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More food for thought RE: the existing home sales numbers from the WSJ below.

Pretty good take on the issue, IMO. All I can add is, I didn't realize that Omar Shariff is now a housing analyst! Man, Lawrence of Arabia is a great movie.
:)

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Home-Sales Surprise
March 23, 2007 12:34 p.m.
Federal Reserve policy makers say that the housing "adjustment" is "ongoing." But some investors could be wondering if what really needs adjusting are their bifocals, after home sales came up hot last month.

U.S. home resales actually advanced 3.9% during February to a 6.69 million annual rate, the National Association of Realtors reported today, trumping forecasts of a decline that came amid worry that buyers might be having problems securing financing. For those tuned into the subprime scarefest, that may seem a truly puzzling result. But the encouraging headline reading may just be the rustling of vultures' wings, as scavengers descend on the market amid a decline in home values. The median home price declined 1.3% in annual terms during February, the seventh consecutive month that prices have eased. Also troubling, more homeowners appear to be dumping their homes on the market, which means prices may decline to an even greater extent. The inventory of existing homes for sale surged 5.9% during February to 3.75 million, a backlog that would take more than six months to work off at the current sales pace. Economists say that means anyone looking to celebrate the end of the housing correction may want to keep their streamers in storage. Steven Wood, the chief economist at Insight Economics wrote that the inventory problem needs to be eliminated first.

That could be a tall order. Easy credit is drying up fast thanks to the unraveling of the subprime mortgage sector, herding a pack of potential buyers out of the market and eliminating them as candidates to sop up all that extra supply. Even the reliably optimistic David Lereah, the chief economist for the realtors, thinks the subprime fiasco could wipe out a quarter of a million home sales in coming years. (To be sure, some housing bears think that's a pretty Panglossian estimate, and that the toll may turn out to be much higher.) The inventory problems aren't the exclusive province of new or resales markets, either. The chief executive of KB Home, which reported some flimsy earnings yesterday, said the "persistent imbalance" between home supply and demand "is fueling intense competition and pricing pressure among homebuilders and other participants in the new home and resale markets." With a number of subprime lenders going into the tank, or no longer dishing out new loans, the squeeze may get even worse.

Some economists believe that the national data may be masking acute problems in particular markets, as well. Joseph Brusuelas of IDEAglobal pointed out that a very strong condominium market in New York City that is being bolstered by fat income gains for the Wall Street set may be obscuring "the real problems in Miami, Las Vegas and several other urban areas at risk when the condo sector unwinds." And other say that balmy winter weather may also have caused some funny business in the data. Omair Sharif, strategist at RBS Greenwich Capital, pointed out that the existing-home sales are recorded at contract, "so February's data mostly reflect transactions that occurred in January." Temperatures during the first half of January were downright tropical by normal Northeast standards and Mr. Sharif wrote that that "likely contributed noticeably to the 14.2% surge in sales in that region."

Am I interpreting this incorrectly, or are people asking for a deposit when you simply make an offer?

I can see after you have negotiated a deal that both people have agreed to, but is this money that people are asking you to put down before that point? Is this 'Are you serious about this?' money?

More food for thought RE: the existing home sales numbers from the WSJ below.

Where is the food? :)

The effects for the subprime meltdown are yet to be seen.

Person,

Offer to pay the salesman for sex. Regardless of the gender. Keep at it claiming that he/she was 'sending you signals' and mention his provocative dress. Show him some cash and say you know he did it for your friend.

"not the monetry system" LOL!

I'm just sooooo tired of all the BS being a one-way street! Well in the REIC's case (maybe more like a circle j@rk). Realtwhore makes outrageous and unverified claims about "future appreciation" without the slightest hesitation. MB slimes FB into the "belief" that this is affordable and then the FB needs to BS his way out of noose by finding a GF.

It's high time the REIC learns they may be running a monopoly, but they do NOT have a monoply on bullsh#t! They must have a hardy yuck on us "non-insiders" for signing on the dotted line without getting a commission and kick-backs on the financing end! A real yuck.

SFW, are you inciting crimes? :)

Mark, we all had to endure the headline. But you need to get past those headlines.

The majority of the RE section was not news but paid real estate advertising. The first real story they did was around last year mid 2006.. after advertising was pulled.

Guess what the story was about... Risky mortgages... Ha! LOL!

Realtwhore makes outrageous and unverified claims about “future appreciation” without the slightest hesitation.

It is up the the person to accept or reject any such claim.

Person,
The key to "escalating" is to really lead them on and give the impression that you are just oh-so-close to pulling the trigger and buying, and then come up with questions/concerns/issues at each step along the way. Dragging things out like this will really piss them off as they can just taste the sale but can't quite "consumate" the deal...Keeps 'em hanging on, and they get more and more impatient and pi$$ed the longer this lasts. Pardon my French, but - it's like a c*cktease leading on a guy with a raging boner.

This works for home sales too, speaking from personal experience. When we sold (in '05-06), our buyers were pains-in-the-arses. They made an offer, we made a counteroffer, back and forth with the usual stuff. After the final offer was accepted, they came up with all this nit-picking BS along each step of the way - fixing stuff that in my opinion was normal wear and tear, changing the closing date 2-3 times, and a few other minor things. By that time, we were already 1 month into the deal and figured we were still getting a decent price and didn't want to waste more time by putting the place back on the market as a potential consequence of playing hardball (we were moving across country), so we bit the bullet and worked through most of that crap. The market in Boston just past the stalled-out peak back then, so in a slower market with clearly falling prices, getting additional concessions during the later phases of negotiation can be pretty fruitful.

"It is up the the person to accept or reject any such claim."

There are a few, but there are so many idiots out there! and lets face it ... the many in the RE industry are robbing the public blind.

"Mark Says:
March 23rd, 2007 at 9:30 am
General question here for a “newbie” to house-hunting–
In order to make an offer, do you have to put in a “good faith” deposit? I understand these kinds of deposits can be anywhere from 1-5K. It seems like it’d be hard to negotiate with multiple sellers if your money is tied up with 1-2 “good faith” deposits”.
Thanks for the advice! "

To be clear. You normally write a check at the time you submit the offer. That check is only then cashed an put into the escrow at the time the offer is accepted.
You write the check for a couple of reasons.
1. It shows you are serious, and keeps things moving. There is no offer accepted, now we have to shake out the deposit from the buyer. It all goes smoothly, the offer gets accepted the check is in escrow and things move from there.
2. This was alluded to in the question. Yes, the money is tied up during the negotiations after the initial offer. This is only fair since the seller is locked into the deal at that point. Unless someone is looking for multiple properties, they should not be negotiating on other properties after a deal is made.

and put into the escrow,

sorry keyboard is acting up.

We've been offering fair-market-value + a decent premium for homes we would really enjoy living in for some years for over a year now.

Very few seller agents/sellers have even responded. Only a couple times have responses been 'serious' (meaning willing to give on price, not just everything_but_price).

The problem is all the negotiation skills in the world won't help if there's no possible deal. In negotiation lingo, there is no zone-of-possible-agreement.

It's like this (RP = reserve price, your max, seller's min):

You ---- $(buyer)RP ___[No_Deal_Possible]___ $(seller)RP ---- Seller

Until the seller quits viewing their RP as the lowest they can go before having better alternatives than doing the deal, there will never be a deal. We've discussed endlessly what will make the seller drop their RP. But the main sticking point for the seller is their "mental accounting". Essentially, unless something forces the seller to refactor their mental accounting, like a looming foreclosure, a divorce, had-it-with-waiting to move into the retirement community, etc., they are very unlikely to move their RP by enough to meet your RP.

And of course many people think that us here have our RPs stuck too low. We don't believe that by and large, but in reality both parties RP will move, or there won't be a deal.

You ---- $(seller)RP __[Deal_Zone]___ $(buyer)RP ---- Seller

Randy, I believe "fair market value" is whatever price being transacted in the market. So if you are offering "fair-market-value + a decent premium", you will be offering way over asking and we will have to tickle you. :)

There is simply a disconnect of what the "fair market value" in the future will be.

Malcolm Says:

To be clear. You normally write a check at the time you submit the offer. That check is only then cashed an put into the escrow at the time the offer is accepted.

Ok, I want some first-hand input from our regulars here: is this the norm for states outside CA? I don't believe this is generally true (pre-bubble at least) for CA, though I could be wrong as I haven't been through the process yet myself.

You write the check for a couple of reasons.

2. This was alluded to in the question. Yes, the money is tied up during the negotiations after the initial offer. This is only fair since the seller is locked into the deal at that point. Unless someone is looking for multiple properties, they should not be negotiating on other properties after a deal is made.

I have a few problems with this line of reasoning:

--Why is it prefectly "fair" for the buyer to have several $grand tied up in escrow, while the seller is free to continue "entertaining" multiple offers from other prospective buyers, inciting bidding wars (real or imaginary) all they want, and then backing out for any reason?

--If s/he is so serious about accepting the offer, why isn't the SELLER expected put up a "good faith deposit" of their own? In the end, the buyer is the only one who is truly bringing any money to the table in a RE transaction and the one who is accepting the greatest risk --by far.

"There is simply a disconnect of what the “fair market value” in the future will be."

LOL! agreed! Just like Yahoo at $350/share before it nose dives to 10/share

HARM,
In Massachusetts at least, yes, a "good faith" deposit is de rigeur. The concession from the seller is that once they accept your initial offer and the money is tied up in escrow, they are not supposed to entertain other offers (ie, no open houses, showings, newspaper listings, etc.) and the local MLS is supposed to show the property as "under agreement". Their cost in this matter is having their listing pulled off the market during negotiations. Pretty fair, I'd say.

I have a few problems with this line of reasoning:

"–Why is it prefectly “fair” for the buyer to have several $grand tied up in escrow, while the seller is free to continue “entertaining” multiple offers from other prospective buyers, inciting bidding wars (real or imaginary) all they want, and then backing out for any reason?"

They can't. It is very easy for a buyer to back out, but a seller is more likely to end up in court. They can't field other offers except as a backup. Pretty much as a seller when you say accepted you are locked in.

"–If s/he is so serious about accepting the offer, why isn’t the SELLER expected put up a “good faith deposit” of their own? In the end, the buyer is the only one who is truly bringing any money to the table in a RE transaction and the one who is accepting the greatest risk –by far. "

Normally the buyer is the person paying for something. This is just nonsense, but even so the seller has many costs they have to pay for so they are putting their money up. Sell a house, and you will know first hand. They have to often come out of pocket to make the negotiated repairs, as well as termite clearance. Sometimes these can be paid from the proceeds, but the point barely merits a response.

I would show them my wallet or checkbook in my hand and
say do you want to talk or watch me leave.

(1) Your allowing the other party to take the lead in negotiation.
(2) You may need that cash for real deposit on a better deal.
(3) No such thing as up front cash from what your saying.
#uck'em... only crooks do that.
(4) no contractual obligation on your part to give any money no services have been preformed. ..

Are you blind man?

#2 is why I would let you leave.

#1 the buyer leads the negotiation the whole way. They normally have 14 - 21 days to come up with additional demands, and the deal can only get better for them.

#4 Yes there is, that becomes part of the contract. One way to end the contract early and dump a flaky buyer is when their good faith check bounces. Then you know to walk away.

"“–If s/he is so serious about accepting the offer, why isn’t the SELLER expected put up a “good faith deposit” of their own? In the end, the buyer is the only one who is truly bringing any money to the table in a RE transaction and the one who is accepting the greatest risk –by far. ”

Folks you need to know money as deposit is only valid when contract is signed. Just like your rental deal..... The day you hand over that deposit is the day you sign the contract for lease.

You really need to take contract laws, hire a attorney, or the realtor will steam you right over with this nonsense.

Sorry Malcolm, but I'm with Space_Acer on this. Forking over serveral thousand dollars to someone who hasn't even signed the offer is idiotic. I can understand a small deposit to cover contingencies once it's a done deal, but not before.

What I said is correct. Contract law is flexible and you can structure a deal anyway you want as long as you both agree.

A seller will not accept an offer the way you describe. Unlike most posters here, I have been on both sides. I have bought 5 properties, and I have sold 4.

Despite the market being very weak right now, when a house is priced at a true market value there are more than one interested party. The problem I have with some of the comments is people think they are the only one interested in the property, and want the law to protect them yet not have any obligation to keep their word. This seems selfish to me, but beyond that when you try to come across as a tough guy negotiator that is the time you are likely to screw yourself up.

Rather than being adversarial since this thread is negotiation, I'll say that the best deals I've done are where both sides understand the other. If either side is screwed then it wasn't really a fair deal. When people talk about wanting to shaft a seller they come off as hypocrites when they then start whining about a buyer getting the shaft. We are now in a buyer's market so the other comments about the seller doing this or that are becoming less relevant. Times change, and so does the power positioning. The art is to learn how to recognize what is going on and act accordingly.

Like I said Harm, it is a check that your agent holds until acceptance. You are not forking anything over until the deal is signed. Only after escrow opens is you money tied up in a neutral holding account.

Guys, this isn't what I think is right or wrong it is the way it is. If you want to make a deal you have to make a deal, it isn't one sided.

The seller has real costs, it isn't like they want to take your deposit and run off with it. If you tie the property up all month and then back out at the end, he still had to make a mortgage payment.

I realize this may not be exactly "apples to apples" but look at all the poor schmucks in FL that put down 100K deposits and now the majority of their communications w/the builder are through the builder's attorney!

The projects have been cancelled (or certainly not moving forward) and now people are being told they should've read the "fine print". I have bought and sold several homes in my time and have NEVER put up more than $500 earnest money (no I don't give a rip what's "standard") nor have I ever asked for more than that of a potential buyer.

"he still had to make a mortgage payment"

Well it wasn't like the seller didn't have the use of the property and if he wasn't making the mortgage payment "there" it would have been somewhere else.

In the end (and yes, I realize I've said this before) BUYING IS THE EASY PART!!! (It's selling that is hell) Anybody can "buy" something. This is the way it should be.

My favorite Lereah quote today:
“Our view is that the tightening in the subprime market will have a negative impact on home sales,” Mr. Lereah said. “It probably won’t postpone the recovery (in housing) but it will slow it.”

Let me get this straight. It's not going to postpone it, just slow it. Uh... What? So it'll get here on time but not as quickly as it might otherwise? Or, um, it's starting now but the relative speed is such that you may not notice it's arrival at all? Huh?

Is this dude an economist or a lawyer?

The seller has real costs, it isn’t like they want to take your deposit and run off with it. If you tie the property up all month and then back out at the end, he still had to make a mortgage payment.

As DinOR said, it's not like the seller is really losing anything when the buyer backs out, except time. He still has full use of his property/roof overhead.

And the risks are VERY lopsided in favor of the seller. The seller has a small risk of losing another qualified, willing buyer because the property was tied up a couple of weeks, but realistically what are the odds of that? An interested buyer is likely to still be interested two weeks later, unless he bought another house. And then there are plenty more where that one came from. What is the seller really risking here? Not making big enough fat $tacks? Not getting early retirement? Please...

The buyer, OTOH, is taking a very big risk --probably the largest financial risk of his life-- by agreeing to buy your McAlbatross, and may not be able to recoup his initial outlay if prices go down, or if forced to sell too soon (due to job loss, illness, divorce, forced relocation, etc.). These are not theoretical or even unlikely risks --they are very real, and becoming more and more likely with each passing day.

@newsfreak,

Classic quote yesterday on Ben's blog:

"Only in the housing bubble could idiots find a way to lose money they didn’t have in the first place."
--BubbleViewer

"As DinOR said, it’s not like the seller is really losing anything when the buyer backs out, except time. He still has full use of his property/roof overhead."

Not if he has already moved out and is paying for two places.
Also, the buyer has unlimited recourse to either force a sale or recoup damages from the seller breaching. The amount of earnest money is theoretically the extent the seller would be damaged by the buyer's default. I really don't understand the big deal here. What is wrong with holding a buyer to their word with a penalty clause? The additional month has a real cost to a seller who wants to sell. $500-$1000 used to be the norm for a deposit BTW, it is chump change in the big scheme of things.

And yes, the deposit is considered the seller's liquidated damages for the buyer not performing. Basically it is the limit of the buyer's responsibility. To answer the comment that no one ever keeps it, that is not so, I actually know an individual first hand who kept a $20,000 deposit on a condo in the early 90s.

As DinOR said, it’s not like the seller is really losing anything when the buyer backs out, except time. He still has full use of his property/roof overhead.

Most sellers are also buyers. If someone backs out, the seller may have the full use of two roofs. I never really had a problem with paying earnest money, but just the same, in the future I will be more aggressive about negotiation/minimizing it.

Tactics, that's a great word. Maybe we can shift a little here. Just bitching about something doesn't help anything, but if you start thinking like a businessman you can get what you want. Just sitting around saying, oh they don't have damages is arrogant, you don't know what their situation is.

Tactics - if you want a seller to take you seriously there are real tactics. Why $1-$5 thousand that you would lay out anyway is a big deal is beyond me, but you can strengthen you position by being a strong buyer. You want the best way to remove a deposit, remove the contingencies on the deal. Come in with your loan totally approved. You can do this before the offer is accepted, then you can set yourself apart and negotiate a lower deposit. Agree that the house is sold as is with a warranty and no other work is going to be requested. When you think like the seller, you will get the best deal.

"The seller has real costs, it isn’t like they want to take your deposit and run off with it. If you tie the property up all month and then back out at the end, he still had to make a mortgage payment."

LOL! I can say for myself only ... I dont give a flying fig what the seller has to pay. Im not here to help his *$$ get out of a problem.

Sign the contract here is the deposit. Never give any money until you sign a contract first folks. And make sure your deposit is refundable. Its your money..

Newsfreak, I knew you knew that but it is a common misconception. Like you said, realtors will basically lie about that to get the offer written up. 'oh it's not like anyone ever keeps the earnest money, you can always change your mind.'

The offer has contingencies which basically guarantee you will get your money back. You normally have 2 weeks for your inspections, anything you don't like is grounds to back out. Also, you normally have a loan contigency. The only way you would lose your deposit is if you act dishonestly, in which case you rightfully deserve to lose it.

So if you don't give a flying F about their situation, why should they care about your concerns, you are the one who wants to buy their house. Presumably because they have desperately lowered the price to where it is a deal for you.

LOL! I can say for myself only … I dont give a flying fig what the seller has to pay. Im not here to help his *$$ get out of a problem.

If you were selling to yourself I think you would demand a deposit.

The balance of power has definitely shifted. That's why I don't understand people who don't know how empowered they really are.

I had a similar experience as you, that's why I can vouch that there is a real cost to having someone stroke you.

Peter P man, please unmod me while it's first in the list.