract and have a lawyer review before signing. Additional Information and Studies Available at CCLR: New Study - Relationship Between Housing Costs and Public Schools Has The Economy Caused Property Tax Revenue To Fall? How Accurate Is Zillow - New Study of Actual Home Sales Says Not Really

New Study - Relationship Between Housing Costs and Public Schools!

The Brookings Institute through the Metropolitan Policy Program performed a study examining 84,077 schools and how the quality of education is impacted by housing costs and city zoning. The majority of the data in the study was collected by GreatSchool and the National Center for Education Statistics between 2009 and 2011. The full study is available here on the Brookings website.

Calvin and Hobbes regularly confronted the public school system and particularly math. Although Calvin wanted to be excused from math we should not ignore this study.



The majority of people would agree that housing costs are higher in areas known to have highly rated school systems. Here in Houston the Memorial area is one such example with the lowest priced home coming in around half a million. However, how much of the home value equates to public education and is this difference similar to the cost of private education? If a family of five is living within an area known to have high housing costs and higher taxes could that same family live elsewhere and send their children to private school for the same or less cost? In addition could the city modify zoning laws specifically to help struggling school districts?

The study analyzed the 100 largest metropolitan areas around the country and found that housing costs average 2.4 times more ($10,707 per year) near high scoring public school systems. When compared to US median home values this equates to a home value increase of $205,000. The average size of the home within the higher scoring district contained 1.5 additional rooms and the number of rental properties/units was 30% lower.

We have known that the quality of public education is vastly unequal across income and racial/ethnic groups. There is countless debate as to the main causes. Studies have shown that placing low income children into high income area schools does actually increase their academic achievement. However, is this move worth the added cost when looking solely at education? The National Center for Education Statistics during the 2007-2008 school year places nationwide private education tuition for elementary and secondary students at $8,549. For private Catholic schools the cost drops to approximately $6000 per year. These values as stated are a nationwide average. When compared by region the Northeast has the biggest discrepancy showing that housing costs are 3.5 times higher in high scoring public school systems. In contrast Boise, Modesto, Madison, Little Rock, Honolulu, and parts of Utah and Florida exhibited the lowest ratios (1.3 - 1.6). Thus, it is clear that private education for elementary and secondary education costs less than the cost to move within a

Zoning laws also contribute to the general make-up of a city and their school districts. The study found that for larger metro areas with the least restrictive zoning requirements the gap in housing costs were 40-63 percentage points lower. More affluent sections of communities typically exhibit the most strict zoning laws preventing rental and multifamily housing units from being developed. These rental units house a large number of lower income families since they are unable to afford a home.

Communities have known for some time that maintaining deed restrictions combined with strict zoning laws preventing dense commercial and multifamily units will increase home values at a significant rate. They also significantly impact the quality of education, but as this study reveals the costs do not outweight sending your child to a private school. Saving money on housing costs and living in a less affluent area of town should be something people consider.

Worst Hit Housing Markets Now Showing Increases in Home Values

CoreLogic monitors Real Estate data throughout the country and produces statistical data monthly.  This month there is a notable change in home values specifically in the hardest hit areas including Florida, Michigan, and Arizona.  Other areas around the country including here in Houston has already seen increases in home values but some areas are still struggling.  Based on this new study a larger portion of the country than previously thought is seeing a positive trend in the housing markets.  Provided mortgage rates continue to stay low the trend will/should continue. The Federal Reserve stated they have yet to  witness strong signs of inflation and have no near term plans to raise rates.  Still, anyone seeking to purchase a home should seriously consider doing so while the values and rates are still low.  Warren Buffet back in February stated that he would be buying "a couple hundred thousand of homes" if he had enough liquid cash and a means to manage all those properties.

For more on the report including a few statistical numbers click here.

EPA Loses Court Battle, Supreme Court Sides with Land Owners.

Till now the EPA had the authority to levy extreme fines. Based on court documents, when the EPA prevails against any person who has been issued a compliance order but has failed to comply, that amount is increased to $75,000—up to$37,500 for the statutory violation and up to an additional $37,500 for violating the compliance order. Land owners were required to pay the stiff fines and had no avenue in which to challenge an EPA ruling.



In northern Idaho couple decided to take the EP to court. The case labeled Sackett v. EPA involved the building of a property located on Priest Lake but the EPA had labeled the area a wetland and informed the Sackett's that any disturbance or building on the land would result in stiff fines. The EPA had rules that the Spackett's at times had discharged fill material into wetlands at the site filling approximately one half acre. By causing such fill material to enter waters the Sacketts have engaged, and are continuing to engage, in the ‘discharge of pollutants’. The discharge of pollutants without a permit constituted a violation of section 301 of the Clean Water Act.

The had couple hired several engineers to analyze the land and produced data that disputed the EPA's findings. The Sacketts, who do not believe that their property is subject to the Act, asked the EPA for a hearing, but that request was denied. During an interview last fall Mrs. Sackett reported this conversation she had with the EPA; 'So, why would I stop building my house?' The EPA response? 'Because we told you to.'"

The couple decided to take the EPA to District Court and eventually it was appealed all the way to the Supreme Court. The ultimate ruling was unanimous (9-0) in favor of the Sackett's.

Justice Alito responded in brief by saying,

The reach of the Clean Water Act is notoriously unclear.Any piece of land that is wet at least part of the year is in danger of being classified by EPA employees as wetlands covered by the Act, and according to the Federal Government, if property owners begin to construct a home on alot that the agency thinks possesses the requisite wetness, the property owners are at the agency’s mercy. The EPA may issue a compliance order demanding that the owners cease construction, engage in expensive remedial measures, and abandon any use of the property. If the owners do not do the EPA’s bidding, they may be fined upto $75,000 per day ($37,500 for violating the Act andanother $37,500 for violating the compliance order). And if the owners want their day in court to show that their lot does not include covered wetlands, well, as a practical matter, that is just too bad. Until the EPA sues them, they are blocked from access to the courts, and the EPA may wait as long as it wants before deciding to sue. By that time, the potential fines may easily have reached the millions. In a nation that values due process, not to mention private property, such treatment is unthinkable.

We applaud th Supreme Court for taking the correct course of action and limiting the EPA's powers!

Has the Economy Caused Property Tax Revenue to Fall?

Most home owners, including activists that consistently promote increases in government spending, desire to have their home values consistent with the current housing market. (Ironic in a way.) Knowing you are paying more in taxes when rates are based on decreasing home values is something most individuals despise. While there has been a reduction in tax revenue due to reduced spending the local governments have yet to strongly lower owner's assessed values.



A new study from USA Today shows that property tax collection has increased even while the economy tanked. However, for the first time since 1995 collection rates for 2011 were below the rate of inflation. Many local governments are just now starting to review property values. Most local governments created laws preventing assessments of the same home over a short time period thereby preventing drastic increases in property taxes. Well, these rules also apply when property values decrease as they did the past several years.

Based on the USA Today report the property tax collections last year rose 1.2% but actually declined 0.9% when adjusted for inflation. Property taxes generated $436 billion which is about $66 billion more than in 2006 when home values peaked.

Realtors are a great source of information regarding true property value. The only way to have a home value reduced is through a Comparative Market Analysis (CMA). Many Realtors will help fight by providing actual CMA's when confronting the local government. Providing a Zillow Zestimate to a government official will only have them laughing. Hiring an appraiser is an option but even then they are not always the most reliable.

For more on the study head over to USA Today.

Jobless Claims Hits 4-Year Low, Fed's Business Index Highest Level Since June 2010

The unemployment rate held steady for February at 8.5% despite increased jobs numbers as reported last week.  This was caused by more individuals coming back into the labor market seeking jobs.  The U6 unemployment rate (which includes people who stopped searching for employment) actually dropped.

State Unemployment Claims

"This suggests that the recovery is firmly on track," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

The consumer price index increased 0.4% last month driven by increased fuel prices. Food prices actually dropped for the third straight month.

For more details on the data click here.

Guest Article from NewHomes.move.com - Retrofit Your Home

Homes In Sugar Land (Country Club Lifestyle Realty) has teamed up with www.NewHomes.move.com the official website for the National Association of Home Builders to bring even more exciting and relevant content to our Real Estate Blog! Not only do we feature National and Local News, Housing Statistics, Local Community Information, Charity Events and our very own housing studies, but we can now bring connections and advice from Home Builders! So, please welcome Andrew Hill as our very first guest blogger!

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With all the hype about going green, you may just think it’s an expensive that just saves a couple of trees. But what if going green didn’t have to cost a fortune? What if going green meant you could actually save money? At first, this may sound like an outlandish idea. After all, when I hear the words “green home” I often mistakenly picture a strangely shaped “house” made out of organic tea-leaves and recycled aluminum cans. But going green isn’t a strange space-age concept and better yet, retrofitting your home can create significant savings.



To retrofit your home, the first thing you should consider is having an energy audit. These experts will look at every aspect of your house and tell you where your energy savings can be improved. If you’re serious about going green, having an energy audit is a very important step. For those of you that aren’t quite ready to dive in, we have other suggestions for how you too can go green (and save some green while you’re at it.)

The two most sensible and easiest ways to retrofit a home are programming the thermostat and switching the light bulbs. Every family has a different threshold for temperature, so we won’t dictate the required settings. It’s up to you to decide what’s comfortable, but make sure to utilize other means of heating and cooling, such as putting on a sweater or using a fan. By programming your thermostat to be less stringent with the temperature while you are at work or asleep, you can significantly reduce your energy expenditures. Likewise, switching from incandescent to CFLs can potentially save you hundreds of dollars over the lifetime of the bulbs. CFLs not only reduce heat production and energy usage, but they also last much longer than incandescent bulbs.



Another simple way to retrofit your home is to plant trees. Trees? Yes. Planting trees that are native to your region can help save your air conditioning bill by providing shade and can even act as a wind blocker to protect your home on those drafty nights.

As you can see, going green doesn’t have to be a strange or even expensive. There are hundreds of other ways to go green, including switching to energy efficient appliances, using low-flow faucet heads, and caulking all of those leaky areas around your door. And if you’re thinking about buying, selling, or investing in real estate, green retrofits are a great way to boost the value of your home. So the next time you consider the cost of going green, think about what you could save by making the switch!

Andrew Hill

ahill@thebdx.com

Senate Legislation Requires Lenders to Speed Up Short Sale Process

Short Sales only impact the credit record for three years while foreclosures last seven years. Thus, many people under water on their mortgages have sought this route to sell their homes. However, lenders are extremely slow and have no strong desire to accept the loss. They hope that over time the home owner will obtain additional finances to continue payment.

Three senators are now banding together to require lenders to speed up the short sale process. The legislation, also known as the Prompt Notification of Short Sale Act, will require a written response from a lender no later than 75 days after receipt of the written request from the buyer. The bill will also allow the buyer to be awarded $1000, plus “reasonable” attorney fees if the Act is violated.

For more head over to DSNEWS

US Housing Starts Continues Increase - Hits 2008 Levels

The U.S. housing starts rose more than most economists expected in January. The rise was caused by a surge in new rental property boosting hopes the housing sector could help economic growth this year.

The Commerce Department reported on Thursday that housing starts climbed 1.5 percent to an annual rate of 699,000 units.

Starts of multi-unit buildings, which are often rented, jumped 8.5 percent last month. New construction on buildings with five units or more increased 14.4 percent.

Groundbreaking on single-family units, which make up a much larger portion of the sector, fell 1.0 percent. This might appear as bad news, but in actuality it is positive news because the current inventory of single family homes continues to steadily drop. In Houston for January the number of sales actually increased in 2011 compared to 2010, and the inventory significantly dropped. The average price of single family home increased just below 1%. All this data continues to show that the housing market is improving and investors and some home owners realize that prices and loan rates are at all time lows.

U.S. Housing Starts

While housing starts are still increadibly low when compared to 2006 (2.2 million) we must remember that during the housing boom builders were flooding the market. We do not want to witness those insane levels again until the population increases substantially.

Tax Review - Debt Relief Forgiveness Act of 2007

The IRS requires anyone that received forgiveness from a previous debt to report that amount as income. However, the Mortgage Relief Debt Forgiveness Act of 2007 allows individuals to exclude the amount forgiven on their principal place of residence. This particularly helps individuals that were under water on their mortgage and thus utilized a short sale to unload the property. Currently the exemption applies from 2007-2012.

Obama is now seeking to have this act extended through January 1st of 2015. DSNews

To learn about what qualifies read IRS publication 4681.

Here are some more examples of debt which is not taxable.

• Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
• Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
• Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

For specifics you can also contact a certified professional accountant.