Shouldn't this be illegal? It's at least immoral. But then again, realtors are the cesspool of humanity...
The congressional hearings will address this one... like paying Henry Blodgett to pump pets.com
Desperate home builder ups commission to 7%
New home builder Beazer Homes is offering a 7% commission to agents that can convice a buyer to purchase one of their pricey, unsold Virginia homes.
The ad was in Saturday's Washington Post (page F-16). The 7% is not split between two agents. No, the entire 7% goes to the buyer's agent.
This is more than double the standard 3% commission on new homes. This is the latest red flag showing the increasing desperation by home builders who are anxious to sell their stock of unsold homes before prices deteriorate further. It seems to me that the benefit of a price reduction (that extra 4%) should go to the buyer of the home rather than to their agent.
But instead of passing the savings on the buyer, Beazer has decided to double to ransom for agents who manage to lure in a buyer.
February 27, 2006
Beazer homes paying Virginia buyer agents 7% (not 3%) commission for any sucker (i.e. buyer)
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31 comments:
It makes sense. If Beazer reduced prices it would look bad. However paying commissions doesn't reduce the purchase price, only the profit.
There will come a time that this doesn't work and the prices will have to be lowered - just give it a couple months. By March/April, we will see our first year over year price declines.
shouldn't a realtor have to disclose if their "impartiality" has been comprimised?
Shouldn't this be illegal?
This is a good trick. The builder expects the agent to give some (most) of that commission to the buyer. Effectively the selling price is reduced but not reflect in comps.
Why should a realtor have to disclose it? This whole housing thing is a ponzi scheme and doing anything to bring integrity and honesty to the field would cause 50% of all realtors to become unemployed and lots of people to not get loans (the end of liar's *stated income* loans).
Without housing, the economy doesn't really have anything else driving it since we've sent all our manufacturing overseas. We are becoming a consumerist nation.
It looks like 2006 is destined to be the year in which the entire US real estate market collapses.
Is there anyway out of this dilemma. Not really. The more people who pull out now the faster the house of cards is going to fall.
But, Patrick Killelea at Axis of Logic does an excellent job of outlining exactly why the house of cards is finally collapsing.
Why? Prices disconnected from fundamentals. House prices are far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans.
* Interest rates going back up. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. 82% of recent Bay Area loans are adjustable, not fixed . . .
* A flood of risky "home equity loans." An adjustable-interest home equity loan[s] . . . do not have defined limits on interest demands. When the interest rate adjusts upward, it can double monthly payments.
* Massive job loss. More than 300,000 jobs are gone from Bay Area since the dot-com bubble popped. This is the worst percentage job loss in the last 60 years. It's worse than Detroit car problems or Houston's oil bust. People without jobs do not buy houses and owners without jobs may lose the house they are in. Even the threat of losing a job inhibits house purchases. Santa Clara County posted its fourth straight year of job losses in 2005, so it's not over yet.
* Salary declines. "[S]alaries have in fact returned to 1997 and 1998 levels." Local incomes are not even half of what they need to be to sustain current house prices.
* Population loss. San Francisco continues to lose population at the fastest rate of any city in the US and most of those are professional jobs. The problem is not only the dot-com crash, but also the outsourcing technical jobs to India, which continues at a frantic pace as corporations realize they can pay an Indian only 20% of what they must pay a similarly qualified employee in the Bay Area. Fewer people in the Bay Area means less demand for housing. It recently (Aug 2005) cost $3623 to rent a UHaul from San Jose to the midwest, but only $1800 to move the other way. This is because far more people are moving out of the Bay Area than are moving in.
* Stock market crash. The NASDAQ at about 2000 is still only 40% of the 5000 it was at the peak of the recent stock market bubble. The crash in the NASDAQ probably hit the Bay Area harder than anywhere else because of all the stock held by employees of tech companies. That money would have been spent on housing, but is now gone.
* Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss, he's bankrupt in the real world. Even a small price decline will bankrupt buyers with small equity. Buyers foolish enough to buy with no money down are already bankrupt, but still unaware of the fact.
* Shortage of first-time buyers. According to the California Association of Realtors, the percentage of Bay Area buyers who could afford a median-price house in the region plunged from 20 percent in July 2003 to 14 percent in July 2004. Strangely, the CAR then reported that affordability fell another 4 percent in 2005, yet claims affordability is still at 14%. [maybe because there are fewer people!]
* Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in. [WOW!] It is now possible to buy a house with 103% financing. The extra 3% is to cover closing costs, so the buyer needs no money down. All this is on the unwise assumption that housing will rise ever higher, covering interest payments through appreciation. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets." [call it what it is, GAMBLER-driven price appreciation]
* Lightbulbs going on in many brains in the Bay Area: "Hey, I can just go to New Mexico or Oregon, buy a gorgeous house outright, and comfortably retire on the price difference. My neighbors just did it, so I'll have friends there too."
* Trouble at Fannie Mae and Freddie Mac. They are now being forced to tighten up sloppy lending. This means they are not going to keep buying very low-quality loans from banks, and the total money available for buying houses is falling. [of course, when fannie and freddie FAIL, tax payers PAY, and banks have gotten away scot free!]
Visit their site to read more about WHO disagrees with these rock solid assessments, what they have to gain from claiming the market is rosey, and why they are thoroughly WRONG.
Incidentally, this is what the author suggests that you do if you're a homeowner/speculator:
If you own, consider selling so can [sic] actually keep some of that funny money that appeared out of thin air. It would be a pity to watch it vaporize back into thin air. There is no real profit until you sell. [and leave someone else with the worthless purchase!]
If you want to buy, look around and see that house prices are falling. Why hurry to buy now? [watch the suckers bleed, and] Save your cash and buy for much less in the future. Find a nice cheap rental, sit back, and enjoy the show till then.
Too bad, it's more likely that, by this time next year, you'll need that barrel of cash just to pay for food and gasoline!
Hey anon, what a great summary of the facts. Can I quote that on my blog?
"Adopt a Realtor Day" entry is still your post of the year. For those who missed this classic....:
"If Hallmark can create a holiday, so can I...
So next Tuesday, it's adopt a realtor day. Here's ten things you can do. Feel free to add to the list:
1) Show them you care, and that losing their job/profession isn't the end of the world. Life goes on...
2) Help them with job retraining. Work with them to understand if they have any marketable skills (besides bartending). Some skill that is needed by society, that won't be disintermediated by the internet. That involves working for a living, vs. hoping for "the big kill"
3) Help them go back to school. A high school GED is not too hard to get, and will set them on a new path. They can do it!
4) Work with them on their appearance. Let them know that their 5 color dye job from Rolf's is actually a bit out of style (beyond their realtor clique). Show them some sensible hair cuts and realistic colors. Work with them on limiting their makeup application to something in a non-bordello shade.
5) Show them how to list their leased Lexus RX300 on ebay.
6) Give them a copy of "Manias, Panics and Crashes". Let them know what happened wasn't their fault - it was capitalism's fault.
7) Get them into counseling if they think this bust is just "a short term blip"
8) Let them know that prozac, valium and whisky are not going to bring the bubble back
9) Work with them on that key phrase - the big close: "Do you want fries with that?". Over and over until they've got it just right
10) Give 'em a big hug. They really really need one."
A young couple who is about to get married just purchased a condo in SAn Francisco for over 750K. She does not work and has no savings. He works and gets 6K after taxes a month. They went for a negative amortization loan as his salary does not cover mortgage, insurance, HOA and property taxes. Same agent represents both the seller and buyer and will refund the entire commission [3%] to the buyer. "The 23 thousand dollars should cover closing cost" - she said.
What I am saying is that there is no shortage of buyers in San Francisco. Crappy homes are being purchased by loosers with no means to afford it. The bubble has not reached the west coast.
Re last posts, I agree that there seems to be alot of latent demand in SF. Tons of people I know want to own and are waiting/hoping for a downturn. If prices slide, it shoudl bring these buyers out of the woodwork. On the other hand, if it looks like prices are really set to pull back, I think you could see buyers become more gun shy than ever; no one wants to buy a house that might be worth 20 percent less 12-18 months down the road. Now, in SF and elsewhere, a lot of people just don't believe a major pullback is even possible. That could change, my guess is it could change quickly, and then the prophecy becomes self-fulfilling. The rent to own cost balance is so far out of whack in SF (more than any other market) that SOMETHING has to give.
Funny thing is that people tend to defend high home prices in places like SF or Manhattan by pointing to what is unique and desirable about these places. They're right! NY and SF are both exceptional towns; both have a shortage of housing. But what people just don't get is that both markets and their advantages are already fully priced, in my view -- if a national housing pullback is in the picture, the most expensive markets have to fall. They'll still be among the most expensive markets in the nation, and there will stioll be a huge premium to buy there -- but that premium will be tied to a lower baseline for all housing, and thus the premium and the prices must fall.
Simple economics, and we'll all be laughing at our own stupidity and foolishness for ever thinking otherwise.
Re: my earlier post on the media, here's a bonehead realtor in a Bay Area newspaper complaining about the coverage and predicting that RE will go to the moon. There is so much nonsense in this article that I hardly know where to begin. It's funny that he says he's been in RE for 37 years and prices have always "continued to rise". If he really has been in it that long he must remember the bloodshed of the early 1990's! Lying scumbag! I hope they haul some of these bastards away in handcuffs when the whole sand castle comes down.
GUEST COMMENTARY
Media scare people out of buying house
By Pete Laurence
THE HYPER real estate market couldn't last forever and on its own is slowing to a "normal" market.
This year is expected to have about 5 percent fewer sales and appreciation will still go up from 5 percent to 10 percent. This will be a welcome return to an "average" year where prices still increase and home ownership still makes sense.
However, the media have been exaggerating and that scares buyers into renting.
While every winter slows down in sales volume, media articles scream "slowing down" without explaining context.
The media also has been promoting fear of a "real estate bubble" that "might" burst. This is just their "prediction," not news. It is a prediction I've heard every year of my 37 years in real estate, while prices just continue to rise.
Those who believe this nonsense don't buy, so they watch their friends buy and values and rents keep going up, while they get stuck with nothing but rent receipts.
Media and stockbrokers apparently don't understand that unlike stock, bonds and futures, homes are not "paper," but are real and needed by all people as a place to live.
Homes aren't at risk from incompetent management like corporations that lose value or go bankrupt. And also unlike stock, there is no "margin call."
Most homeowners have 30-year financing in place, which the lenders couldn't demand be paid off even if they wanted too.
High balance variable rate loans have protections limiting their rise, and most loans are fixed rate, low balance, or are paid-off anyway.
Homeowners aren't likely to leave one home without going into another, and Bay Area vacancy rates are low whether buying or renting.
Also, most sellers don't have to sell, so they'll just wait until the "market" heats up again.
While prices can plateau for awhile or roll back a little during a recession, that's not the case right now with California and the Bay Area's economy booming, builders are unable to meet demand, and interest rates while higher, still are low.
Yes the state's incompetent politicians could raise taxes, chase off employers and screw up the economy, but hopefully they'd be thrown out like Gray Davis, before too big of a recession.
Anyone who's now waiting for a reduction in prices before buying is hurting themselves. Smart buyers to save money, are out buying now, before the annual spring and summer rush begins.
--------------------------------------------------------------------------------
Laurence is a resident of Clayton and a Realtor.
Rusty-
You should absolutely NOT be concerned about "hurting someone's feelings" when making an offer.
For one thing, if they really believe that their property is worth what they are asking, they will probably just think YOU are a nutcase and be done with it.
If they suspect their property may be overvalued but are sticking to their guns anyway and looking for the closest sucker: do you really care what they think ?
Especially in a falling market, do not ever be afraid to go with your gut. there are PLENTY of properties out there to choose from.
Rusty
1) find a new realtor, one who's got your back (if such a thing exists)
2) offer 40% below the asking price - show them who's boss and get them freaked out a bit.
3) better yet, rent. you know where this is heading - why buy a depreciating asset?
anon 2/27/06 5:48:37 said:
"I hope they haul some of these bastards away in handcuffs when the whole sand castle comes down."
When the Congressional investigations begin, and these guys say "Who could have possibly known?", maybe then they will be referred to the scores of bubble blogs and asked "How could you NOT have known when all these people did, and they're not even in the real estate business?"
To Anonymous talking about SF market,
I agree. The SF market has unusual characteristics and although the prices are high, it may not be hit so hard by the deflating bubble. The expensive SF real estate does not appeal to families at all. There are neighborhoods like the Sunset, but that's not exactly characteristic of what's so desirable about SF. What you really need to do is look at the entire Bay Area. I think you'll find suburb after suburb of extremely overvalued real estate. Take Brentwood for example. That's about a two-hour commute each way. I pitty the poor souls who delude themselves into thinking they get some kind of big benefit from their precious proximity to wonderful San Francisco. Which brings me to the my personal pet peeve about comparing SF with NYC. I'm sorry but SF is not in the same league as NYC. SF is tiny. It has a few taxis, buses and teensy subway system and some pretty skyscrpers, but come on. I love SF. It's a cute town, but you don't have anything like Park Ave. in SF...
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