By Michael Simpson
In the commercial real estate industry, both buyers and sellers are currently enjoying favorable market conditions. Whether it’s industrial space, office product or the retail sector, the basic fundamentals, such as a diversified economy, low vacancy and growing number of start-ups, all continue to point to consistent growth in the future.
As I discussed recently with NSDCAR members, I’m seeing sellers receiving multiple offers with bidding frenzies. I’m seeing buyers attracted to available properties with low cap rates and seizing historically low interest rates. Indeed, in its 2018 Investors Intentions Survey, CBRE Group listed San Diego as the nation’s 11th most favorable metropolitan market for commercial investors, which was a six-spot improvement from 2017.
If a slowdown is on the horizon, it will probably occur because of rising interest rates, slowing NOI (net operating income) growth, pressure on capitalization rates, fewer loan maturities and historical real estate cycles (we may be overdue for a small bump).
However, at the same time, I believe the future is bright because of continued economic growth nationwide, large amounts of investment capital looking for a home and recent favorable tax reform. Other positive signs include increasing number of building permits, initial claims for unemployment insurance are dropping, help-wanted advertising is up and consumer-confidence metrics are rising.
As I also emphasized recently at my NSDCAR class, I believe that opportunities abound for residential real estate professionals to expand into the commercial sector. You may have heard that residential agents cannot succeed in commercial real estate. I strongly disagree.
There’s nothing holding back a residential agent from also working in the commercial sector (I call it “resimercial”). At the very least, residential agents should have a working knowledge of the commercial sector so they can communicate with clients interested in investment property.
For example, do you know about the impact of rent on value (income approach) and calculating cap rates or gross rent multipliers? Can you easily discuss return on investment, vacancy costs and expense factors? If you don’t, then your investor client may go to someone else.
When I talk to potential investors, I ask a series of qualifying questions to determine their level of experience. Among the questions:
- What’s your risk tolerance? Do you want to buy and hold, or do you have an exit strategy?
-- Do you have a certain split requirement?
-- Are you looking for a property with upside potential, a value-play or do you prefer something plain vanilla?
-- Do you want a turnkey property with high occupancy, long leases and low management costs, or are you looking for a fixer-upper to add more value and later increase the rents?
-- Are you looking to invest horizontally or are you looking to invest vertically?
Feel free to contact me at email@example.com with your questions.
Michael Simpson is founder and senior instruction of the National Commercial Real Estate Association, a company offers commercial-investment real estate training solutions and consulting. He is a past director for the California Association of REALTORS® (C.A.R.) and THE Pacific West Association of REALTORS®. His certifications include National Commercial Real Estate Advisor (NCREA), Certified Real Estate Investment Consultant (C.I.C.) and Real Estate Investment Planning Specialist.
Here is the latest is a series of occasional articles on “Negotiation Tips” from former FBI hostage negotiator Chris Voss who spoke at a previous Association educational program. By Chris Voss How do you overcome objections? This article will discuss two rules to consider when you face objections during negotiations, as well as three ways to influence behavior. #1. You can overcome objections by treating every stated objection as a counter-offer in disguise because it’s really an implied agreement along with a cry for help. A cry for help can be embarrassing. The person’s reaction may be guarded because they’re protecting their dignity. So, your best response as a REALTOR® is tactical empathy. Let me explain with this real-world example: In 2003, Dwight Watson held Washington, D.C. “hostage” for three days by driving a tractor to the National Mall and claiming to be in possession of four bombs. As the negotiators tried to get him to surrender, he yelled. “You’re not handcuffing me!” Did he actually care about handcuffs? Of course not. So, what was our counter offer? We responded by saying, “So it sounds like if we don’t handcuff you, you’ll come out?” What was the real issue? Answer: Watson’s dignity. Once we addressed the dignity issue, his surrender was accomplished. #2. Keep in mind when facing objections that the stated objection isn’t the real problem. Rather, it’s actually blocking for an emotional response. It was Jordan Belfort (The Wolf of Wall Street) who said, “Objections are merely smokescreens for uncertainty.” What’s another word for uncertainty? Fear. What’s really happening when a client voices an objection? In most cases, the reasoning side of the brain (IQ) is protecting the emotional side of the brain (EQ). Our EQ is what we truly care about, what drives us, what our passions are. Often, a client’s underlying reason for their objection is trust -- they trust what someone has previously told them or they want to avoid uncertainty. So, your best response as a REALTOR® is to reframe and label their response, acknowledge the trust factor and gently follow the threads to eliminate the uncertainty. You might say: “It sounds like trust is a main priority for you. I understand how important it is to you. So, I would like to offer you a free, no-obligation analysis as a way to work towards building your trust.” People internally have the most trouble agreeing when they don’t trust or feel understood. Also, you can’t close deals without influencing the other side. So, it’s important to remember when trying to influence behavior that human nature reactions are just the beginning of the decision making process. Here are three ways you can use human nature to help influence behavior. #1. Acknowledge potential reactions before they happen. There are four primary emotional reactions: happiness, sadness, fear and anger. Narrowing potential reactions to these four will help you overcome objections. When you need to walk someone through a negotiation conversation, you might say, “This might scare you,” or “What I need to say may make you angry.” Stating how the person on the other side might react will brace them for how they will interpret to what you have to say. As a result, negative emotions can be reduced because the person is not surprised by the feeling. Emotions tend to be exaggerated when a reaction is a surprise. #2. Create trust through understanding. The most popular way to create trust is by finding common ground. However, there is one glaring hole with this approach: What if there is no common ground? What do you do if they have preconceived notions, already don’t like you for various reasons, or are being forced to work with you? There are plenty of conversations that take place with people, both internally or externally, where you have nothing in common. Often, you can unknowingly resort to bargaining, “I need this from you,” or, “I can’t give you that.” When that type of conversation starts, then you are in fact engaged in a haggle. So, the answer to building trust in any situation is the use of empathy, articulating the justifications of the other side. No matter who you talk to, they will have their own line of reasoning for their position (whether or not it makes sense to you is irrelevant). So, your best response as a REALTOR® is to verbalize that line of thinking, as opposed to whether you can relate to a life experience. #3. Uncover the value drivers. No matter how you slice it, negotiation is a basically an information gathering process. You need information from your counterpart to influence their behavior. Some of the information is predictable, like negative human nature emotions. Other information can be something the other side is actively hiding from you, or they may be ignorant to the importance of how it affects the negotiations. These pieces are what you are looking to bring into the light. The best response is uncover the value drivers, specifically those emotions that are important to them. At the end of the day, negotiation is about gathering information and deciphering how information might affect a person’s emotional makeup.
Rising interest rates are improving California’s home sales totals, according to a recent housing market report from the California Association of REALTORS® (C.A.R.). The number of existing home sales statewide was higher in February, said C.A.R. Also, to no one’s surprise, sales prices are higher in San Diego County, said C.A.R. Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 422,910 units in February, according to C.A.R. February’s sales figure was up 3.3 percent from the revised 409,520 level in January 2018 and up 5.4 percent compared with home sales in February 2017 of a revised 401,060. The statewide annualized sales figure represents what would be the total number of homes sold during 2018 if sales maintained the February pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales. February’s statewide median home price was $522,440, down 1.0 percent from January 2018 ($527,780) and up 8.8 percent from February 2017 ($480,270). In San Diego, the median selling price of an existing single-family home was $605,000 in February 2018, up from $590,000 for January 2018 and $559,590 for February 2017. While the statewide median price slipped from January, it continued to grow at a strong year-over-year pace and has remained above the $500,000 mark for a full year. The year-over-year price gain has been growing at or above 7 percent for eight of the past nine months. The number of days for single-family home remaining unsold on the market in California varied from 26.1 days in February 2018 to 28 days in January 2018 to 33.3 days in February 2017. In San Diego County, homes sold much faster, including 13 days in February 2018, 21 days in January 2018 and 19 days in February 2017. “February’s solid market performance was likely fueled by rising interest rates, which motivated buyers to rush in and close escrow before rates move even higher as they’re anticipated to do in the coming months,” said C.A.R. President Steve White. “Despite losing ground in January, February’s strong sales gain more than covered the loss, resulting in a 1.1 percent increase so far this year.” Condo and townhome prices have been growing at a robust pace, said C.A.R. The statewide condo-townhome median price has been growing faster than that of the existing single-family homes with a 13.3 percent year-over-year increase, as compared to 8.8 percent for existing single-family homes. At $461,400 for February 2018, the statewide condo-townhome median price set a new peak price, exceeding the previous high of $451,450 registered in June 2017. Numbers for C.A.R.’s housing market report are based on information collected from more than 90 local REALTOR® associations and MLSs. Meanwhile, mortgage rates have been on the rise since breaking the 4.0 percent barrier in January. The 30-year, fixed-mortgage interest rates averaged 4.33 percent in February 2018, up from 4.03 percent in January 2018 and from 4.17 percent in February 2017, according to Freddie Mac. The five-year, adjustable mortgage interest rate also edged higher in February to an average of 3.60 percent from 3.47 percent in January and from 3.24 percent in February 2017. Earlier this month, the Federal Reserve raised its key interest rate from 1.5 percent to 1.75 percent, the highest level since 2008. It also said it would raise rates two more times this year. This indirectly affects mortgage rates, which could make homeownership more expensive in the long run, because rates typically track the yield on the U.S. 10-year Treasury. In other real estate industry news on the local housing market, recent news reports include a number of interesting statistics. According to S&P CoreLogic Case-Shiller, a respective real estate tracker, San Diego County home prices rose 7.4 percent in a year as of January, which was among the biggest increases nationwide. The San Diego region had the seventh-highest price gains out of the 20 cities in the Case-Shiller Indices. In February, home prices jumped 8.6 percent compared to a year ago. In another report, Redfin said median home values nationwide leaped by 8.8 percent in February to $285,700, the largest price appreciation in four years. The upward pull in median home values marks the 72nd consecutive month of year-over-year price increases and comes as the housing market faces its 29th month of declining inventory. Clearly, a low inventory of homes for sale and a low vacancy rate among owner-occupied housing are forcing higher prices. The San Diego housing market led the nation in price growth in January with a rise of 0.8 percent from December. For the last 12 months, San Diego prices are up 7.4 percent, well above the national average of 6.2 percent but still below the double-digit increases in Las Vegas, Seattle and San Francisco. “Existing homeowners may be reluctant to list their home for sale, fearful of joining the ranks of frenzied buyers themselves and-or perhaps increasingly unwilling to let go of a home financed with a loan at an interest rate lower than that offered today,” said Zillow’s Senior Economist Aaron Terrazas. Terrazas also said increased home shopping this spring could be exceedingly competitive for first-time buyers. “This year’s buyers may be competing against some of those buyers who have been unsuccessful during the past few months,” he said. Also, according to CoreLogic, homebuyers may be competing with slightly fewer investors in the coming year. In February, 22.9 percent of home sales went to absentee buyers, typically investors who don’t intend on living in the home as a primary residence, which was down from 23.8 percent at the same time last year. Meanwhile, according to Realtor.com, a portal website operated by the National Association of REALTORS®, the inventory shortage is driving up both home prices and mortgage payments. The average price of a home for sale on Realtor.com has gone up by nearly 10 percent between 2017 and 2018. At the same time, average mortgage payments rose nationally by approximately 13 percent a month, adding up to an extra $168 a month in mortgage payments for a median price home. “Buyers can expect to see more of their paychecks go to their mortgage payments this year,” said Danielle Hale, Realtor.com’s chief economist. “Tight inventory has limited options for buyers and sent home prices soaring in many markets. Now, home buyers will also have to factor in higher mortgage rates. Despite mortgage rates still being historically low, the combination of higher prices and rising rates, will further challenge trade-up and first-time buyers, usually millennials or gen-‘X’ers. They will have to borrow more money at a higher rate to close on a home in this market.”
By Rick Snyder
The property management industry has become even more challenging in recent years due to an increase in lawsuits. Ranging from commercial or retail properties to single-family homes and multi-family apartment and condo communities, today’s property managers are facing additional legal liability unlike ever before. As a result, managing and minimizing risk is even more crucial to surviving in today’s litigious environment.
Some real estate industry analysts are predicting homeownership will continue to decline through 2025, yet some 12.5 million net new households will be created, with half of these households renting. By some estimates, about one-third of the U.S. population rents today and by 2023 that number will grow another 45 percent. If true, then the property management field will also experience tremendous growth and, at the same time, tremendous liability.
As part of evaluating increasing risk exposures, try to image everything that might happen to cause financial loss. Then, make your best estimate of the maximum financial loss and determine the options of either absorbing the loss or whether the loss could have the potential of leading to financial ruin. The key is to be proactive. Identify and eliminate risks to stay ahead of conditions that could impede your profitability. Identify potential risks, evaluate and assess and then develop mitigation strategies.
Property management is a very intensive business because you're transacting with owners, tenants, repair companies, contractors and others. Every one of these transactions involves some kind of risk to your business.
Many professionals in today’s property management industry are experiencing an increase in the number of lawsuits relating to habitability claims as well as health and safety issues. We’re also seeing legal liability involving environment concerns such as mold and pollution.
So, how can property managers do a better job of managing risk and liability? Here are a couple of action steps to stay safe:
-- Include an addendum to the lease that requires tenant cooperation, such as notification and interior access. A property manager will have a tough time fixing something breaks, leaks, bursts or wears out if they don’t know about the condition or if they’re not allowed to enter a residence to solve the problem. For example, in the case of an infestation of pests such as roaches or bed bugs, a tenant’s resistance to cooperate can affect the ability to mitigate the condition.
-- Detailed rental agreements need to include specifics spelled out for both landlord and tenant responsibilities and grounds for eviction if necessary.
-- Increase your oversight and supervision of the property by conducting onsite exterior inspections, perhaps as many as once or twice per month. Disasters can still occur, so property managers and owners should ensure their property insurance has the appropriate coverage limits.
We will discuss more strategies at my next class, “Property Management: Legal Responsibilities, Minimizing Risk and Creating Rewards,” from 10 a.m. to 12 noon, Monday, March 26 at the NSDCAR Service Center, 906 Sycamore Ave., Vista. I personally invite you to attend. We’ll discuss what’s working, and what’s not, in property management for the year ahead. You’ll learn what growth-oriented property managers are doing differently to achieve success and lessons you can apply to protect yourself from risks. Topics will include relationship management with owners and tenants, mold insurance and financials and record keeping that will minimize risk for tax and legal purposes. I look forward to meeting you in person.
NSDCAR member Rick Snyder is president of R.A. Snyder Properties, Inc., a full-service property management company with over 30 years of experience managing residential rental property and commercial income-producing rental properties. He is a California Association of Realtors (CAR) director, honorary life CAR member and chair of NSDCAR’s Professional Standards Committee.
Paragon v5.63 Release March 14th Google replaces Bing in Paragon and Collaboration Center! Although there are differences in mapping functionality, users should enjoy the benefits of more up-to-date maps throughout Paragon. In addition, street view is included as part of the normal Google mapping features. Send Listings as PDF Attachments: Users are able to choose a group of listings and report views to attach to an email as a PDF file. The maximum length of the PDF file allowed is 20 pages. Only the manual Paragon email process has been modified. Also note that the HTML attachment type was removed from Paragon emails. Visible Notification to complete Errors/Warnings in Listing Add/Edit: When creating a listing and/or converting a partial listing to a standard listing, Paragon will display a pop-up message anytime an error/warning is found. This helps call attention to the often overlooked warnings/error grid at the bottom of the screen. Address Overlay: When searching for properties in Quick Search, Property Searches, and entering listings in Listing Input Maintenance, the address fields display field mask overlays indicating the information to input in those fields. Agent Photo on Info Page: Agent photos uploaded via the Preferences menu will display with the agent’s information on the Agent information page when clicking the agent name in reports and listings. If no photo is available, the image will display the default image per the MLS. The Agent photo is also included in the Agent Maintenance screen for MLS Admins. Collaboration Center Address Search: The location search control is updated. The “Radius” tab is relabeled to “Address”. The address field will now allow you to type in an address to search. Also, a zero has been added to the radius scale and is the default address value. Consumers can also conduct an address search or a radius search using the same control.
By Lt. Al Owens, retired, Escondido Police Department
NSDCAR REALTORS® can find themselves in personal danger every day, and, unfortunately, many don’t even know it. Typical everyday activities, such as meeting new clients, showing properties, hosting open houses, driving strangers in your car and even your business cards, may be jeopardizing your personal safety. People are in danger, primarily, because they’re not sure about how to deal with unknown situations. In today’s violent culture, real estate professionals are at risk at so many points, ranging from sexual assault, stalking by predators, robbery and bodily injury.
As a former U.S. Marine with more than 20 years of experience in law enforcement, I’ve taught safety awareness, self defense and survival tactics to more than 4,000 people throughout my career. Many of my students have been REALTORS®. My next safety awareness and self defense class will be held from 9:30 a.m. to noon, Wednesday, March 21, at the NSDCAR Escondido Service Center, 1802 South Escondido Blvd., Escondido. I encourage you to attend. We try to make the class fun. Plus, you will learn more about a few potentially dangerous situations that REALTORS® can face on a daily basis, including:
-- Entering foreclosed or vacant homes by yourself can pose a risk because you might find unexpected house guests, including squatters or even former homeowners who refuse to leave. Before you leave to visit an abandoned property, tell coworkers where you are going, or take a buddy with you. Before you enter the property, walk around the perimeter and look for open doors and shattered windows. If you suspect someone is in the property, call the police. Don’t confront a squatter or trespasser. And never go at night.
-- Meeting a new client for the first time can put your safety at risk because the person could potentially be a criminal, stalker, thief or worse. An initial, first meeting should be at a public location, perhaps a coffee shop or your broker’s office. Have all prospects fill out a questionnaire that includes spaces for personal identification, contact information and employer information. Tell them that it’s company policy to make a photocopy of their driver’s license.
-- Showing a property alone can be risky. You still should consider bringing along a coworker or, at least, let others know where you are and tell the client that people know where you are. If you sense a feeling of being uncomfortable for any reason, tell the person that you “cell phone just went off and I have to call the office” or “another agent with buyers is on their way.” Trust your first gut instincts; if you feeling in your heart and soul that something is wrong, it usually is. Also, don’t go into confined places. Let the potential buyers lead with you walking behind.
-- Open houses can be an invitation for anyone to walk through the front door, which could include robbers and assailants. Stow away your valuables. Never leave your purse, laptop or wallet on a kitchen counter in plain view. But, keep your cell phone nearby so you can call for help. Thieves often will work as a team and distract an agent while their partners steal valuables during an open house.
-- In the event of an active shooter, here’s how you can survive. Always have a plan for escape. Mentally prepare and know this may be the toughest event you will ever face. Run and escape if you can. Remember the rules of hide-and-seek cover and concealment (cover can stop bullets and concealment can hide you.) Lock and barricade door if you can’t escape. Stay out of the line of fire. Also, stay quiet (mute cell phones) and plan for an attack if a subject enters. Fighting is a last resort. But, if you have to fight then commit with all your energy by using improvised weapons, swarm techniques or take down the attacker. Key chains and writing pens can work as improvised weapons. You can also use your own body as a weapon, including your knees, palms and elbows to strike vulnerable parts of the body, such as eyes and the groin.
With the right safety training, you can become more self confident and aware of danger clues and your level of risk when in unfamiliar situations and neighborhoods. I hope to meet you in person on March 21.
Lt. Owens operates Owens Training and Consulting, Inc. He is a past recipient of the Escondido Police Dept. Police Officer of the Year award in 2003 and again in 2009. In 2009, he began overseeing the department’s Police Athletic League and still today continues to teach safety classes to children. Owens’ “Child Safety Academy” has instructed more than 1,000 children ages 6 to 18 on various topics, including calling 911 in the event of an emergency, drug awareness, gang avoidance, anti-bullying, gun safety and anti-kidnapping drills.