The world of real estate transactions generally involves two parties who ultimately want the same thing: a transaction. Given diverging interests, disputes over price and terms, irreconcilable personalities, and attention to immaterial details, an attorney working in this field needs to have some real world understanding of people and interpersonal skills to help parties reach mutual acceptance on a contract, keep them together and close the transaction. In short, you can provide all the legal advice in the world, but when that newlywed couple or the family of four finally finds the home they want or the seller who recently lost his/her job needs to sell, it is important to provide that advice in light of your client’s ultimate goal.
It also is important to have some familiarity with the real estate market and the different cast of characters who are involved. In the same way, you can know all about the law, but when you go to court to litigate, you need to know the laws and case law, information about the jurors, how to “work” the courtroom, the judge and the judge’s staff, etc.
Real Estate Bubble?
Is there a bubble? Is there a correction? Around the country, many housing markets are down. But Western Washington housing prices have increased and been sustained by a variety of factors, the greatest being a small class of highly paid executives and transplants from other states. In Western Washington, average salaries have not, do not and will not keep up with increases in housing prices. As the rest of the economy slows, it will at some point affect the local housing market.
Potential problems are compounded by the recent housing boom. It is akin to the tech stock boom of the late 1990s, where market exuberance pretty much made picking stocks based upon careful research and analysis seem silly and many people became stock traders and/or day traders. Furthermore, the over-exuberance of the public further escalated the gravity of the situation. Unfortunately, many people learned this lesson the hard way when the tech bubble burst.
Why Does This Happen?
Every time there is an opportunity to make money in a particular industry, there is a vast influx of people to that industry. Unfortunately, some of these individuals have no expertise, no long-term dedication and commitment, and — unfortunately — no long-term accountability.
Statistically, there has been a tremendous increase in the amount of licensed real estate agents in Washington, where a person without a high school diploma need only attend 60 hours of classes and pass the real estate exam to become a licensed agent. Unlike the process and work involved in becoming an attorney, a person can typically become a real estate agent in a few weeks, and, regardless of how good an agent that person is, experience is important.
In some cases, people hire inexperienced agents because they are family members or friends and rely on them for advice on significant transactions. This is not unlike getting stock tips from your newly licensed friend/family member in the late 1990s.
I also believe the Internet, online real estate courses and online real estate listings have made it easier for individuals to enter the real estate market. Like someone buying pleading forms or a last will and testament on line, these forms only “scratch” the surface of the process. Simply finding a home you desire is only the first step and, unfortunately, many people buy a home without understanding the financial risks, costs of ownership and maintenance, and ultimately may be “upside-down” (mortgage and costs of closing are higher than profit) once the market corrects itself.
Some people will even go so far as to get a real estate license to save on commission, which is reminiscent of people trading stocks directly and without a broker in the late 1990s. They saved on commissions, too, and many made money, but how many were able to keep it?
Should People Still Invest in Real Estate?
It is my opinion and probably a biased one, since I believe in my professional services, however there are definitely sound investments in real estate, as there were during the stock boom of the 1990s. I also believe that so long as Seattle/Bellevue residents cannot afford the average home, there will be a need for commercial and investment rental units: apartment buildings and storage/warehouse units. Along the same lines, businesses will be unable to purchase space and will have to rent office, retail and industrial space.
Ultimately, the world of real estate transactions is a fascinating field with plenty of complex issues and an interesting cast of characters. Fortunately, from the real estate agents, to the lenders, to the inspectors and appraisers, to even the attorneys and parties themselves, everyone wants a smooth transaction and to “close.”
Frank D. Prestia is the co-founder and designated broker of Prestia Group, a real estate brokerage. He can be reached at 206-624-9366 or Frank@prestiagroup.com or you can visit his Web site at www.prestiagroup.com.
