The summary of CoreLogic’s February 2011 U.S. Housing and Mortgage Trends report:
In 2010, home sales declined to the lowest level since the collapse in the housing market. The CoreLogic research indicates that the [National Association of Realtors (NAR)] measure of existing home sales is overstated by 15% to 20%.
The rapid price declines are being driven by huge supply/demand imbalances and the rising impact of distressed sales. If current trends persist, home prices are expected to be down – over 10% year-over-year by Spring.
The weakness in the refinance market is heavily driven by the lack of equity, but tighter credit underwriting will keep some borrowers on the sidelines.
According to CoreLogic, U.S. home sales fell 12 percent in 2010 (versus the 5 percent figure reported by NAR) and the renewed downturn in home prices is being driven by “weak sales, an excess supply of unsold homes and [a] larger impact from distressed sales.”
∙ U.S. Housing and Mortgage Trends – February 2011 [corelogic.com]
∙ S&P: San Francisco Home Values Fell Across The Board In November [SocketSite]
What!?!? NAR misled the public! Unbelievable. 🙂
On a more serious note, the report is a good indicator of what is happening in the markets. At this point I remain a bit skeptical of all data i read on the market. Too many agendas out therre.
> CoreLogic Claims NAR Overstates Sales
> And Understates 2010 Decline
I think that we need to get away from any Realtor ® bashing and just try and educate the population that ALL people SELLING something want to make a sale (since they need to make a living).
We need to ask why this headline is any more shocking than:
“AT&T Cellular Salespeople Overstate Coverage area and Understate number of Dropped Calls”
“Land Rover Salespeople Overstate Resale Value and Understate number of Mechanical Problems”
“My Space Salespeople Overstate number of users and Understate number of people that have not logged on in years”
“Bay Club Salesperson Overstates the weight you will lose and Understates number of people waiting for each machine when they are busy”…
Geez, let me think. A self-regulated industry giving out numbers that will influence its livelihood? Nothing wrong with that…
FAB,
You could throw in the investment fund industry in there along with about 90% of the private sector.
I think the issue here is the scale of the purchase.
For the vast majority of people a home will be the biggest single purchase they will ever make. Over a lifetime, a cell phone cost will be in the tens of 1000s, A car will be in the low-hundreds of $1000, a home in many hundreds of $1000s, even more than a million in the BA. This is the biggest debt burden, the biggest monthly expense.
The industry should have more accountability, but what else is new?
FAB, let me tell you why: buying a house is the largest financial transaction that most people will ever go through, so the damage due to salespeople’s deceit and lies is far larger than that of any of the your examples. Cell phone under-coverage has never caused anyone financial ruin.
caveat emptor
Realtor bashing? We’re not bashing, we’re just screaming “liars” “liars”, a descriptor appropriately deserved.
The consistency of the overstatement in that graph is statistically insignificant. There simply aren’t enough data points in that graph to prove anything. We would need at a minimum, 100 data points before we could prove anything conclusively. So we’ll need to monitor this for at least eight years before jumping to a hasty conclusion, statistically thinking, that is.
These cherry picked data are amusing but show nothing without further study. You should consult a realtor for the real data, they will be happy to give it to you
Cell phone under-coverage has never caused anyone financial ruin.
I am not so sure of that. This is the information age where everyone is supposed to be always on, all of the time. Having people lose money due to lack of coverage most certainly happened.
But I agree this is not as important as a home investment. For many, the home is not only a place to live, but it is also a place to finance retirement either passively (cheap housing) or actively (reverse mortgage), and a cushion for unforeseen financial events. It’s not a surprise that, outside of the exceptional bubble popping foreclosure crisis, the 2 biggest life events that triggered the loss of a home were either unemployment or serious illness.
Plus, for many a home is the biggest inheritance item.
Yes, fair valuation and fair estimate of the current market are important!
i think headlines like this are frustrating because you are paying a real estate agent a huge sum of money to guide you through a transaction, and you would hope to get unbiased information for your money, right? I would expect AT&T and Land Rover salespeople to lie to me, but they are representing a single brand/product. If I hired a “car buying agent” and paid them 3% of the purcahse price of my car, i would expect some unbiased advice for my money…
This is a national report, but it sure seems to squarely apply to SF, as one would expect since SF is no island and has followed broader price trends pretty closely.
“The rapid price declines are being driven by huge supply/demand imbalances and the rising impact of distressed sales.”
SF – check. And indications are that supply will continue to flow on to the market at far greater rates than sales.
“If current trends persist, home prices are expected to be down – over 10% year-over-year by Spring.”
I expect we will see the same of “apples” in SF. Stay tuned.
That comment by ski run tipster is completely inaccurate. Each underlying dataset for each year is independently statistically significant due to a high N. Go look at the raw data buddy. What you have displayed are 11 non-self motivated, statistically significant datasets compared to perhaps the worst moral hazzard-smelling data one could think of.
@AT, huge supply/demand imbalances are a fact in SF? I’d agree that the supply/demand ratios are trending higher, but the months inventory data that has been produced by some of the posters on SS has been very inconsistent with regard to any specific insights to be made about such correlations. There were periods of high inventory and low inventory throughout the bubble years. And homes are still selling. And what indications are you talking about when you state indications are that supply will continue to flow on to the market at far greater rates than sales.? I’m not saying that I agree or disagree, I have an opinion just like everyone else, but where are these “indications”?
There is a surprising lack of data showing anything related to key housing stats in SF pre-2004, and even worse pre-2000. Very hard to get any real data to show what a stable market would look like in SF in terms of average number of sales, inventory supply levels, avg DOM, etc…
From my perspective, other than the tougher lending standards, I’m actually seeing a pretty healthy market and homes are still selling despite lots of challenges. Still eating away at the bubble, but no one is debating it much anymore as the facts on this matter seem indisputable. Feels like the argument these days is double dip; but aside from that debate I’m not sure there is much controversy. All the personal matters between posters on SS are just personal at this point.
Anyway, just fact checking and looking for more information. Cheers.
Ski Run Tipster – I have to respectfully disagree, re: statistical significance of the data set comparisons. You can argue that the Corelogic data is flawed if you’d like, but an 11 period comparison where every period shows the same bias is significant. The only real debate is whether or not each data set in and of itself is valid.
With that said, of course the NAR overstates this number (at least somewhat). Every major corporation and lobbying group in the world does this, it’s part of their job. At the very least, they tend to use the high end of the margin of error – why wouldn’t they? It is the consumer’s job to educate themselves, to think critically and to understand that real estate agents are really real estate salespeople.
Personally, I’m not bashing agents at all – people have to take responsibility for making educated choices, including the use of statistics. If you are going to use these numbers (or any set of numbers) to make a decision, you need to understand where they came from, who measured and interpreted them and what the potential strengths and weaknesses of the measurements are.
Tall guy I was poking fun at a number of statements that another poster (a developer) frequently makes on here.
Everyone should read that core logic report. It’s 100% scary. Not a single rational person would buy right now after reading that report.
Eddy, check out the graph on page 2, bottom left hand corner. Using realtor supplied data, months of supply dropped from 11 months in June to 7 months today. GREAT, until you realize the realtor data is all a lie and according to core loginc, months of supply increased, not decreased, to 16, not 7. The months of supply figures are a joke for SF and everywhere else because the underlying data is a lie.
And lending standards are tightening even now. Using the realtor supplied report that ski run man provided a few weeks ago, the number of homes that didn’t sell at all last year was huge. That isn’t a healthy market – that just means those places are all coming back next year as REO.
And although no one small city will follow the trend every month, no city is immune because people can and will move out (and other residents will stop moving in) if one city gets out of balance with other nearby cities.
Interest rates rising caused a lot of fence sitters to jump off and buy – that no doubt has a short term stabilizing effect as it always does, and those places are closing now (and likely the source of Paul’s comments how sales had picked up last month), but that isn’t going to last.
eddy, here are the indications I have in mind.
Feb sales to date are trailing 2010, which was already low. Note that this is imperfect as MLS updates can be untimely. Pendings are equal to a year ago – continuing low.
Inventory continues to run far higher than recent years while sales over the last several months have been slow. $/sf listings also hit many year lows recently.
Some severe (more than 50%) price declines among lower-end “apples” which has foreshadowed broader SF trends the last few years. And some wicked price declines (more than a half-million) among higher-end “apples.”
Blogosphere reports that DBI 3R report requests are coming in like crazy, a precursor to listing volume.
Foreclosure inventories continue to rise (per foreclosureradar).
And interest rates have risen.
eddy, here are the indications I have in mind.
Feb sales to date are trailing 2010, which was already low. Note that this is imperfect as MLS updates can be untimely. Pendings are equal to a year ago – continuing low.
January, we hardly knew ye and your higher YoY sales volume. Yet spin away regarding a midmonth Feb tally. huH?
Inventory continues to run far higher than recent years while sales over the last several months have been slow. $/sf listings also hit many year lows recently.
2009 was higher. 2010 in the same range by and large.
Some severe (more than 50%) price declines among lower-end “apples” which has foreshadowed broader SF trends the last few years. And some wicked price declines (more than a half-million) among higher-end “apples.”
So your ilk has been saying for years. Meanwhile D10 and worst D3 continues to be its own thing.
Blogosphere reports that DBI 3R report requests are coming in like crazy, a precursor to listing volume.
Blogosphere re:3R requests, and paraphrases of bloggers opinions about what that means = less than worthless
Foreclosure inventories continue to rise (per foreclosureradar).
Not per a lot of YoY reports everyone has seen on here. But per your paraphrase of foreclosure radar. Pass.
And interest rates have risen
Interest rates are still quite low, obviously.
“Not a single rational person would buy right now after reading that report.”
Really? So there is not one single property anywhere in the US that is priced low enough or will provide enough benefit for any single person to be considered rational if they buy it? Nice narrow brush you are painting with there.
gotcha, fluj, the ol’ “I have nothing to add but I will attack your data with a bunch of ad hominem remarks.”
Let’s look at one hard point you actually did assert re current inventory levels: “2009 was higher. 2010 in the same range by and large.” And let’s look at SS’s recent entry on this: “Current listed inventory is up 25% on a year-over-year basis.” (emphasis in original). We’ll let people decide on their own, the “same range by and large” or significantly higher?
I made a prediction. Inventory will continue to rise faster than sales. You disagree (maybe, it is actually hard to tell what your point is). We’ll see soon enough.
Really? So
, in 1999,there is not one singledot com stockproperty anywhere in the US that is priced low enough or will provide enough benefit for any single person to be considered rational if they buy it? Nice narrow brush you are painting with there.Oh, I added. I challenged. I rebutted. Your paraphrasing of what I have to say is no better than your paraphrasing of other material.
anon.ed, what is your prediction on where prices will trend in 2011?
banano wrote:
> i think headlines like this are
> frustrating because you are paying
> a real estate agent a huge sum of
> money to guide you through a transaction,
In most cases a SELLER is paying a huge sum of money to a real estate agent (or agents) to get as much as possible for the home and do anything to get the sale closed. The BUYER rarely pays a real estate agent for any advice. Any BUYER that thinks they are getting good advice from a listing agent is as dumb as a woman who thinks she is getting good advice from her husband’s divorce attorney…
They seem to be trending down slightly. January’s volume was up a lot but the price was down around 5% or so. February price so far seems to be down about 3% or so. Those statistics are largely within what most of the dataheads on here would term “noise.” Because March could come in and show prices up … but they’re still down a bit in my view.
anon.ed, that’s not a prediction, it’s an observation. Please try again.
You didn’t ask the question, one, and I think I answered the qustion adequately in the first sentence.
I am disheartened, but not surprised, by people comparing real estate agents with other sales people. Real estate agents are AGENTS, with all the corresponding legal and ethical obligations that agency entails.
While you cannot believe anything that someone else’s agent tells you, YOUR agent has the legal obligation to put your interest before his or her own. For your own agent to use normal sales puffery is both unethical and illegal. See the law on agency.
My distaste for the real estate industry stems from nearly every single agent I’ve worked with ignoring this fundamental concept. Indeed, agents often DEFEND putting their interests before their clients. Completely unconscionable, in my book.
“Really? So there is not one single property anywhere in the US that is priced low enough or will provide enough benefit for any single person to be considered rational if they buy it?”
Well maybe the condos listed for sale at 630 Mason Street, but only because they are right around the corner from Borders bookstore.
down 8% so far in 2011 is just noise
no one asked me, but my prediction is probably go down, but might go up, it’s tough to know
Everyone needs to make their own opinion but anyone that reads these reports and reads them as fact should have their head examined. So much FUD and broad strokes / statements with the clear intention of spreading an agenda are being thrown out there by everyone; need to be skeptical.
There are some good values in the market right now and buyers, rational buyers, are putting their money down on homes in SF. 1388 Chestnut is a good example (name link). This is a lot of house for $1.6M in a decent enough part of town. Remember, 1800 sqft condos were selling for $1.6 in 2006/2007. Now you can get 2400 square feet w/ 2 car parking. Lot’s of deals to be had out there. Lot’s of owners who bought at peak are still going to take a beating.
“i think headlines like this are frustrating because you are paying a real estate agent a huge sum of money to guide you through a transaction, and you would hope to get unbiased information for your money, right? I ”
” Real estate agents are AGENTS, with all the corresponding legal and ethical obligations that agency entails.”
It is worth noting first that while your agent may be your agent, the NAR is not your agent.
Secondly, regardless of the law of fiduciary duty sometimes the power of incentives can be greater then that of the law. Anyone working on commission should be viewed at least in part as tending towards a salesman’s role.
As mentioned above, unless your broker/financial advisor is purely fee-based and accepts no payment from investment providers, the same caveats apply.
Tipster – So is your little reply indicating that you believe real estate in 2011 is equal to the pre-bust dot.com bubble? Or are you saying that real estate in 2011 is equal to tech stocks in 4-5 years after the peak of the tech bubble? If that is your point can you put a little more meat on the bones of that argument? Where exactly are we today in the real estate bubble bursting compared to the dot.com stock (and overall stock market) bubble bursting of 2000-2002. Why is housing equivalent to just dot.com stocks rather then just the overall stock market?
Or are you just trying to spin your hyperbolic statement that no rational person would by a property today and rather then acknowledge your overstatement you instead are digging in deeper?
Thanks, anon.ed. We obviously need some data bifurcation in a city as heterogenous as SF. The market for $1.5MM+ homes in D7 and Noe is different than Soma condos or sub $1MM SFRs in Bernal or Sunset. I don’t follow the former, so no comment there. But seems like those buyers are partly interested in boosting their egos/buying trophies, and are relatively unconcerned with mortgages and buy vs. rent.
Regarding the latter, I believe we see a slow stair-stepped progression down in prices as the government lending monopoly (which has been largely supporting the sub $1MM segment, IMO) is slowly unwound over the next 1-5 years. I could see another 10-15% decline by 2012 or 2013.
Figure 7B on p4 showing the compression of FICO scores for normal 75-80% LTV loans should give pause to people who believe that shrinking the FHA’s market share will have a negligible impact on the market.
It would seem reasonable to assume that given the state of the economy, the number of people with higher FICO scores is shrinking as well.
This footnote is interesting as well
“While the LTV reflects the total LTV at origination, CoreLogic databases do not capture silent 2nds that the lenders were unaware of at the time and this was very prevalent in the mid 2000s.”
In general, I’ve seen some data which would appear to show lower LTV’s then would seem to be expected. I’ve suspected that some data sets have the above issue, but it is interesting to see it called out explicitly.
Personally I would be very unlikely to invest in or buy a property in SF anytime soon as I think properties are going to continue down, how much I can’t predict.
But I think some of the other markets outside SF that a further along in the bubble bursting process are providing some opportunities for rational people to find some value.
Where exactly are we today in the real estate bubble bursting compared to the dot.com stock (and overall stock market) bubble bursting of 2000-2002.
We’re at the part where the government stepped in and let people buy dot com stocks on margin with the government taking all the risk, and gave them tax credits for doing so. Oh wait, I guess that didn’t happen, so we’re basically right near the very beginning of the crash.
Why is housing equivalent to just dot.com stocks rather then just the overall stock market?
I don’t recall anyone saying “the old rules don’t matter anymore” for tool and die companies. I sure heard that a lot in the dot com days and location, location, location, 20% down, verifiable income and everything else got thrown right out the window for housing.
Finally, quoting myself:
Well maybe the condos listed for sale at 630 Mason Street, but only because they are right around the corner from Borders bookstore.
Darn it. Union Square SF Borders is closing. I guess I’m back to saying I wouldn’t buy anything.
Forgive my ignorance, but can someone explain HOW real estate agents overstate sales? How can a house “sell” but not really sell? How do they manipulate the data to inflate these numbers? Thanks.
down 8% so far in 2011 is just noise
2011 so far: 381 sales $520psqft avg, 629K median
2010 YoY td: 369 sales $527psqft avg, 620K median.
Not noise. Just you saying something untrue, yet again. The editor really needs to reel you and your fellow toadies in. This constant misinformation thing is really tiresome.
“Last year, the average non-distressed price
increased 7% to $241,500, refl ecting the impact of the tax credit and the changing mix of transactions, especially on the upper end of the price distribution. However, the average price for REOs fell 1% to $140,600, while the average short sale price fell 2% to $215,300 (Figure 2).”
I found this part interesting since I spent the last two months looking at REO/Short Sales. Of course what I would like to know about these figures is what were the price per sq ft of each of those. REO’s fell by 1% but I wonder if people are getting bigger houses for that same median price as a year ago. When looking at REO’s up in the mountains I noticed that generally they would just keep reducing the price every 1-2 months until it sold. The price reductions were rather significant, the place I ended up getting for example had its asking price reduced by 40% from September to January.
The process did make me very cynical, particularly when I saw a short sale. My first thought became: “why bother, just wait until it gets taken back, the price will drop dramatically then.” Of course these numbers show the dramtic difference as Short Sales averaged a near 50% premium over the REO’s.
Bringing this back to SF, it does reinforce that the thing to keep an eye on is the percentage of REO in the supply.
Alexp, they apparently take the MLS sales and then adjust them to include sales that they believe would have not been on the MLS. For sale by owner (FSBO) sales, and private transaction sales (between neighbors) for example, would not be on the MLS but would represent real sales and if you are trying to report a total number, you would account for an estimated number that is not in your systems.
So of course, this gave them plenty of room to fudge the numbers. I don’t think there was an explicit accusation of fudging, the idea was that they simply hadn’t reflected changes in their models to reflect the real world, so the models had gotten more and more inaccurate over time.
To be fair to them, their models DID, under report inventory. So they can make a “mistake” in the other direction.
Of course, this drove months of inventory even lower, making the market look rosier, but I’m sure these two mistakes in opposite directions that both made the market look better than it really was, and in fact were used together to make the market look MUCH better than it really was was in fact an “accident” and purely “unintentional” — NOT.
“Oh wait, I guess that didn’t happen, so we’re basically right near the very beginning of the crash.”
Okay, thanks for clarifying. So when does the majority of real estate go bankrupt and become worth zero? That’s how the dot.com thing ended up. When will pretty much all land and houses be worth nothing more then the value of the paper the deed is printed on? It’s pretty fun to keep digging your analogy hole deeper.
“‘down 8% so far in 2011 is just noise’
2011 so far: 381 sales $520psqft avg, 629K median
2010 YoY td: 369 sales $527psqft avg, 620K median.
Not noise. Just you saying something untrue, yet again. The editor really needs to reel you and your fellow toadies in. This constant misinformation thing is really tiresome.
Posted by: [anon.ed] at February 16, 2011 12:49 PM”
Huh? You yourself said:
“They seem to be trending down slightly. January’s volume was up a lot but the price was down around 5% or so. February price so far seems to be down about 3% or so. Those statistics are largely within what most of the dataheads on here would term ‘noise.’ Because March could come in and show prices up … but they’re still down a bit in my view.
Posted by: [anon.ed] at February 16, 2011 11:03 AM”
Are you saying you’re misinforming and tiresome?
The dot coms went back to their pre bubble values. Cisco systems hit 1997. Oracle 1998. Sun Microsystems went further back. They did not go to zero. They went back to their pre-bubble valuations.
Companies with no business value using the pre bubble metrics ended up at that pre-bubble valuation, zero, but not all of them had zero value using their pre-bubble metrics. Lots of them survived or were sold. I listed a few above.
Google’s value would have gone to zero had it not been for sponsored links. That gave them a real valuation using established pre-bubble metrics and so they did not need to go to zero. Yahoo owned the patent for sponsored links and sued them. Google had to give them lots of stock (and I think the rights to the page rank patent) to avoid being shut down.
Again, I’m very sorry for you you can’t see this. You think it’s funny I do. I think it’s sad you think its funny.
“Are you saying you’re misinforming and tiresome?
No, I’m saying you are courtesy of your needling attitude, childish name switches, constant unsubstantiated statistics, spins of links, paraphrases of news clips, etc etc. 8% you said. I showed otherwise. Per one metric it’s down. Per another it’s up. Per volume it’s up. Do I feel like it’s trended down a bit YoY? yeah, I do so far. But within a small range (“noise” — when it suits you), as I said. All of this, I’ve said.
Now you’re like “Who’s misleading who”? after you’re the on who inserted 8%, apropos of zilch. Seriously buddy. You’re really not even as good as the haters you emulate on here. And that’s pathetic.
Thanks tipster – so NAR reports “estimated” total sales including pocket listings, not just what’s in their database. I get it with FSBO, but if you’re a member of the MLS aren’t you obligated to put your listings there (i.e. don’t pocket listings violate MLS rules?)
Cisco/Sun/Oracle are not “dot.coms”. They are tech stocks but they were never dot.com stocks. Google didn’t have its IPO until 2004, so its not really useful in a discussion of the dot.com or tech stock bubble because its stock was not actively traded during the boom/bust.
We all know the socket puppet company that gets trotted out as representative of the dot.com bubble. When you mentioned specifically the dot.com bubble which was a segment of the broader tech stock bubble which was itself a segment of the larger stock bubble of the late 90’s, I asked if you were referring specifically to the dot.com market or the broader tech market:
“So is your little reply indicating that you believe real estate in 2011 is equal to the pre-bust dot.com bubble? Or are you saying that real estate in 2011 is equal to tech stocks in 4-5 years after the peak of the tech bubble?”
Your reply again just referred to the dot.com portion of the bubble. You also mentioned that the government did not step in to help people buy dot.com stocks on margin. Although you fail to mention that the Fed did take actions to ease borrowing; it is just that the low interest rates they provided help trigger the real estate bubble.
Your most recent post leads the way to show how that even today someone can make a rational decision to buy real estate. Valuation. It is easy enough to determine a rational value on any piece of property, people have talked about it a lot on this board, the rent v. own calculation. If a place is cheaper to own then it would be to rent, isn’t it a ration decision to buy it? That comparison can not be done with stocks which is just one of the many problems with your analogy that you continue to defend in the hope that it will somehow back up your statement that anyone that bought any property today would be acting irrationally. I firmly stand behind my opinion that if someone can find a good enough deal on a property, it may very well be rational to buy it today rather then continue to wait and therefore your statement to the contrary is wrong.
We don’t rely on NAR statistics when analyzing the market here. I actually don’t pay that much attention to NAR data they send out. We use other subscriptions including Corelogic to get a general sense of what’s going on in the Bay Area. For offers or list prices, we rely on specific neighborhood and property type info from several sources (esp. MLS, knowledge of private arm-length sales) plus professional experience and any inside knowledge. Real estate is an imperfect market. NAR, Corelogic, Case-Schiller, Reis, etc are proably using different metrics and inputs so it doesn’t surprise me data is different. NAR puts out negative outlooks as well for some regions.
Someone mentioned the Realtor association is self-regulated. That’s not true, real estate is regulated on the state level. Feds regulate us on Fair Housing laws and RESPA. Realtor association mostly arbitrates disputes among members.
In almost all deals, the agents on the other side have been aggressive on the negotiating side like me. These agents that seem to get mentioned on Socketsite (the ones giving buyers bad info), I wish you would write on my listings.
I scan this website occassionally and find the comments interesting though inaccurate at times. Real Estate isn’t the stock market. These deals are ultimately private sales (though sales price may be published in MLS/tax records). Only the insiders really know what’s going on with these properties and clients. And no, we’re not used car salesmen. I have discouraged clients from buying and I know many of my colleagues who have done the same. I thought in 2006 SOMA/South Beach would drop 30-40% due to level of investors, I/O ARM loans, and oversupply. Told this to client the last few year. Some clients bought anyways, so we lowballed as much as possible and I advised a 15 yr fixed rate as it will be at least 10 years there before any recovery. And the transbay construction period will only make it worst.
I almost never post to this site but the tone of this blog, however subtle, suggests we’re trying to “screw over” buyers. I’m sure many of my colleagues would be offended like me. There are agents who should not be working with clients, but I see the market starting to weed them out.
yup, gotta hate all those name changes. Pretty childish.
Tipster – oh and just to clarify in my post above where I reference “larger” in regards to dot.com – tech – total stock market, I’m referring to the size of the market involved not the size of the bubble. Without doing extensive research I will say it felt like the magnitude of the bubble was inverse to the size of the market.
Remember the adage:
Lies,
Damn Lies, and
Statistics.
“yup, gotta hate all those name changes. Pretty childish.”
That was all you could muster after I took you to task for every aspect of everything you ever say on here? OK. I knew that was coming.
sleepyinsf – I’ve worked with RE agents whom I feel have integrity so I wouldn’t outright assume that all are trying to “screw the buyer”. However some do seem to put their financial interests above their clients.
I’m glad to hear that you’re one of the agents who look out for their clients, even if you miss out on a sale. But I don’t think that we can rely on the market to weed out the bad apples. The market is far too opaque and clients are in general pretty naive. Instead the professional associations should take an active role towards weeding out the agents will little integrity.
How dare people call us liars. I have always overstated the value. This enables me to get better commissions.
In my office if we bend over backwards for a customer we worry about how our holes get filled. The world is prettier through the lens of a red colored glass.
The agency problem is eternal.
How do you induce someone to act in your best interests instead of theirs? In the end, the only one you can count on to care about your best interests is you. Or maybe mom. Although I wouldn’t count too much on that if there were a 5% commission on the line.
On the sell side, of course the realtor is trying to get the highest price. The problem is that on the buy side the agent is also financially encouraged to get his/her client to pay the highest price. This is easily cured through the contract. Lots of realtors out there already rebate a portion of the buy-side commission. Just structure the commission so that a set percentage (say 50%) of the commission is rebated at asking, with a progressively higher rebate above asking – or some other metric – and progressively lower rebate (i.e. higher net pay) the farther below asking you get. Align your incentives with the agent’s. Plenty of hungry realtors out there who will eagerly agree to this – and all the ethical ones will, although the precise percentages may need to be negotiated.
No, on the sell side, the realtor’s interest is to make the sale. A 2% ($20K for the seller) difference doesn’t matter to them.
On the buy side, the realtor’s interest is to make the sale. Same logic.
The RE industry needs reform. The commission structure help neither the seller or the buyer.
Good point, John. The sell-side commission agreement should also be drafted to align the interests of client and fiduciary agent, with a tiered commission structure that rewards the agent for a better outcome and not for a worse outcome – e.g. 2% at $X, 2.2% at $1.1X, 2.4% at $1.2X, etc. (this is very simplified for illustration).
Again, lots of hungry realtors out there who will readily agree to this.
I like the graduated fee structure that A.T. suggests and would be interested in hearing from the agents here whether they would agree to such a commission structure.
You can structure a commission as tiered, but there is a reason this isn’t prevalent. The good agents are already trying to get the highest price for sellers or lower price for buyers. Ultimately, market price is what it is so we will advise clients on what is in their best interest depending on their motivations. I’ve priced listing for 30 day sale because my clients wanted to be out of the property within 90 days. Others I’ve let sit for over 1 yr because sellers were not in a hurry. Second half of 2010 wasn’t a good seller’s market, we got low low ball offers and I told them not to take them, wait till 2011. Likewise, I tried to lowball on some listing and the agents told me no.
IMO, the agents that give rebates or discount brokers are not very good at their job. The top agents don’t rebate unless there is a pre-existing relationship with client or it’s a high end property. But every deal is different.
Those hungry agents are hungry for a reason. A lot of licensed agents call themselves realtors, but they are not really professionals. This is a lot of work in a 24/7 365 day marketplace. If you’re only motivation to be in this industry is commissions, you will not make it. Many of us are realtors because we like working with people and we like properties so it’s rewarding when we can make a match. This is a relationship centered industry and long term we have to build a referral based business. Otherwise, it becomes very transactional and that type of business model is usually not sustainable.
“This is a relationship centered industry and long term we have to build a referral based business”
Referrals are often given as the reason that the RE agents are motivated to satisfy their client. But I have yet to be referred to anyone because they did a great job. Instead all of the referrals are due to personal connections : the agent is a friend or family of the referrer. And this is over multiple transactions for which none of the agents I worked with did a good enough job that in turn I’d go out of the way to refer them. Well there was one guy who I’d definitely refer though I’ve yet to encounter another buyer or seller in his market who could benefit from his services.
This is all anecdotal of course and maybe I just have crummy luck.
I know it’s is difficult to find the right agent. First you have to make sure both you and the agent are a “fit”, then you need to make sure they a very good at what they do and can meet your objectives. It is not easy for people outside our industry to know how an agent runs their business and the agent’s reputation- until escrow and it’s too late. So I understand the suspicion amongst the public. You need to take the time to interview agents, eventually you’ll find your way to the best one for you. Keep in mind, some agents are ethical and nice people to work with, but not very knowledgeable, smart, or savvy- and vice versa. Not ethical and not knowledgeable, ok that’s bad.
As far as referrals, it depends on who is giving the referral and why. I get referrals for and solicited all the time by stagers, mortgage brokers, title reps, etc. I have to “weed them out”.
First, it should be illegal to have buyer’s agent having a cut from the seller’s commission. That’s a twisted relationship. Who’s working for whom?
Some agents would even withhold offers from other agencies, and only use them to pressure buyers their colleague represents.
The seller should pay the listing agent for their work. Buyer should pay the buyer’s agent. Those should be totally separate relationships.
Then, it is up to the seller and listing agent to find a suitable contract. If both agree to a flat 3%, fine. Or it could be a fixed dollar amount for X months. Or it could be a tiered structure.
Same with the buyer’s agent. Some buyers does most of the works themselves, so they only need the agent for paperworks. Then a flat fee sounds more reasonable.
People think lowly of “realtors” for a reason. No amount of “A lot of licensed agents call themselves realtors, but they are not really professionals.” can change that.
“Forgive my ignorance, but can someone explain HOW real estate agents overstate sales? How can a house “sell” but not really sell? How do they manipulate the data to inflate these numbers? Thanks.
Posted by: alexp at February 16, 2011 12:41 PM”
NAR’s response (some emphasis mine):
“How are NAR home sales computed?
NAR collects sales data from numerous MLSs, with a reporting sample of about 40 percent. If data computes to be a 5 percent increase from one year ago then we say home sales rose 5 percent from one year ago.
What about 5 million home sales? An increase of 5 percent is understood, but how is 5 or 6 million home sales computed?
A base figure is used from Census 2000 where one can compute how many homes were bought. If you recall there was a long-form of Census which asked questions about whether you moved or not and whether or not you bought a home. Based on this, one knows that 5.2 million existing homes were sold in 2000. Note that this benchmarking process does not use any data from MLSs. Hence, it is considered clean. With this base figure, we then apply the percent changes to sales obtained from MLSs. So if MLSs data addition says a 5 percent increase then we would say there were 5.4 million home sales.
How can NAR sales data drift away from true measure?
It is not definitive if NAR data has a measurable drift other than normal small statistical noise that may arise from not using all MLSs and from any data entry error or local MLSs sending wrong data to NAR. In statistics, one just assumes the positive and negative noises cancel each other out. It is however possible for this statistical noise to drift mostly in one direction and hence cumulatively add up over many years. In our last benchmark in year 2000, we found the reported home sales had a 13 percent upward drift compared to what Census data implied. NAR then revised the past 1990s data to match up with the Census data.
”
http://www.realtor.org/research/research/ehs_benchmarking
Nice digging tc_sf. Interesting that nothing is mentioned about how the 40% sample is selected. There might be some bias in that selection.
“Then, it is up to the seller and listing agent to find a suitable contract. If both agree to a flat 3%, fine. Or it could be a fixed dollar amount for X months. Or it could be a tiered structure.”
There is room for improvement here. However, both NAR and CAR discourage realtors from going their own way in terms of fees to maintain the 6%/5% commissions. Realistically, there are anti-trust issues here that haven’t been pursued. That’s why Redfin is a good start, but it’s only a start.
“However, both NAR and CAR discourage realtors from going their own way in terms of fees to maintain the 6%/5% commissions.”
That is absolutely untrue. Commissions are completely negotiable (not fixed) and is required by CA law to be stated premoninantly on listing agreements. I have never seen CAR or NAR say anything about commission levels. They have no influence on this as what is usual varies city by city. In the SF, full service companies generally ask 5%, but I’ve seen less and more. An agent can refuse a listing for less than 5% and a seller is welcome to use another agent. There are some agents who will take less.
We have several brokerage models in CA including full service or discount (Redfin and Zip Realty). Redfin has a flat commission schedule which changes based on client needs. If buyers want to do all the leg work, they can use redfin for a 50% commission credit. Clients have many options.
Buyers dont like to pay the commissions. We do it sometimes with FSBOs or short sales. Nothing new though, that model already exists.
On data statistics, in real estate it’s difficult to do these broad analysis especially in San Francisco. For example, during Q1 and Q2 there may be 10 houses that sell in Russian Hill (just an example, didn’t check actual sales). We could do mean pricing but you need 50 data points to get a normal curve, so any mean or median sales increase numbers will be misleading. Plus we could have 1 really high end home sell and that throws off any statistical measures. Downtown condos (which are easier to comp)- does sales data include concessions from new construction? Some bldgs are in litigation which depreciates prices. Did more units in those buildings sale than the other buildings that have a higher price/sq ft during that quarter? You really have to go sale by sale, bottom up. I’m also seeing a lot of non-mls sales so in addition to MLS data, I’m having to pull title comps.
Sleepyinsf, your posts make sense and you sound like a reasonable, ethical, informed realtor. The thing you have to realize is that a lot of people have had experiences like mine. I’ve been lied to about both small and large things and little by little have had to become more informed about how the process works. There are good ethical realtors out there but anecdotally they are in the minority. There are no ramifications for realtors who lie. And the NAR as an instution spends a huge amount of money defending their fiefdom through lobbying, direct political donations, and in court. This is not in the interest of the consumer. (And the internet is the worst enemy of the NAR over time– more information to the consumer . . .)
Someone should start a website collecting the litany of lies and ways people have been duped by their realtors. The thing that the unethical realtors have going for them is that it is essentially a permanently amateur market– i.e. most people will only buy or sell a house a couple of times in their lifetimes so they are easier to take advantage of.
A good ethical realtor is worth something. But you have to look at the aggregate experience of consumers with average realtors– it ain’t pretty. . . .
“I have never seen CAR or NAR say anything about commission levels.”
This is a bit of an exaggeration. The realtor industry has hardly been happy about the presence of things like Redfin and has gone to considerable (and sometimes unethical) efforts to discourage lower fees. Many agents won’t even take you to Redfin listings, in protest.
“I have never seen CAR or NAR say anything about commission levels.”
“We have several brokerage models in CA including full service or discount (Redfin and Zip Realty). ”
Note that the Justice department sued NAR on anti-trust grounds and it could be argued that the result of the suit materially increased the feasibility of these other brokerage models, although the NAR believed the suit was baseless
“The agreement between the Justice Department and the Realtors’ association must be approved by a federal judge, probably this summer. As now structured, the deal bans the Realtors’ association from treating online brokers as different from traditional brokers or discriminating against them, and it ensures that they will not be excluded from membership in the listing service based on their business model.
In one instance, the Justice Department said an unnamed online broker was forced to shut down its Web site because all the traditional brokers on the local listing service, in response to the national association’s policy, had withheld their listings from the online broker.
[…]
Norman Hawker, a business professor at Western Michigan University who organized a symposium on the Justice Department litigation as a senior fellow for the American Antitrust Institute, predicted that the settlement would ultimately mean a drop in sales commissions of 25 percent to 50 percent as a result of increased competition.
“It’s pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models,” including discounted fees and virtual offices on the Internet, he said. “There are lots of entrepreneurs who have been looking for a green light in the form of this order to begin offering discounted rates. It has the potential to be a big step forward for consumers.””
http://www.nytimes.com/2008/05/28/business/28realty.html
Oh – sorry – Its hard to read sarcasm if I haven’t been keeping up with my SocketSite reading. Sorry.
1388 Chestnut sold for $1.55m. Pretty amazing deal. -3% from asking in 43 days.