I agree whole heartedly with Markor’s premise of not paying more than a $1,000 for a house you find yourself whether its a FSBO or listed on the MLS. Like the folks at the site Markor mentioned, I offer a flat fee legal service for buyers and sellers and many of my clients are pleasantly surprised when they realize how easy a preal estate purchase can be. That said, I would caution against simply disregarding “what the law says.” As I mentioned in my post above, the duties of a real estate agent are spelled out by statute as are the prerequisites to an agent’s right to a commission.
I’m sure any of the flat fee attorneys would be happy to counsel a client on potential liability for a commission (or lack thereof) during the course of representing the client through a purchase.

in my case, the “buying agent” showed me the house when it was listed in Oct. So even though i didn’t sign a contract, i think the buying agent has a claim on the commision. not very clear what the law is.

I wouldn’t be concerned with what the law says. With no contract, there’s nil chance she’d be able to collect. Holding you accountable is partly what the contract would be for, after all. Plus you said she was unresponsive, so even had you had a contract with her, she would have voided it for nonperformance (although had you had a contract, she probably would have been more responsive). If you want to be fair, throw a few hundred dollars her way, or whatever amount you think her total service was worth, if you buy the house.

The ‘housing bubble’ is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop.

More like:

The ‘housing bubble’ happening in other places in the nation is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop in terrible places like Phoenix, but never in super-special Seattle.

But I think the ways that potential borrowers are assessed, and the much range of “mortgage products” that will be available, are with us to stay.

But what mortgage products were introduced during the bubble that are here to stay? A lot of the products that people think are new were actually always around, but were mostly only used by savvy investor types. So saying that “they are here to stay” is useless because they were already here to stay before the bubble. Unless you mean that they will continue to be available to help put $30k millionaires into $700k houses. In that case you are dead wrong. I mean, you try yourself right now. Call up a broker and ask if you can get a $700k loan with 0 down on stated income.

So i tried to buy this house while it was not under contract. It is now relisted. Do i have the option of using someone like redfin to buy it, or do I have to go with the realtor that showed my the house back in Oct? (meaning do i owe the original realtor who opened the door for me the 3%). I signed no contract with her and she has not been responsive/helpful when i pinged her about making an offer when they delisted. Searched the internet wand received different answers.

Since you have no contract with her, you certainly don’t owe her anything. If the selling agent shows you the house, you can keep the 3% for yourself, but you’ll need to get the paperwork done somehow. I once asked a selling agent to take 1% for doing the paperwork without legally representing me. She agreed, but I got outbid. In the future I wouldn’t pay more than a $1000 flat fee for a house I find myself. Nor would I need to; check out purchaselaw.com.

I definitely agree. I actually just read something in Shiller’s book about cascade effects… wondering when that will kick in here. We should start a pool…

You still see plenty of houses being listed at prices suggesting that the owners think the party is still raging, but they don’t sell. Some relatively well-priced houses are moving, which I would expect. This mix is, to me, still more evidence that we are only at the beginning of shift to a declining market.

I don’t really think of houses as investments, although I do believe that, over the long run, there can be some modest financial benefits associated with owning a home bought at a sane price. I wouldn’t buy now, though.

I’m overly concerned with the possibility of fluctuating paper profits, but I am concerned that it could easily take 8-10 years to reach a “break even point” at which the market value of the house exceeds my mortgage amount by enough to cover selling costs like the excise tax and commissions for the agent(s). That’s not even taking into account opportunity costs, inflation, etc. That’s an awfully long time to bet that no major life changes will occur. What if I want to move? Will I lose all of my down payment? Will I actually owe money after the sale? I say forget it. Renting is cheaper anyways. Once some reasonable relationship between incomes and prices has been re-established and we can expect modest, relatively stable appreciation, then I’ll consider purchasing.

Oh, as for the agents, I think that part of the reason they’re not encouraging sellers to drop prices aggressively is that they have to compete against other agents for listings. This means promising big profits to owners. Too bad. Maybe that will happen less once it’s really clear to the public at large that there is trouble.

They do volume… a 20% drop on their 3% commission is fine compared to a 50% drop in overall sales volume… why would they care? The sooner prices are lower, the sooner they do volume.

Plus, I think there’s going to be a huge natural reluctance to drop prices on your home if you’re a seller. Especially if you were counting on the profits from your home sale to provide financial security.
If you sank everything you had into buying/flipping a home, and selling it meant losing money, and you had no other financial assets… how quickly would you be willing to lower your price? Especially when there’s always going to be someone saying “Hold on just a little longer! Recovery is just around the corner! Honest!”

Several people (Tim, DJO, etc) have noted that pricing is sticky on the way down. People want to turn a profit, don’t want to lower their price, RE agents are suggesting inflated values, indices are slow to react, etc.

Eventually everything will catch up. 150 days on the market with all the similarly priced comps sitting on the market just as long, seeing a similar property sell for 20% less, a few “low ball” offers… People will come around and adjust their listing prices, RE agents will realize a 20% discounted price sale is better than holding hope of keeping prices high, etc.

Just takes time.

My next door neighbor bought in September at price 3.5% below what the previous owner paid in 2005. Similar homes on our street were selling for $470K-$495K in 2006. They know there WAS a bubble, but believe they waited it out and got a good deal.

Are they right? Not sure yet. A fully remodeled home w/ granite and stainless just went pending a few blocks away for $375K, however that one was REO.

The ‘housing bubble’ is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop. That said, why would they offer a price that doesn’t take into account the future expected value?

Sorry, but I would say the vast majority of current buyers do NOT believe this. There are maybe 10% of current buyers who have penciled out projections, decided on a price based on their likely risk and went ahead with a purchase anyway. The rest of the people say “Seattle/My Neighborhood/My new house” is super duper special and I will not lose money on it, or ever have to sell it for a loss and besides, I am a loser if I keep renting and therefore I must buy no matter what. You cannot apply rational investment thinking to a class of people who obviously do not think that way. Why else would so many people have loaded up on loans with truly awful conditions on homes priced such that they could not even make the first few payments on? Or that once the price adjusted they knew they would be unable to afford? Because by and large most people do not understand or apply basic math and put a great deal of trust into “professionals” and other people who tell them to just sign the "golly" papers already.

a) If you lose your job, the car payment is $300-$400; the mortgage is $1800plus. You don’t have to sell your car; but you can downgrade from your house. Plus you need your car for transportation.

b) Sure, start looking; but the same people that pump the bubble, today don’t qualify for loans. Most people will want to buy, but will not be able to, which will pressure prices further down to levels where banks feel comfortable lending (Banks? I meant the governments of Saudi Arabia, Singapore, Dubai….)

If housing is priced like an ‘investment’, then the price that someone is willing to pay for it is equal to the EXPECTED FUTURE VALUE. (why would you pay $10 for a stock you expect to priced at $8 in the future?… you wouldn’t.)

That said, everyone here (and most places) expects housing to drop 5,10,25% over the next 1-2 years. That would mean one of two things: either today’s buyers don’t expect that kind of drop, or they expect it and they have priced it into their offer/purchase price.

The ‘housing bubble’ is a well known FACT today. You have to believe that 95% of all buyers are well aware that prices could drop. That said, why would they offer a price that doesn’t take into account the future expected value?

If that’s true, then here’s my theory: Prices will be at their lowest when people have the lowest expecations for the future value.

Sounds simple, but here’s the thing. By the time you hear news of even the possibility of price stabilization or even increases (which would raise people’s expectations for the future value of homes), the BEST ‘deals’ will be long gone.

Since we are not hearing anything positive yet… I think its almost time to start looking. (especially combined with the attractive mortgage rates right now)

As absurd as it may seem, YOY inventory grew faster still, shooting up over 50%

I just looked at the trend of KC SFH inventory for this month to date. It looks like the market has been growing pretty steadily at a rate of roughly 50 additional listings per day. Extend this through the month and that puts the level at ~9500 homes at the end of January. Last January ended at 5,932 listings – so if the trend continues we are looking at a 60% increase in active listings, which will be the biggest jump since 2000 – by FAR.

Hang on to your hats, this thing is just getting started.

Your post is a little vague so I can’t answer your question. Plus I can’t prudently give legal advice to a non-client, but I would point you to Chapter 18.86 of the RCW. In particular, there is a pamphlet entitled “The Law of Real Estate Agency” mandated by the legislature under RCW 18.86.120 which might be useful. You can find it at http://apps.leg.wa.gov/RCW/default.aspx?cite=18.86.120.

Surprise, surprise…the great re-partmenting of Seattle has begun!

James Stroupe, a Windermere Real Estate agent who bought an EXPO62 condo as an investment and had a client who did the same, said Intracorp “stabbed themselves in the foot” by trying to market a hip building to younger people using the Expo theme.

No, they stabbed themselves in the foot by trying to sell “Luxury Condos”. I’m sorry, but the market for luxury condos is not very large. There are only so many people who will pay $800k for a glorified apartment, even if they can get a 2% teaser ARM.

I’m guessing when they finish the building, they’ll try renting the “luxury” apartments for way too much, then assume that people aren’t snapping them up because of the name. Again.

That’s not just with agents. That’s “Seattle passive-aggressive” and it is pervasive throughout the culture here.

RE agents elsewhere seem to have similar traits. Smile, say nice things, while sharpening the blade to bury in your backside.

I won’t be going to the home show, but it actually would be nice to have some sort of informal gathering somewhere with everyone.

I would say she “went off” on James because what his lower offer was really proposing to her was the possibility that the market is now going in the opposite direction – a declining RE market would take away the prime selling point of Realtors, and it would mean a smaller “pie” for them as a group to get a piece of. It’s like somebody telling you they expect your company to be shedding half its jobs in the coming year.

Ding! Ding! Ding! I think we have a winner!!!!

http://www.ajc.com/metro/content/metro/dekalb/stories/2008/01/08/walmart_0109.html

That’s not just with agents. That’s “Seattle passive-aggressive” and it is pervasive throughout the culture here.

Looks like another Condo project is going to become an apartment… my favorite quote out of this article is

“James Stroupe, a Windermere Real Estate agent who bought an EXPO62 condo as an investment and had a client who did the same,”

But don’t worry people… there’s no oversupply of condo’s in Seattle, still a great time to buy. Maybe if everyone bought a few condo’s as an “investment” it would take care of that nasty inventory problem we have ;)

on January 16th, 2008 at 11:28 am

This board has already kept me from buying 3 houses. It’s like the fortune teller that says her client is going to die, and then poisons the client’s coffee.

Alex the only one that can “keep you from buying” IS YOU.

“The only people who know what (Expo) means are the older people,” he said. “The younger people who are the hip people, they had no idea.”

Also, the sales center had no full-scale model of a unit, Stroupe said. “You need that in today’s market.”

Intracorp “decided to take the safe route,” he said. “If they don’t have confidence in the project, then we’re fine getting out of it.”

This guy thinks the units didn’t sell because the name wasn’t hip enough :-)

thanks for the input on verbal vs. written. i’ll think about putting it in formal offer, but she was very negative.

Screw her, put in a formal offer I say. She might be trying to protect her client from a waste of time, but more likely she’s just letting her emotions get in the way of being a good agent.

I once asked a selling agent to show me a house he listed. He refused, rudely making it very clear that he intended to get his 3% for no more selling than putting up an MLS listing, a sign and no flyers. (The house eventually went off the market without selling.)

As for a skeptical audience. You should be. The consumer has been misled by Agents over the years and finally the “buffet” is coming to an end. It will take years though for the general public to understand what we or Red Fin do.

James Thanks for the recognition of what we educate. In your next transaction use either us or Red Fin. They have a great model as well but they could give more if they tried. I also like MLS 4 Owners.

I would love to meet you ALL in person. I committed myself to 7 days at the Seattle Home Show Feb 16-24. . We partnered with Clear Wire in a booth. Please come by and say Hi. Mention this blog and get a 500 Realty T shirt. You will love it!!

http://www.500realty.net

nice work, but go for more than 10%. Just look at the great blog “Bubble Markets Inv. Tracking”
He showcases almost daily, knife-catchers who thought they were getting a great deal in not only 2006 (when the bust was in similar stages to seattle now), but also in 2007 which then instantly lose about another 10-15% off their already discounted buying price when another property comes on the market 2-3 months later.

Essentially, what’s happening down there (and what we’ll see in about the 12-14 month lag) is a complete 180 of a couple years ago. It used to be, that a seller saw comp sales from a few months prior, and listed their property for 5-10% above, and sold for 5-10% more than that listing. Well, now sellers are seeing what sold 2-3 months prior, cutting it by 5-10% to hopefully “beat the market”, and then if they’re lucky, sell at 5-10% below that.

Just amazing.

meanwhile, a virtually no risk investment like TIPs are guaranteed to beat inflation by 1-2%.

Inflation as told by the feds that is, not necessarily actual inflation.

I wouldn’t say “virtually no risk” when the borrower is not only horrendously in debt and accelerating deeper into debt, but also has total control over how much you’ll be paid back.

Those who have money for 20+% down should be seriously concerned about where this money is best stored should we face another depression, which seems likely. I venture that most of you have your money stored in the form of bits on a hard drive, nothing more. Those bits may be conveniently lost during a serious downturn, just as bank ledgers were lost in the last depression. Don’t expect the FDIC to return your calls.

I can see why the charts probably don’t make much difference in your case…

Eh, not sure it’s about the economy. Fairfax County has an unemployment rate at 2%, and a median income of around $110K/yr, yet we’re seeing up to 50% off peak prices in the further out areas like Herndon.

Give it a year.

thanks for the input on verbal vs. written. i’ll think about putting it in formal offer, but she was very negative.

Lastly, for Ray Pepper, i think your website makes perfect sense. I’ll use that 500realty. Won’t help me on this one though as a different realtor showed my the property (and they all want their piece).

I’ll post if i end up getting it, but content to watch and see what happens this year.

- James

on January 16th, 2008 at 4:54 pm

James,

I wonder why the agent “went off” on you? Was it because she cares about her sellers and she’s looking out for them? No….. Anyone care to take a stab at it?

-David

I would say she “went off” on James because what his lower offer was really proposing to her was the possibility that the market is now going in the opposite direction – a declining RE market would take away the prime selling point of Realtors, and it would mean a smaller “pie” for them as a group to get a piece of. It’s like somebody telling you they expect your company to be shedding half its jobs in the coming year.

Here’s the real gem though- inflation adjusted average wages are DOWN .9%. Wages have now been down 4 of the last 5 years. The consumer is losing ground, not just in regard to housing, but overall.
International competition and growing productivity and consumption demand in developing countries have put the squeeze on the American lifestyle, and it won’t be changing anytime soon.

mike2 said,
LL, one of the scariest aspects of the liquidity bubble is that it didn’t just go into housing. It’s everywhere. Everything is infected.

Yup, that is why this whole thing is much more serious than Issaquah condos eventually selling for 20c on the dollar. Its easy to see the effects of the credit bubble, just think to yourself about the increase of credit card offers in the mail and very low rate auto financing and how it has correlated exactly with the increase in "chocolate" home loan products. I know I didn’t get 20 credit card offers a day 10 years ago, but that is not the case now (for a little longer at least).

Curious about something, and honestly not trying to be confrontational or dramatic or anything like that, but…

Why do you spend time on this blog? You seem like a busy guy who does most of his business outside the Seattle metro area. It can’t be because you make a ton of sales off other readers here, because this has gotta be one of the most skeptical audiences you could ever find. Is it just, y’know, for fun?

Angie said,
I don’t think they’ll keep doing the totally ridiculously loose lending (hence the comment about having painfully discovered the limits of the use of the new technology.) But I think the ways that potential borrowers are assessed, and the much range of “mortgage products” that will be available, are with us to stay.

And who is going to loan the money to the mortgage companies to write these loans? I will give you a hint: nobody at all. The cost of risk on this paper has been obviously priced far too low, creative financing is going to be charging a risk premium more like 15% + prime and not prime – 2%. We’ve already seen that the largest IB’s are getting loan infusions from foreign governments at rates like 11-13%, how are they going to continue loans at rates below that? Real banks will still be able to pay 5% on CDs and charge 8% on good loans, but the size of that pool is a whole lot smaller than the securitization market.

And one of the scariest aspects of that scary aspect is that the ol’ “speculation fever” has left even people with decent credit unprepared for the return of tightened lending practices.

After all, why bother saving for a 20% downpayment when you can just ride the housing bubble to security with NO MONEY DOWN? Until recently, that was the plan for many.

It’s not just subprime borrowers that will be shut out of the market. Unprepared ‘good credit’ borrowers are going to need to sit out for a few innings while they scramble to build some sort of nest egg. How long until those people are ready to buy? (assuming they’ve paid off their plasma TVs and rocket cars…)

A house is sitting for sale at 500k. I have a buyer that wants to offer 300-400k. I pull up tax records to see what they paid. and when they bought. then..the calling starts.

The listing Agent is crucial to my investors securing a deal. I cannot get into detail but its time consuming but in the end you only have to nail 1 deal. My buyers do all the leg work then I take over. Not to mention they get 75% of my commission anyway for doing the hardest part–(THE LEGWORK)

The saavy buyer knows the homes in the neighborhood that have been sitting. But, many times they are too scared to “lowball”. There is no such thing. An offer is an offer. But as a BUYER you must find the people WHO need to sell NOW!

I’ll say it again ALWAYS be looking. All the time. There is always a deal in a declining mkt and an increasing mkt. Never get into bidding wars. Let the other guy have it. there is always another 1.

http://www.500realty.net

Well, you know, I *am* an old wife. (No tail yet, though–I’ll ask my husband to check tonight.)

FWIW the mortgage broker I worked with back in ‘98 (who was herself an old wife) recommended that limit to us as a sensible course, though banks were willing to loan us much more.

What makes you think letnders will want to continue giving out gobs of high ltv loans to people with bad credit and stated income

I don’t think they’ll keep doing the totally ridiculously loose lending (hence the comment about having painfully discovered the limits of the use of the new technology.) But I think the ways that potential borrowers are assessed, and the much range of “mortgage products” that will be available, are with us to stay.

LL, one of the scariest aspects of the liquidity bubble is that it didn’t just go into housing. It’s everywhere. Everything is infected.