How to tell if an income property is over-priced:

Investing in real estate is riskier than investing in a Certificate of Deposit, so why would an investor be satisfied with buying income property at a 3%, 4%, or even a 5% cap rate?

Real estate investment opportunities that pencil out to low cap rates like these are overpriced, because investors can earn the same rates of return in a safer investment vehicle. Investments should earn more of a return for assuming the increased risks associated with real estate investments.

With a high-yielding CD account, money can earn between 4 – 5%, safely without lifting a finger. With real estate investments, an investor assumes more work, more risk, and therefore, warrants more of a return on money invested. This assumption is practical, and makes sense from an investor's perspective.

Experienced investors of all types know that with increased risk, they can (and should) expect more of a return on their invested money. You know you are looking at an overpriced income property, if it pencils out to a cap rate of 3 – 5%. Buying properties with low cap rates like this does not make sense, because an investor can earn these rates in a safer high-yielding CD account.

CD rates as of 12/09/2006 (source cited from bankrate.com, for informational reference only.)

TYPE
TODAY
+/-
LAST WEEK

6 month CD

4.64%
4.66%
1 yr CD

4.83%
4.86%
5 yr CD

4.70%
4.72%
1 yr IRA CD

4.64%
4.66%
5 yr IRA CD

4.59%
4.60%

Smart investors compensate themselves for the added risks they assume by establishing higher performance expectations for riskier investments, including real estate.

Buying overpriced income properties does not make much financial sense. Properties that produce cap rates under 5% is overpriced, in all honesty, because you can make these kinds of returns in a safer CD investment. Risk and reward go hand in hand.

Complacent Bureaucracy In Washington State!

Dear real estate consumers of Washington State:

We cannot depend on state agencies to do their job of protecting our freedom of choice. Our state Attorney General’s office is under the impression that some "exclusive dealing" agreements have pro-competitive benefits.

I fervently disagree.

It was disturbing to read the following statement from Jonathan A. Mark, an Assistant Attorney General at the Office of the Attorney General Of Washington State.


"While exclusive dealing can, under a particular set of circumstances, give rise to antitrust concerns, it is not presumptively illegal to enter into exclusive dealing contracts. In fact, antitrust law recognizes that, in many circumstances, exclusive dealing contracts can have significant procompetitive benefits. Consequently, exclusive dealings
are not disfavored under the law and generally constitute an antitrust violation only when it lessens or substantially forecloses competition in a particular market."

The truth of the matter is that Seattle.com lists:

1. Thirty-three businesses under "Dining"

2. Twelve businesses under "Hotels"

3. Eight businesses under "Attractions"

4. Thirteen Seattle travel guides under "Visiting"

5. Fifty-two businesses under "Nightlife"

Yet under their "real estate" category they exclusively refer all inquiries to only ONE company for an entire region.

This does not make any sense. I know that there are several other exclusive buyer agencies, aside from our own, that operate in the Puget Sound region of Western Washington. Below are some of them:

Amiad & Associates, Exclusive Buyers Agency - Vashon Island
www.vashonislandrealestate.com


The Buyer's Agent, Dream Drafters Realty - Seattle, Bellevue, Everett

www.dreamdrafters.com


Abbey Realty Exclusive Buyer Representative - Ft. Lewis area www.richgrow.com


Buyer's Data Realty - Exclusive Buyer Brokerage - Whidbey and Camano Islands
www.buyersdata.com

These companies only work with buyers.


This was my response to Mr. Mark's disturbing statement:

"Dear Jonathan A. Mark,

Your lack of concern is disturbing. Misconstruing the term "exclusive dealings" does not absolve your responsibilty of protecting consumer choice and preserving free competitive enterprise for all businesses.

You have failed Washington State consumers and the small businesses who have a right to a free and competitive marketplace. Your complacency is a disservice to the people you are charged with serving.

I have full faith that consumers would disagree with your office that exclusive dealings has any procompetitive benefits to them, as it diminishes their Right to freedom of choice. We shall let the people decide for themselves."

Final Note:

Please know, that despite bureaucratic complacency, you CAN protect your Freedom of Choice and neutralize biased referral sources by doing your own research, developing your own hiring process, and setting up interviews with a few good companies on your own. Only then will your freedom of choice be preserved, and the power taken away from those who do not respect it.

The Disappointing Truth About NAEBA

It is official. Our agency will not be renewing our membership with NAEBA (National Association of Exclusive Buyer Agents) in 2007. There are a few reasons for this, however, I will stick to the main point.

I was excited to learn about this organization, at first, because EBA's have limited avenues for support with fellow colleagues. I was hopeful that I would find camaraderie, support, enhanced growth opportunities, and the chance to compare notes about the challenging business of exclusively working with real estate buyers.

With so few of us out there, one would think that there would be more unity within the organization, but there is only political favortism towards senior members. This is especially true when a new member operates in the same market area as a senior member. You will quickly find yourself outside of a deeply engrained clique, that tends to play political games and favoritism. The instability of this organization exists not only with new members, but also from within its administration.

Here is what one member had to say about his experience with NAEBA:

"What has been most disturbing to me over the years is the amount of internal politics and ego battling over the years for various positions or policies within the organization. It turned me off and caused me to drop my membership for a long period of time. I am most disturbed and embarressed that friends of mine became victims of the internal political struggles that also prevented NAEBA from emerging as a more potent leader in buyer agency and making good on its commitments to membership."

--Barry L. Nystedt, MCBA, CEBA - Buyer Brokerage Realty, Newton Massachusetts--

Final Note:

My experience with this organization has been nothing short of a disappointment. I am relieved to be at the end of a most dissatisfying affiliation. With this thought in mind, I now speak to my non-member EBA colleagues...

You are better off investing your hard-earned $300 into your marketing budget, while remaining true to the advancement of exclusive buyer agency in the real estate industry.

Buyer Beware: NWMLS Form 41A "Buyer Agency Agreement"

This is a boiler plate form commonly used by most members of the NWMLS. This includes most real estate professionals in the Greater Puget Sound. I do not like NWMLS Form 41A, specifically, the second clause because it asks the buyer to consent to dual agency. Why would a buyer agree to such a thing, when hundreds of thousands of dollars are at stake? Real estate is not a small ticket item. Real estate is a significant purchase with no room for imposed risks, such as, those risks imposed by Form 41A. Dual agency is a conflict of interest that should be avoided.

Here is the language contained in clause #2 of NWMLS 41A:

“Buyer agrees that if Broker locates a property that is listed by one of Broker’s salespersons other than Agent, then Buyer consents to Broker acting as a dual agent. Buyer further agrees that if Broker locates a property listed by Agent then Buyer consents to Agent and Broker acting as dual agents.”

It is unwise for buyers to consent to dual agency in any sense, because it is a conflict of interest. A well-informed buyer would be wise to draw a line through this language.

Our company does not use this form.

Does Agency Really Matter?

Buyers are best served by exclusive buyer agents and brokers. These dedicated buyer advocates do not take listings. They help buyers avoid Dual Agency, which is a conflict of interest. For example, a buyer finds a property listed with their agent’s company, the property is listed with a different agent within the same company, the company becomes a Dual Agent.

Dual agency becomes a problem when issues arise between buyer and seller. The company cannot fully go to bat for either side, because dual agents are required by law to remain neutral to both parties. Since problems can and do arise between buyers and sellers, it is better for buyers to eliminate the possiblity of such conflicts of interest before stepping into the market. Engaging the services of an experienced exclusive buyer’s agent is a good way for buyers to avoid dual agency and its inherent risks.

As the general public becomes more aware of these risks, we will see more buyers come to know and understand the value of buyer agency agreements; especially, exclusive buyer agency agreements, which is used to engage the services of an exclusive buyer agent (EBA).