CAPTURING LEADS VS CULTIVATING RELATIONSHIPS

Every week, I get three to five calls from telemarketers offering to “sell me leads”.  I also get calls from scores of web vendors promising to “capture” visitors who come to my site, while other sites encourage me to bid (a la Ebay) on existing “red hot” leads that they have generated.

I don’t know about you, but I am not looking to be sold leads, and I certainly don’t want to capture anyone.  I have never viewed prospective clients as commodities to be bought and sold. 

A successful, long-term business is built through relationships, not by capturing strangers.  The goal is to create value, not take hostages.

Part of what causes so many real estate agents (and brokerages) to have poor reputations is that too much attention is paid to the transaction and too little attention is paid to the people involved. 

When the clients you work with have been “sold” ,“captured”, or auctioned to the highest bidder… really, how much hope is there for the relationship?

I have built my business by referral, one satisfied client at a time.  That means my goal is to work with people who have been referred by people who know, like and trust me because they know I’m competent and they know I care about the well-being of my clients. 

I spend a lot of time talking with my clients about “exit strategy”… in other words, making sure you can get out of whatever you’ve gotten yourself in to if circumstances should change down the road.  Sometimes, if there’s not a viable exit strategy, then the deal never happens. 

But that’s for the best. 

The goal for anyone committed to long-term sales success should be to focus on the “happily ever after”, not merely the here and now.  I need clients who love me every bit as much 12 months from now as they did when we were together at the closing table.

And that rarely happens when you’re bought, sold or captured. 

REAL ESTATE ECONOMISTS DESCEND ON DENVER

The National Association of Real Estate Editors wrapped up its 46^th annual convention at The Brown Palace Hotel in Denver this weekend.  The convention, which featured hundreds of editors from newspapers, real estate magazines and industry websites, focuses on coming trends and technological innovation.

Lawrence Yun, head economist for the National Association of Realtors, said in a speech on Friday that demand is so strong for housing right now that many areas of the country could see 10% appreciation over the next 12 months.  He cautioned, however, that appreciation would probably be less than that if builders re-enter the market on a large scale.

New construction has essentially been grounded for the past five years.  Here in Colorado, nearly three-quarters of the builders who were building homes in 2007 have shut down, left the state or declared bankruptcy.  The process to jump start new home construction can take up to 24 months from the time financing is secured, as builders must clear zoning hurdles, build infrastructure and hire subcontractors before the first foundation is poured.

Stan Humphries, lead economist for Zillow, said that the recovery would look more like a “stair step” than a steady climb.  As demand pushes values higher, homeowners who have had little or no equity will jump into the market and list their homes, which will cause appreciation to stall.  Once those homes are sold, there will once again be a shortage, leading to more gradual appreciation. 

The one consistent theme among economists is that there is demand that is real and which figures to last for several years.  There are three main reasons for this, according to the economists:

-  Millions of adult children (ages 25-34) eager to buy a home after moving back in with their parents during the recession

-  A strong influx of first time buyers who are being encourage to take advantage of low rates and high affordability

-  The return of “first generation” foreclosure households coming back into the market after six or seven years on the sidelines

The one commonality with all three of these groups is that they figure to be far more interested in affordable entry-level housing than in luxury, high end homes. 

That suggests that appreciation gains will continue to be strongest below the median price, while the higher end of the market may take longer to recover.

PURPLE COW

People have far more choices, but less time than ever to figure them out.  

That's the opening premise of Seth Godin's book Purple Cow, which implores marketers and salespeople to stop offering ordinary products in ordinary packaging and, instead... be extraordinary!

We're living in the post-TV age, according to Godin, where mass marketing has been replaced by niche marketing, long cycles have been replaced by extremely short ones, and the fear of failure has been replaced by the fear of fear itself.

You must be remarkable, Godin says, or you might as well be invisible.

Because there are so many forms of media and communication available today - television, Internet, print, Facebook, Twitter, Instagram, texting, etc - niche marketers have more opportunities today than ever before to connect with their specific audiences.  

Therefore, it's time to ignore the masses and focus on the people you actually want to do business with.  Television is no longer an effective way of conveying your message to my 13 year old daughter.  But Instagram is.  Radio ads won't work in pulling customers into a new Yogurt place.  But building a Facebook Fan Page might grow your business exponentially.

Godin's Purple Cow is about teaching salespeople and marketers to lean into their niches, about building brand and product loyalty through finely targeted, specifically marketed messages and products.

One interesting example of a company building a Purple Cow brand is Jet Blue, which offers only limited service out of DIA (now) but is a major player on both coasts and one day will be more prominent in Colorado.  In addition to offering free bag service, free DirecTV and travel credit any time your flight is late, Jet Blue encourages people to dress up on their flights, often offering a free round trip ticket for the "best dressed passenger" on the plane.

It's innovation like that which causes people to talk, to become raving fans, and to develop fierce brand loyalty.

Godin's Purple Cow teaches us it's okay to take a risk.  In fact, it's pretty essential.  If what you're doing feels uncomfortable and no one has done it before, chances are you're on the right track. 

If that's you, keep going.

DENVER HAS LOWEST DELINQUENCY RATE OF ANY MAJOR CITY IN THE UNITED STATES

Real estate research firm CoreLogic has released its spring 2012 report on mortgage delinquencies, and its findings are great news for Colorado:  Denver has the lowest mortgage delinquency rate of any of the 25 largest cities surveyed for the report.

In both the Denver metro area and the entire state of Colorado, only 1.4 percent of all homes with mortgages were in foreclosure, which generally means that three or more consecutive payments have been missed.  Only four states reported lower delinquency rates – North Dakota, Nebraska, Alaska and New Jersey. 

Chicago had the highest foreclosure rate of the 25 cities surveyed, with 6.4% of all mortgages in foreclosure. 

The spring report is a far cry from just a few years ago, when Colorado actually led the nation in foreclosures per capita during 2005 and 2006.  It certainly appears that we have worked through the cycle, and as report after report declares the Denver metro area to be a seller’s market, there are expectations of much better days ahead.

MAY MARKET UPDATE - RECOVERY IS HERE

The tightest real estate market in at least a decade got tighter last month, as inventory continued to fall to unprecedented levels and buyers continued storming the market as Denver's powerful real estate recovery rolled forward.

At the end of April, there were just 10,254 homes for sale in the Denver MLS, a drop of 43% from one year earlier.  A total of 4,721 homes went under contract during April, up from 3,775 during the same period a year ago.

But it together and you have a 43% drop in listings with a 20% increase in the number of contracts, pressure which is driving prices higher below $400,000 and sparking bidding wars through much of the metro area.

Below $250,000, the change is even more remarkable.  The number of listings for sale - 2,818 - is down 65% from the 8,007 homes that were on the market in this price range one year ago.  A total of 4,675 homes are currently under contract in this price range, which basically means three out of every five homes listed for sale below $250,000 is currently under contract.

The overall absorption rate, which was 5.37 months one year ago, is at just 2.22 months today.  Below $250,000, the absorption rate is just 1.37 months, which means at the current pace of sales it would take less than six weeks to sell every single home on the market today, regardless of price or condition.  

Foreclosures are now back to 2002 levels in Colorado and the state currently ranks 44th in the country in terms of mortgage delinquencies... a far cry from when Colorado led the nation in foreclosures per capita during 2005 and 2006.

First-time buyers continue pouring into the market, driven by soaring rents and incredibly low interest rates that make owning significantly cheaper than renting in most parts of town.

A shaky economy has capped the so-called "move up" market, which means there are fewer privately owned homes coming on the market at the same time bank-owned inventory has dwindled.

And, in an interesting twist, many of the more than 40,000 households that were foreclosed on back during those dark days of 2005 and 2006 are cycling back into the market, eager to own once again but approaching things much more conservatively this time around.

Add it all up and you have the formula for an amazing inventory crunch, the likes of which we haven't seen in many years.  As long as rates stay low, rents keep rising and builders stay mostly on the sidelines, you can expect it to continue for some time to come.

LIFELINE ON THE WAY FOR CONDO MARKET?

Three years after the condo market brutally tanked, hope may be on the horizon.

FHA has announced that it plans to revisit the drastic steps it took in 2009 to effectively get out of the condo market, steps that killed the primary funding source for condo loan in the US and sent values plummeting as a result.

Due in large part to the high number of investors and speculators who used FHA financing to fuel a condo bubble in cities like Miami, Las Vegas and San Diego during the boom, FHA announced in 2009 a new set of rules that essentially disqualified 60% to 70% of the nation's condo developments from FHA financing.

These rules included:

· Not lending in developments where FHA insures more than 30% of the units

· Not lending in units where owner occupants occupy less than 50% of the units

· Not lending in developments where 15% or more of the owners are delinquent in their HOA payments

· Not lending in units where a single investor owns 10% or more of the units

· Not lending in units where the HOA isn’t withholding sufficient reserves

Because FHA makes 40% of the nation's mortgage loans, and over 60% of the loans below $200,000, the loss of FHA financing was a crippling blow to condo communities and condo owners alike.

In an ironic (but predictable) twist, FHA's attempt to shut down future condo lending also sent hundreds of thousands, if not millions, of existing FHA loans into foreclosure, further sinking the agency in red ink.

Regulators have now announced, however, that FHA plans to look at easing up on these rules as the housing market improves and the economy recovers.  That would be a huge lift for the millions of condo owners who have been holding on, waiting for some good news in the most distressed sector of the US housing market.

THE BIG FIVE

Home inspections can be highly stressful for all parties involved.  There is no such thing as a "perfect" home, and there never will be.  

Generally speaking, a thorough home inspection should last two to three hours, and it will address the key components of a home, including the roof, foundation, HVAC, plumbing and electrical components.

There may also be comments about the paint, siding or drainage, as well as comments about commonly ignored areas of deferred maintenance.

Most inspectors will tell you, however, that home inspections really boil down to five key things:  foundation, roof, HVAC, plumbing and sewer line.

The "Big Five", so to speak, are the items that can make or break a deal, because they affect the overall health of a home and repairs can cost thousands and thousands of dollars.

How buyers and sellers respond to inspections is subjective.  Some people take things with a grain of salt, while others have severe reactions when they are informed of flaws or potential flaws that exist with a home.

Inspections are a trying time, and this is really where a skilled agent is needed to hold a deal together.

Ignore or miss something big, and brace for an angry outburst (or potential litigation) from the buyer somewhere down the road.  Nitpick the seller to death on small things, and the entire deal may come unraveled when the seller decides to take a hard line.

The market plays a role in how this process plays out, as well.  In the market of 2008, 2009, 2010 and even the first half of 2011... sellers were often desperate to sell and they would accommodate some large quests.  Today, however, with buyers swarming the market and inventory at record-low levels, buyers must be much more realistic about what they ask for.  Many sellers do not fear going back on the market when homes are selling in days instead of months.  

How buyers, sellers and agents handle the inspection process is often the most critical component in holding a deal together once a home has gone under contract.  And it is one of the key reasons why experience is such an important factor when choosing representation.  Hire an agent who has seen it before, and chances are he or she will come up with solutions.  Hire someone who hasn't, and brace for a bumpy road.

The key is to assemble a competent team, giving unbiased assessments, with no agenda other than protecting the client's interest.  If you get that right, chances are excellent that you will survive the inspection process.

THE CHANGING FACE OF NEGOTIATIONS

Does the current red-hot nature of the Denver housing market affect negotiations?  Of course.

In a market where sellers are routinely seeing multiple offers, buyers need to bring their highest and best offer upfront.  No more lowballing, hoping to go back and forth for a few days before arriving at a middle ground.  That’s so 2011.

The new model works like this:  a home comes on the market, six buyers see it, three write offers.  One lowballs, one comes in near list price, and one comes in over list price.  Instead of negotiating with all three, the sellers quickly discuss qualifications with their agent.  Who’s got the largest downpayment?  Who has a reputable lender?  Does the agent on the other side actually close deals?  If it’s the buyer with the highest offer, the game is over right there.

Why not spark bidding wars?  Sometimes they happen.  But good agents know one of the primary challenges in this market is actually getting listings to appraise for what buyers are offering.  That’s because appraisals look backwards, and things are changing so rapidly in this market it’s hard for appraisers to keep up.  If the comparable sales are from November, January and March, chances are the older sales are going to be for less, because they were sold in a different type of market.

That’s not to say you can’t get a great deal.  It’s just going to take longer, and you’re going to need to be more patient.  Lots more patient. 

If you want to actually buy a house in a reasonable period of time, you’re going to have to change your thinking. 

That means you come in hard with your best offer quickly, and make it easy for the seller to say yes.  Does that sound different than what you’ve heard for the past five years?  Absolutely.  Because this

market is absolutely different from any we’ve seen in the past six or seven years. 

Today’s successful buyers are now playing to win, instead of playing not to lose. 

BUYERS HAVE LOST THEIR FEAR

More evidence that the real estate market in Colorado has turned… homes that were listed and didn’t sell in 2009, 2010 and 2011… are selling in 2012.

Last week I lost out in a multiple offer situation on a home in Littleton that was listed for six months in 2011 at $205,000, without any takers.  It was relisted for $200,000 on April 14 and went under contract, above list price, four days later, with multiple offers.

The Littleton home didn’t magically change.  It didn’t get new windows, new carpet or a new roof.  No one added new landscaping or fresh paint.  The only thing that changed was the market.

And that’s the big difference in 2012.  Whereas buyers for the past five years have often chosen to deliberate, buyers in 2012 are taking decisive action.  At least the buyers who are actually putting homes under contract, that is. 

When working with buyers, it is increasingly important to make sure your clients understand the dramatic shift that has taken place since last summer.  The way buyers shopped for a home in 2011 is not the way they are shopping for homes in 2012. 

Lowballing is out.  Highest and best offers are in.  Deliberation is out.  Decisiveness is in.  Fear is out.  Confidence is in.

A percentage of the market is still working under an expired paradigm.  And that’s okay, to start.  It's hard to change your thinking, when defensive, fear-based attitudes about housing have been the norm since 2007.

If you are purchasing something as important as a home, you must have confidence about what you are doing.  But after writing two, three, four, five failed offers… many buyers eventually figure it out.  The home buying landscape is different in 2012.

I have used the analogy repeatedly that the housing market of the past five years has been like a sick, bedridden patient.  Foreclosures and short sales have been like a serious illness that kept the patient fevered and motionless.

But distressed homes now make up just 18% of the market, down from 45% of the market 18 months ago.  You can’t foreclose on homes forever, and truth is, since 2008 the quality of home buyer has improved dramatically because of far stricter underwriting guidelines. Most neighborhoods have stabilized, with the exception of the very high end of the market.  Values in many parts of town are (what's that word?) appreciating.

The night is almost over.  Dawn is breaking on the Denver housing market.  After five long years, daylight is coming up over the horizon.

GOODBYE TO THE LOGICAL MARKET

I’ve finally come to terms with it.  The logical market is gone.

Let me explain.

If you are someone whose thoughts are dominated by logic… if you are someone who uses deep, thoughtful analysis and caution when preparing an offer… if you are intent on paying less than the last guy who bought a home down the street… you have missed this market.

It doesn't mean you're a bad person.  I'm just like you.  I am a "high logic" thinker, and if you have ever sat down with me and I didn't (at some point) break out a spreadsheet, consider yourself lucky.

But logic and deliberation are slow, and this market is fast.  During the first quarter of 2012, I have written more than a dozen "failed offers", most often the result of using painstaking analysis of past sales and historical trends.  The people who are actually getting homes under contract are thinking about tomorrow, not yesterday.

Inventory is down 42% market wide from a year ago, and the number of homes under contract is up 32% from a year ago.  Buyers are everywhere and the foreclosures are gone.  Short sales are now just 10% of the market.  Very few people are moving up because they still carry the bruises of the past six years.  Lots and lots of buyers, no sellers.

Do you follow that?

Let me show numbers from the Denver MLS:

Number of homes FOR SALE April 2011:  17,707

Number of homes FOR SALE April 2012:  10,325

Number of homes UNDER CONTRACT April 2011:  5,768

Number of homes UNDER CONTRACT April 2012:  8,374

One year ago, there were 3.44 homes on the market to each one under contract. Today, there are 1.20 homes on the market to each one under contract.

I have used the word “stunning” repeatedly over the past several months to describe this shift taking place in our market.  If I had a stronger word to use, I would use it.  So I’ll just say again, this is STUNNING!

MSN Real Estate generated some buzz for Denver last week when it reported that the Denver housing market was the fastest recovering real estate market in the United States.  Based on what I’m seeing, I don’t dispute that for a second.

Remember that Colorado led the nation in foreclosures per capita in 2005 and 2006, while the rest of the country was still in party mode.  Guess what?  That first generation of foreclosed homeowners is now cycling back into the market, competing with all the first-time buyers and disillusioned renters who are all looking to lock in a low fixed payment (with rates in the 4's) for the next 30 years.  

That's called foresight, not hindsight.

Recovery is here, and it’s now.  And it will be totally clear before long that buying real estate in 2012 was a prudent, well-timed moved for everyone with the courage to stop looking backward and start looking forward.

APRIL MARKET UPDATE – THE MIDDLE OF THE MARKET CATCHES FIRE

For all of the talk about the “sudden recovery” in the Denver housing market, the truth is that things began to improve noticeably all the way back in August of last year.  On September 15, 2011, I wrote a post on this blog entitled “Where Has the Inventory Gone?”  Seven months later, I long for the number of homes we had for sale back in September!

My April market report shows more of the same – falling inventory levels, increased demand and absorption rates that are dropping to unprecedented levels. 

Absorption rates, if you’re new to this space, are a hypothetical calculation real estate economists use to determine the strength of activity in a market.  A six month inventory of homes (which economists use as the benchmark for a “balanced” market) means if you had 60 homes for sale on the market and 10 went under contract in the past 30 days, it would take 6.0 months to deplete that inventory.  That would be a normal, healthy market.

Now check out what’s happened to absorption rates at these price points over the past year:

April 2011 absorption rate for homes below $250,000:  4.43 months

April 2012 absorption rate for homes below $250,000:  1.46 months

April 2011 absorption rate for homes between $250k-$400k:  7.33 months

April 2012 absorption rate for homes between $250k-$400k:  2.09 months

April 2011 absorption rate for homes between $400k-$600k:  11.34 months

April 2012 absorption rate for homes between $400k-$600k:  3.31 months

For those who like percentages, that's a 68% drop in market time for homes below $250,000; a 71% drop in market time for homes between $250k - $400k; and a 72% drop in market time for homes between $400k - $600k.

Read any book on real estate investing, and you’ll see that one reason people like real estate is that values tend to move up or down more slowly than they do in the stock market.  It's more stable, more predictable, and less stressful.  But when you look at these numbers, it’s hard to imagine much downside in pricing right now when you see how flooded the market is with qualified buyers.

And who are these qualified buyers?

First and foremost, we have first-time buyers.  Tons of them.  For the past five years, the normal ebb and flow of new homeowners coming into the market has been disrupted by the bad economy.  Kids living at home longer, young people renting instead of owning, less upward mobility in the economy, and nearly 100,000 homeowners in Colorado losing their homes to foreclosure.

Today, with prices generally 10 to 15% off the peak and the first generation of foreclosed homeowners cycling back into the market, buyers literally are everywhere.

And with short sales and foreclosures, which made up over 40% of our market 18 months ago, now accounting for just 18% of housing inventory, there is a huge shortage of homes for sale to accommodate this crushing demand.

Make no mistake, prices below $300,000 are rising in almost every area of town.  Yes, I said that.  Values are RISING!

And between $300,000 and $600,000, there is more stability (a precursor to appreciation) than we have seen since 2007. 

Housing is a leading indicator, and the snowball of positive news in the Denver housing market bodes very well for our city, our state and our economy during the balance of 2012 and beyond. 

These numbers demand your attention.  The shift is so dramatic, so sudden and (still) so underreported that the real economic impact of this improving market is nowhere close to being felt.

DAYS IN MARKET

In real estate, sellers often track a statistic knows as “Days on Market”, which simply calculates how long (on average) homes stay on the market before a ready, willing and able buyer comes along.

The new statistic to watch, however, is what I call “Days in Market”, which is the period of time it takes a buyer to find a home, write a contract and (yes) actually go under contract in a market where inventory is down by more than 40% and buyers are literally swarming over new listings.

I closed a transaction this morning with clients whom I first met 753 days ago (March 15, 2010, to be exact).   And while their case is extreme, there is no denying that it is taking buyers much longer to write successful contracts because of the lack of inventory and the intense competition.

I have other buyers right now I have been working with since January of 2012; December of 2011; October of 2011; and March of 2011.  I have had buyers drop out of the market this year after spending months pursuing limited inventory.  And I have had sellers who failed to successfully sell their homes in 2010 or 2011 find full price offers coming their way in days (not weeks or months) so far in 2012.

Demand changes the rules, and the rules in this market have changed.

The logical market is over.  If you see a home listed for $200,000, and the recent comps are $191,000, $193,000 and $194,500, you might find it “logical” to write an offer at $195,000 (or perhaps less).  Here’s the problem:  time and again, by the time you write that offer someone else has written one at $206,000.  Game over.

I do not advocate offering more for a home than it is worth.  And for years, I have built a very loyal clientele by injecting huge doses of logic, common sense and patience into the home buying process.  It’s simply too big a decision to get wrong.

But here’s the thing – the numbers always tell a story.  And the numbers in this market (more buyers than sellers, hardly any foreclosures, and interest rates in the 4’s) make the buying decision so obvious to people that it’s easy for buyers to write “over list” offers. 

It’s okay to take your time.  It’s okay to be patient.  But when you see what you’re looking for at a price that isn’t crazy, you had better be prepared to strike fast.  Because as you read this, someone else is already writing that offer.