Will Mortgage Credit Crunch and Impending Foreclosures Cause Increase in Homes For Sale by Owner?

Much of the recent news regarding the mortgage meltdown and waves of possible foreclosures due to individuals who can’t refinance and can’t sell due to lack of equity raises the question if more people will sell their homes “For Sale by Owner”.

We happen to think that the number of FSBO listings will increase over the next few years due to a few reasons. We think this increase will be fueled by a “need” not a “desire” to sell FSBO.

Here are some of the scenarios where homeowners will attempt to sell their homes for sale by owner.

- Homeowners with little or no equity will be facing foreclosure. They may need to ell FSBO because they don’t have at least 10% equity in their homes to pay the real estate agent commissions and they don’t want to incur the possible tax liability of a real estate short sale.

- Homeowners with adjusting sub-prime loans that don’t qualify for the new FHASecure refinance. After the first adjustment of their ARM mortgages these individuals realize they cannot afford the home and cannot refinance. They will tend to try and sell FSBO again due to a lack of equity.

- Tightening underwriting standards may cause sellers to sell by owner to protect net proceeds from sell. Appraisals will come in short or get cut by some lenders. Some of these sellers may try to sell FSBO after the initial transaction cancels, eliminating the real estate commission they can drop the price but maintain their net proceeds.

These are just some quick thoughts as to common scenarios that will cause home sellers to consider selling their homes for sale by owner. What do you think?

Record 103 Million Home Sold... FSBO

According to an article in USA Today, a 40 acre Hamptons, NY ocean view property has been sold "For Sale by Owner", saving the owners well over 5 million in real estate commissions*.

The buyer of the property was Mr. Ron Baron of the Baron Funds investments and the seller was Adelaide de Menil, heiress to the Schlumberger oil fortune.

Of course, this is not your typical home buyer & seller but it does show that "for sale by owner" sales happen in every price range, every day.

Last year, the NAR reported in its 2006 Home buyers & Home sellers Survey that 12% of all homes sold last year were "FSBO" while another 8% were sold as FSBO with an MLS-only (often called "flat-fee mls only" posting).

These "for sale by owner" transactions represents over 20% of all 6.478 million** homes or about 1.29 million homes with a median price of $221K*** for a estimated total equity savings of $17,105,540,000,000!

Real estate commissions are based on the sales price of a home but what most home sellers don't look at is the actual cost of the real estate commission based on their homes actual equity.

Since many homeowners have purchased or recently cashed-out refinanced their homes to high loan to values, they will often see that more of their equity is spent on real estate agent commissions then they will earn from actually owning and selling their home!

Here is a real estate commission calculator that can help determine your net cost of selling a home with a real estate agent or if you should be selling FSBO.


View USA Today article

* Assumes a reported average 5.1% real estate commission.
**Exisiting Home Sales Data
*** Median Price data

NAR Report shows that 46% of Successfull FSBO's would Sell Home by Owner Again

Many real estate agents would lead consumers to believe that they should attempt to sell a home FSBO and those that do will use a real estate agent the next time.

According to the 2006 NAR Profile of Home Buyers and Sellers, FSBO's where asked if they would sell by owner the next time. Here are the results if they did not know their buyer personally.

- Yes, will go FSBO again: 46%
- Not sure: 44%
- No, will use an agent next time: 10%

Surprised... 46% of for sale by owners, indicated they would do it again!

The other 44% was "not sure" but obiviously the experiance / savings were good enough for most to consider going FSBO again.

That is 90% of FSBO's will or may do it again.

Sure, only 10% indicated that they would use a real estate agent the next time but this does not support the horror stories that the real estate community shares regarding FSBO wishing they had used an agent.

What was interesting is that if the FSBO seller sold it to someone they knew, the stats reflected a total of 64% will or may sell FSBO again, while 35% would use an agent.

I would guess that if they did use an agent it would be at a discount, considering they did find the ready and willing buyer.

As techngology and websites like For Sale by Owner Center makes the FSBO transaction easier, we feel that the FSBO market will continue to grow in the future and that the FSBO / MLS only / Discount models will continue to build on their current 29% market share and probably reach critical mass of 50% within the next 4 years.

Especially since most successful FSBO home sellers are already willing to do it again and reap the rewards of significant real estate commissions savings and equity protection.

43% of Real Estate Agents Do Less Than 10 Transactions a Year and More Interesting Agent Statistics

Everyone is still talking about Redfin on 60 minutes, with many agents claiming how much more professional and experience a the "traditional agent" is.... really?

The NAR just released the 2007 REALTOR Technology Survey which has some interesting points but the most telling is probably this from page 7.

- 47% of agents did less than 10 transactions "sides" last year.
- 28% did less than 20 transactions last year.

So lets see, 75% of the NAR members who responded to the survey did less than 1.6 transactions a month with a majority of these doing less than one transaction per month.

This clearly represents the majority of real estate agents, the same ones who claim that they are significantly more professional and experienced than the redfin agents. I fairly certain that the redfin agent do more than 1.6 transactions a month. More transactions... equals more experience at handling problems.

Another interesting statistic was from page 20. If you read agent blogs you will hear that all agents say they deliver great service which gets them referral business but yet the report indicates the following:

- 43% of agents reported that less than 25% of their business came from referrals.

Again, if traditional agents do such a great job and deliver the exceptional service that most seem to claim, why are they only getting 25% referral business?

How about this. According to the 2006 the NAR reported that 71% of buyers searched for homes on the internet but look at these statistics from the report:

- 78% agents advertised on REALTOR.com
- 75% advertised on the local MLS - isn't that why you use / pay the agent?
Another common argument from agents is the amount of documents the agents need to review to close a transaction but on page: 40 of the report.

- 75% reported that there is less than 20 documents needed.

Thats not a whole lot of documents or work. In California, the purchase contract alone is 10 pages. Not a whole lot of time needed to sign and review 20 documents.

This is from page 45 of the report.

- Only 43% of agents enter and manage transaction information.
What kind of work are the agents actually doing?

With real statistics like this, consumers will really begin to question the value proposition of their agents and the cost of their services. This is the reason we created our real estate agent hourly rate calculator.

We also feel that due to information like this the adoption rate from the general public to sell FSBO or use a flat-fee MLS, or discount real estate model like redfin, Coldwell Banker blue edge or Century 21 clickit will only continue to raise from the 29% market share currently reported by the 2006 NAR Buyers & Sellers Report.

Download the 2007 NAR REALTORS & Technology Report.

60 Minutes Helps Redfin Surpass Big Three Real Estate Companies Traffic and Raise Eyebrows

According to Alexa, Redfin blew by the top three real estate franchises, Century 21, Coldwell Banker and Remax in terms of traffic to their websites due to the 60 Minutes video.

The real estate community was upset as well as the NAR who as disappointed and blogs blew up with many comments.

The item that I think had the most impact from the video was the Redfin agent Kelly Engel who stated... she made $12,000 in 5 hours.

This was because the buyers found the home themselves online (which happens 26% of the time according to the 2006 NAR Home Buyers & Sellers Report).

We created a calculator to help consumers understand and negotiate a real estate agents real estate commission into an hourly fee.

Here are some of the most active threads both pro & con...

CBS News Blog
Redfin Blog
Raincity Guide
TechCrunch
Matrix
RealtyBaron
Seattle Times
Scobleizer
ActiveRain

Housing Bubble Talk at CNN Money

A few days ago on Cnn Money there was a blog post on Generation Risk t that has exploded into opinions regarding the softening housing market is going to bring down the economy or not.


As of this morning there is 96 posts attached to it with opinions varying greatly. One of the post is mine which I give a theory why the market is still softening, which I have posted in it's entirety below...

When people say "Bubble" they visualize property values dropping overnight
or pop.. hence the reason REALTORS say there is no bubble because
it impossible for property values to drop 20-30% overnight. So housing
bubble is simply a misnomer and hence the talk of a soft landing vs. a crash... even while it's happening. What currently happens is housing data used to determine if things are slowing down is 2-4 months old from closing. When looking at current home price statistics... these are buyers that started the process maybe 8-12 months ago, not today. Therefore it difficult to correctly indicate what is going on because the intent of those recent closings was established so long ago. The real estate market is a really big ship and it takes a long time to turn it around because the data
is so slow to come in.

A good indicator as to what is happening is quite simple to arrive at. Look at the number of people searching REALTOR.com, the number one real estate site
(click here to view the Alexa chart on REALTOR.com)

... less people searching means less demand, less demand means drop in home prices.

As you can see, the search volume of real estate listings is at a 5-year low when last year 79% of home buyers
used the internet to search for homes and 5 years ago the figure was only about 25%.


So apply the basic economic rules of supply and demand and you already know
home prices can only go in one direction, down until buyers and re-enter the market, which would be easily track able by the number of searches on realtor.com, which
is not happening.Now, combine this with lot of the other reason stated above like a credit bubble happening on wall street. Take away the easy financing and thousands of buyers who were buying are no longer doing so. Again, a further drop in
demand.

Add in 2/28 adjustable rate mortgages which will adjust in record numbers
this year and you can see from this 2/28 mortgage calculator many home owners will be in for a bad surprise. Especially, since they will no longer be able to refinance out of the situation. This leads to foreclosures and short-sales.

Then combine that with the pay-option ARMS with ridiculously low start
rates that are now fully indexed at over 7.5% - 8.5% while clients are paying
minimum payments of 2.00%, there is about 5-6% of negative amortization being
added onto their mortgage loan balances. Many of these people don't understand the recast clause of the mortgages, which state that if the original loan balance increases to 110% - %125% of the original balance, their loans will automatically switch to a fully amortized, fully indexed rate based on the remaining amortization term. This pay option arm mortgage calculator explains the picture pretty well. Again, more foreclosures or short-sales.Foreclosures are "must sell" real estate listing
inventory. This means, sellers will continue to drop prices until someone buys.

Mortgage lenders cannot afford to wait-out the market like homeowners can.
Therefore as foreclosures raise in numbers they compete against each-other to
get sold, which leads to significant discounting by the mortgage lenders to off
load the inventory. These same distressed properties then become a comparable and traditional home sellers are forced to compete against them if they really need
to sell. The remaining buyers flock towards foreclosures and short sales looking
for good deals. That leaves no option for traditional home sellers but to drop
prices.

Then factor in the one thing that many don't seem to acknowledge is the age of the average home owner. Baby boomers have the highest ownership. These same 100 million baby boomers (a full 33% of the US population) will be of retirement age by 2009 or so according to Harry S. Dent.

They have been taught their whole life that your homes equity is your retirement
nest egg. Recently they have viewed their homes as great investments due to value
increases. As they approach retirement, thousands will watch their only real
nest egg disappear as home prices drop. Many will panic and sell to save the
equity they have left at the moment.

There is an argument that states if properties drop, people will wait it
out. From my conversations with boomers, they don't feel that they have 8-10 years to wait for values to come back especially if they are on a fixed income, they are not interested in scrapping by as they are going from their peak spending years immediately into the lowest spending "golden" years, in that transfer from older workers to retiree's.

The economy will slow since real estate has created hundreds of thousands
of high paying real estate jobs like lenders, underwriters, real estate agents,
escrow, title, appraisers and all of the related services like contractors,
decorators, home depot, movers, furniture stores, etc all feel the pinch and
downsize and stop spending. Additionally the home atm machines are gone so no more extra billions a year pumped into the economy of leveraged refinance money.

Remember that 2/3 of the US economy revolves around consumer spending... no
spending... no US economy.

Keep in mind, if we only have about a 4% unemployment rate and people are
already losing their homes what happens when it goes to 6%? Factor in all
the other items noted above and many people will have a few options like trying
to sell their homes FSBO in order to try and save the 6% real estate
commissions allowing them to discount their asking prices while not tapping into
the remaining equity and many of those who have no equity will simply walk-away
from the property they are upside down on.

There is lots of other excellent points made in the Cnn Money Generation Risk blog post, so go take a look or post you ideas regarding my comments here.

REALTORS Actually Losing Ground to FSBO and Alternative Real Estate Models

The NAR is often quoted as stating the FSBO's are going down and losing market share but the reality, is that they (we) are really gaining a huge market share.

Don't believe me?

I know many (REALTORS) will quote the 2006 National Association of REALTORS (NAR) Home Buyer and Seller Survey there is a downtrend in For Sale by Owner transactions but you must actually read the report to quote it properly.

Here are the favorite facts of the NAR report:

"We find that the level of for-sale-by-owners is on a sustained decline and is now at a record low..."

- 12% of real estate transactions were FSBO in 2006 (down 1% from previous year)

- 13% in 2005.

- The record high was 20% in 1987

- the cyclical peak of 18% in 1997.

What interesting about the NAR and the report is that unless your purchase it for $125 to read the entire report this important facts are left out. Unfortunately I cannot post the entire report I purchased for you to read as the NAR would come after me but here are these important additional facts:

- 12% sellers successfully completed FSBO transactions - (proudly made public)

- 8% sellers successfully used minimal "MLS only" listing (this is really just a FSBO who paid $300 to get it on the MLS) - not shown in press release.

- 9% of sellers used a "limited service agent" i.e. alternative, discount, ala carte... call it what you want, it's not a traditional agent and not a traditional commission. - not shown in press release.

So when you do the math, that is 29% of the estimated 6,180,000 real estate transactions where NOT completed by a full service 6% agent.

Lets see...

- 29% of 6,180,000 is 1,792,200 transactions.

Now to me that seems like a SIGNIFICANT increase alternative / fsbo real estate transactions from the often quoted 20% high of 1987 when only a total of 3,526,000 transactions were done.

- 20% "all time high" of 3,526,000 is 705,200 "FSBO / alternative" transactions.

Maybe it's just me but 1 million MORE transactions seem like an increase?

Will REALTORS be Extinct in Near Future?

There is a blog post at inman news that is getting lots of comments... mostly pro-REALTOR... never extinct kind of stuff. Very interesting reading for those who take the time to view all comments.

Overall, it seems that must think the REALTORS job will simply change since they don't control the information anymore and they will act more as interpreters of the information consumers find.

We believe that there will be a much larger push towards FSBO not necessarily out of desire but more do due to "need" with homeowners not having enough equity in their homes to sell using an agent.

What are your thoughts... are agents here to stay or go the way of a dinosaur?

Zillow Accepting Real Estate Listings, Friend or Foe?

Finally...…Zillow doing what I believed they were going to do all along (see my winning comment on the Inman News Blog What is Zillow competition from 10 months ago).

So what will the impact be? Is this the beginning of the end for the traditional real estate model? Do we have a new MLS on the horizon?

First, I think real estate agents will flock to the opportunity of posting their real estate listings on the site but only once they see how Zillow presents them... this is key. Zillow was down at time of this writing, so I can't give you my opinion.

If the real estate agent feels they get clear advertising "credit" (i.e. name and contact info displayed or linked back to original listing) they will put up their listings by the thousands. Sellsius may be disappointed but generally agents will be very excited at this opportunity, especially if the Zestimate is higher than the actual asking price.

Real estate agents who receive inquiries from this advertising will spread the word about its success and continue to post listing...…further increasing actual real-time real estate inventory listing.

Since agents are independent contractors and impossible to herd together (except on commissions possibly?) their independence will lead to the death of traditional real estate model because real estate listings are the best "bait" possible to attract buyers.

The Zillow Impact.

As Zillow gets this listing data, they will constantly work to purify it as indicated by early reports where each listing must be updated weekly. Imagine the data they will be collecting that can be used to further fine-tune Zestimates, improving accuracy. Eventually people will be able to truly trust Zillow property value estimates.

With a clear picture of comparable sales, market conditions, average marketing times, etc.…buyers will feel more confident in making offers on a property. They will be less dependant on REALTORS for this advice. Less dependence on advice creates less perceived value, less value equals less cost.

This will be the true beginning of the end of traditional real estate model especially Buyers Agents. Why buyers agents? Simple, consumers will begin to understand that the cost of using a real estate agent is very real and built into the sales price. Redfin, Zip, Buyside Realty will make sure of this and capitalize on Zillow and the continue negative press from the DOJ against the NAR.

What Happens Now?

In 6 to 12 months, Zillow could become the MLS alternative and Realtor.com killer...… sorry Dustin. Bloodhound also seems to agree but goes further to include trulia, propsmart and others. Zillow can be a real estate brokers best friend or worst foe. Why? Real estate listings. Inventory is the best eyeball "bait" possible.

Once Zillow has the majority of the real estate eyeballs, which is what they claim to desire as "media / advertising" company…they also get control. Control to change how real estate is done in the future.

Time will tell but lets go back to my original Zillow guessing game and the one played on Inman as noted above What Will Zillow Do…Next?

What is your guess... what will Zillow Do? Who will they impact the most? Share your thoughts.

2006 National Association of REALTORS Home Buyer and Seller Survey For Sale by Owner Data Misleading?

According to the new 2006 National Association of REALTORS (NAR) Home Buyer and Seller Survey there is a downtrend in For Sale by Owner transactions…. but is this an accurate statement?

It’s important to note that the NAR represents their paying REALTOR members not the general public. Much like a labor union fights for increases in the income and benefits the employee’s which costs their employers millions, the NAR looks to create a benefit for it’s REALTORS not the public.

The NAR’s primary goal is to try and protect the billions of dollars in real estate commissions it’s fee-paying members earn under current real estate practices.

First let’s look at some of the facts presented by the report that will be preached by hundreds of thousands of REALTORS all around the country to scare those thinking of selling for sale by owner.

For Sale by Owner Transactions Facts

- 12% of real estate transactions were FSBO in 2006
- 13% in 2005.
- The record high was 20% in 1987
- the cyclical peak of 18% in 1997.

The NAR survey stated the following: “A downtrend in the number of for-sale-by-owner transactions is clear”… but is it really? Lets look at these statements from another point of view.

Instead of looking at the percentage of FSBO transactions let’s look at the actual number of for sale by owner transactions:

1987 Total Existing Home Sales = 3,526,000 x 20% = 705,200
1997 Total Existing Home Sales = 4,382,000 x 18% = 788,760
2005 Total Existing Home Sales = 7,075,000 x 13% = 919,750
2006 Total Existing Home Sales = 6,180,000 x 12% = 741,600*

Interesting that the actual number of successful FSBO transactions has actually increased not decreased. What is not indicated within these statistics is how many people actually try to sell their home FSBO?

Traditional Real Estate Model Acutally Losing Ground... only 71% Market Share.

I suggest that the number of successful FSBO is actually up both as a percentage and in total transactions. Why? If you read the report it indicates that 8% used minimal “MLS only” listings. This “MLS” only option did not really exist just five years ago. This is actually a FSBO who is aggressively marketing his property and paying a small fee to an agent to list the property on the MLS but the NAR appears to be counting this as a REALTOR transaction… I don’t think so.

My guess as to the “real” number of FSBO’s for 2006 is 20%, which is the 12%, stated by NAR plus the 8% “MLS only” power FSBO. This would mean that the actual number of FSBO transactions is closer to: 1,236,000 or 20%.

Could it be higher?

Additionally, another 9% used a limited service agent, possibly an “ala carte” type service where they paid 2 or 3% commission or just a flat fee for a particular service like negotiation or anything that is beyond the flat fee mls entry only. There is a very good chance that the people that used these types of companies where originally FSBO.

If you consider the traditional FSBO and these alternative / power FSBO’s then means that FSBO type transactions actually amounted to 29% of total homes sold for 2006… which is: 1,792,220 and was probably higher in 2005.

Proof is in the report.

- 12% FSBO only
- 8% MLS only
- 9% Alternative / Discount

Total = 29% Market Share is alternative / discount / mls only and FSBO

Why is the NAR trying to scare For Sale by Owners?

Real estate commissions. Remember the NAR is the REALTORS union and they represent the real estate community NOT the consumer. They are fighting for the agents to make more money… just like the local labor unions try to get employers to pay employees more.

If we use current median home sale data from the NAR currently at $225,600 this means that the real estate agent community may have lost some significant money to the for sale by owner movement.

12% pure FSBO 741,600 x 225,600 median x 6% = $10,038,297,600
20% power FSBO 1,236,000 x 225,600 median x 6% = $16,718,136,000

… yes that’s billions.

No wonder the NAR spent 25 million in anti-FSBO commercials this year.

Keep in mind; this is not to beat up all REALTORS. Many REALTORS are true professionals at what they do and many home sellers who are not very prepared should use the services of a REALTOR vs. selling by owner. What I don’t like is the spin that is presented by the NAR to consumers to encourage the use of agents as the only viable option.

So the question is this. If we look at the NAR data regarding the number of for sale by owner transactions will they stay the same in the coming years?

Will they continue to go down as the general market slows down and it becomes harder to sell a home?

Will they rise in numbers because home sellers may have no other choice but to sell FSBO because they don’t have enough equity?

Interesting Paper on Current Real Estate Commission Models

Here is an excellent paper on real estate commission model. It's well worth downloading and reading. It's main point is that the inefficiency in real estate costs consumers 30 billion dollars a year.

Already it is raising issues within the real estate agent community such as Inman Blog, where this great post is located...

This is scary...

" Realtors probably practice more law than he has ever dreamed of."

and this goes directly against all NAR ethics...

Article 13
REALTORS® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.

Anyway the paper is a great wealth of information and contains lot's of references to studies and other papers written about the subject. If you are an agent or an alternative real estate model it's worth a read of the 77 pages.

Do NAR Statistics of “For Sale by Owner” Sales Mislead People?

You’ve heard it quoted hundreds of times…

"The median home price for sellers who use an agent is 16.0 percent higher than a home sold directly by an owner; $230,000 vs. $198,200;”

This figure comes from the NAR 2005 Buyer and Seller Profile. This figure is quoted religiously by the real estate and the media.

In fact the National Association of REALTORS even has a TV commercial about it.

"Don't Try This At Home", targets unrepresented sellers (the FSBO market). The commercial features a hard-hitting message: REALTORS® have the experience to price your home effectively, so it can sell for up to 16% more than selling it yourself.

This is a pretty bold claim. 16% is a big number so let’s analyze this a little more using different figures. Here is what a home buyer would be led to believe hearing this statistic.

FSBO $300,000 / REALTOR $348,000 – 16% would be $48,000 more
FSBO $400,000 / REALTOR $464,000 – 16% would be $64,000 more
FSBO $500,000 / REALTOR $575,000 – 16% would be $75,000 more

These numbers would make everyone consider selling with an agent… but how true are they?

Now I’m sure that this claim has caused thousands of FSBO’s to go out and hire a real estate agent to sell their home costing them millions in real estate commissions.

What is interesting to me is that the data set used to make this claim is not available anywhere. I have looked for it and cannot find it. If you have it great, let’s make it public so we can see how the NAR arrived at this statisic.

Everyone seems to believe this number and no one seems to want to question it? At the same time no one appears to understand what it really means. Could it be a fairly creative use of a statistic created to try to protect millions in real estate commissions?

Here is why. The report states that the “median” price is 16% higher not the “average” (or mean) price. Most people don’t understand the difference between a “median” and “mean”. Here it is:

Median - the middle number in a sorted list.

Mean - The value obtained by dividing the sum of a set of quantities by the number of quantities in the set. Also called average.

The difference between median and mean can be significant.

Here is two random data sets of 5 numbers to demonstrate the difference of median and mean why it’s important for the NAR to release the data set used to calculate this statistic. These are grouped by FSBO and REALTOR.

FSBO - 129,000, 156,000, 198,200, 297,000, 345,000
REALTOR – 121,000, 154,000, 230,000, 290,000, 330,000

So let’s view the “median” value of each of these data sets. Remember “median” is the middle number in a sorted list. Therefore the “median” numbers would be the third numbers in the above data sets.

FSBO median = $198,2000
REALTOR median = $230,000

(It’s no coincidence that there is a 16% difference between the two and these are the same numbers quoted by the NAR for display purposes)

So all the other numbers in the data set don’t matter, just whatever the “middle” number of the data list is. Does this seem to give an accurate estimate?

Now lets take the time to discover the “average / mean” of this same data list above.

Again, the average is dividing the sum of a set of quantities by the number of quantities in the set.

FSBO Total = $1,125,200 divided by 5 = $225,040 Average

Realtor Total = $1,125,000 total divided by 5 = $225,000 Average

Interesting that the FSBO average sales prices was actually $40 more and overall the customer would possibly save the 6% real estate commission or $13,500.

So in this example data set… the “median” for REALTOR properties was in fact 16% higher but yet the actual “Average” price was nearly identical.

So let’s play with this median / mean a little more.

FSBO data set: 100,000, 320,000, 350,000, 600,000, 800,000
REALTOR data set: 150,000, 300,000, 331,000, 600,000, 750,000

FSBO Median: $350,000 / REALTOR Median: $331,000 = FSBO Median is 6% higher
FSBO Average: $434,000 / REALTOR Average: $426,000 = FSBO Average is 2% higher

So as you can see, it’s fairly easy to skew the numbers. This statistic is so loosely quoted that the interpretation of the “median” is gone. Again look at the actual quote from the TV commercial…

“REALTORS® have the experience to price your home effectively, so it can sell for up to 16% more than selling it yourself.”

Does that statement paint a clear picture to the customer? Especially since the “median” statistic is provided by the NAR for NAR members.

The fact is most people (including agents) probably don’t understand the difference between “median” and “mean”. The median can be skewed easily because it entire number is basedd on a ONE number in a list. It’s not too difficult to pick a number that would make it favor the other direction.

Could this become a problem for the NAR?

Possibly, look at Federal Trade Commission Act, Section 5 that pertains to interest of all consumers to prevent deceptive and unfair acts or practices. The Commission has determined that a representation, omission or practice is deceptive if it is likely to:

- mislead consumers and
- affect consumers' behavior or decisions about the product or service.

In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:

- Substantial
- not outweighed by other benefits and
- not reasonably avoidable

Now you be the judge if this fits under the bill…

A) Does the 16% mislead consumers?
B) Does it affect the consumers decision to sell using an agent?
C) Is the cost substantial?

Let’s see how common this statistic really is. If you actually know of a property that sold FSBO for 16% less then other REALTOR listed properties, please send the address and date sold?

Home Sellers... Pricing Your Home Correctly and Selling Time-frames

Here is a good article on pricing your home correctly from the WSJ. The article basically states that pricing your home accurately is the single most important thing to getting it sold. They indicate to use round number prices as this makes the property appear on more search, i.e. a $275,000 price will appear on searches from $250,0000-$275,000 and $275,000-$300,000, which we found is true from our data.

Also, in another article from Inman news that indicates home buyers are in the drivers seat and that homes are taking longer to sell. Here are some highlights, according the survey provided by HouseHunt:

Time on the market: Only 26 percent reported homes were selling in less than 60 days as opposed to 74 percent reporting more than 60 days. The Midwest reported an 82-18 percent ratio.

Sales versus listing price: Fifty-one percent reported that sellers were getting 95 percent or more. The Northeast reported a 72-28 percent ratio of sellers getting 95 percent or more.

So to summarize, those of you selling your home for sale by owner need to pay special attention to your asking price and be patient and realistic as to the time-frame it will take to get it sold. Gone are the days of multiple offers and homes selling in 24 hrs.

Additionally, as "for sale by owner" you can price your property to create a win/win for you and the buyer.

Selling a Home For Sale by Owner in The News...

Here is a Washington Post article on selling your home for sale by owner. There is some good information which is all fairly basic. Probably the biggest take-away from the article is the time you will need to invest into selling your home for sale by owner.

We have created a FSBO savings calculator to help you understand the time (both weekday and weekend) and money involved and you can quantify your hourly rate of selling FSBO.

Real Estate Commission Secret... Out, Again

Those of you who read our blog know that we have covered the topic regarding the buyers agent real estate commission a few times and how many people don't realize there is a cost of using an buyers agent even if they tell you it's free. Since this is a FSBO / pro-consumer blog not many real estate agents wanted to give their point of view but that may have finally changed.

An Arizona real estate agent and great blogger name Greg Swann posted an article regarding the little lie that most real estate agents tell their buyers on his blog and it was also published in the local news paper, Arizona Republic. Of course the reaction was immediate as he describes here but not really surprising.

Additionally, Ardell a Seattle real estate agent and avid blogger also posted a counter-point to the post regarding buyers real estate commissions.

You will see that Greg tells consumers to ask this simple question: Mr. Realtor, what do you charge? and Ardell questions this by stating what if they provide an answer "nothing". The immediate comebacks are "scripted" responses to help protect the real estate commission. This is very popular in the real estate business... have a "script" to help with negotiations.

Knowning that many agents have these "scripts" we thought it would be nice to provide consumers with a script of their own to help negotiate real estate commissions. A while back ago, we created this downloadable real estate agent interview form and a real estate agent hourly rate calculator. As a consumer, if you use both you will be provided a customized "script" to help you negotiate the real estate commission down... saving yourself thousands of dollars.

It will be interesting to watch both of these and see what kind of comments come out of it. Especially considering that companies like, Zip Realty, Redfin and Buy Side Realty are offering buyers commission rebates and they have lot's of money to advertise this option. It also helps that it's now a buyers market.

If you are a consumer who was thinking of buying a home, were you aware that it was costing you thousands to use your real estate agent?

New Home Sales Up... Due to a 10% Secret?

Cnn reports that new home sales are actually up for the first time in 5 months while actual median price is down 1.3% over last year. I suspect part of that reason may be due to the builder aggressively courting real estate agents again... and I mean aggressively.

There are some projects where builders are offering up to 10% real estate commission to agents for their home buyers. I don't have to tell you that agents will "highly suggest" these properties to their buyers do I?

Let's see... sell three houses at 3% commission or sell one at 10%?

Do you think it's fair for a home buyer to pay a 10% premium on a new home to subsidize the cost using of their real estate agent?

Why are builders offering so much? Simple, to keep home prices up for as long as possible. It's easier for builders to offer 10% commission to agents and a $20,000 credit towards flooring than allowing prices to come back down.

Also, in many projects the builders are competing directly against investors who purchased a previous phase and now want out. These investors may have the properties listed with an agent and offering 3% commission, so to insure that the builder gets the buyers they are keeping the price the same and just pumping up the commission.

This is also the same reason why many real estate agents are saying real estate commissions are actually increasing.

If home buyers were aware of this, would they still purchase? Do you think there should be proper disclosure as to buyers agent commission back to the buyer?

For prospective home buyers reading this... I will be posting a "how to" guide on how you can save yourself thousands of dollars when purchasing a new home, so stay tuned.

Existing Home Sales Down 1.7% Nationally

Not surprising the NAR release it's existing home sales data which reported a 1.7% decrease in the median home price.

This is the first drop since 1995 and is the largest drop since 1993. This is pretty significant news especially for those currently in the market, buying or selling.

I have a feeling that in two months you will see an even more dramatic slowing as this will psychologically take it's toll on buyers. They will begin to submit lower offers based on this information and the media will jump all over it further decreasing buyer moral.

Combine this will 9 trillion in adjustable rate mortgages that will adjust in 06-07 and you can see additional downward price pressure as foreclosures may become a bigger issue. This may bode well for "for sale by owner" home sellers as they can price more aggressively offering a win/win with buyers.

There was a blog post on Trulia about what real estate professionals thought was going to happen. Looks like Jonathan Miller ( a real estate appraiser and great blogger) was the only one even close regarding the existing median price.

Will this downward trend continue?

More Homes For Sale by Owner Listed in Michigan than California Due to Emotional or Financial Reasons?

Homethinking, a great realtor rating site, posted an interesting article on why some states have higher concentration of FSBO's than others. According to the informal study, there were 3,031 people per FSBO in Michigan while California was 32,177.

The article continues on to ask why some states have such a high concentration while others are significantly lower?

Our thoughts are that it has to do with the fact that clients perception of amount of equity sacrificed for the convenience and comfort of using a REALTOR is much greater if you have had little price appreciation and little equity vs. alot of appreciation and equity. Also it may be due to need vs. desire and if the market softens up dramatically, there may be a much large percentage in "need" of selling FSBO.

We used our cost of home sale comparison calculator and ran a few scenario's to support this theory.

We will start off with someone who purchased the median priced home in Los Angeles and Detroit for 2004 and resold it currently. Assuming all things equal that both buyers put 10% down payment at 5.5%, fully amortized for 30 years. We will take 24-month amortization to show new loan balances. Will also assume that both properties where sold with a 6% total real estate commission and 1.5% for all other fee's including title, escrow, termite, etc. Here are the results of the test sample.

Detroit Median Price in 2004: $161,000
10% Down, Final Loan Amount: $144,900

Current Median Price, Q2: $155,700
24-month amortization, loan balance: $140,885

Total Gross Equity: $14,815

Minus 6% Real Estate Commissions: $9,342
Other Costs of Sale estimated at: $2,336

Selling with an Agent: 78.82% of the owners gross equity is spent in total cost of sale and owner nets: $3,137

Selling FSBO: 15.76% of the owners gross equity is spent and owner nets: $12,479

Now compare this to California, same assumptions:

Los Angeles Median Price in 2004: $446,400
10% Down, Final Loan Amount: $401,760

Current Median Price, Q2: $576,300
24-month amortization, loan balance: $390,630

Total Gross Equity: $174,540

Minus 6% Real Estate Commissions: $34,578
Other Costs of Sale estimated at: $8,645

Selling with an Agent: 24.76% of the owners gross equity is spent in total cost of sale and owner nets: $131,317.

Selling FSBO: 4.953% of the owners gross equity is spent and owner nets: $165,895

Again, we just selected random numbers to create a side by side comparison but it makes that financial and psychological /emotional aspects of the transaction come to light.

In Detroit, the seller probably “feels” that the real estate agents are making too much money because they are making more than the owner “netted” for his two year sacrifice of owning the home, making the payments and repairs. While the agent came in, worked for 60 days and “made” more money than they did.

While in Los Angeles, California, the seller probably “feels” great because he looks at the $131,317 net which is a significant amount. The fact agent made $34,578 does not seem that much compared to his substantial gains.

Does difference of $3,137 vs. $12,479 seems much more than difference between $131,317 vs. $165,895? Maybe it's the same emotion of .99 cents vs. $1.00 that advertisers use everywhere?

If you were selling your home, how would you “feel” if the agents make more money selling your home in 60-90 than you are netting from the sale of your home with 2-3 year sacrifice as indicated above?

Am I way off base on this?


Source of Median Prices, NAR Existing Home Sales Q2, Homethinking.com and Costs of Real Estate Sale Comparison Calculator

Even Bavarian-Style Castle Owner's Want to Sell For Sale by Owner

Just couldn't resist posting this castle for sale by owner... don't see to many of these and did not have a field for property type: Castle.

Will Spike in Foreclosures Lead to More People Selling Homes For Sale by Owner?

Cnn, reported that foreclosures are spiking dramatically with increases nationally of 53% and hot spots like California increasing 160% over last year. The article quotes a RealtyTrac executive saying that a large portion of these maybe due to adjustable rate mortgages reaching their first adjustments.

With the build up in inventory and dramatic flattening of home prices, remember the NAR's July Existing Home Sales report which indicated that nationally property values only increased 0.9% from July 2005 to July 2006, will more people attempt to sell their homes for sale by owner?

A home seller who is in trouble can create a win/win situation by decreasing their price by 4% in a flooded market, making their property more attractive due to the lower price.

California example: Traditional real estate listings in area are $500,000, a FSBO with powerful marketing can price property at $480,000, possibly causing a faster sale and reducing carrying costs.

Would home buyers rather pay less in a slow market or will the convenience and mental comfort of using a real estate agent prevail?

Huge Increase in People Selling FSBO in Cincinnati

Slowing real estate market causing more people to sell FSBO. According to this report from WKRC.com there has been a 90% growth in FSBO's.

Watch the video

People are trying to retain some equity and save the real estate commission, not really surprising. We feel that there will be an even bigger increase in the amount of homeowners selling FSBO.

What do you feel is the biggest draw-back to selling FSBO?

More Talk of Web Based Real Estate Companies

Today, Red Herring is putting up an article regarding alternate real estate models. Funny as the opening starts with "death treats have already started".

Which of the models have the best chance of success in a market like this?

What are Home Buyers Really Thinking about Real Estate Agents?

Raincity Guides is one of our favorite blogs has a great post and alot of comments regarding a "Home Buyers Perspective". There is some good information in the post but as a very pro-consumer service, we are intrigued about where and what home buyers think of agents and the service they provide.

What is it that makes buying a home so confusing that buyers feel they must us an agent? Could it be just emotionally difficult and the agent is really just a sounding board to insure the decision you are making is a good one? Do home buyers use agents just for encouragement or is there real value being provided. Home buyer let us know what you think and what would make things "perfect" from a buyers perspective.

California Real Estate Buyers Committed to Bigger Mortgage Payments... Scary

Not really surprising information from Dataquick today which reported that Southern California home sales hit a 9 year low. What was scary was Inman News article on the story which indicated the following...

The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $2,437 last month, the same as the previous month, but up from $2,052 a year ago. Adjusted for inflation, current payments are about 6.2 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle, DataQuick reported.

Some of you may remember what happened in Southern California in 1989-1990 with property values. Also, what is unknown is how many "interest only" loans where factored into this average to determine this monthly payment data. Interest-only mortgages where was practically non-existent in 1989.

What do you think... will common 2/28 interest-only adjustable rate mortgages cause bigger problems to real estate values than in 1989?

Zillow Home Values via Text Message

At the Inman Real Estate Connect Conference, Zillow annouced a new toy... Zillow Values via Text message. Here are instructions from their blog on how it works:

From your mobile device, send a text message to z@labs.zillow.com.
In the message field or subject line, enter an address for which you want a Zestimate, then send the message.
Examples:
2911 W Boston St Seattle WA
2911 W Boston St 98199
Tip: The format is not case sensitive and you do not need to use punctuation.

A text message from Zillow will be returned to your mobile device within a few seconds or slightly longer, depending on the network or your mobile phone provider.
The return message will contain the home's address, the Zestimate, number of bedrooms, number of bathrooms, square footage and year built.

Is this overkill or a really useful tool for home shoppers? Who will use it most... real estate agents or borrowers? Or are mobile phone users setting themselves up for text spam?

Fed pauses interest rate hike... will real estate pick up?

After 17 straight rate hikes and two years... the Fed has finally paused on increasing interest rates. Every one with home equity lines of credit and 2/28 adjustable rate mortgages can finally breath a sigh of relief.

The relationship between real estate prices and interest rates.

Here is an interesting quote from the Fed speech...

"Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices,"

It's interesting to note that a main reason indicated is the "gradual cooling of the housing market" which tells you just how much our economy depends on the real estate machine.

Now that people are no longer pumping billions into the economy from their "home atm's" the impact is really felt. Just how much, time will tell.

Will real estate pick up?

So now the burning question. Since we have a pause in interest rates which should lead to some stability in mortgage rates... will that raise the general publics' outlook on real estate prices again?

Damage already done?

Consider that the majority of commercial real estate is financed by mortgages priced on the prime rate. So businesses have already felt a giant crunch in the bottom line with increased "site" costs and lease fee's. What do they do... stop hiring and raise prices... (as evidenced by missed job growth and inflation).

What do you think?

As a real estate professional or home buyer do you think it's too late and the real estate market will continue to cool or will it light up again?

Who REALLY pays for the REALTOR Commission… Are Real Estate Commissions Really 10% - 12% ?

The home seller? The home buyer? The wholesale lenders? If you ask the home seller he / she will say them because it’s paid out directly from their net proceeds on the HUD 1 statement as a deduction. This is why many are looking at alternative routes, like for sale by owner or ala carte / discount services.

Others argue that the home buyer is paying the real estate commissions (but they don’t know it)… by financing it into the sales price of the home which is often artificially raised by most home sellers to cover the cost of using an agent?

Are today’s real estate commission really 10-12%?

If the seller pays it and the buyer finances it… can they be 10 – 12%. Value is based on comparable sales and most comparable sales are based on homes sold with a REALTOR, are most property values based on comparable sales artificially pumped up to cover these costs?

Real changes in real estate coming?

Mortgage lenders regularly cut sales prices on transactions… but what if they cut them 5% - 7% (the typical real estate commission) as a way to hedge a slowing real estate market and troubled loans? As property value is not an exact science and any appraiser can selectively make the value come in 3% to 5% higher using creative adjustments. Mortgage lenders are the ones that can truly change the industry overnight.

What if the “buyers agent” real estate commission was indicated as a "closing cost" on the buyers closing HUD 1 statement as I suggested on a previous blog post? After all, real estate agents argue that it's important to pay for the best representation which justifies their costs, but in the current real estate system buyers don't view the buyers agent as a "cost"... why not? If they did, would buyers still use an agent?

REALTORS, Mortgage Lenders, Buyers and Sellers… what do you think?

Is anyone really surprised pending home sales index Up... Down?

The NAR released it's Pending Home Sales index and surprise... it's Up Down? Down from last year... really? But on the positive note, up from last month. Let's see what August will bring... since that was the probably the true top. How was my Pending Home Sales prediction from 6 months ago? Is this just good spin on bad news?

Real Estate Commission Limbo...

Here is interesting post at the Inman blog which I commented on. Agents still fighting over commission rates. Here is my post:

The problem is that most agents cannot seem to break-down what they do. Most just say it's going to be X% to list. Instead agents should try to truly explain what your services are and really provide a break-down and explain the most important facet, the emotional support you provide. Obviously I'm not an agent but here is a tool we use to show the hourly savings between FSBO vs. REALTOR transactions and I think that the more an agent can do to provide tools like this the better chance of holding onto your current pricing structure. Also, keep in mind that the traditional real estate industry has yet to feel the real effect of new alternative realty agencies. Buyside, Zip, Redfin, Expert, etc. which will capitalized on the marketing aspect that buyers can save a significant amount of money using their models in this new buyers market. Traditional agencies have only felt the attack from one side so far and look at the impact, the selling commission from the discount and flat fee brokers, which have only about a 3-5% market share. Now the buying commission is also coming under attack and let’s assume they too can pick up the same market share.

Where most of the companies will make true head-way in this battle is that they will capitalize on the inefficiencies of individual agents. Real estate is an individual business with each agent trying to out market each other spending lots of money in advertising, instead of focusing on the customer and pooling their resources into massive marketing power. When companies like expert and buyside have a 24/7 customer service centers, there is no way individual agent can compete with the service level provided and the marketing power they can provide just based on the discounts they receive on bulk buying. Just think about what NRT / Cendant / HomeServices do, buy a dominate local company which spent millions a year in advertising / branding budget. They reallocate this money back into the main franchise brand saving millions and increasing the bottom line without really changing a thing,. Individual agents can learn a lot by studying M&A.

The commission limbo is just starting and the bar is decreasing pretty quick, those that want to stay in the limbo better stretch your back and... Mind.


Am I way off base or what?

50 year mortgages – How much more mortgage loan can you afford using a 50 year mortgage?

Are 50-year mortgages a solution to affordabi