patrick.net

Imagine there's no Realtors,
It's easy if you try,
No HELOC below us,
Above us only sky,
Imagine all the FBs
living for today...

You may say I'm a dreamer,
but I'm not the only one,
I hope some day you'll join us,
And owners and renters will live as one.

Randy, totally agree with your position re: buyer's agents. Their job is unnecessary, adds little-to-no value, and the financial incentives are completely misaligned with the buyers (who they are purportedly representing). Sellers agents add enough value (marketing the house, dealing with buyers, transaction ppwork, hassles, etc.) to justify their existence, but at the full 6%? Doubtful. 1-2% or a flat fixed-fee is the rule in most other countries, and can be here too --if the NAR/MLS cartel can be broken. Hopefully Help-U-Sell, Redfin, PropertyShark, Zillow, etc. will gain enough public and political support to erode their information stranglehold. We'll see...

Houses will never be anything near identical substitutes. There will always be a large amount of asymmetrical information in a house transaction. This is where agency becomes valuable.

Yes and no. One could argue that mass-produced cookie-cutter developments today are chock full of IDENTICAL substitutes. Sure, owner A's faux Spanish McMansion is .2 miles closer to the freeway than owner B's, but does that really represent a huge difference? The asymmetry and lack of direct substitution comes more into play in older neighborhoods with lots of inventory pre-dating cookie-cutter mass construction (c. 1950s). In my neck of the woods (greater Pasadena), sure there are lots of turn-of-the-century Craftsman that it may be hard to find an *exact* substitute for, but not impossible. Actually even these "unique" Craftsman houses were by-and-large kit-built homes that were ordered from a Sears catalog --the pre-fab houses of their era.

Your house is less "special" than your Realtor would have you believe.

Speaking of realtors' extinction... after a year of slow business, my friend's wife, (she of the Main Street Media fame) has reportedly "quit" her job with the RE agency. She now plans to focus on her kids education.

Don't feel sorry for her though - they are flush with her husband's IPO money, so it is not like their lifestyle will take a hit or anything. I think the only setback is that she seemed to bask in the attention she got as a hotshot RE-"insider" from other women at parties.

SP

Good agents, like good salesmen, will be employable for a long time to come. But a probable majority of agents are basically the Best Buy salesman who's been on the job for 6 months. He/she is not telling you anything you can't find out with 5 minutes of Googling.

OT,

But I attended Surfer-X's party this Saturday, which was really more of a house-warming than blog party. I can personally attest to the fact he did not catch a falling knife and got a phenomenal deal on the place. We should all be so lucky.

One of ladies at the party happened to work for D.R. Horton and mentioned she & hubby just bought in early '05 (not exact peak, but close). She mentioned that Horton has already drastically trimmed staff (down to around 7,000 from peak of 10,000) with more cuts possible. She thought the downturn might last another year, but no longer --for her city, that is (Ventura). She wasn't so sanguine about other locales: Riverside, San Bernardino, Palmcaster, etc. Oh, and here was the kicker --they got an option-ARM on their place. But, unlike all those *other* suckers out there, she claimed to be aware of and financially "prepared for" the eventual reset. As she was very pregnant with twins, I thought it best not to probe any further. Don't want have a miscarriage on my conscience ;-) .

I spent the whole last week not worrying about housing or work or anything at all, basically. 9 day weekend!

As for getting rid of Realtors, well, you're always going to have ill-educated buyers and sellers out there who want/need the services a realtor provides, so I don't think you'll ever see the demise of them.

The real problem with housing isn't the realtors, it's the funny money that got funneled into this. Once that dries up, the shine will be off being a Realtor and they will be back to being perceived as used house salespeople. Ask any long-time real estate agent and they'll tell you about the tough times in the industry. We'll probably see 50% of realtors try to go into other work after spending the next year woefully underemployed.

The problem you will run into, is the entrenched bureaucracy and legal barriers thrown in your way. Every state will have their own system for handling sales, and if you aren't an approved and certified person to take part in that process......

Every little squeaky wheel in this process will trumpet that their role is ESSENTIAL, and if you take them out of the way who will you turn to for help? Not that suing any of these people does any good when the process goes wrong now. But anyhow you have an uphill battle.

If you wanted Federal intervention to untangle this mess, they would only make it worse. Probably end up with a bill with 57 other things added onto it.

I for one would welcome anything that is leaner than what we have now.

I should add, it would be nice to see a potential service like this, with a transparent and understandable set of fees. The current system involving a percent of the sale price so heavily, encourage agents to find way to inflate the price.

On the other hand something like fee of X per square foot of house or of yard, would be more transparent and fixed. And this would reflect perhaps that doing lawn-care and staging for a larger house or lot, would be more work. You get the idea.

@HARM,

Loved your rendition! Finally... Patrick.net has a theme song. Sorry I missed X's party, that HAD to be fun! We "had" to be in Vegas on their 2nd hottest day in recorded history. I was determined not to have to come back to OR and admit I spent it in an air conditioned (and somewhat cheesy) "theme bar". I could only take about 2 hours at the pool though and when my fore arm accidentally touched the aluminum lounge chair it felt like splattered cooking grease!

In sfbubblebuyer tradition of the "9 Day Weekend" we came back through Gerlach, NV (host to Burning Man) and crossed over on Hwy 447 not realizing we were in Eagleville CA!? How can anyone hate Reno that much?

Hourly commission is the way to go on the buyer's side.

On the seller's side, maybe some sort of combination of flat listing charge and commission at completion of the deal.

I agree with most of the views here. Buyer's agents will be going the way of travel agents. The process has already started.

I was passing via Blaney in Cupertino, and the board on a house said
"SOLD - For 1%".>/b>
Upon inquiry, I was told by friends who had visited the open house that the selling agent was telling everyone that if they chose the same agent as buyer's agent, the commission will only be 1%.

This trend will increase, no matter which direction the market goes.

Yuck. Sorry for the messed up tags.

I think it is going to happen by itself Patrick. Like travel agents, modern technologies are disrupting the normal business models of realtors.

Malcolm,

Randy addressed this a bit already, but I'll also add in general that the Realtor Mob (ie, the NAR) is putting up a darn good fight to keep these changes from happening.

The DOJ Antitrust division keeps an active investigation on various local and regional/national Realtor groups:

http://www.usdoj.gov/atr/public/workshops/rewcom/213351/9.htm

Also, the NAR is one of the largest campaigin donors in local, state and federal politics, and they wield enormous clout in preventing legislation being passed that would allow changes towards a more competitive market.

HARM, good seeing ya! Hopefully next time Mrs Harm can make it also.

have often wondered why Federal employees and military personnel pay federal income tax.

I'm not sure they all pay the same tax structure the rest of us do. My father-in-law is career military and a good portion of his income isn't taxed. I'm not exactly clear on how it's set up, but he gets an "allowance" for housing and other costs that isn't taxed. I think the untaxed portion is a good half of his pay.

Well, it looks like CNN at least has finally found the Credit Suisse ARM Reset Schedule. And with there being no Spring Bounce this year, it looks like we might actually be getting past the denial stage.

That means it's time for anger! I bet the local news gets pretty interesting in the areas getting hit first. Ouch!

Skibum, I agree it won't be smooth, and a lot of the higher end properties will probably be represented one way or another just because it will continue to be a required hipness to market homes like that through agents. I can't help but wonder though, what would have happened if Zillow had offered free ads for sellers when it was a sellers' market. It was critical timing window that was unfortunately missed but could have totally upheaved the industry.

Yes, I'd say we are through the denial stage SF. I think we've skipped the anger stage and moved straight to the compromise stage. Acceptance should be the last one and we can call that one when we hit bottom which will come when sellers accept the value of their house and actually sell.

HARM, your poetry brings tears to my eyes, and I hope it brings tears to realtors eyes too, only for different reasons.

Patrick

skibum, thanks for the link.

Check out the other dirt on realtors (not TM) on the DOJ site:

http://www.usdoj.gov/atr/public/workshops/reworkshop.htm

and

http://www.usdoj.gov/atr/public/workshops/rewmajor.htm

The paper titled "Nine Pillars of the Citadel" is informative.

http://biz.yahoo.com/ap/070710/dollar.html?.v=11

AP
Euro Hits New High Against U.S. Dollar
Tuesday July 10, 10:17 am ET
Euro Soars Through $1.37 Mark, Trading at All-Time High on Concerns About U.S. Housing Market

FRANKFURT, Germany (AP) -- The euro soared through the $1.37 mark for the first time on Tuesday, trading as high as $1.3716 amid concerns about the U.S. housing market.
The 13-nation currency hit the new high before falling back a bit. It was up from the previous record high of $1.3682 it bought on April 27 and above the $1.3623 it bought late Monday in New York.

The dollar's drop came as U.S. stocks fell in early trading as Wall Street nervously awaited a speech from U.S. Federal Reserve Chairman Ben Bernanke and reacting to troubling forecasts from the retailers Home Depot and Sears.

Bernanke is expected to speak on inflation later Tuesday in Massachusetts, and any indication that he believes price pressures are rising could heighten worries about a possible interest rate increase and give the stock market a jolt.

Meanwhile, Home Depot Inc. and Sears Holdings Corp. offered disappointing financial outlooks that raised concerns about whether corporate America's future performance will give stocks the boost investors have been hoping for.

ColoradoBear,
Yeah, I've taken a gander at those pages from the DOJ before. What I find most interesting is that the DOJ has a LOT of information about shady collusive Realtor practices, but they are unable or unwilling to pursue the issue further than to provide generalized "recommendations" like suggesting states repeal laws on their books requiring minimum broker services or banning RE commission rebates. It just seems like the DOJ has no teeth when it comes to this issue.

I would love to see this happen. These are the obstacles that I see personally and possible solutions. In short I think people need to feel confident in doing the process on their own.

1 - As someone who hasn't purchased a home before, I feel uncomfortable with all the details and steps simply because I do not know what they are or how to bring them to pass.
The solution to this I believe could be a free online resource that provides a detailed step-by-step guide on what you need to do to buy or sell a home.

2 - Documents. Man it seems like there is so much paperwork involved. How do I know what documents I need and what information is pertinent to my situation in those documents?
Again, it would be nice to see a free resource for these documents as well as instructions on how to use them properly. I've seen websites out there that sell the documents but I don't feel like throwing down $20.00 per document when I don't even know that I'll need them.

3 - Getting around the Realtor. This is a tuffy. A few things. First we need to have a good searchable database for people to post homes for sale and to look for homes to buy. The MLS is really great but we really need something that costs less and circumvents the realtors. Now we have things like craigslist or perhaps local classifieds both of which are quite good but the search capabilities are mediocre. My favorite property search engine is PropertyPoint 3 from Windermere.
For those properties that are listed with a realtor already, I think the best thing to do is approach the seller directly. You can sometimes get this information from tax records or heck just knock on the door (assuming it's not investor unoccupied). Tell them you're interested in the home but won't work with a realtor. Many people would be tickled to knock 5% off the price and drop the realtor.

OT, but it looks as though slowly, but surely, the "other shoe" is starting to drop on the subprime MBS mess:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFS746x.HOnc&refer=home

Now that the Bear Stearns disaster has put the spotlight on the ratings agencies, S+P is finally responding. It looks to me like, as expected, they are going to retool the credit ratings of these bonds in dribs and drabs, probably to avert mass panic.

I like this analyst's comments:

``S&P's actions are going to force a lot more people to come to Jesus,'' said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. ``

Overall, it appears to be a pretty interesting day in the markets - we have the S+P subprime bond "opening shot," Bernanke continuing to try and walk that fine line between keeping the economy afloat and giving lip service to "fighting" inflation, and we have crappy earnings reports from the REIC: DR Horton, Sears, Home Depot.

A straw poll - does anyone think the national housing mess will ever substantially affect the "Fortress" in the Bay Area? To me, nationally, things are only getting worse. But anecdotally, the Fortress areas continue to hold up. The gap is widening more and more.

Skibum,

Yes, it'll hit the fortress. Just like the price jumps started in the 'fortress' and rolled out, now the price declines are rolling back in. Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.

Skibum,
OT, but it looks as though slowly, but surely, the “other shoe” is starting to drop on the subprime MBS mess
I was thinking the same thing -- enough to motivate me to finally look at the 401k accounts and attempt to "sanitize" them last night (yes, something I should have done 6 months ago). The only thing that really seemed to jump out at me was the Pimco Total Return Bond Fund (already down 1% this year). But that is probably because I am overinvested in equities (whenever I see "financials" as a large percentage in some of my funds I start to get queasy). Ah well.... long term right?
From the Pimco Investment Update:
Overweight mortgage-backed bonds—Mortgage-backed bonds remain an attractive source of high-quality incremental income compared to credit-sensitive corporate bonds.

Anybody got strong feelings about Fidelity Balanced Fund (FBALX)?

East Bay Anecdote:
Walking past a church that was having a wedding, there was a guy outside yammering away on his cell phone. The only part of the conversation I caught was: "Nobody is buying homes right now".

it may hit fortress only slightly considering there are people in this blog who are interested in fortress. more interest --> more demand.

EBGuy,

I'll admit that unlike a lot of the other posters, most of my mutual fund dollars are in Fidelity not Vanguard. I'm concentrated in FSEMX, which is a low-cost index fund. There's always the temptation to let the "inner bear" take over and start worrying about having any money at all in the stock market, considering the continued onslaught of bad economic news, but then again, somehow, the market up to now has continued to shrug off each piece of bad news and continue it's onward and upward slog.

Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.

Sounds like this post I wrote the other day:

http://www.burbed.com/2007/06/30/nick-testa-redefines-the-bay-area/

That said, if you're expecting a 20-40% haircut in the Fortress, I don't think you should hold your breath.

it may hit fortress only slightly considering there are people in this blog who are interested in fortress. more interest –> more demand.

sa,
You may be right about the "Fortress," but your reasoning is nonsensical. Just because this particular blog has a lot of interest in the area, that doesn't signify anything about overall demand other than for those on this blog.

Your comment is akin to saying the posters on the "Vida Blue Baseball Card Blog" all are interested in Vida Blue's rookie card, and therefore the demand must be great. But maybe the general population doesn't give a rat's a$$ about Vida Blue.

Sorry if a little OT, but I'm moving back to the Palo Alto/Menlo Park area in the near future and could use a point in the right direction. Thanks in part to this blog, my wife and I won't be looking to buy in the near future, but we're having a hard time locating a 2BR house with a yard to rent. Outside of craigslist, where should we be looking?

jrjonsie Says:

1 - I feel uncomfortable with all the details and steps simply because I do not know what they are or how to bring them to pass.

2 - Documents. Man it seems like there is so much paperwork involved.

3 - Getting around the Realtor.

i bought a house from owner (FSBO). i hired a closing/contract agent for around $600 and there aren't many documents. it's just the realtor's way of scaring people ("oh all the paperwork"). there are a ton of online resources. just start through the process by looking for banks (good ones) that can loan you the money, they will guide you through the paper work and people needed.

for getting around realtor, buy FSBO houses. not sure what can be done if you like a house listed by realtor.

skibum

i was only referring to the blog for obvious reasons. i do know quite a few folks who would like to be there. just a general observation.

on the other hand i would like to know if houses in bay area is really expensive compared to areas like NY. sure NY has financials, silicon valley actually got to be big?

skibum,

i was just talking to my friend last sunday and he was saying some chinese had bought houses cash down in/around cupertino area.

Who's going to make the first troll call?

And eburbed, I hadn't read that yet (I usually hit your site every few days) and it made me laugh when I did?

on the other hand i would like to know if houses in bay area is really expensive compared to areas like NY.

Yes. Houses here are more expensive than they are in the NY Metro Area. But not more expensive than in Manhattan.

It's also hard to compare because the property tax there can be double what it is here sometimes.

SFBB said:
Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.
I do get the feeling that at some point it is all about crunching the numbers. By my (admittedly crude, back of the envelope) reckoning, a year in private (Montessori) school is about equvalent to ~$250,000 in home value (and this number falls as interest rates rise). And that expense is only over 13 years. Do you really want to be draining the coffers to be in a good district while the kid is in college (admittedly, you can move out of the district at that point -- but then again, Prop 13, transfer taxes and Realtor fees say stay put {well, there is the one time roll exemption for Prop 13, though}). Like the home price-to-rent ratio, gravity (and overvalued school districts) can only be defied for so long...

"Who's going to make the first troll call?"

Oh... I'm sorry, I thought it was obvious.

I spoke with a gal at my custodial bank and she said that there were a few houses that were starting to slide off their foundations in Tiburon? I thought all the big rain came last spring?

I expect as things continue to deteriorate "metro areas" will get smaller and smaller as the REIC attempts to distance themselves from former "hot areas" they'd previously been touting as "core".

Who’s going to make the first troll call?

I'll give "sa" the benefit of the doubt. By his/her posts, it appears he/she just recently bought in the "Fortress" (FSBO), and is here to assuage any buyer's remorse by touting the high demand in the "Fortress." The choppy grammar in fact leads me to believe he/she in fact is of the "Fortress" demographic - Asian, probably an engineer.