Photograph by Kathy De La Torre
Bill Gorman, an agent with Coldwell Banker, recently sold this home on 3.3 acres in Saratoga for just under $4 million. The color brochure used to promote the home indicated that the design was inspired by the "grandeur of Windsor Castle."
Realtor Reality
In today's hot real estate market, agents must hit the road running. Houses often sell within days of being listed.
By Nathan R. Huff
This is the final article in a three-part series about the impact of the Silicon Valley real estate boom in the West Valley. Today's story looks at the boom from the perspective of real estate agents.--Editor
The West Valley's red-hot real estate market is leaving sellers beaming and buyers brooding, as properties appear and disappear--usually for over the listing price--in a matter of days. While the area's housing stock is slowly increasing, buyers seem doomed to face an auction-esque home-buying experience for a good while to come. Sellers, on the other hand, continue to reap huge rewards as benefactors of a robust economy, limited housing inventory and a multitude of eager buyers with fat wallets in hand.
So what does that mean for the real estate agent? Realtors walk both sides of the fence, guiding their home-hungry buyers through a fiercely competitive, cash-centered market, while helping sellers sift through dozens of offers.
Veteran Los Gatos Coldwell Banker agent Nathera Mawla sums it up well: "It's been wonderful," she says, adding in the same breath, "It has not been an easy market."
For experienced agents, long hours, local knowledge and quick response means big money in the rapidly appreciating property market. But for anyone representing primarily buyers, particularly new agents who lack clientele, it's tough to close a deal these days. While statistics show even more properties changing hands this year than last, the incredible speed at which homes are bought and sold leaves inventory low and constantly changing.
Last year, over 100 more properties changed hands than the year before, but because of the speed of transactions, a substantial inventory never developed.
The seller-centered market has reached the point that homeowners not only can choose from a slew of offers above the listing price, they can also afford to eliminate anyone who is attempting to buy a home in the traditional way--putting 10 to 20 percent down and financing the rest.
Tim O'Halloran, a Los Gatos High School graduate and agent for the independently owned Property Network in Campbell, says these days he can't even work with buyers if they can only put down the standard 10 to 20 percent. Even with buyers who are ready to lay down a larger percentage, success is never guaranteed.
"You want to work with listings, preferably, because you're going to get paid," O'Halloran says. "Working with buyers, you can go six months without getting anywhere."
But for agents like O'Halloran, who deals almost exclusively with referrals and repeat clients, the market is still lucrative, if frustrating at times. Both the buying and selling agents receive three percent of the sale price of the home. While most agents share commissions with their brokers and/or offices, in a market where many homes are going for $1 million or more, commissions are still hefty.
Photograph by Kathy De La Torre
Michael Frangadakis, a Remax real estate broker and his assistant Robin Wickman recently sold this Los Gatos home for just under $1 million.
Thirty-year-old Doug Perry recently quit his part-time job at Steamer's to work full time for Alain Pinel in Los Gatos. Perry chose to go into real estate four years ago because he says he "hates commuting" to high-tech jobs, and being a real estate agent is one of few alternative ways to make a healthy income. While he admits the work is difficult, he can't see doing anything else.
"Six percent is a big chunk of money, especially when you're talking about properties in Los Gatos and Saratoga," Perry says. "The business is out there if you know how to find it."
Saratoga Alain Pinel agent Brenda Miller, a 21-year veteran of the West Valley, has over $30 million in sales since Jan. 1, her best year ever. She says more and more families are looking for ready-to-buy [spec] homes or tear-down houses on prime lots. "I don't really see it slowing down," Miller says. "A lot of the younger families moving in with children are hoping to stay forever."
These younger families and couples are entering a market where cash is king, while offers contingent on financing don't even make it to the table. In the Silicon Valley, cash offers aren't hard to find.
Michael Frangadakis, an agent, broker and appraiser, says that not only are there plenty of buyers out there with cash in hand, sellers are regularly receiving well beyond the asking price. Frangadakis, who works through Los Gatos' Remax office, says most serious offers come in at a minimum of 10 percent over the listing price.
A home in Palo Alto that was recently listed for $925,000 just sold for $2 million; the buyer paid cash. Sometimes, he says, people will flex their financial muscles just to ensure no one else has a chance.
"It's almost like a status or ego trip I'm noticing," Frangadakis says, "whereby buyers are saying, 'I have more stock options than you do, therefore I'm eliminating you as competition.'"
Frangadakis says the reason the market is being flooded with buyers has a lot to do with the stock-rich economy. People who have made a lot of money in a short period of time feel that it may not last, he says, so before they lose it they want to make a more secure investment.
In response to the demand, prices have skyrocketed. In the last year, the average sales price has increased nearly $300,000 in Los Gatos; in Saratoga the increase was almost $1 million. As of March, the average sales price in Saratoga and Los Gatos was $1.25 million and $2 million. The median price in Monte Sereno was $2,118,000 in March, compared to $960,000 one year earlier, an increase of 120.6 percent.
While overbidding may mean quicker sales and larger commissions, the trend also limits the number of people who can participate in the real estate market.
"A lot of times buyers get so competitive they end up with a price that's probably more than the house is worth," Perry says, adding that banks will only finance the appraised value of a home. "The buyer then has to come up with the difference."
Photograph by Kathy De La Torre
Michael Frangadakis, and his assistant Robin Wickman, outside a recently sold Los Gatos home.
Vijay and Anita Ratman recently purchased a home in Saratoga after being outbid four times in the last year. They moved out of their two-bedroom apartment and into the four-bedroom, one-story house at a cost of $2.35 million, which was $750,000 over the asking price. Still, they said they were happy to find a home.
And price isn't the only sphere in which sellers have control. Back in the old days, about five years ago, buyers first negotiated an offer and then went about securing financing. According to agents, in today's market no serious buyer would even contemplate showing up at an open house without preapproved financing, much less making an offer.
Realtors say they are crafting buyers' offers in creative new ways, frequently offering to take on responsibilities that are traditionally the homeowner's.
Perry says its increasingly common for buyers to offer sellers "free rent-back," which allows sellers to continue living in the home after escrow closes while they find their own new home and prepare to move. Buyers also are paying some of the closing fees which used to fall on the seller, as well as paying for the first-year home warranty. The warranty, normally paid by the seller, would cover specific major problems that may occur with a home during its first year under new ownership.
The new sellers' market has focused agents away from selling the property, which is virtually guaranteed, toward ensuring the seller gets the most possible for the property. According to some agents, this may mean a purposely low listing price on a property to incite a bidding war, a practice other agents frown upon.
It also makes competition for listings fierce. The majority of listings go to veteran agents, thanks to referrals or previous dealings with the seller. Other listings are obtained through more exhaustive techniques.
Although Perry "hates cold-calling," some agents make as many as 50 calls a day asking residents if they might be interested in selling their homes. Others hand out flyers, usually showing how much homes are selling for in that particular neighborhood.
O'Halloran says he quit making cold-calls five or six years ago, after developing a solid customer base. He says one result of cold calling and "neighborhood farming" techniques is a negative public perception of Realtors.
"We're not very highly thought of by the community," O'Halloran says, citing polls on the public perception of real estate agents. "Realtors are a little above attorneys, but we're pretty much grouped with car salesman, attorneys and telemarketers," he says.
Exclusive listings, in which agents within a company match up their sellers and buyers without ever publicly listing the property, is also fairly common, and allows for quick sales and commissions. Again, not every Realtor believes this to be an ethical way of doing business. Some argue that by not exposing a home to the public, you eliminate potential bidders and shortchange the seller.
Photograph by Kathy De La Torre
Carol Burnett (center) was recently named a vice president at Alain Pinel Realty in Saratoga. The office covers 10,000 square feet and boasts 120 real estate agents.
Advertising, of course, is the more traditional way to increase sales. As the pages of this newspaper indicate, many real estate agencies put heavy stock in their advertising. Advertising serves multiple purposes. For one, it allows sellers to reach a wide audience and buyers to get a view of what's available.
But according to Frangadakis, the primary purpose of advertising is to attract clients. While very few people who respond to a newspaper ad actually buy the property they call about, many become clients.
Carol Burnett, newly named vice president at Saratoga Alain Pinel, is a proponent of advertising. "Your ad represents you as an individual, the office and the company," Burnett says. In early April, Burnett switched over to Alain Pinel from Coldwell Banker, saying the regional company had a more local focus; 27 agents followed suit. She now pores over every detail of her company's weekly ads. "Sellers like to see what companies would strongly position their properties," Burnett said.
Not every agent sees advertising as being so valuable. For Realtors such as O'Halloran, who work exclusively with clients and referrals, attracting new clients isn't important. O'Halloran says word of mouth keeps him busy enough, and though he understands companies are trying to buy and sell in big numbers, he's not convinced the high-exposure technique is neccesarily effective.
No matter what approach is taken, it adds up to long hours and hard work, but rich rewards. "Being a Realtor is exciting at times," Saratoga Coldwell Banker agent Bill Gorman says. "But there's a lot of drudgery and commitment and limitations on your personal life that go with it."
New real estate agents feel the pressure disproportionately. As most experienced Realtors explain, the market operates on the "80-20" principle--80 percent of the sales are made by 20 percent of the agents. New agents, who haven't had the chance to build up a client base that generates referral customers, must work almost exclusively with often first-time buyers.
"They're grasping for straws trying to find buyers," Frangadakis says. Once a buyer is found, agents must pay constant attention to the listings and respond quickly when the right home becomes available. "It's like dropping raw meat into a shark tank," Frangadakis says.
Gorman agrees. "It's not easy for a new person in the business; I don't think it's ever been," he says. Gorman says it takes most new agents several years to begin building a client base and learn how to compete in a very competitive market.
Mawla says the market can be very frustrating for both agents and their buyers. Buyers become attached to homes they're bidding on, and when their offer is passed over, it's very disappointing. "Emotionally, it's devastating," Mawla says. "I've seen buyers who cry." After making several unsuccessful offers, unhappy buyers will sometimes switch agents.
Buyers and sellers alike now have the option of switching to an entirely different kind of agent--their home computer. While almost all real estate companies maintain web pages, the market is beginning to see web-based agencies that offer clients significant commission savings.
ExploreRealty.com, a Bay Area real estate company, was launched last fall. For buyers, the company offers a complete database of homes on the market, loan help, appointments with selling agents and round-the-clock help with negotiations and transactions. Finally, of the 3 percent ExploreRealty.com collects from the seller's broker, the Internet company keeps $3,500 and refunds the remainder to the buyer.
Photograph by Kathy De La Torre
Harry Murray and Carol Burnett, vice presidents of Alain Pinel Realty in Saratoga, review contracts.
For sellers, the company appraises the home, lists it, assigns salaried agents and promotes the home with 360-degree virtual tours on the web. Sellers are charged $3,500, in addition to the 3 percent the seller must pay the buyer's agent.
The company just closed escrow on its first sale, and vice president of marketing Michael Needham says the number of people registered on the site is growing.
"The more people see what a good deal this is and how it's actually better for them because they have more control, we're just going to have a flood of people," he says. "No one is going to want to do business the old way."
Needham says the company's clients are mostly tech-savvy individuals who have little time during normal hours to shop for homes. He said the flexibility and control the process offers to participants, combined with substantial savings, could eventually make traditional real estate businesses a thing of the past.
But local agents at both large and small firms aren't feeling threatened by net-based real estate agencies--yet. Realtors have varying views on the usefulness of the Internet. With the current high-paced market in particular, many complain that buyers come in with outdated listings.
"It's a complete waste of time in the real estate business," O'Halloran says. "Human beings are normally social animals. I don't see how the Internet is going to have that much of an impact."
Other agents laud the role the Internet plays in prepping buyers and sellers for the market. Burnett says the web gives people an idea of what properties are selling for, even if the information is slightly dated.
"People today love getting info," she says. "The benefit the web has is for people working 12 to 15 hour days, and maybe the only time they have to do this is 1 a.m."
Given the speed at which properties appear and disappear, even Realtors have to maintain schedules almost as flexible as the Internet, and many do. In Saratoga, when Sally and Gene Antonides mentioned to a neighbor that they were thinking about moving, a buyer showed up the next day with ready cash. That was a year ago.
"Realtors really need to be committed 24 hours a day," Burnett says. "Properties can come on and off the market without Realtors ever knowing."
However, out-of-breath agents may be getting a break. The market is finally showing signs of slowing and the inventory of homes has increased in the West Valley. On Jan. 2, there were only 19 homes on the market in Saratoga and 33 in Los Gatos. As of April 24, the numbers had risen to 63 homes in Los Gatos and 62 in Saratoga.
Whether that will translate to lower prices is debatable, though. Buyers still far outnumber sellers, which means agents will continue to compete for listings and be able to pick and choose buyers. But despite the extra work, not many Realtors are complaining.
"There's been a lot more inventory just recently, and that means a lot more of a level playing field," Perry says. "If you look at the big picture, things are great."
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