patrick.net

I've always wondered why I've never heard "if you and your lovely wife get off the fence and buy now I'll throw in a Ménage e twa. after all, i'm already all 'bimbo'd up'".

George,

Thanks. It is clearly folks like you who have been perhaps most hurt by this runup in RE and the unethical behavior of so many in your industry.

As I posited a couple of threads back, I'd like to see more accountability and professional credibility in RE. That would serve to attract and retain more people like yourself while making it more difficult for the bottom-feeders.

Thanks John, my alternate Sprache ist deutsch, nicht französisch.

I don't know why everyone has such a grudge against the realtors, they are just like the next person who wants to make a living, and if the potential return is high enough, one is likely to steal, lie, kill for it.

The same thing applies to all professions, will you listen to your broker's "advice"? Your financial planner's "advice"? Most of the financial professionals I know have even less grasp of the finaicial market and how things work than me, yet they want to peddle some insurance, option trading or whatever products to me so that they can make their commission. What sets them apart from a realtor?

Always take other people's words with a grain of salt. I never take anyone's words at face value, cycle it through my brain, evaluate what the person stands to gain if I take in his "advice". It always pays to check people's statements against each other, there is no truth of the matter once it comes from the mouth of a stakeholder.

So it really depends on how you use a realtor. If I have a good idea of what I am looking for, I don't mind using them to look for a piece of realty that I am interested or doing some research leg work for a reasonable fee (for example, digging out the seller's financial situation, with proof of course). Why should you listen to their "advice" to begin with?

Bap33 Says:

"What is the difference(s) between an agent and a broker ? (sounds like the start of a good joke, but it’s a real question) Thanks."

A real estate "agent" has to have at least a salespersons license (and work under someone that has a brokers license) .

A broker may refer to themselves as a "real estate agent".

my daughter is 12
the house she is currently living in with me,
is "worth" about 300K
at 20% annual appreciation, 20 years from now,
at 32 (my age when I bought my house)
to buy it off of me, she will have to pay..... drum roll please

9.58 million dollars

retirement's gonna be great. Sorry kiddo.

yeah,
that's gonna happen.

The same thing applies to all professions, will you listen to your broker’s “advice”? Your financial planner’s “advice”? Most of the financial professionals I know have even less grasp of the finaicial market and how things work than me, yet they want to peddle some insurance, option trading or whatever products to me so that they can make their commission. What sets them apart from a realtor?

Those other professionals you refer to are required to have much more serious credentials and licenses than RE "professionals". Although this certainly doesn't ensure their advice is any better, it does constitute a system whereby they have *much* more accountability for their words; and they face some very serious repercussions from lying.

Also, you Owneroccupier are not the typical customer of either RE agents or stockbrokers. Remember that most people can't do algebra, let alone conceptualize the time-value of money.

Randy,

then I think the problem shouldn't be just the realtor business itself (of course I think some regulation revamp should happen there), but we should, as a whole, enhance the knowledge of our community so a 6-pack Joe 20 years down the road will know far more than his counterpart today to defend himself financially.

I don't believe in seeking protection from a government, a church or whatever institution that is considered superior. The most effective protection we can place is through equipping ourselves, through knowledge. The more we know, we learn, the more we can protect ourselves.

With the speed of dispersion of knowledge and information increasing at today's pace, I don't think we are that far off from making everybody a knowledgeable human being in terms of matters that concern them, and only when each individual is comfortable with picking up whatever he wishes with relative ease is he truely free and safe.

As a side note, the public education of this country is really failing its purpose in the last couple of decades, that is a shame. I think personal financial management with basic money concepts should be made comulsory in high school curriculum.

Brokers have more access to financial resources (bank financing, deal structuring skills, contacts to private party investors or buyers) that agents don't usually have. Brokers' worth is in the number and quality of industry players they know to make a deal happen, treat them as a relationship broker. Relationship / networking is something you cannot displace easily.

Agents are practically useless, the realty agent business will evaporate as time goes by when Turbotax-equivalent of realty transaction goes online. Established agents sometimes do have relationships which allow them to act like brokers, new realtor agents are practically as useless as travel agents and they will go extinct very soon.

...in tomorrow’s NYT...

You can read tomorrow's NYT today? 8O

@George & Owneroccupier,

Point taken, but if we don't have Realtors & Boomers to bitch about, then what's left?? ;-) Hey, don't take it so personally --this post is meant to be fun!

Seriously, I salute you --George-- the Last of the Mohicans! Wish there were more of you around. And BTW, while I don't think shady Realtors or the NAR/MLS cartel are what primarily caused the Bubble, it's fair to say they definitely contributed to it. I don't hold anything against honest salesmen of any stripe.

@Peter P,

I don't know about NY, but here in LA you can buy the Sunday Times in any grocery store on Saturday.

Owneroccupier,

I agree with you wholly. However, I am more pessimistic about acheiving those goals when we're heading in exactly the opposite direction today. Like I said, most people can't even do basic algebra. Teaching them command of deductive logic required to understand finances is quite a stretch.

I fear that Joe Sixpack will not be smarter in 20 years; quite the opposite. By then they will have probably either chased out, marginalized, or executed those who dare to actually educated themselves and think rationally.

I don’t know about NY, but here in LA you can buy the Sunday Times in any grocery store on Saturday.

Can I buy the Tuesday Times on Monday? I only want the stocks section.

-educated
+educate

By then they will have probably either chased out, marginalized, or executed those who dare to actually educated themselves and think rationally.

A truly smart person will not oppose anything that he or she should not oppose.

This is actually what I am going to do, and let this little effort start with me. I will go to volunteer in my kid's school to teach basic financial management concepts as a side kick, simple stuff like calculating the loan payments, concept of stock market and how it works, defensive financial management techniques (including dispersing the myth of why loans are always good), etc.

I can't do much abou the US as a whole, but I can start with my own community, and a few people that I can influence.

I had a strange dream last night. In it, the division of the tech hardware company I working at was sold by the corporation to an internet mortgage company.

I had a strange dream last night. In it, the division of the tech hardware company I working at was sold by the corporation to an internet mortgage company.

Perhaps that is how it is going to mortgage its future. :)

Maybe we need a ‘who’s who’ topic…Just an idea.

I am Peter P, P stands for "Peter P". :)

Coldwell Banker had me laughing today when I opened the RE section of the Record (main local newspaper for Stockton). Coldwell Banker finally gave up posting a chart of homes for sale vs. sales pending. The "inventory" is increasing so fast (and pending sales declining) that the chart, that used to resemble two snakes embracing has become more like a vee lying on its side: "

Where’s X when we need him?

If the reference to Peter Paul and Mary didn't ellicit an X rant, he must be offline.

ellicit = elicit

Another quote I've heard a few times:

"Your current rent may be only half of what you'd pay monthly to own the house, but think about how fast inflation will make the rents catch up".

Reality check:
The time required to inflate an amount to double it is
@ 5%: 14.5 years
@10%: 7.3 years
@20%: still about 4 years

In some corners of the Bay Area, the current asking rent is IMHO no more than a third of what would be required to buy the house (no money down). Here are the numbers for catching up to that.
@ 5%: 22.5 years
@10%: 11.5 years
@20%: 6 years

Let's do a little thought experiment:

Let's imagine two houses right next to each other. One is for sale and comes at $1,000,000 after all closing costs and whatnot. The other one is for rent. The asking rent is $3,000 per month.

Both Mr. Owner and Mr. Renter have $200,000 at their disposition. Mr. Owner buys the house for sale with 20% down and gets a $800,000 30 year fixed mortgage at the low, low rate of 6.5%. His monthly PI payment comes to $5056. Let's add property tax, maintenance and insurance and subtract the tax deduction. Let's say it comes out to about $6,000 per month for Mr. Owner.

Furthermore, let's say the rate of inflation grows to a mind-boggling, hard asset-friendly 10% right after Mr. Owner secures his loan at 6.5%. As we've seen, at that rate of inflation, Mr. Renter's rent will catch up to the cost of owning in a short 7.3 years.

Now let's see where we stand in those 7.3 years:
Mr. Renter happily collects 11% interest on his $200,000 (using TIPS or something), growing it by 114%: $428,500. Mr. Renter also saves some money because his rent catches up slowly. In those 7.3 years, he ended up paying only 67% the $$ in rent than what Mr. Owner has spent to own. Let's add the savings (a non-trivial $162,500, which, for simplicity, did not collect any interest) to Mr. Renter's balance, making it $591,000.

But what about the equity that Mr. Owner has now amassed? Well, his principal payments have decreased the loan balance by a cool $80,000, putting his overall balance to $280,000. Now, the big question is: Has Mr. Owner's home value increased by another $311,000 get him on par with Mr. Renter?
Let's see what a buyer would need to spend to take the house off Mr. Owner's hands to see whether that's plausible:
A $1,311,000 30 year fixed mortgage @12% (remember, inflation is now a hard-assert-friendly 10%!) comes out to a monthly payment of $13,485.
Hm. Wait. Doesn't Mr. Renter now pay $6,000 per month in rent for the house next door?
Hmmm... If credit is not as easy then as it is today, maybe Mr. Owner's prospective buyer won't be able to spend much more on mortgage payments than the prevailing rent. For a $6,000 monthly payment on a 30 year fixed @12%, the buyer can get no more than about $580,000 from his bank and thus cannot pay Mr. Owner more than that.
Mr. Owner's mortgage balance is still $720,000, so in that scenario his overall balance is now a negative $140,000. Ouchie. Mr. Owner's only solace is that the $731,000 difference to Mr. Renter's balance is worth a lot less than 7.3 years ago.

Looks like maybe inflation won't bail you out after all (or your time horizon has to be very very very long).

Bap33 Asks:

What powers does a broker have an agent don't?

The basic difference is that an agent needs to be working under a broker, while a broker can work alone.

Then Owneroccupier Says:

"Brokers have more access to financial resources (bank financing, deal structuring skills, contacts to private party investors or buyers) that agents don’t usually have. Brokers’ worth is in the number and quality of industry players they know to make a deal happen, treat them as a relationship broker. Relationship / networking is something you cannot displace easily."

Many top real estate agents (often people who have been in the top 1% for years) have a great deal at a big firm never become a broker. Most top agents are brokers, but a large amount are not.

"realtor agents are practically as useless as travel agents and they will go extinct very soon."

I agree that new agents are useless and anyone that works with an agent who has been in the business for less than five years is foolish.

Owneroccupier,

When I lived in Belmont, I tried to do something similar for the middle school. I offered to teach a kind of real-world economics and finance exercise to help kids realize why they need to think about economics and know how to understand basic finance. There are a couple of really good, exciting, fun-to-learn lesson plans developed at UC for grade school kids.

I was told, quite politely, that they had no room in their lesson plan schedule. They blamed it on the standarized testing regime (although I'm not sure I really buy this excuse). They also said that students could take an econ course in high-school if they chose, so it was already covered. When I asked the admin if she knew how to figure out her payment for her car or house she said "I don't understand, it's printed on the payment coupons. Of course I know what the payment is."

qed (although they probably don't do math proofs anymore in school either, so even qed is probably a lost art)

I have three RE agents who send me listings daily. I heard from two of them last week via email. One of them said that houses are moving quickly in the Silicon Valley and that the only houses sitting on the market are the ones that are over-priced (hmm, aren't they all really?). The other realtor told me that he is receiving multiple offers on his listings and that I better get into gear and get pre-approved. He also asked me if I've been watching the news because local stations are talking about the hot RE market. Is this true? I don't watch the local news at all.

It strikes me as odd that these realtors claim to have so much activity but both of them sent me emails this week trying to scare me into buying. This is my biggest problem with many realtors - they use fear to manipulate. (I do have to give credit to my third realtor because he never bothers me and has been sending me listings for two years now.)

OT - I drove by Vallco yesterday (yes, I'm obsessed) and it looks like those condos are really coming along. They literally sprung up overnight.

As much as I am disgusted by these sales pitches and the unethical behavior on the part of many realtors, there is an axiom that I believe in strongly:

*Freedom comes with responsibility*

This country is fast becoming a place where people are losing their freedoms at an alarming pace (but only a few of us are alarmed!) and at the same time, people don't want to take any personal responsibility at all.

No matter how devious the sales pitch, there is still no coercion or force exerted by the realtors. If I (and many others here) could think for ourselves and resist the pressure, then so can everyone else. In a free society, "Caveat Emptor" always holds true. It is the buyer's fault for not doing enough thinking before commiting to pay millions of dollars over the next 30 years.

If the realtors are outright lying and provably so, then prosecute them on that basis. Otherwise, stop blaming them and start laying the responsibility where it belongs - on the doorsteps of the sheeple.

Could most the realtors have been ethical? Yes.

Still, if you want to be free, you have to learn to take responsibility for your decisions. And, ultimately, it is YOUR decision to buy or rent.