patrick.net

rando says

This is really interesting. You can judge the viability of a price point by the number of inquiries at that point.

Somewhat. I know you don't like it, but imagine that every house was listed for $1. Everyone would intrinsically (to themselves) or explicitly (to the buyers) tell them what they would pay. First 1K, then 10K, then 20K, and so on til you reach price discovery of the market clearing price (say $240K). The closer you get to that 240K market clearing price, the cheapskates drop out, leaving only the greatest fool who paid the 240K.

Say he then sold it 20 years later, again listing it for $1. Again, the market clearing process would repeat as prospective buyers compete with one another one by one until a new market clearing price (say $300K) is "discovered" and this guy then becomes the "greatest fool".

If you truly think about it, this is what we all do for boats, cars, or any similar consumable. We intrinsically fear "bidding wars" but that is what we are all intrinsically doing whenever we shop for something. Assuming it is adequately marketed and viewed by a decent sample size of prospective buyers, everything will eventually sell for its market clearing price.

Therafin says

Somewhat. I know you don't like it, but imagine that every house was listed for $1. Everyone would intrinsically (to themselves) or explicitly (to the buyers) tell them what they would pay. First 1K, then 10K, then 20K, and so on til you reach price discovery of the market clearing price (say $240K). The closer you get to that 240K market clearing price, the cheapskates drop out, leaving only the greatest fool who paid the 240K.

Say he then sold it 20 years later, again listing it for $1. Again, the market clearing process would repeat as prospective buyers compete with one another one by one until a new market clearing price (say $300K) is "discovered" and this guy then becomes the "greatest fool".

If you truly think about it, this is what we all do for boats, cars, or any similar consumable. We intrinsically fear "bidding wars" but that is what we are all intrinsically doing whenever we shop for something. Assuming it is adequately marketed and viewed by a d...

While I don't disagree with the concept, there's a number of things that are unique to real estate vs typical auction items.

For e.g. A Ford Taurus is a Ford Taurus is a Ford Taurus. It's easily quantifiable. A 4BR/3FB/1HB house is a... well...now you got location, lot size, age of house, improvements, taste of buyer, school districts, state/county income taxes where the house is located, hidden maintenance items etc etc. List goes on.

My point being, a typical auction process will most likely not work for real estate. eBay even tried it a while back, didn't really take off.

kapone says

My point being, a typical auction process will most likely not work for real estate. eBay even tried it a while back, didn't really take off.

A typical home in normal times can take several moths to sell before the right buyer comes along. Auctions don't wait for the right buyer to come along. That's why it fails.

Therafin says

imagine that every house was listed for $1. Everyone would intrinsically (to themselves) or explicitly (to the buyers) tell them what they would pay.

That's kind of like what we have now in California, with deliberate underpricing. The realtor lies and advertises a price below the minimum that the seller would actually accept, to generate interest and so that the buyer is at a greater disadvantage because he doesn't even know how much the seller is expecting.

And then during bidding, instead of actually knowing about other bids and getting more information, the buyer gets unverifiable bid reports from realtors (both his own and the seller's) which are indistinguishable from outright lies intended to deceive the buyer into overpaying.

good lord, yes - please nuke/destroy this site as it currently stands. case in point: muh russia.

if you go back to real estate, you must first submit to the industry. you don't have to be a part of anything you deem inappropriate, and you can still help buyers and sellers alike, but you must respect the fact that humans in america want to own houses. don't discourage that. it made sense to avoid the telegraphed crash of last decade, but it's not a long term position. that's why you switched to free speech, and that unfortunately isn't very profitable however useful it was at the time.

Strategist says

A typical home in normal times can take several moths to sell before the right buyer comes along. Auctions don't wait for the right buyer to come along. That's why it fails.

Yes and No.

While what you said is true, in theory...in practice, there "should" be a certain number of buyers for any given market, at a given point in time. Whether a house sells or not "shouldn't" be because of lack of buyers, it simply means it's not priced right "at the time". Remember, the time element is the same for a buyer or a seller. Someone WANTS to sell, and someone WANTS to buy at a given instant of time, whether the transaction happens or not, is mostly a factor of price.

Case in point - Detroit at present. You couldn't give away houses right now, even if you wanted to. I'm exaggerating, but you get the point. The question is "why". Why are houses priced the way they are right now, in Detroit? The answer is pretty complex, but suffice it to say, a buyer just doesn't see the value there "right now". Was that always the case? Nope. Will that always be the case in the future? Maybe maybe not. That's where the "astuteness" of the buyer comes in. At some point the buyers WILL come to Detroit, but not right now.

kapone says

Strategist says

A typical home in normal times can take several moths to sell before the right buyer comes along. Auctions don't wait for the right buyer to come along. That's why it fails.

Yes and No.

While what you said is true, in theory...in practice, there "should" be a certain number of buyers for any given market, at a given point in time. Whether a house sells or not "shouldn't" be because of lack of buyers, it simply means it's not priced right "at the time". Remember, the time element is the same for a buyer or a seller. Someone WANTS to sell, and someone WANTS to buy at a given instant of time, whether the transaction happens or not, is mostly a factor of price.

To determine the true market price of any asset there must be a large enough number of buyers and sellers. Big ticket items like homes do not always have a large number of buyers and sellers, which is why they take a lot longer to sell. The higher the price, the longer it will take to find a buyer. A $100 million mansion can take a lot longer to sell than an entry level home simply because there is a much larger market for entry level homes. Sure, there might be people with a $10 million budget who would be glad to pick up that mansion at 10 cents on the dollar. But it's not gonna happen.

kapone says

For e.g. A Ford Taurus is a Ford Taurus is a Ford Taurus. It's easily quantifiable. A 4BR/3FB/1HB house is a... well...now you got location, lot size, age of house, improvements, taste of buyer, school districts, state/county income taxes where the house is located, hidden maintenance items etc etc. List goes on.

Granted, but that still doenst eliminate the auction aspect of it at any given time. For the house, if the seller has some flexibility in time, they can leave it on the market for 90 days, then follow up with the top 5 bids in the last 15 days. Granted in some cases the seller needs immediate cash (imagine he only allows discovery to take place for 5 days - it sucks for him that a buyer would be willing to pay 2X 30 days later - but he knew he may be leaving money on the table by taking offers quickly). All auctions have "rules" per se, but in some cases the rules exist only in the parties heads and dictate why they do what they do.

kapone says

Case in point - Detroit at present. You couldn't give away houses right now, even if you wanted to. I'm exaggerating, but you get the point. The question is "why". Why are houses priced the way they are right now, in Detroit? The answer is pretty complex

You're not actually exaggerating, and the answer is very simple, not complex. I grew up largely in Michigan and have been to Detroit many times. Many houses literally have a negative value because of the crime rate. No one will pay anything to live in them. Zero. An Australian who thought he could get houses there for basically free and rent them for a profit was killed by gunfire when attempting to collect rent: http://www.abc.net.au/news/2012-04-24/aussies-lured-by-dirt-cheap-us-housing/3970128

My sister and my brother in law bought a big beautiful old house in Detroit for $20K and had their first kid there. They are rather tough so they didn't mind hearing gunfire every night as long as it didn't hit the house. My BIL wanted to support the city. When his parents came to visit one day, a group of young black men beat them up on the front lawn. After that, my sister moved to a white suburb.

rando says

That's kind of like what we have now in California, with deliberate underpricing. The realtor lies and advertises a price below the minimum that the seller would actually accept, to generate interest and so that the buyer is at a greater disadvantage because he doesn't even know how much the seller is expecting.

Deliberate or not, what does it matter? I truly would have been willing to take $1,500 for the car (heck, if pushed I would take $900). But whether I deliberately underpriced it or innocently under priced it, remember BUYERS set the price. In 10 minutes, I had multiple offers above $1,500 - they (the buyers) were competing with each other for my attention. Again, they set the price. rando says

And then during bidding, instead of actually knowing about other bids and getting more information, the buyer gets unverifiable bid reports from realtors (both his own and the seller's) which are indistinguishable from outright lies intended to deceive the buyer into overpaying.

As someone who will both buy and sell multiple times in one's life, I say to this - so what? As a buyer, I place a bid I would be "OK" with the seller saying yes to. If its 300K that is because I am saying (in sum) I would rather have that thing than the $300K. Would I prefer to pay 200K? Sure. However, I could have offered 200K, yet I the buyer chose not to.

Moreover, what if I as a buyer did bid 200K, the seller said "I Agree" and I feel tickled pink - until I discover that not a single other buyer offered more than $150K and I could have just as easily have purchased for $151K - had I just offered that first. Either way, the maxim still holds, the buyer sets the price - and frankly as someone who will be both buyer and seller multiple times in life - sometimes the "rules" of the market will work for you. Sometimes, they wont - but such is life. I don't see what the problem is - the other maxim caveat emptor or buyer beware has survived for centuries for this reason.

rando says

You're not actually exaggerating, and the answer is very simple, not complex. I grew up largely in Michigan and have been to Detroit many times. Many houses literally have a negative value because of the crime rate. No one will pay anything to live in them. Zero.

He he he. Negative value? Only way I would want some is if I can buy them in my dog's name.

kapone says

Case in point - Detroit at present. You couldn't give away houses right now, even if you wanted to. I'm exaggerating, but you get the point. The question is "why". Why are houses priced the way they are right now, in Detroit? The answer is pretty complex, but suffice it to say, a buyer just doesn't see the value there "right now".

Precisely. 50 years ago, they would be worth more because they had more usefulness as there was a better balance between population and jobs. Likewise, say I could legally build 20 houses on the moon right now. Other than the novelty, they have no real value "right now" and likely wont for a while. Still, I think most people will agree they will have some value sometime within the next 2,000 years.

Strategist says

Negative value?

Yes. You owe property taxes but cannot live in them or rent them out. Pure loss, therefore abandoned.

Therafin says

until I discover that not a single other buyer offered more than $150K

But there is no price discovery by buyers in the current market except to go through the whole process of bidding and see if it's accepted or not. Huge disadvantage on probably the largest purchase of your life. So yes, at present buyers are basically fucked and simply have to guess how much they are being lied to and make some bid.

rando says

But there is no price discovery by buyers in the current market except to go through the whole process of bidding and see if it's accepted or not. Huge disadvantage on probably the largest purchase of your life. So yes, at present buyers are basically fucked and simply have to guess how much they are being lied to and make some bid.

How are they fucked by offering a price they are willing to pay? If they offer 150K they are saying, "I would rather have that house than I would have this 150K". If its that much a concern, the buyer could say "I bid 50K" only to see what the seller says. If the seller says go fuck yourself, then move on. If the seller doesn't say that, it tells you that the market is so weak and this SELLER is so fucked he is willing to entertain your weak ass offer of 50K. Buyers are in the most powerful position. They can offer what they want and not a penny more. That said, if they want to fuck themselves by offering 500K on a place that was listed at 300K - why does it matter? If they by definition are saying "I would rather have that place than this 500K" whats the harm in letting the market clear?

Therafin says

rando says

But there is no price discovery by buyers in the current market except to go through the whole process of bidding and see if it's accepted or not. Huge disadvantage on probably the largest purchase of your life. So yes, at present buyers are basically fucked and simply have to guess how much they are being lied to and make some bid.

How are they fucked by offering a price they are willing to pay? If they offer 150K they are saying, "I would rather have that house than I would have this 150K". If its that much a concern, the buyer could say "I bid 50K" only to see what the seller says. If the seller says go fuck yourself, then move on. If the seller doesn't say that, it tells you that the market is so weak and this SELLER is so fucked he is willing to entertain your weak ass offer of 50K. Buyers are in the most powerful position. They can offer what they want and no...

You are only looking at the buyers point of view. You can't ignore the sellers point of view. It takes two to tango.

rando says

But there is no price discovery by buyers in the current market except to go through the whole process of bidding and see if it's accepted or not. Huge disadvantage on probably the largest purchase of your life. So yes, at present buyers are basically fucked and simply have to guess how much they are being lied to and make some bid.

Why isn't there any price discovery? There certainly isn't any lack of web sites to find out what houses sold for recently. A couple hours research and you should have a very good price discovery. A couple more hours and you should have all the information you could possibly need or want about the buying process.

Buying a house just isn't any where near as hard as you make it out to be. It's a big wooden box. Put in your offer and that's that. If the realtor says there are other bids then say go with god I'm out of here. You're the buyer, you've got the money, they need the money. I've been buying houses for 30 years. I currently own 8 in 3 countries. It's just not rocket science.

If you don't integrate leg-crossing hotties into it, it won't fly.

Blurtman says

If you don't integrate

Also we need pendulous, swinging titties--preferably on all fours as Helen Mirren intended.

I think what I was thinking of as far as "my idea" is concerned, kinda got lost in translation.

I don't disagree with anyone as to the actual process of buying/selling real estate, be it an auction or non-arms length or what may be. Where I was going with my idea was to offer an alternative process of price discovery, without going through the hassle of putting your house on the market.

Maybe you're just "thinking" of selling, but you wanna gauge what it would sell for. Right now, the only option for a seller is to hire an agent and take their word (gobblygook CMA) on price.

Same for buyers, it lets them indicate their price points.

Once the process completes, they each are able to contact each other. This is important. Right now, other than the MLS realtor view, all contact info is hidden from every data source for real estate. Yes, you can look up the tax records, but that still only gives you a name and address, no other contact info. In addition, the house may be owned by an entity that the owner controls, rather than the owner himself. The contact info will be very different in that case.

If this process ends up in an actual transaction, great, if not, great, no one lost anything, other than the seller paying a "small" fee to test the waters. My point is that, you've to look at it from the perspective of "Is there an unfulfilled need in the market, that my product/service can fill".

That's how you create a market where none existed till then.

kapone says

Same for buyers, it lets them indicate their price points.

Got it. Sounds like Patrick's "say what you would pay" service he tried for a while. It never took off because it was never fully formed, but its probably an idea worth exploring.

Philistine says

Blurtman says

If you don't integrate

Also we need pendulous, swinging titties--preferably on all fours as Helen Mirren intended.

RE and porn - a natural.

Therafin says

Sounds like Patrick's "say what you would pay" service he tried for a while.

Wow, you remember that. It was years ago.

The ultimate question for me is how to put buyers and sellers directly in contact with any realtor involvement. I suppose FSBO exists, but why is it not more popular? Why don't people use some kind of hourly service like real estate lawyers to help them sell or buy, which would likely be far more economical and objective than dealing with realtors?

Let's say I resurrect "Say what you'd pay with zero commission". I imagine it would work like this:

* potential buyers place an anonymous bid on patrick.net for a certain number of bedrooms in a certain zip code (eg $250K for 3br detached house in 48118)
* sellers can message the buyers with photos if and only if they promise they are willing to sell a specific address of that type at or below the dollar amount of the bid, commission-free (no agent involvement)
* if the property seems agreeable to both, an hourly real estate service draws up the papers and completes the transaction with neither buyer nor seller paying any commission

The profit would be in referral to a service which completes the transaction.

This somewhat inverts the current model of buyers searching for real estate, in that sellers specifically reach out to self-identified buyers instead of buyers reaching out to sellers (or the seller's agent). I suppose that's a lot more work for sellers, but might be worthwhile if the seller needed to enter the data only once, after which it would automatically get sent to every user who bid enough money.

It's yet another chicken-and-egg problem, in that no one will user it until lots of others are using it, but once established, would benefit from the Ebay effect and become the standard place to list and look for housing bids.

What are the flaws in this model?

Landlords at least would be wise to post bids at a rate that would likely get them a cash-flow-positive rental.

Another idea I tried long ago was simply running on open forum to discuss specific real estate on the market, but that had the fatal flaw that no one was motivated:

* buyers who want a property are not going to discuss it, because that would just draw more attention and competition for it
* buyers who don't want a property are also not going to discuss it, because they just don't care about it

rando says

The ultimate question for me is how to put buyers and sellers directly in contact with any realtor involvement. I suppose FSBO exists, but why is it not more popular? Why don't people use some kind of hourly service like real estate lawyers to help them sell or buy, which would likely be far more economical and objective than dealing with realtors?

People do, but not all of them. I did when I sold my previous house, but that was in 2004 when the market was crazy hot. I didn't even have to list on any FSBO sites, I just put up a few "For Sale By Owner" signs with the address and contact info, and stuck em in the ground around my neighborhood. 30 people showed up on the first weekend, around 10 on the second weekend and one of them offered full asking price.

We agreed on a lawyer, got together and went through the process. I paid the lawyer $800 net. :)

That said, I'd qualify myself as much more knowledgeable about real estate than the average person. The average person has been conditioned to believe that buying/selling real estate is an extremely complicated process (which to a degree it is), and it is beyond their capabilities to understand it.

Sure, it's complicated, but shouldn't the lawyer be able to handle that complexity? Why do people really feel the need to involve a commission-based realtor at all?

rando says

What are the flaws in this model?

How do people do walk throughs? It's one thing to see things online. Buyers are going to want to go tour multiple places. If a buyer wants a representative to help walk them through the process you would have to provide that service - could be on an hourly basis if that is your model. Ideally, it would be with someone who had a background as an inspector rather than a salesperson (realtor).
Open houses work for hot markets, so that might be enough for a trial market. To expand, you'd need some other mechanism, so you might as well roll out some form of it to start.

rando says

Sure, it's complicated, but shouldn't the lawyer be able to handle that complexity? Why do people really feel the need to involve a commission-based realtor at all?

Well, in all fairness, the lawyer comes in at the tail end of the process.

To use my house sale as an example, I did all the legwork of:
- doing the leg work (gobblygook CMA) to decide on a price
- getting the house spruced up
- buying/making, and putting up for sale signs
- handling calls and emails from potential buyers
- conducting two open houses
- conducting negotiations
- Having a Rolodex of real estate lawyers and title search companies on hand
- Guiding the BUYER through the process - he had no clue he could do it without an agent
- etc etc.

All of this is typically done by agents.

kapone says

I suppose FSBO exists, but why is it not more popular?

Because people don't want to do the work. I always use a realtor. Despite Patricks contempt a good realtor is a valuable asset. Saves a lot of my valuable time for a start. My time is worth more than a 5% commission. But I'm not in la la land where houses sell in 7 figures. In my markets 5% is less than 10k. Eating up months dealing with idiots who want the house half price because I cut out 5% in realtor fees is not worth the effort.

rando says

Sure, it's complicated

No it's not complicated. There really isn't all the many steps and they aren't hard to do. If you don't want to deal with a realtor any real estate lawyer can walk you through the process.

bob2356 says

kapone says

I suppose FSBO exists, but why is it not more popular?

Because people don't want to do the work. I always use a realtor. Despite Patricks contempt a good realtor is a valuable asset. Saves a lot of my valuable time for a start. My time is worth more than a 5% commission. But I'm not in la la land where houses sell in 7 figures. In my markets 5% is less than 10k. Eating up months dealing with idiots who want the house half price because I cut out 5% in realtor fees is not worth the effort.

Not really Bob. Sellers don't want to take the chance of screwing up on a big ticket item. They just don't feel comfortable dealing with the hassles and legalities they know nothing about.
@Patrick if you come up with a practical solution for this, you will be a very very rich man.

Strategist says

Not really Bob. Sellers don't want to take the chance of screwing up on a big ticket item. They just don't feel comfortable dealing with the hassles and legalities they know nothing about.

Screw it up how? Sell the house for half the going rate? Doing comps isn't quantum physics. It's just work to be done. A real estate attorney takes care of the legalities. Listen to your attorney and you won't screw up. You just have to pay for the time spent to explain it, lawyers love to educate people while billing by the hour. If people don't want to deal with the hassles and legalities (which aren't very complicated) then they need to pay a realtor to do it. You can't have it both ways. As they said in the 60's ass, gas, or grass no one rides free.

bob2356 says

Strategist says

Not really Bob. Sellers don't want to take the chance of screwing up on a big ticket item. They just don't feel comfortable dealing with the hassles and legalities they know nothing about.

Screw it up how? Sell the house for half the going rate? Doing comps isn't quantum physics. It's just work to be done. A real estate attorney takes care of the legalities. Listen to your attorney and you won't screw up. You just have to pay for the time spent to explain it, lawyers love to educate people while billing by the hour. If people don't want to deal with the hassles and legalities (which aren't very complicated) then they need to pay a realtor to do it. You can't have it both ways. As they said in the 60's ass, gas, or grass no one rides free.

A lot of old people, and many first time home buyers have no idea about comps. The old are always getting conned by unscrupulous realtors.
Hey Patrick, maybe you could offer second opinions to buyers or sellers.

Hmmm, maybe just a really simple site that gives the value for any address based on rental rates in the area? I like it, and used to do that with my rent vs buy calculator.

So retail buyers could get that price and compare it to the full retail price they are being asked to pay.

And landlords would have a quick source of data to know the probability that any purchase would make sense from a cash flow perspective.

The difficulty would be in getting detailed rental rates by location, number of bedrooms, etc, which is dominated by Craigslist, and they do not gladly share the data that the public gave them for free. But it's not an insurmountable problem.

The business could be to give away a few fair-price estimates for free per IP address, and charge a fee for more usage.

That's called Zillow, although their "zestimate" is based on a proprietary algorithm.

kapone says

That's called Zillow, although their "zestimate" is based on a proprietary algorithm.

I'm talking about something other than comps.

I propose giving a house value based on rental equivalence, ie, what price would be breakeven price for a landlord?

rando says

kapone says

That's called Zillow, although their "zestimate" is based on a proprietary algorithm.

I'm talking about something other than comps.

I propose giving a house value based on rental equivalence, ie, what price would be breakeven price for a landlord?

I don't think those who intend to live in the home would be interested in that number. Buyers are mostly interested in the payments. Besides, breakeven is a function of the down payment.

Strategist says

A lot of old people, and many first time home buyers have no idea about comps. The old are always getting conned by unscrupulous realtors.

Which is why you invest in an hour of a real estate attornies time.

bob2356 says

Strategist says

A lot of old people, and many first time home buyers have no idea about comps. The old are always getting conned by unscrupulous realtors.

Which is why you invest in an hour of a real estate attornies time.

OK, I agree with you. But an elderly person would have no reason to consult an attorney if they fully trust the realtor who is taking them for a ride.
Last month a home came for sale close to where we live. I had met the elderly lady who owned it. Her home sold in one day, and I immediately told my wife that "Ann" was taken for a ride. Granted the home was small, very old, and needed major renovations, but the price of $745K was bizarre.
What could have been done to stop this abuse?

rando says

I'm talking about something other than comps.

I propose giving a house value based on rental equivalence, ie, what price would be breakeven price for a landlord?

How do you know that the Zillow number is based on comps only? Do you know, or are you guessing?

Again, rental equivalence is not the only way to value real estate. That number does not represent "fair price" in a lot of cases.

Edit: To use another example in this case. Do you think that a landlord would potentially charge different rents for the exact same property, if:

- the property was bought for 100% cash
- the property was bought for 20% down, rest financed 30yr fixed
- the property was bought for 20% down, rest financed - any kind of ARM
- the property was bought for 0% down, interest only mortgage with a PMI
- the property was inherited by the landlord, making their cost essentially zero.

The rent that a landlord can actually get is unrelated to what the landlord wants.