Nevada’s housing market has seen a boom in the past year as sellers receive multiple bids above asking price and buyers scramble to find homes within their budget. Caught in the middle are residential brokers who had to find new ways to show homes in the pandemic and help their customers navigate the hectic marketplace. Recently, residential brokers met in a virtual roundtable, sponsored by City National Bank to discuss the industry, the boom and what the future holds for housing in Nevada.
Connie Brennan, publisher and CEO of Nevada Business Magazine, served as moderator for the event. These monthly roundtables bring together leaders from different industries to discuss relevant issues and solutions.
Does Your Industry Have Enough Education and Professionalism?
Joe Herrera: The biggest challenge we face as an industry is getting real estate professionals to view themselves as professionals. The barrier of entry is relatively low. My friends who are doctors and lawyers paid a significant price to become a doctor or lawyer. [However], as a real estate professional, the barrier of entry is anywhere from a couple of weeks to a couple of months. We don’t view ourselves the same way a doctor or a lawyer views themselves, so we don’t build our business the [same] way. The market will ebb and flow for the rest of my career. I try to help people build their business as a professional. [They] can weather any storm, any market and make corrections. But if we don’t view ourselves the same way other professional industries view themselves, ultimately that becomes our biggest challenge.
Nancy Fennel: People in this industry are the ultimate entrepreneurs; they pivot better than anyone. When the market is good, when the market is bad or when the market changes, they adapt. Our industry has evolved, and competition will start to play a major role in professionalism and agents will up their game in order to be at the top of the heap.
Doug McIntyre: As a state we asked that the division increase the number of education hours required to become a real estate agent and that has helped some. It is a true statement about how people look at real estate agents. They just don’t realize that agents work their tails off to get difficult deals done, more now than anytime else.
Shari Chase: It’s not about just the ongoing education. They should up the level of education that is required prior to entering the field. At a conference that some of our people were at they said 80,000 new agents in the last 12 months entered the real estate field. If we’re shifting the professionalism how long it takes to get your licensing or apprenticing would be something to consider.
Aldo Martinez: I want to address both issues on their own – the education and professionalism. They did increase the entry point; it is now 120 hours of pre-licensing education [new agents] have to take before they get into the industry. It was 90 hours before. They’ve also increased the current agent education process to 36 hours of continuing education focusing on areas that were most challenging. Professionalism doesn’t get fixed with education. Professionalism gets fixed with leadership. It’s leadership brokers provide that will drive the professionalism of agents. You can educate them until you are blue in the face but if they don’t have strong leadership, you’re not going to fix it.
What Impact did the Pandemic have on Residential Brokers?
Chase: I think one of the great surprises [from the pandemic] was most of the agents didn’t realize they had the capacity to work at the limits they ended up working at. They just went out and made it happen; they did a great job. On the other side of that, they formed some really bad habits. Now [we’re working to] get rid of those bad habits. [We need to] level up people’s value and senses of who they are so they don’t just have a job, they have a career.
Gary MacDonald: A little over a year ago we were concerned as to whether we were going to be allowed to continue as a business. Our state is very attractive, tax-wise and everything else. People who were working and living in a community and, maybe, renting a garage in a big metropolitan area for $5,000 a month suddenly realized they could keep their job and move to a different state. It’s shifted the business model, not only here, but nationally. I got my license for the first time in 1978 and this is the first time I can remember that every area of the country is talking about the same things. We are an attractive state, but people are moving other places too. I’m just happy we have dealt with it the way we did, and we were able to stay in business. I commend brokers for coming up with innovative ways to help us be better and I think it bodes well for this state long term.
Ivan Sher: COVID taught me how people had the spirit and ability to overcome. Here we are a year later in a thriving economy, for the most part. Things are going back to normal. At the same time buyers are moving here from the Bay Area. [They realize they can] work in San Francisco and live in an environment where there is a tremendous cost savings. That’s dramatically impacted my business.
Herrera: We shut down our office pretty quick. It was just a gut punch for us, we weren’t going to go through what we went through in 2006 again, we just refused to do it. So, as safely as we possibly could, with social distancing and everything else, we got back to work. What surprised me was the opportunity that was out there. It seems as though those who kept practicing and treating their business as a business picked up market share. We have a significant number of agents who did more deals this year than they’ve ever done before, by virtue of just pushing through the challenges. It all came down to them discovering their reason [for being in the business]. It was awesome to see individuals push through the challenges as responsibly as they could and see their businesses thrive.
Martinez: We had our first open sales meeting in the office [in May]. We had almost a hundred agents in attendance and had a barbecue afterwards. We are creatures that need relationships and interactions. [The team] likes being around a buzz. They get synergy, learn from each other and are able to share information. It’s a convenience to work from home, but I think it will return to like it was.
Fennell: At the end of 2019 we thought the age of mega mansions was gone and 2020 completely changed that. In our luxury market here, they’re looking for a resort type environment where they have exterior and interior amenities. It has changed what people want.
What Happened in the Legislative Session for Homeowners?
McIntyre: We thought it would be a tough year but, actually, it turned out okay. They really found a balance between landlords and tenants as well as home builders. We’re thankful that SB 276 passed, which supports new technology for us. Also, for the first-time, state lawmakers recognized the needs of landlords in our state by providing financial assistance that goes directly to the landlord. That’s going to help the tenants and the landlords. We think, in 2023, some of the things that did not get passed will probably show up again.
Are we in a Housing Bubble and What will Happen when Evictions Resume?
McIntyre: With AB 4 and AB 6 passing, where landlords are going to be paid directly for past rents, I don’t think there will be as many evictions as people thought. The mom and pops that own rentals, they want to keep them. That’s part of their retirement. They don’t want to kick anybody out.
Fennell: I think we’ll have a momentary bubble. We manage about a thousand doors. Those are owned, not by big investors like you have in Vegas, but are part of people’s retirement portfolio. We’ve only had about 5 percent [of tenants] that haven’t made their payments. In our market, I don’t see a huge impact; maybe a short-term bubble, but nothing big.
Martinez: I don’t personally believe that there will be a bubble. It’s completely different than it was when we had the bubble in 2007. In Vegas, we see people qualifying to get a second home. I don’t [see someone that] makes $45,000 a year owning eight homes when he can’t even afford to make the payment for one, like it was in 2007. Those dynamics just aren’t there right now.
MacDonald: When the eviction moratorium comes to an end there might be a little bit more inventory available. If some of the mom and pops who haven’t been able to collect rent say, “Okay, I’m going to switch my investment to a different format. Let’s just sell and take the profits from the property.”
How Severe is the Inventory Shortage?
MacDonald: Our biggest challenge in this market is availability of product. We have a rush to business, and it’s led to buyer fatigue from people out there working the market, diligently putting in offers and having the offers get beaten’ out. There’s a plethora of issues, but number one in my market is inventory.
Chase: We definitely don’t have enough houses, there’s no question about that. There is a double edge sword to that. In our region, if you’re looking to build a custom luxury home, it’s a two-year process and they don’t have a place to stay while they’re building. It brings about a lot of complicated issues for purchasers. On the other hand, there’s always opportunities when you have a shifting market like we have.
Sher: It’s such a unique market. We get the dream buyer that can afford anything they want. They say, “Ivan we’re coming into town. We want you to show us everything that’s out there north of $10 million or $15 million, whatever it is.” There is nothing [available]. And if there is something, it’s gone before they get here. I’m having to go to off-market properties of past clients and approach them and say, “Listen you can make 30- to 40 percent on what you just bought this house for [if you sell now].” They’re all excited, but we know what their next question is. It’s, “Where am I going to go?” We try to come up with creative solutions with lease backs or whatever it needs to be to make [sellers] comfortable until they can find their next property. It’s a dance that we’re doing. This has been, in the real estate industry as a whole, our most successful year yet. But it’s certainly having us wear a different hat and getting more creative in how we do business.
Fennell: I think the average number of offers [per house on the market] is about seven offers; it may be up to nine now. We’ve talked about inventory and an out-of-balance market in the north for the past four years. It’s a complicated problem and it is not something that is going to change overnight. It’s going to take us a while. We had [a house go on the market a few] weeks ago with 17 offers.
Martinez: There’s no incentive for builders to build more right now. Their pace is paying great dividends. They are back to creating waiting lists, astronomical increases and phases coming in much higher than they normally were. They’re just like a regular seller. They have an opportunity to get more money and they are capitalizing on it. You can’t blame them, it’s just human nature. We’re in a capitalist society and they’re going to make money. MCINTYRE: Part of the reason the prices continue to go up is because of the price of the materials. [The cost of] lumber and employees [is going up]. It’s so difficult to get employees anymore. They’re having to pay more and offer [incentives] like free tuition or free food just to get people to apply for jobs.
Fennell: This morning on CBS, while I was getting ready, they said that the cost of lumber was increasing by $36,000 for each new home.
MacDonald: This region has fallen behind in the availability of homes. That has been a regional issue for us, but now it’s become a national issue because of the building cost, everything’s going up.
Martinez: One of the other challenges with the marketplace is that finance transactions are having a harder time getting accepted than cash transactions. Buyers are finding ways to position themselves to become the better offer. A cash buyer could buy a property for probably 5 percent less than a financed buyer. They’re going to have to guarantee a certain amount above the appraised value and show proof of funds. We have sellers out there that are saying, “I want all my closing costs paid.” The buyer is now the commission payer. They come in and pay the seller’s commission and their own buying commission. There’s a lot of dynamics that are affecting the way they buy. It’s the creative agents that are coming up with solutions to getting their buyer’s offer to be the most favorable to the seller that’s winning out in these scenarios. Zillow right now actually completed 93 cash transactions in the month of May alone. They’ve been stepping it up through April and May and are becoming one of the largest cash buyers. They’re buying everything in the $250,000 to $400,000 range. That’s their bread and butter and that’s what most consumers are looking for to get into the real estate market. [Zillow is] sitting on an inventory of almost 400 properties right now that they’ve amassed since January.
Are Interest Rates Going to Rise Again?
Fennell: Eventually they will. They’ve said they’re going to hold it until the end of the year. I hope they do but, yes, interest rates will go up.
Martinez: We’re going to have to stop inflation at some point. The only way to simmer inflation down is going to be raising some of the interest rates. At that point you’re going to see a cooling of the marketplace because the affordability factor of what people can buy is going to become a little more limited.
What is Your Projection for the Residential Market?
Sher: When we ended 2020 and I did, in November and December, almost the same volume that I did the entire year the year before. I’m very optimistic, at least for the next one to two years. We’re all going to have to get creative in how we do business. It’s not conventional the way we’re selling homes today. I don’t have a crystal ball. I had one and it shattered in 2007 or 2008, somewhere around there. I try not to predict too much past a year but I’m extremely optimistic for this year. Without getting too much into politics, I’m a little worried about some of what’s being passed down from the top politically and how it’s going to impact us with capital gains and things like that. But that’s not going to stop people from buying. If I were to sum it up, my net opinion is very optimistic. We will have a strong ending of the year, a strong beginning of next year and that’s as far as I’m going to go.
Martinez: We met with Jeremy Aguero from Applied Analysis, and he did a presentation for us. It was phenomenal. He basically said [the great market is] going to continue all the way into the first quarter of next year. Even my agents say, “Hey, Aldo should I wait to buy?” And I go, “You’re going to wait to buy; are you kidding me?” The wait period and price increases [are incentive enough]. Then when the interest rates go up, even if the market settles, the price you’re going to pay is going to be greater than you’re going to get today.
MacDonald: We have a standard in the industry that a balanced inventory would be a six-month supply. In certain price points this year we’ve seen six hours’ worth of supply. If we could see a little bit more of a leveling out of inventory so there’s more available [that would be good]. This pace is not sustainable. I was in the title industry in 2008 when [the market] collapsed. I do not see those signals here. My hope is a continued strong and balanced inventory to give the buyers more of an opportunity to view homes and not be in such a panic to make an offer. [This would] take the pressure off professional realtors who are working hard to do the job for both buyers and sellers.
Fennell: I’m optimistic. We’re next to California and there are lots of issues going on there. We’re a, relatively, tax free state, in terms of state income tax. I hope we keep that. And we’re still very affordable compared to most of the areas around us. We’re a lovely place to live. I am optimistic but I remember leaving Las Vegas on March 13, 2020, and our world changed so what do I know?
Chase: I feel really optimistic too, but in a different way. The chaotic state of how we have been doing business is going to change and level out so we have more harmony and less chaos so that we can reach our goals. Everybody is working hard; there’s wonderful opportunities. We just have to find our way through the process and the next couple years is going to be really good.