By now everyone has heard or experienced the current issues with real estate markets first hand. There are lots of home owners having tough times these days. Some of it is their own fault. Some bought too much house for their income. Some took on zero-down loans with low teaser rates that were only destined to go higher. Some speculated in property and thought they'd flip and get rich. Others used their home's imaginary capital gains as a cash machine to fund a high lifestyle.
A variety of villains have emerged during this time when many are realizing that home ownership was not the guaranteed investment that many thought it was. At least, its not a good investment when you're in for a short period of time with a variable rate mortgage. There's no question that banks, mortgage brokers and home builders played to the base desires of people and happily took advantage of the situation. We see it time and again. People get a little taste of financial success and then they get greedy.
One segment of the real estate profession that seems to have escaped scrutiny are the realtors themselves. They don't lend people money and they don't make any real promises. Yet I'm very sure that they played a key part in this mess. And many are playing a key part in dragging out this down turn longer than it will need to go on.
Realtors are cheerleaders for property sellers. Most realtors are in the game to get the highest price for the seller at all costs. Higher prices mean higher commissions. Unfortunately sometimes higher prices mean that buyers end up with a really bad financial investment. On top of the cheerleading there are loose connections with mortgage brokers. And quid pro quo deals with inspectors who promise not to be too harsh in their reports. It's a dirty game but it doesn't look too dirty. The subtle fibs that realtors tell are harmful as well. Bright people who are on their toes can see through this stuff. But most of us kind of go a little crazy when we're shopping for a house. So we miss the small stuff.
So I think that some of the blame for the way things got with real estate needs to be placed with realtors. There are too many who are too poorly trained while lacking real ethics. I'm sure that many a realtor will disagree with me. Most of those folks are full of it.
Anyway, now that the markets have taken a turn south a lot of these hacks have been forced from the profession. That's a good thing. With any luck they will never return. The good ones deserve to get more commissions. In some areas the drop in real estate values has not been so pronounced. But the market is slow. And realtors in these areas just might be (aw what the heck they probably are) screwing it up for their clients who want to sell.
You see, I had been shopping for a house in Albany for several months until a deal fell south a couple of weeks ago. The experienced sucked. Every single house I looked at was over priced by at least $25,000. I'm not kidding. I used websites like Zillow, Trulia and Eppraisal to track down comp sales and prior sale prices on all the homes I was interested in. I did my homework on the true market value of homes. My realtor was pissed that I was doing this.
This person would tell me, "This house is a great deal at x dollars." Then I would look at the comps and come up with a considerably lower number. Her idea of a market analysis was to take 2006 prices and add 10%. Meanwhile houses in the Albany area are piling up on the market. And they're piling up because asking prices are way too high.
Check Public Records
I saw a decent little house that needed a new roof, new windows and a new kitchen. On the market for 6 months. Price decreased from $279,000 to $249,000. This thing needed $25,000 worth of work just to make it warm, safe and modern. I offered $210,000 with a four week close. The seller was furious I was told. She countered with a bottom line of $230,000. No deal for me. The listing realtor had exaggerated the square footage by 300 sq. ft. on the listing to boot. I checked the public records on the house to find that one out.
A week later the seller listed with a new realtor at $224,900. I heard they got a buyer at $220,000. But the deal fell through because of lead paint issues. Meanwhile the home owner is paying electric, gas, taxes and insurance on an empty house.
Don't Bust The Budget
The second house I made an offer on had been on the market for months with a price starting in the high $300s. I liked the place, but the most I was willing to pay was $300,000. When I made the offer I could hear the frustration in my realtor's voice. It's as if she was saying, "Just pay the damn asking price," which happened to be $329,000. It was over my budget. So I offered my best price. I got a lecture from the realtor on how the market price is not set by my budget. I wanted to bop her on the head. She presented the offer and a bottom line of $317,000 was presented to me. Too rich for my blood.
That house is still on the market today with a reduced listing price of $319,000. The owner is not living there which means mortgage, taxes, gas and electric will be paid every month til it sells. Not my problem.
Do An Inspection
The second offer was actually the third one to be turned down. I saw a nice colonial on a small lot listed at $299,000. Market research showed nothing in the neighborhood with comparable size and features selling for more than $270,000. So I offered $270,000 and it was turned down. The people later came back and agreed to buy the house at $275,000. I was willing to give the $5000 up to get the home search over with. Interestingly enough my realtor left out a key comp before I made my first offer. I found the comp myself on Zillow. It was the house across the street!
The house across the street had double the lot size, an extra bedroom and 400 more sq. ft. It had sold for $295,000 last June. My realtor told me in an email that this house's lot was 'a little bit bigger' than the one I was making an offer on. A little bit? It was DOUBLE the size! Their backyard was like a park and mine was a shoebox.
I went in with every intention of closing the deal. I got a lawyer. I got an inspector. I got a mortgage commitment. On the day of the inspection we find a couple of serious deficiencies. There was a leak in the roof, which I found when I noticed staining behind a bathroom wall. The inspector traced it to the roof and confirmed this. The property had evidence of carpenter ant infestation. Not good. And the front porch slab was cracked and separated from the house.
I had my lawyer inform the sellers that I wanted the leak, the carpenter ants and cracked porch slab repaired. Shortly thereafter I got a call from my realtor who attempted to influence my feelings and began insinuating that I had pressured the home inspector to make up deficiencies. I was pissed at her shenanigans but too far into the process to do anything about it.
In the end the sellers offered to spend a few hundred dollars on cosmetic fixes to the carpenter ant issue. They claimed the cracked porch slab was a $150 fix. I actually had an experienced mason look at the situation. I said nothing to the guy. He went there without me present. All I asked was what he thought of the porch. His assessment was that it wasn't properly supported and needed to be replaced at a cost of $5000. The inspector made the same assessment. The sellers refused to move on the leak in the roof or the cracked porch slab. I called the deal off.
It sucked because I spent over $1000 between the lawyer, some silly mortgage title search fee and the inspection. But at the same time I wasn't paying top dollar for a house in a declining market only to have to do $5 - $6k worth of work when I moved in.
My realtor refused to work with me anymore the day I called the deal off. Fine, she wasn't any help except getting me in the door. I had to hear her tales about how the market and prices were strong when they are obviously not. I had to deal with constant tardiness for appointments with an amazing variety of excuses. And I had to hear her dismissing obvious major deficiencies as minor issues. Sure, they're minor if you don't live in the house.
Realtors In Denial
Too many realtors are living in denial. They deny that they are not good at their jobs. They deny that they have no real market analysis skills. They deny that they trivialize the importance of safety, security and affordability. This hurts both buyers and sellers. Sellers houses are sitting on the market way too long because most realtors are complaining these days that buyers are stubborn and low-balling offers. Meanwhile home owners must pay significant costs every month, even when they are no longer in the houses.
Buyers end up getting coerced into uninformed decisions. If a buyer doesn't know how to calculate the true market value of a property then they're left to the devices of realtors who will most likely mislead them. People know this. So they don't listen to realtors and they aren't buying now. If realtors were honest and open about the market more people would want to buy. Potential buyers would rather sit on the sidelines than get the shaft from realtors who don't give the full picture.
The mixed messages in the press don't help either. Wanna talk about denial? Story #1 in the Albany Times Union reads like a press release for realtors. Titled, Region bucking housing trend, it includes a quote from a rep for Albany realtors, "I'm sure there are a lot of communities that are different from the national numbers," said Marie Bettini, president of the Greater Capital Association of Realtors Inc., a Colonie-based trade group. "There are a lot of markets that are OK." I guess it depends on how you define "OK."
Story #2 runs on the same day in the Times Union. Titled, Housing Sales Still Tumbling, it includes the following quote, "In the Capital Region, while Rensselaer County was the only one to experience an increase in the number of closed sales, Albany County took the biggest hit. The number of closed sales there fell a whopping 36 percent, and the median sale priced declined one percent, to $203,500." Must be ok say the realtors. Not really.
Nothing is selling. And that's the point of steepest denial. People will point to one house sold in a quarter as proof that the market is holding up. I've got news. When only one house sells in a zip code, there is no market. Denial indeed. The image below from Trulia tells the story.
Still On The Market
Oh, and the third house I mentioned earlier. Today would have been closing day. And the house is still on the market going on it's third month now. Still overpriced at $299,900 even though they are willing to take at least $275,000. Realtors never learn. I think back to when they turned down my first offer with the selling realtor's feedback that they were confident a near full price offer would come in just after the holidays. Keep dreaming.
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