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Realtor Prison
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09/06/05 06:39 AM EST
posted by JER email web |
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I really got a kick out of the following:
Be that as it may, “profiteering” strikes most of us as unsavory. But it depends on the context. After all, were we serious about criminalizing price gouging, we would throw every member of the National Association of Realtors behind bars. Although the markup on housing is far more dramatic than the markup on gasoline, we don’t seem to mind. Why? Because most of us getting gouged on Sunday afternoon at the open houses hope one day to do likewise. Apparently, Americans approve of gouging as long as they’re the ones doing the deed.
Full article here, in favor of gasoline price gouging |
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09/06/05 02:14 PM EST
posted by Derick Bailey web |
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| Call me crazy, but I don't see how a 6% markup on a house constitutes price gouging in the realty market... 3% goes to the buyer's realtor and 3% goes to the seller's realtor. this is the national standard. granted there are some places that are highly overprices (california is the worst example) and i'm sure some excessive gouging does exist in these places, but the majority of the country has a 6% standard markup on all houses sold. |
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I don't believe that the markup the author is referring to is the commission -- I certainly have no problem with that. While it may be a bit odd that someone who sells me a $600,000 house gets more than someone who sells me a $300,000 house, the rules seem fair enough.
I thought the author was saying that there is no incentive for realtors to act rationally since they both get a take of the final sale. If they're each going to get 3%, it makes sense for both the buying and the listing agent to continue to drive the market upward, much the same way it makes sense for the Realtors' Association to release its "The Market Forecast is Wicked Awesome" Report every month.
Every time a selling agent lists a house, he says, "Hmm, the average price was X dollars last month, I think I'll add another 10 grand." And the buying agent advises his client, "Shucks, you'd better act fast and buy this house, look how quickly prices are going up." And because there is a healthy demand and so many people are scared by the "you'd better act fast" hype, the system works.
And because everyone is making so much money, there is no incentive to stop this insanity. But common sense and simple Economics suggest there is a breaking point -- so someone will eventually lose and the whole house of cards could come crashing down... |
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There is something that may people miss when it comes to the real estate market, and it is due to an assumption that all realtors have the mindset of "If the price goes up we all get more, so let's drive the price up." This is just not true.
Jer, there is a great book out there that addresses topics from just this, to why there are so many poor white redneck boys name Billy, Terry, and Bobby. It is called Freakonomics.
The section on Realtors is very intersting. It talks about how listing agents undercut their own clients to wrap up a deal. Suggesting that a client is willing to take $10,000 less here, or $20,000 less there to a potential buyer, just to get the deal done in a shorter amount of time. Of that money, the agent sees so little that it doesn't make as much of a difference so they won't fight for it. But if the agent were also the seller, you know they would keep their house on the market a few days longer hoping to pocket that extra $10,000.
On another note, you are talking about a breaking point, but that breaking point isn't as clear as the words suggest. I think you should call it what it is, and in my opinion, it is more of a bending point. I think of it as a line that everyone is standing on, and if that line were to just fall off, as if the entire market fell off, everyone would just fall. But the realestate market will always have strong areas and weak areas. Proven areas, and up and coming areas. So in essence, if the market were to break, you would choose a point where it would break, and everyone to the left of that point would fall, and everyone to the right would be stable. Maybe not making money, but not losing either. But this is not as realistic either, because you can't set a hard and true point where this line will break. So I think this line will bend over time. Some people will fall off faster than others, some will be secure throughout, and some will eventually fall off while others are able to just barely hang on.
I really feel like you can take this line, and put point A in the middle of a bustling urban metro area, and point B at the outskirts of urban sprawl, and then your bending point will be somewhere in the middle. The outliers will fall off fast. The young couple who wanted to start a family and couldn't afford housing in close, so they bought at the edge with just what they could afford. The couple that wanted lots of land with a big house, still within a 2 hour commute. These people will fall off first, and this will signify the ripple that will send shockwaves down the line, predicting the coming "burst". Then the people who were relying on the first fallers to buy their places once they could save enough. The people who were supposed to "move up" after putting in their time on the outskirts. These second ring people will not have anyone to buy their houses so they can move up. So they need to just sit tight, in essence, they just fell off, and the line continues to bend.
This process will keep happening, and people will just not be able to move up they way they had planned. Then it will reach a point, the bending will stop at this point and housing prices will level off. They shouldn't fall, just level off. The inner ring people has a limited amount of housing, and while people are still making money, and there is no depression of serious loss of jobs, the housing on this inner ring will continue it's slow and steady growth because it is a desireable area to live with limited rescources. The only other options are for everyone to just move away, or everyone to just stay put, and this is not an actual option because it is just too unrealistic.
The bigger issue is that the lower priced outskirts truly dictate the housing market. This point, the part where people fell off first, determines the pulse of the heart of the market. This area determines how quickly all housing prices fluctuate. In the outskirts the prices may begin falling because people are miserable and will start to move away. They will cut their losses and try to move on, usually to a different area. Then if the 2nd ringers see this trend, they may try to do the same, but this is where the difficult situation starts. The 2nd ringers begin cutting their housing prices, trying to do the same, so suddenly their houses are once again affordable to the 1st group. Then the 1st group starts buying up the more affordable housing while the 2nd group is getting out of Dodge. This sends a slight ripple through the market, and I think this ripple will be the thing everyone will call a "Bubble Bust". It isn't a bust though, just a slight regulation of the prices, and this ripple will continue through the market, but the closer it gets to high priced houses, the more muted it will be. So this first ripple will simply make higher priced housing more unatainable for the middle class, making a larger divide that has already happened in extremely high priced markets like London, Rome, and New York.
Eventually truly operpriced markets never really get regulated, they just become rental markets.
Oh well, ramble over |
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