Dan Melson: January 2024 Archives

It may not come as a shock to you, but loan officers, along with many other salesfolk, speak a different language than the rest of the population. What will probably annoy you, however, is the number of times they'll say something that sounds like a phrase out of English, but really is from Salesgoodspeakian, a bizarre Orwellian tongue in which the true meanings must be learned by osmosis from the particular subculture's dialect, while intending to communicate something entirely different to the poor schmuck who, after all, doesn't understand salesgoodspeakian.

This post is intended partially as humor, partially as education. I'm going to start it with a few of the most common ones, and update it by adding more and reposting from time to time. If you've got a good one, either with or without translation (and whether from one of my fields or not), please send it to me along with the context, if appropriate. Even if you don't have a translation, I'm pretty good at major dialects of salesgoodspeakian. It is to be noted that these phrases are not red flags, but more in the nature of yellow flags. If they just occur on a stand-alone basis, it's something that's likely to proceed from yellow to a red flag, particularly with repeated yellows. On the other hand, if the person uttering them proceeds to issue a clarification in plain English, issues an amplification rendering the translation void, or translates and explains the salesgoodspeakian, it's possible you've just been given a real world green flag that this is an ethical person. For instance, my absolute favorite loan to do is a true zero cost to the consumer A paper loan (and no prepayment penalty!), which I usually explain as "Nothing added to your mortgage. You've just got to do the paperwork with me, and come up with the money for the appraisal, which will be returned to you when the loan funds". And it's also possible you've been given a reinforced red because they lied.

And yes, I've had clients who came to me report every one of these. Some of the translations are a little exaggerated to make the point, but the spirit remains the same.

Any resemblance or Orwellian language out of 1984 is strictly intentional.

The salesgoodspeakian to English phrasebook:

Mortgage dialect:

"Stress free loans" two percent higher than you'd qualify for with better documentation and a little more work and less greed on the loan officer's behalf.

"Won't cost you anything out of your pocket" - Six points and $5000 in well-padded closing costs added to your mortgage loan balance, though.

"Thirty Year Loan" fixed for the first two, if they're feeling generous that day, but it does have a thirty year amortization. With five year prepayment penalty of course!

"How does a 1% rate sound?" Like you're a misleading weasel trying to get me to do a loan that digs me in deeper every month with a three year prepayment penalty that keeps me trapped even after I figure it out (See Negative Amortization Loan)

"Industry standard" - Everybody else at this company does it that way, too, because the boss says to, and I don't know any better. (This is very much the "G" rated translation. Please note that there are industry standards - things that pretty much every company in the industry does. Some of these standards need to change, some just are, and some are actually beneficial).

"Everybody knows there's 2% origination fee." Actually, everybody knows no such thing. But if I told you about it in the first place, you might have gone with somebody honest.

"Brokers can charge you anything they want" - so can bankers and other direct lenders, but brokers have to disclose their compensation and bankers don't.

Found on the same billboard:

"Rates as low as 4%!" on an "adjusts every month" loan that's going to 6% next month and who knows what thereafter. With five points. While I have you on the phone, let's sign you up for it.
"No Points!" we've got no points loans. Not on the loan we quoted above. I'm really so terribly sorry you misunderstood. Now, about that 4% loan, what's your name?
"Low Fees!" compared to the multi-billion dollar graft of the stimulus or Obamacare, $23,000 is low. Now about that 4% loan, what's your social?
"Easy paperwork" but the start rate goes to 6% for the first month, adjusting to 8% next month. Still five points. Not for the rate we quoted above. I'm really so terribly sorry you misunderstood. Now, about that 4% loan, when can you come in to sign?

Real Estate Dialect:

"Sure houses are expensive, but the loan is cheap" No, this property isn't worth what they're asking for it. But since you don't know any better than to buy based upon payment, it lets us get you into a loan that you're going to think you can afford, until long after we have our commission!

mortgage humor real estate—

Caveat Emptor

Original herezz

I've seen many new home developments with vaulted ceilings, mini-vineyards, huge houses on little tiny lots...Why can't some developer built some homes for us regular people? A normal sized home with plenty of closet space and a decent (not designer) kitchen that is set more than 3 feet from the neighbors house. I realize that they need to make money, but more people could afford homes in this state if the builders weren't catering to people who already own 2 and 3 houses.

The developer has a certain amount of LAND for a development. That's all they have, and they are not getting any more. For this, they paid a set amount of money. Furthermore, once they have it, it's likely to be years going through the permit process before the can even build. That money they invested in the project, both upfront and as the project goes along? If they wanted to invest it in say the stock market, it'd be earning income - for years - before the first spade of earth gets dug. If it's three years from purchase to completion, that's a 33.1 percent necessary return just to break even from the opportunity cost (at ten percent per year - very doable). If it's five years, as is more likely, they need 61 percent. If it's seven, 94.9 percent. To this, add property taxes as they go, the costs of environmental studies and obtaining the permits and paying for inspections and certifying everything. If there's a loan going on, they have the cost of interest going on as well. Now there are ameliorating factors as well, but given the sheer amount of work that has to be done before they nail the first two boards together, a rational person could maybe be forgiven for thinking that society wants housing to be prohibitively expensive, because that's what the evidence says.

Furthermore, it's silly, but people buy a property based upon the structure and the amenities. Well, it's not silly to make that one of the factors, but people go overboard. They will buy a 5 bedroom 2800 square foot house on a 3000 square foot lot before they'll buy a 3 bedroom 1800 square foot house on a 20,000 square foot lot. The same structure is really worth a lot more when it's on a bigger lot, and even a lesser structure may really be worth more if it's on a bigger lot, as is likely to be the case here, but for most folks, we're talking emotional appeal, not rational thought process. In other words, like many people looking for a mate, they see the gorgeous sculpted toned and tanned member of the opposite sex, and ignore the abusive personality behind the beautiful exterior. I'm not certain I've ever met someone who wanted to live in such a development, but they sure sell like hotcakes! Add travertine floors and granite countertops and the fact that it's new to the 2800 square footer, and you've got people willing to pay $800k for the first property as opposed to maybe $550k for the second. In their mind, the first property might be a "flipper's investment" while the second is "the keeper" that they are going to make improvements on for the rest of their lives, but economically, we vote with our dollars and it's looking like a landslide for the status quo. If you opened your wallet for the house where you don't have any land, guess what? You're voting for developers to keep building them. You know something else? That brand new cheek-by-jowl development isn't going to be new forever. Considering market returns, that older $550,000 3 bedroom on half an acre is a better investment, even if it needs updating. Curb appeal and house bling and "ooh, it's new!" are the best ways I know of to sucker buyers into paying too much money.

The developer knows this at least as well as your average real estate agent. The developer has all of this researched down the the last centimeter of the lot lines. They are not in business to build wonderful homes that people are going to be happy in forever; they are in business to make money, and the blinged-out houses on the smallest possible lots bring in the most money for that developer. The fact that you're the very first person to live in the house is a further attraction to the kind of person who buys new cars, which is to say, most of the population, and it's worth serious money to that developer's bottom line, although it will cost you money in the long term.

Nor is the developer alone in this endeavor. They wouldn't make the most money from homes like that if people didn't pay the most money for homes like that. You want the real culprits in this scenario, look around you in any large crowd. It's all to easy to blame the developer, but the desires of the average home buyer and the regulatory environment both played huge factors in getting the state of new housing to where it is now.

There are ways to potentially fix the problem. They start at real consumer education, easing environmental restrictions and the permit process, particularly for high density housing, which may not be desirable, but when your front yard is the size of a postage stamp and most people wouldn't use it anyway, doesn't it make more sense to put all the community lawns together in one park that someone can actually get some use out of? Say, a place for kids and dogs to play? People say they hate condos, but condos, townhomes and row homes are all that's available to the average buyer if the price of land and developing it stays where it is. Environmental regulation and slow growth policies are fundamentally at odds with affordable housing in high demand areas. I'm not saying throw them out entirely in the name of putting up cardboard shacks, but I am saying that we can certainly choose a point friendlier to low cost housing than we have chosen. I can only conclude that society must value the environmental status quo more than it values lowering the cost of housing, in which case the status quo is the correct choice.

None of this has any measurable political support. Everybody is for lowering the cost of housing, at least for the poor, but put it on the ballot against loosening environmental protections and it loses. There are a certain number of additional reasons why this happens, of course. Multimillionaire developers are not politically popular, but Least Tern environment is. Rarely do people stop to consider that by constricting the supply of housing, you unavoidably increase the price. Nor can you do anything by governmental fiat to fix the problem that doesn't price even more people out of the market. Demand is a given - it not directly controllable. There are 330 million plus Americans and they all want housing they can afford. Even kicking out the estimated 13 million or more who are in the country illegally wouldn't do a whole lot to really solve this problem. The only way to treat the issue is by increasing the supply, which does seem to include being nicer to those multimillionaire developers, but in this case the issue is more affordable housing for everyone, and being nicer to the developers means that you get more housing units, which drops the price of housing from whatever it would have been without being nice to the developers. Because any time someone else enters the United States, whether legally, illegally, or simply by being born, you create a housing need. Every time there is a new American without another place for that American to live, we create somebody without a home. We price somebody out of the market. We now have an American who cannot afford to buy a home.

Now how to handle this issue until such time, as any, as society changes its mind and decides to make housing more affordable? Your best bet is to find a good buyer's agent to defeat the problem on a retail level, that is, for yourself, because wholesale solutions are not likely until people get rational about solving society's problems. You can't make people build the kind of housing you say you want. But you can make informed choices between what's out there now, and a good buyer's agent will look as far out as you tell them to.

Caveat Emptor

Original here

One of the most common things I'm seeing as I roam about the East County looking for bargains: Agents not doing their jobs.

Even when there were 40-plus sellers per buyer, single family detached homes that are priced appropriately were selling, and for appropriate prices. Condominiums weren't moving unless they were brand new with lots of glitter, but appropriately priced detached homes were selling. I can find all of the evidence of this you would care to see, because I've already seen it. Willing buyers and willing sellers. It's just that what an appropriate price is has shifted.

Let's change mental gears here for a moment. Here's the real differences between sellers markets and buyers market: Competition. Specifically, which side of the sale has to compete the hardest. In seller's markets, which is the mindset most sellers and most listing agents are still in, buyers are competing to buy the properties that are for sale. Because of this it is the buyers who have to compete to look attractive - highest offer, quickest offer, fewest contingencies. They have to offer more money or a bigger deposit or something else that the seller wants and nobody else wants to do. With the buyers market, it's the sellers who have to compete, and most of them were not doing it very well.

I want to make very clear that sellers are always competing against other sellers, even in the strongest seller's market possible. It's not enough to have your property "out there." In a strong enough seller's market, the prices might catch up to unrealistic asking prices, given time. In a buyer's market, prices are not increasing, and in a strong buyer's market, they are going down. In other words, the longer it takes, the worse your property looks. You have to have some stand out aspect to your property. It can be physical attractiveness, or it can be low price. Price will get buyers in the door, but it takes a strong agent to sell a fixer to the average buyer, no matter how attractively priced. For several years, the scumbag down the street would show the buyers something more attractive they couldn't really afford, relying upon with a negative amortization loan, done stated income to make it look like they could afford the payments. Buyers who haven't had this explained to them ahead of time will think they've just gotten the Taj Mahal for the price of a dirt floor shack, except of course, they haven't (Fortunately, this particular tactic has gone the way of the dodo because those loans are no longer available, but there are other ways to be able to quote low payments that aren't in the client's best interest).

The other way to stand out is to be priced the same, but have a more attractive property. Don't tell buyers you'll give them a carpet allowance, replace the carpet. Don't tell buyers that all they have to do is spend two months and $20,000 fixing it and they'll have a property worth $20,000 more. That won't wash in a buyer's market, if it ever does. The person who does the work, even of engaging a contractor, gets the payoff. Why should your buyers take the risk and do all that work and spend $20,000 cash that most buyers don't have (and cannot be part of the purchase money loan) when they can go down the street and find all of that work already done for maybe $10,000 more - or even the same price? Some other seller just out-competed you for that buyer's business. The only good news for sellers is that most of your competition isn't trying very hard, so small bits of competition can look very attractive.

Even lenders are still in denial for their lender-owned properties, and they are the ones with the hardest issues of all. They must get rid of the property. They don't have any choice. Even if it was in the same shape as surrounding properties - which it rarely is - they have a deadline to get rid of that property, and everyone knows it. Furthermore, the property is tying up many times its value in working capital because of regulations. They also have other constraints that other sellers do not. These make the property worth less, as they rule out certain buyers and make others less willing. In a buyer's market, every buyer counts. I had two clients putting in offers on different lender owned fixers in the last two weeks. One might comp out at the asking price of $450,000 if it wasn't lender owned - which automatically makes it worth about ten percent less than the comps. Add the fact that it's an ugly fixer that would be worth maybe $400,000 at most if it wasn't lender owned, and they will be extremely lucky to see $360,000 out of it. Not supposition, not guesswork, fact. The fact is that there's a beautiful owner occupied comparable on the same block asking $459,000. It's even a bit larger. There is no doubt in my mind whatsoever that the beautiful comparable would take $450,000. Actually, when I checked again the beautiful comparable was in escrow. One owner that competed well, one that is not competing well. I told the agent for the lender's fixer this, and she said, "I've been in this business forty years and I know what I can get for that property!" I offered to bet her $10 she couldn't close escrow on it within ninety days for over $390,000 net - essentially a zero risk bet from my point of view. From hers also, if she thought the property was really worth more. She wouldn't take me up on it - declining to risk even $10 of her own money upon getting a price within 15% of what she told her client whom she has a fiduciary duty to was an appropriate asking price. Furthermore, she's violating her fiduciary duty by not explaining this to her client. Doesn't matter how long she's been in the business. What matters is whether she reacts well to this market.

About five miles away, another lender owned fixer asking $480,000 because that's what the lender is on the hook for. And you know, it is a better neighborhood. Unfortunately for them, just because you were silly enough to lend them that much when the market was peaking doesn't mean someone else will pay you that much for it when the market is in the tank. What matters is the comparable properties, and there's one just around the corner that anyone would rather have listing for $470,000. Above par house for a below par price. Hasn't gone into escrow yet, but it will go fairly soon, unless someone else lists a better property cheaper. Even in the buyer's environment we had, they got a little bit of a bidding feud on it. Fast forward a couple of years and the market has turned. Properties priced correctly are seeing bidding wars, while properties priced incorrectly are still sitting without offers. This lender owned fixer is in rotten shape and has several issues that turn the average buyer off. I initially thought my client's offer was lower than it should have been, but the more I thought about, the more I think my client came closer to the mark than I did initially. Horrible floor plan, necessitating major work to make it attractive. Yard not suitable for children, despite the fact that there's a school on the same block that the agent is using as a "come-on". These people will be lucky to get anything over $350,000 for it, but the agent sent me a blanket, "Anything less than $400,000 will be rejected without counter," despite the fact that I explained how much work it will be to bring it up to the neighborhood standard. I left her some messages, and she didn't respond. The implication to me was clear: She is in denial, and doesn't want to hear plain facts explained. She's got dozens of REO listings. Maybe she schmoozes well, but she's not dealing well with the market. I don't know if she doesn't know market conditions or just acts like she doesn't. If nobody is willing to pay enough to get past the blanket rejection, it doesn't make much difference, does it?

Buyer's markets are the times when good listing agents really earn their money, as the gentleman listing the $470,000 comparable did. It may not be the great publicity of getting the highest price ever in the neighborhood, but getting it sold quickly and for something like asking price in a buyer's market is a real achievement. Especially with as many distress situations as are out there - people that have to sell, for one reason or another. (I did very well for my buyer clients, but it's depth-charging fish in a barrel. You really find out how good someone is when the market favors the other side of the transaction.) You find out how good someone is as a lister when there are dozens of FSBO and discounter listed properties in the neighborhood, sitting on the market for months. The last six months of Canceled, Withdrawn, and especially the Expired sections of MLS have all that and more, but that one property sold quickly, and sold for a good price. That agent earned every penny he got paid before the property was in escrow or even had offers.

The person who "buys" listings, telling the people that they can get them more money than anyone else, more money than the market will support, had a nice long run. When prices are moving up strongly and there aren't many houses to be had and everyone wants one, well a monkey could sell that house at that price given enough time, because given a few months the market will catch up to all but the most egregious of overpricing.

That is not the way things are in a buyer's market. Buyers have all the power, and they know it, because buyer's agents like me have told them if nothing else. When I originally wrote this, inventory was over nine months worth of sales, more properties were coming on the market and it was the worst time of year for sales. Given these facts, What do you think is going to happen? Where do you think the market is headed, at least in the short term?

(and incidentally, what kind of bargains do you think those few buyers willing to get off the sidelines can drive?)

The longer listing agents wait to talk some sense into their sellers, the worse it's going to be. The more days on market, the further the market falls, the more the sellers will have to move to meet it - and the more unhappy they will be with their listing agents. Actually this always applies, but it applies much more strongly when the buyers are in control. The agents I respect will refuse a listing rather than ask for a price they aren't going to get except by freak coincidence. They get the same no transaction either way, but if they refuse the listing, they haven't created unreasonable expectations, they haven't failed to live up to those expectations, and neither party has wasted months finding out what that agent should have known in the first place.

I saw agents telling people that because interest rates have stabilized or even moved down, that will revive the market. This is complete and utter nonsense in buyer's markets. I initially wrote something stronger, but my internal censor really wants to keep this family friendly. Yes, payments drive the market - when it's a seller's market. Buyer's markets are driven by the bottom line, because there are lots of sellers and only a few buyers and if this seller won't cut them a deal, the one down the block who is a little more motivated will. When every listing gets three offers within a week and buyers are getting desperate, they'll bite off on another $1000, $5000, or $10000 because "It's only $10 (or $50 or $100) more on the payment. They shouldn't, but they will. When buyers have the power and they know it, they'll tell the sellers to pay that $10 per month, because they're not paying the extra in the first place. It is the sign of someone who does not understand supply and demand to think otherwise, and I certainly wouldn't want that sort of numbwit as my agent. Your agent is your expert. If they are not an expert, why are you hiring them?

When I originally wrote this, I told people that the only way to change market momentum was to clear some inventory. Inventory can clear in one of three ways: the owner finds an acceptable alternative (such as loan modification), the owner decides to get serious about competing for a buyer's business, or the lender takes it over and eventually cuts the price enough to sell it. I've mentioned that the lenders are evidently still in denial, but they have legal requirements to dispose of those properties within a certain amount of time. The closer they get to that time expiring, the more desperate they'll get. Once the regulators climb onto that lender's back, they don't climb off cheaply, nor easily. But my real point is this: Sellers can compete on the individual level any time they want to, and the sooner they want to, the better off that individual is likely to be. Eventually, the seller's aggregate is going to have to compete much harder for the business of the buyers that are out there, and for the buyers they want to lure off the sidelines. It took a long time to sink in, but the fact did sink in to prospective buyers that the market got overextended. If you're selling, you can ameliorate your expectations and come out as well as possible, you can hope for the bigger fool of a bygone day, or you can take it off the market.

Caveat Emptor

Original here

At any given time, I will usually have at least one set of clients who really need to consider a condo or townhome who nonetheless have their hearts set on a single family residence. I agree to include single family residences in their search knowing full well I am going to get phone calls like this:

"Dan, a property just popped up on our search! It's right where we want to live and it's within our budget and we like the neighborhood and we want to buy it!"

And then I'm going to look at MLS and 999 times out of 1000 there is going to be a note in there that tells me there is no way lenders will touch the property (in 99 out of 100 such properties that don't have it, it should have been there). Net result: the vast majority of all buyers can't touch it, and I have to tell Ms. Client exactly what's going on:

"I'm sorry, Ms. Client, but that property has a broken foundation which no traditional lender will loan money on. So if you can come up with about half the purchase price in cash, we have a possibility, but otherwise that property might as well be the most expensive property in the city, because while you could afford it if you could get a traditional loan, the reason it has such a low price on it is that you can't."

Put yourself in the seller's shoes: They want to get as much as possible for the property. There just aren't a whole lot of people who go looking for ways to give money away that they could have gotten. Even if they are a philanthropist, they give the money to charities, not to anonymous buyers they don't know. Therefore, there is a reason for a low asking price relative to everything comparable around them, and the reason for a major price differential is almost always some defect that prevents a normal residential real estate loan from being obtained.

Agents don't put this information in the public area of MLS or any other advertisements they do for one reason and one reason only: doing so would restrict their ability to attract buyer clients who don't understand either this or the fact that calling the listing agent is about the stupidest thing a buyer can do. I don't recall ever having a listing in this category, but I would make it absolutely the first thing I mentioned. There is no point getting my sellers worked up with showings to buyers who cannot buy the property, and my responsibility is to my clients, not to luring prospective buyers in my own front door. That is a major priority of mine, but helping me find clients is not why people sign my listing agreements.

Here is what is going on. The sellers have a property with a defect that makes most lenders unwilling or unable to risk money on a loan against the property. A slab crack is the classic example, but there are many others. Unpermitted additions are another potential deal killer. Properties that don't have a working bathroom or kitchen. Properties without hot and cold running water, or without heat. I can go on and on, but these are the ones agents see time and time again.

Because traditional real estate loans with traditional real estate lenders are out of the question, the only lenders who can touch the property are the so-called "hard money" or "private money" lenders. Traditional lenders are publicly held companies loaning Other People's Money and they have to conform to what the SEC and Federal Reserve tell them to do. Hard Money loans are individuals and groups that have gotten together specifically for the purpose of loaning money to this market. They can do pretty much what they want, but the lowest rate on a "hard money" loan that I can remember seeing is about 12%, and right now hard money lenders want to see a 35 to 50% down payment minimum.

I keep saying this but it cannot be repeated too often: The Mortgage Loan Market Controls the Real Estate Market. The vast majority of everyone needs a loan in order to buy, and if they can't get a loan on a given property, it might as well be a storage area for what comes out of a sewage filtration plant. Such a property is worth much less than surrounding properties of otherwise equivalent features simply because of this defect. In fact, most such properties are still priced too high - the asking price reduction should be larger than it is - which is yet another piece of evidence on violations of fiduciary duty most agents will commit in order to get a listing agreement.

In point of fact, probably the majority of these properties go to "all cash" buyers who fix the disqualifying problem as well as making it pretty for Mr. and Ms. Upper Middle Class at a substantial markup from what they bought, making enough money to pay their expenses plus a substantial profit as well. That is the target market the agent has to hit. The fact that a given property cannot currently qualify for a traditional loan, but can be repaired so that it does is a business opportunity. Nobody risks pumping that kind of cash into a property without the lure of a potential profit that makes it all worthwhile, and there is nobody else involved in such transactions who is not made better off by the existence of this class of short term investor.

I shouldn't have to say that if you own such a property, fixing the problem yourself if you can will usually more than pay for itself. But there are many reasons people can't do this, most common of which is "we don't have the cash and can't get it", and without the people in the previous paragraph, what we all get is an abandoned condemned property of no use to anyone. The people who owned it get nothing. The people who would have eventually bought it (and been ecstatically happy to do so) would not even have considered it. The people who fix these properties are not only making money, they are performing a public service. I get angry when people think that the money these property fixers make is somehow morally wrong. It not only is morally right, it is economically beneficial to the community as a whole and everyone else involved in that transaction.

Nonetheless, if you are a buyer without the requisite cash, the purchase is not going to happen for you. The property might as well cost ten quadrillion dollars, because it is every bit as much out of your reach as a property costing that much. People who don't understand this are taking lenders and loans for granted, and as anyone who's been involved in the real estate market will tell you, you should never do that. Yes, they make good money also. But they also take substantial risks, as any real estate market lender of the last few years can attest.

Without lenders, we'd be stuck in the era before loans. Without the standardized lenders and programs and methods of freeing up money for the real estate loan market that we have built up over the past seventy-odd years, real estate prices would be a lot lower and we'd still be stuck with mostly cash sales with the practical result that the vast majority of real estate value would go "poof" just like a cartoon illusion. It's real wealth, but it rests upon a foundation of our current system of loans being available.

When such a loan is not available for a given property however, that property goes outside the system that we have built up to make home ownership available. Until somebody fixes the property to bring it back inside that system, it really is only worth only a fraction of the value of surrounding, otherwise equivalent properties. And if you as a buyer are relying upon that system of loans to enable yourself to to become a homeowner, such a property is as unavailable to you as if it were somewhere in the Andromeda Galaxy. On the other hand, if you are someone with the cash to buy and fix the property in order to bring it within the system there is serious money to be made - but people who fit in that category already know that.

The usual comment I get from buyers when I explain the above is "Oh, that's a shame," or words to that effect. It isn't a shame and it isn't an unrelated factor - it's the entire reason for the low asking price. If the property didn't have that defect, it would never have come up in your search because the asking price would have been priced completely out of your reach.

Caveat Emptor

Original article here

Expertise and attitude, not control of an informational chokepoint, is the way that things are going.

Let's analyze this from both sides of the problem. The current owner looking to sell really needs a marketer. For better or worse, most of their choices have been made; their main dilemma reducing to how to get rid of the result of those choices in the most effective manner. If I were Ambrose Bierce, I'd say their problem was how to convert their mistakes into cash, because they have that property, and they want is the person willing to pay largest amount of cash possible as quickly as possible. It's worth what it's worth; mistakes and omissions can cost them a huge percentage of what the property might have sold for but it's unlikely that even the best marketing program is going to sell the property for more than it's worth.

It's the buyer that has more need of an all-around expert on housing. They have cash or the ability to get it via a loan, and the want the property that best meets their needs for the lowest possible price. Note that nobody has an unlimited budget; despite all the attempts to pretend otherwise in the era of Make Believe Loans. Even if you're wealthier than Midas (Which many of the wealthy are, if you really think about it. Gold just sits there - it doesn't produce more wealth), you have to accept some constraints upon the property you decide to purchase, and knowledge of how those constraints compare to each other and how they work out down the road can keep you from being in the situation I joked about above, of needing to convert your mistakes to cash, later on.

But the current business models are all built around listing agency. Especially, the large nationwide chains and huge brokerages. Ridiculous as it may seem upon sober reflection, people do approach listing agents about buying property, especially the ones they have listed. I've written more than one article covering how Dual Agency is an invitation for disaster, especially for buyers, as have others, but still it happens. It's not like it's risk free for sellers, either. Some agents do get listings primarily for "buyer bait" and lose their best bait when the listing actually sells, and that's fairly benign compared to some other things that really do happen and aren't as uncommon as most people think. The entire current model of agency is built around listing, with only minor exceptions around the edges, and it's mostly oriented on the big name national chains with ongoing advertising campaigns. Those chains control pretty much everybody from the NAR on down, and through the NAR's lobbying arm mold the environment to their advantage. Due to the way the business is structured, It's very hard to succeed in real estate without listings, and it's much harder for independents to get listings than it is for the major chains. This is going to change no matter how many "campaign contributions" NAR makes, at least to a degree and possibly completely.

This whole set-up is a holdover from days when agents and brokerages could control access to market information. I shouldn't need to say this era is over, and the agent (or brokerage) that pretends they are entitled to three (or six) percent commission for access to the market is doomed, but the NAR seems to be leading the charge off the cliff, most recently with the move towards requiring agents to have hardware "dongles" in addition to a user ID and password to access the various local MLS services. They justify it as security, but what they're really trying to do is "protect agents from themselves" by making it difficult to share their MLS access with outsiders - attempting to control information. Where 99% of the information needs no access to MLS in order to obtain, this is ridiculous. Note to NAR: Most real estate information is public record, and can be obtained these days by visiting the appropriate county website. A lot of it can be retrieved automatically, via what we called "batch file" a few decades ago. There are dozens if not hundreds of places to obtain information on properties for sale, and a goodly percentage of them do not have their sources in MLS. Therefore, trying to justify what you make by creating an artificial information chokepoint is not going to succeed - all you're going to do is succeed in encouraging alternate pathways to the information.

There is no reason why any given local MLS can't have competition. The NAR doesn't own the concept - only the name. There's no reason why some smart techies can't set up their own service in competition, national or local, supported by whatever mechanism they can get to pay their bills. Furthermore, agents (Realtor or not) will line up to submit their properties to any competing service - it's fiduciary duty, after all. It's only the non-existent policing efforts of most such sites that have prevented them from taking more market share from official MLS affiliates. When this changes, so that a member of the general public can read a listing advertisement on an MLS competitor and have some confidence that it represents a real listing, these competitors will lose most of their handicap. If I had a dollar for every time a client called me asking why I hadn't shown them this wonderful bargain they found on a non-policed site, I could pay my office rent for a couple of months at least out of it (Buyer's agent recording 2201: "Because it's not a real listing - it's someone chumming for leads, and to avoid wasting your time with salespeople advertising things they haven't got is a small part of why you hired me"). It is only this lack of policing that is holding the competition back now. But sooner or later, those that are trying to be destination sites will figure it out. When they do, you can kiss MLS' dominance goodbye, and with it any illusions as to holding an information chokepoint.

Eventually, people will be able to put their properties on the market by going to a website and entering the information, or calling a toll free number if they're luddites. They'll need to show they are authorized to do so, but that will be the essential nature of the process. Buyers will be able to access the information for some very nominal price, like putting up with advertising or paying some nominal fee. That's where we're heading; the only items in doubt are how long to get there and what the exact pathway will be. Agents are in no way mandatory to this process of putting a property for sale on the internet or finding out which properties are for sale on the internet. The only way to survive and prosper as a profession will be to provide expertise that the average person has little to no opportunity to acquire. In other words, really learn things such that buyers and sellers of real estate can make a profit (or avoid a loss) by paying you, and make a living selling that expertise, not access to the system. Question 1: In the general economy, are there fewer expert consultants today than thirty years ago, or more? Question 2: Do the good ones among them command lower fees (even adjusting for inflation) or higher?

The issue lies in convincing people your advice really is that good. Holding an information choke-point won't do it, and the choke-point is going away within the next few years. But knowing what to make of that information is an expertise for which well-informed clients will pay and pay well, knowing that the system will be passing along those costs (along with a hefty markup) to those too stupid to pay. In other words, we've got to demonstrate and emphasize the fact that our compensation is an investment that returns more than it costs.

I'm not going to be saying listing is easy - it isn't. I learn more about the listing game, and how much more there is to learn, with every one I list, and not infrequently, I learn something important about listing from working the buyer's side (and vice versa, as well). As I have said in the past, I figure I'll have it completely down sometime in the next century or so. That said, the future of the listing game is easy enough to predict: How to make this property stand out amongst all the others, and how to attract the attention of the buyer who is suited to the property. Every property is unique; but for the vast majority of all buyers, there is a substantial list of properties that will serve their needs about as well. If you're any kind of a decent listing agent, you're going to be able to answer the questions of why this property is worth more to that buyer than the alternatives that are cheaper, and why the alternatives that are more expensive aren't worth the extra, secure in the knowledge that if they don't agree, they aren't the right buyers for this property and another set will be along shortly who are. If you're a top-of-the-line listing agent, you can do this without ever meeting prospective buyers. The seller's problem reduces to how to attract those suitable buyers, and the value of the listing agent to sellers lies in getting them a better offer sooner (Hint for those consumers reading this: It's not agreeing to list the property for a higher price! That's actually counter-productive on both counts).

That said, everything the listing agent needs to know pales beside what a good buyer's agent needs to take into account. I doubt I or anyone else will ever have the buyer's game completely down. It isn't that I know everything or will ever be some sort of shining exemplar of buyer's agents; I'm simply one of the best that happens to be available. I look at between 20 and 30 properties most weeks, every week of the year - 1000 to 1500 properties per year - and I learn new things pretty much every time I go looking. I learn things about the clients needs and desires by listening, and keep on listening. The future of the buyer's agent side is making sense of the information overload, debunking bogus information which lazy sellers and listing agents insist upon proliferating, and sorting better alternatives from those not so good, including knowing how to spot a Vampire Property. This starts at learning what a given buyer's priorities and needs are, and figuring out what areas they may be happy in and can best afford, and going from there to making comparisons between available alternatives.

In neither of these alternatives is simply having your real estate license and NAR membership certificate up on the wall going to help you extract an agent commission, particularly a larger one as opposed to a smaller. That license may get you in the door at the dance, but it's not going to fill your dance card. For that, you've got to bring something real to the situation, and the one thing clients are after, and always are going to be after, is expertise. Access, they're going to be able to get anywhere, but someone who really understands what's going on in this hugely complex transaction involving debt that most people are going to be paying for the rest of their life, and distills the specifics into something these clients can understand. Furthermore, agents relying upon chain affiliations to bring walk-ins to their door? The days of that happening are numbered, and the number is no more than the number of days until someone puts their ducks in the row to really compete with the MLS.

You're also going to need the right attitude. People are getting better and better at identifying shills. Even if you've got an exclusive contract, which are going to become more scarce, even those aren't forever and the chances of an agent being able to enforce it in spite of whether they helped an actual transaction or not are shrinking faster than Lily Tomlin ever did. Whether agents like it or not, it's becoming easier all the time for consumers to walk out on contracts with losers who conned them into exclusive contracts. If you want people to keep working with you, you need to demonstrate that this client's good is the most important thing in your world, and that's not something anybody can fake for very long. If they understand this and the expertise you're bringing to the table, they'll stick with you by choice unless they're con artists or agents themselves. I had one client not too long ago who admitted they'd been planning to ditch me for a part-time relative and decided not to because I was providing things they knew the relative wouldn't and couldn't. The non-exclusive contract which is all I ask for is plenty to discourage that, while leaving them feeling free to ditch me if I don't get the job done - so I'm motivated to get the job done, and they can know they're getting my best efforts risk free for them, not to mention that it would be entirely pointless for me to try and hold them to an exclusive contract they wanted out of. It's both pointless legally and bad business - so why ask for an exclusive in the first place?

However, the real estate profession has made a horrible botch out of stressing expertise and education thus far, which is one reason why discounters have thrived by offering nothing for less. The reason for this is that it would interfere with the profits of those national chains that control NAR. They can't hire newly licensed agents that used to work fast food fresh out of the local shake and half-bake real estate school, dress them up in a suit, and expect them to bring commissions into the brokerages if it's easy for consumers to sort out who has real expertise and who doesn't. The licensing exams themselves are pathetic, and intentionally so, in order for the brokerages to have a steady supply of inexperienced shake and half-bake licensees. No math more complex than a four function calculator, and you can use a four function calculator on the test in California (which is supposedly one of the harder exams). How can it be acceptable for someone who hasn't even been tested on the ability to set up a mortgage calculation on a calculator or spreadsheet to have a real estate license? It'd be bad enough if that license didn't include the ability to originate loans, but it does. There are a couple of questions on "what is this type of structure called?" but none on usages, advantages, disadvantages or weaknesses! I understand there's only so much that can be covered in 150 questions, but the NASD has 250 questions on their series 7 exam covering a far more limited expanse of material. There is no good reason why the real estate exam should not be a minimum of three full days, and requiring all previously licensed agents to take the new exam as well. No reason except that would constrict the supply of naive freshly licensed shake and bake licensees (For that matter, the most important knowledge for agents can't be tested, because it's both local and changes too quickly with time. It makes no sense to ask me about the neighborhoods and market in at the other end of the state - I not only don't know, I can't take the time to learn without forfeiting the time to create and maintain the requisite market knowledge for the area I do work). Alternatively, the state can do away with licensing altogether in favor of simple registration, and let the market develop informational resources as to the competence of a given agent. Consumers would demand it, and they'd be willing to pay for it whether directly or indirectly. Finally, don't get me started about all the "designations" NAR has cooked up that amount to a way to impress the ignorant and gullible ("Sell the agents the right to put some meaningless initials after their name to impress the marks!")

Above all, however, the future of real estate agency is going to be about accountability. If the industry won't develop real and reasonable performance metrics for individual agents, somebody else will. That's living in the age of transparency for you. Furthermore, you can't stand up and say you're the expert in their corner unless you're willing to defend your performance later in a court of law. Brokerages have a proliferation of forms that add nothing to the process except to make it more difficult for them to be successfully sued and distract clients from what is really important. But you can't tell the client you're an expert worthy of hiring, that's going to get paid however many thousands of dollars from their point of view, if you're going to ask them to sign fifty forms that say you're not responsible for the results of your work. Well, I guess some slick salespeople could and do, but it's hardly the sort of thing to inspire confidence in any rational client. We're neither inspectors nor appraisers, and especially not lawyers, but that doesn't absolve us of trying to solve those issues before members of those professions get involved, and do our best to help the clients understand and interpret when and if those professions do get involved. In my experience, ninety percent of inspector and appraisal issues should be solved by the agent before there's an offer, and about the same percentage of legal problems can be prevented by agent diligence beforehand. Especially the major ones. But if you make clients sign forms that say you're not responsible for this, what are they really getting in the way of an expert they can hold accountable? And if you can't be held accountable, what are you really selling besides your winning personality? They can get a better stand up set for forty bucks down at the local comedy outlet. Why should agents make a hundred times that if they can't be held accountable for performance later? The short answer is that we've got to make this confusing process that kills a dozen mature redwoods for pulp understandable and transparent, we've got to perform by making certain our clients can show a profit on the money spent hiring us (at least in the aggregate), and if we're not to be held accountable, what real assurance does the client have that what we have represented is true? Everything we add to the process that doesn't further one of these client goals is either obstructionism or distraction from what's really important, and a counter-balancing reason not to do business with us.

Caveat Emptor

Original article here