Before I talk about that, though, I should mention that I got trapped in a conversation yesterday with a starry-eyed realtor, who emphatically and repeatedly told me, and I know this will sound shocking, "Now is a great time to buy a house." Oddly enough, every realtor (that doesn't know us) we've encountered in the past two or three years since I've started watching the market, has said "Now is a great time to buy" and frequently this is paired with some of my other *favorite* real estate platitudes "Houses will always go up" or "renting is throwing money away" or, and this was a San Francisco staple "Buy now or be priced out forever."
Thankfully, we did our reading, and didn't take the bait. We did actually qualify for way more loan than we even wanted (we told the mortgage lady that no, actually we didn't want that much, and she dutifully explained that it was best to maximize leverage), and had I not seen a glimpse of housing bubble, we could have ended up stuck in an upside-down mortgage right now.
Back to the point. Not all Realtors(tm) are bad. However, the huge (huge. really.) influx of real estate agents in the years of the bubble really diluted the pool with people who were badly educated at best, and in many cases just plain shady, trying to make a buck on the bubble.
Think about all the idiots who thought they were stock market geniuses because they were going to make millions on pets.com stock. oops. It doesn't mean no stock adviser is smart, it just means the good ones were lost in the noise.
And by that same token, anyone who tells me I should buy a house two minutes into a conversation? Also obviously screwed up. Without knowing my finances, how long I want to stay here, what family needs I have, my tolerance for risk, how much money I have and how much I save by renting... "Now is a good time to buy" displays a lack of understanding of, or a lack of respect to what ought to be a delicate, complex equation. And to me it really sounds like "Now would be a good time for me to have you buy a home, through me." Or, at all. Because housing prices are stalling and we need buyers to come to the table.
Which brings me to my next point. Part of yesterday's realtor(tm) conversation went like this:
Are you in the market for a house now?(I am not making this up. He seriously told me that--as if he knows what the market will do, and at what percent.)
Not right now.
What are you waiting for?
We're waiting for fundamentals to be more in line.
Well, housing prices aren't going to go down any more. They've already had their big drop. I mean, maybe incrementally, 3%, 5%, at most 10%, but then they're going to start going up again
Bull. Again, macroeconomics. We are in a deflationary environment. (others may disagree, but this is my strong opinion) Housing was probably, across the board, one of the most uniformly overinflated assets, and certainly in the Bay Area. (your area will be different). Job losses are mounting, and there is no end in sight (your area probably won't be very different there). Shipping orders around the world are down drastically, factories are shutting down, and retail is crashing. People, a lot of people, are going to lose their jobs. Financing standards are tightening (as they should), and the credit that allowed people to drive up prices beyond their means, will have to come down.
And they should come down. A house is a place to live. When housing prices are astronomically high, it hurts people and families, who have to work harder and take on way too much risk and financial hardship just to put a roof over their heads. So I think it will be a good thing when a basic need (shelter) is not a huge hardship, nor a golden ticket of speculation. And in the Bay Area, where I live, we are just not there. Houses here are still wildly overpriced. If the average family can't afford that house based on 33% of their average-family income, those prices can't hold across the board. (clearly there will always be regional differences, and pockets of wealth and pockets of poverty) Considering the economic conditions and the fundamentals of salaries, these prices cannot, and should not, remain this high.
Your situation is your situation. Any agent that tells you it's a good time to buy, without knowing your situation, is not your agent. They are their own agent. They may want you to buy, but not necessarily for your own good. Again, yesterday's agent: rattled off reasons why with all the tax incentives, it would likely mean it was actually cheaper to buy than rent. (tax incentives that I don't agree with, but anyway don't really help me-- the CA one, I didn't have the heart to tell him, only applies to new construction, and the federal one, at 8K, is nothing, literally, in the scope of the local pricing. $8000 is a rounding error here. A 1% reduction is still cash in pocket, but not enough to make me want to buy anything. Besides, like other subsidies, it will, some economists would argue, and I agree, just raise the price of housing by $8000. Great.)
But back to the agent, and his assumptions.
Quick back of envelope guesses:
I just looked at the MLS listings for my neighborhood. Houses in my 'hood range from (current listing price) 899K-975K.The point? He might have been right, about someone else (someone with higher rent in a neighborhood with lower house prices, perhaps). But a good agent wouldn't be trying to convince me to buy something without knowing my situation.
Let's say we get a "great deal" at $850K for a 2/1 (Oh boy!) or maybe a 3/2
Assuming I put 20% down ($170,000 and I don't have that right now), living in that 2/1 in my neighborhood is going to cost me on the order of $4K per month (maybe a little less) The mortgage tax deduction won't come close to bringing me in line with my current rent: $1475.
But that's all a rant about an agent I had the misfortune of talking with yesterday. I've met a lot of other agents like him, and I've gotten a really bad taste in my mouth from some of the more egregious liberties I've seen in MLS listings and real estate cheerleading. But "reasons I never trust a real estate agent." was an overstatement. There are good and there are bad. So let's look a little at what Mike said.
Many of us are honest and helpful, all of us have studied the laws and machinery of real estate, many from a different perspective than yours, and just having that perspective can make a big difference on the CYA aspect of what is most people’s biggest purchase of their lifetime.This is a good point. It is not impossible to buy a Nolo Press book and process this transaction without an agent, but even though I am somewhat independent and adventurous, I probably wouldn't want to do that. I would like someone with experience for that aspect. Paul and I have discussed this in the past and generally I think we would like the process help.
I think the real estate industry could be greatly helped by being a lot more transparent. People are used to transparency and freedom of information now, and lots of people who are used to managing information will want to manage the search themselves and use a trusted agent for the paperwork and legal and, as Mike called it, the CYA bits (think inspections, permits, etc.) There will still be people who want the whole shebang, but then there are still people using travel agents for simple trips. Most of us are used to booking air travel now, and would only call a travel agent for the really complex bits.
Before you are in the market to buy, and only you will know that, do yourself a big favor and find an agent that you can trust. I highly recommend a real live agent, who can explain fiduciary duty to you (that might be one good litmus test). Being a member of the National Association of REALTORS® among other things means making the commitment to upholding the best and most in-depth set of ethical standards that I have seen in the industry. I know that not all Members (REALTORS®) do a great job of keeping to the standards, but many do.I do believe that my family members have a higher standard of holding up commitments than average Americans, and I think there must be a lot of realtors who don't take this commitment seriously, or just have a very different idea of what ethical means. Either way, the NAR's reputation in my mind is severely tarnished by the likes of David Leareh, and the constant cheerleading during the bubble. I realize Mike likely won't agree with me on that. But, then, like any professional organization, it's made up of a lot of people who are all very different. Of course, anecdotal evidence is usually defined by outliers, since they make the most impression. Meaning, I remember bad experiences more than good ones.
On this, no, it was not a bedroom. Bedrooms typically have doors, or at least a doorway with a beaded curtain. Or, at least three or four walls. You had to see it to believe it. (embarrassing) But it's a good point, maybe the owner was being a real pain in the ass, and maybe the agent just had to take the listing as it was. It surely doesn't reflect well on her, though, so she might not want to do that in the future. As a consumer, I am now way less likely to trust her, and somewhat less likely to trust realtors(tm) in general. Consumers are unlikely to think about whether the perceived dishonesty is coming from the owner, whose name and face aren't in the marketing. So as an agent, this is not something I'd compromise. But maybe she really needs the work. I don't know. (or, and I'm not taking this off the table, maybe she's got a loose grasp on truthiness.)
As to the definition of a bedroom, believe it or not this is not quite nailed down. Most counties permit and collect taxes based on bedrooms as a room that is big enough (the county sets that) and has not been excluded from being a bedroom in the permit process. Some say it must have a closet, some a window, some give minimum sizes of door and window openings. Owners will sometimes dodge paying property tax and service fees by calling a room something other than a bedroom even when that is what you or I might call it. On the other hand, the same owner might call a walk-in closet or landing, a “bedroom” if they think that will sell the house. Make no mistake here, I said OWNER. The agent is just that an agent of the owner. And all to few are immune to the temptation to “puff” especially when the listing might depend on it. Each agent draws his or her own line, a point that having a pro working for you can counter.
Then Mike gives a bunch of math about return on the agent's time, which is detailed and thoughtful. In summary, the agent would rather sell the house quickly for a little less, than waste their time showing a house repeatedly for a slightly higher price. (better ROI) I agree here 100%. I think the inflated list prices generally come from stubborn owners. A good agent would tell them the price was too high, but I think a lot of owners would just go to a less-good agent who'd take the listing with the price they wanted. (likely to their detriment later) Owners are stubborn, and I think there is also a lot of emotion wrapped up in admitting your house isn't worth what you wish it was. Another downside of listing high, in this market, is that you can end up chasing the downturn. I've seen it on a few properties, that have languished, being dropped every so often. If they'd sold it a year ago, it would have gone for more than now, but they were stubborn. I'm sure all but the worst agents know and understand this.
He goes on to talk about relationships with agents and some interesting tips (one that I will try next time we visit an open house). Worth a read if you're interested in housing, but I'm not going to cover it all here.
And in conclusion of this longwinded post, I should apologize (especially to my two beloved and smart, trustworthy uncles-- and for once I am not being facetious) for "never trust a realtor" as it was a flippant overgeneralization. I do know a few agents that I really would trust to handle a transaction, and do understand the value of that service.
However, realtors(tm) should be aware of the tarnished image that comes with these behaviors (particularly dishonest listing practices, and ridiculous claims that you should buy a house! now! even though I don't know anything about you!) because regardless of whose fault they are, it is the agent whose name is on it, and their reputation on the line.
And lay off the fisheye lens, people! I have no idea where I could buy curved appliances to fit in that spherical kitchen.