Urgency Versus Reality: realtors Win, Buyers Lose
realtors exhibit a pathology I call "realtor Mind" ®™ that places their self-interest above the interests of their clients. We will explore that issue today as well as feature an epic HELOC abuser who has been gaming the loan modification system since 2007.
Irvine Home Address ... 14 JACKSON Irvine, CA 92620
Resale Home Price ...... $699,000
Whatever Michael Jackson became, the young Michael Jackson was real, and he was really cool.
Lovely Is The Feelin' Now
Fever, Temperatures Risin' Now
Power (Ah Power) Is The Force The Vow
That Makes It Happen It Asks No Questions Why (Ooh)
Keep On With The Force Don't Stop
Don't Stop 'Til You Get Enough
Don't Stop 'Til You Get Enough -- Michael Jackson
realtors don't stop finding reasons to buy until buyers have enough. It doesn't matter if the reasons are good or bad, they just needs to be plausible and salable.
Yesterday, I pilloried a hapless realtor spouting nonsense, and today, I want to explore why realtors are responsible for the rubbish they promote.
I want to start by saying that there are many good Realtors (deserving of a capital "R"), and they are as dismayed about the practices in their profession as I am. I have the utmost respect for the character of Randy Rector, broker of record for Evergreen Realty, and many other Realtors and brokers have approached me and told me they share many of my frustrations. I am painting bad realtors with a broad brush, and I want to recognise that good Realtors exist, and my exasperation is not a reflection on them.
With Expertise comes Responsibility
Bad realtors want to have their cake and eat it too; they want to be recognized as experts on real estate and real estate markets, but they want no responsibility when their expertise is confirmed as chicanery, a conundrum with no resolution. realtors are responsible for their representations that buyers rely on. If they say prices are going to the moon, then who is to blame when that doesn't happen? Buyers for relying on the experts? Or the experts for making stuff up that people rely on?
Does this make my butt look fat?
Perhaps this analogy is politically incorrect, but... Imagine you are shopping for clothes in a high-end retail outlet. You are trying on an outfit, and you are concerned about its appearance, so you ask the salesperson, "Does this make my butt look fat?" What is the salesperson to do?
If the salesperson responds, "Yes, that is not flattering to your shape," they fear they will not close the sale, so even if the garment does, in fact, make your butt look fat, the salesperson is probably not going to tell you. As a customer, you asked a question hoping for accurate information to help you make a purchase decision. What you are likely to get is a self-serving answer that makes the salesperson money.
If a buyer walks out of the store with ill-fitting or unflattering clothes, who is to blame? Is the buyer responsible for failing to see the conflict of interest, or is the salesperson at fault for dissembling for dollars?
Being stuck with a bad garments is a minor inconvenience, but losing a home in foreclosure or being trapped in an underwater mortgage for a decade is a catastrophe.
Patrick Killelea of Patrick.net
Patrick Killelea of Patrick.net is very hard on realtors,
"While Patrick is not a real estate professional, he's well aware of why the housing bubble took shape and who's to blame for all the hype and misinformation, "I just couldn't stand the quoting of realtors in the press as if they were an objective source of information. They're not, and I wanted to say the things they were not saying." ..."
"And can you expect a real estate agent to give you an honest opinion of the real estate market? When it comes to real estate professionals giving impartial advice about the housing market, we both found a comparison in the saying, "never ask a car salesperson if now's a good time to buy a car." When you're paid by commission, it's ALWAYS a good time to buy! Upton Sinclair's classic quote "It is difficult to get a man to understand something when his salary depends upon his not understanding it" ...."
"While Patrick accepts donations and receives some advertising support, he finds his reward in exposing the truth about the real estate market, which is something that most real estate professionals are unable to do.
When I ask Patrick what his goals were for his site, he offered the following forthright, common sense perspective:
"I want to cause a sea-change in the mentality of the US. I want people to see that mortgage debt is destructive, with no benefits at all, except for bankers. Mortgage debt just drives up prices and enslaves workers to their bosses. If we all paid cash for houses, or rented, we would be more prosperous, more free, and happier."
It is hard to argue with Patrick's observations, although most would be dead before owning a house if we all paid cash. When we announced we were forming a brokerage back in April of 2009, many were concerned we would abandon truth and honesty in favor of cheap manipulations and easy money. Isn't that what happens to all realtors?
realtor Mind
®™
I recently attended a realtor marketing seminar, and it was fascinating to watch the realtor mind at work. The presentation included many "reasons to buy" realtors could use in their own manipulations consultations with customers. There was little or no regard for the veracity of the claims, it only mattered that realtors have something, anything to create urgency in buyers.
Many realtors see their job as presenting buyers with reasons to buy, any reason, and hope the buyer is gullible enough to believe them. As we witnessed yesterday, they feel no responsibility for buyer outcomes; whocouldanode, right? What other explanation is there?
realtor Mind is Everywhere
How widespread is realtor mind? Am I unfairly labeling a large group based on a few isolated incidents among unscrupulous practitioners?
Back at the peak of the housing bubble, the National Association of realtors produced the "Suzanne Researched This" commercial. The scene is set with a couple discussing a home purchase in their kitchen with a realtor voyeuristically listening on the phone. In stereotypical fashion the commercial shows women how to browbeat their spineless husbands into submission, and it shows men how to acquiesce gracefully and pretend you got something out of the deal.
In their defense, the NAR did not say prices are going to the moon, but it does show that manipulating people to buy -- even in 2006 when it was disastrous to do so -- it the primary goal of NAR advertising. It is easy to see this couple, and anyone who fell victim to the Suzannes of the NAR, going through the foreclosure process today. Is the NARs culpability for that? Are the Suzannes?
If there is a doubt that some realtors are simply clueless shills who will use the appreciation angle to their advantage, watch the video below:
realtor Reason Du Jour
The marketing presentation I attended had many examples of how to manipulate the current situation to create urgency when none exists. One of these pertains to the inevitability of rising interest rates, and it goes something like this:
If a buyer is looking at a $400,000 home, very low interest rates make the payment affordable, but when interest rates go up, it will be harder and harder to finance that $400,000 home. In fact, if interest rates go up a full point, a buyer might lose as much as $100,000 in buying power; therefore, you should buy before interest rates go up.
Hmmm... I nearly raised my hand to ask a follow up question but then I contemplated who my audience was and what they understand about real estate markets and finance, I decided against it. I ask the question here:
OK, if I buy today, the buyer who wants to purchase the house from me in the future when I am ready to move may not be able to borrow as much money. Won't that make my house harder to sell, and might I have to lower the price -- a great deal -- like the $100,000 mentioned in the example? Isn't the fact that my take-out buyer is going to be much less leveraged working against me?
We all know the answer to those questions (Your Buyer’s Loan Terms), and that was when I had an epiphany: the realtor mind is unconcerned with reality, it is only concerned with urgency, and if urgency conflicts with reality, urgency wins, and buyers lose. Buyers are supposed to believe the realtor cares and that they are looking out for the buyer's best interest; beliefs wholly incompatible with a realtor Mind®™ that places urgency over honesty.
Blue Ocean Strategy
When I began writing for the Irvine Housing Blog, becoming a broker and helping people buy and sell real estate was far from my mind. I still have not joined a realtor association, and I doubt I will be getting any impassioned pleas to join. realtors are fond of pointing out that not all salespersons or brokers are realtors. Of course, they make the distinction as a way of elevating themselves above the riffraff; I turn the tables on them.
I recently read the book Blue Ocean Strategy. The authors conceptualize business as having defined oceans where competitors behave like sharks bloodying the water competing for food in a defined space creating the Red Ocean of established business models. Contrast this with Blue Oceans where businesses pioneer new niches where no competitors exist. One Blue Ocean example in the book is Cirque de Soleil, a company that left the bloody waters of the circus industry and crossed the divide between theater and circus to find a new blue ocean.
realtors with their ploys to create urgency are sharks operating in a red ocean. They seek out buyers foolish enough accept them as experts even when the information they present is nonsense. When 500,000 California licenced agents are united in their presentation of bullshit to customers, what are rational buyers supposed to do?
Our strategy is simple, we service the buyers annoyed by realtor duplicity by telling the truth and providing services realtors should provide but don't. Perhaps the red ocean where realtors feed constitutes the bulk of the market -- sheeple are abundant -- but there is a blue ocean of frustrated buyers hungering for another way -- I know because many of you have contacted me and told me so.
No kool aid
As a sign that some realtors don't get it, I refer you to a less-than-astute observation from the IHB News of 1-9-2009: from "test" whoever that is:
[quoting me] "“we are all looking forward to a successful 2010…..”
Really? Why buy now when you keep predicting prices to drop until 2025."
It is utterly incomprehensible to this poster that anyone would buy a home for any reason other than making a fortune. You can't remove kool aid from blood like that because nothing else remains. My response was simple and direct, "People have many reasons to buy. Expectation of rising prices should not be among them." Prices may go up, and in time when I no longer believe prices will fall, and I will say so; however, I will never tell people to buy because prices are going up. Yes, it does create urgency, but at a price I am unwilling to pay; my integrity.
When I first started blogging, a realtor asked me if I would feel guilty if a buyer following my advice missed their chance to own and was priced out forever. The intense kool aid intoxication and the thought of a realtor who caused untold financial ruin lecturing me on responsibility to buyers, was laugh-out-loud funny, but I did feel the need to answer the question. 
First, unless it is less expensive to own than to rent, it is not in people's best financial interest to buy, and advising people to buy for rapid appreciation is wrong. It may serve them emotionally, but it will not serve them financially. It is not in a buyer's best interest to overpay for real estate, and the fact that greater fools occasionally come along and make it profitable doesn't make it smart or right -- it just makes certain people lucky.
Second, if someone really is priced out forever, and they are forced to rent and save money versus owning, I don't see the harm. However, if someone believes they are priced out, buys in desperation, and finds themselves either underwater for a decade or losing their home later because they can't make the payment, I think that is harmful. When it is more expensive to own than to rent, the prudent course of action is to rent and save money rather than going all-in and losing everything.
Third, history has shown that once prices reach their zenith, they fall until buyers have a new reason to buy -- it is less expensive to own. Right now, with the FED controlled mortgage rates, many properties in many markets are selling at costs of ownership less than rent. For the first time in years, it is costing more to rent than to own. My blessing goes to anyone who buys to save versus renting if they use fixed-rate fully-amortizing financing and they expect a long holding period. That is a good decision.
Prices will go down as interest rates go up and inventory is washed through the system. But with a fixed cost of ownership below the cost of rent, today's buyers are trapped in a gilded cage of their choosing. They know that going in.
Being priced out is a fallacy -- a useful one for realtors to exploit, but a fallacy nonetheless. Rapid appreciation and resale flipping is past. (1) Flat home prices, (2) rising interest rates, (3) less borrowing, (4) increased saving and (5) less spending is future. Get used to the idea.
Is life really so simple? Is telling the truth, even when a lie is more expedient, a better way to serve people? The question is not rhetorical, but it should be.
Irvine Home Address ... 14 JACKSON Irvine, CA 92620
Resale Home Price ... $699,000
Income Requirement ....... $147,715
Downpayment Needed ... $139,800
20% Down Conventional
Home Purchase Price ... $295,000
Home Purchase Date .... 9/6/1994
Net Gain (Loss) .......... $362,060
Percent Change .......... 136.9%
Annual Appreciation ... 5.5%
Mortgage Interest Rate .......... 5.18%
Monthly Mortgage Payment ... $3,064
Monthly Cash Outlays ............ $3,730
Monthly Cost of Ownership ... $2,700
Property Details for 14 JACKSON Irvine, CA 92620
Beds 5
Baths 3 baths
Home Size 2,453 sq ft
($285 / sq ft)
Lot Size 5,700 sq ft
Year Built 1978
Days on Market 8
Listing Updated 1/18/2010
MLS Number S601876
Property Type Single Family, Residential
Community Northwood
Tract Sr
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Big house with lots of potential- Make an offer!! No Mello roos and no HOA dues! Best price for a 5-bedroom with 3-attached car garage. Located in a great family neighborhood. Large and comfortable home with a spacious floor plan, neutral colors, cathedral ceilings, newer kitchen appliances, and large front & backyard, fresh interior paint, tile floors in entrance, hallways, and bathrooms. Large kitchenfeatures hardwood floor, new stainless steel dishwasher & microwave, and breakfast nook. 1-year old concrete tile roof. Close to freeway 5 and shopping centers and neighborhood/community park. Award-winning Irvine schools
These owners paid less than $300,000, and now they are selling for $700,000, and it is a short sale. What does that tell you?
$400,000
How long would it take to earn $400,000?
How long would it take to spend $400,000?
How many cars, trips, and other indulgences does $400,000 buy?
And this owner has not made a payment since 2007:
Foreclosure Record
Recording Date: 08/31/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Foreclosure Record
Recording Date: 05/20/2009
Document Type: Notice of Default
Foreclosure Record
Recording Date: 03/31/2009
Document Type: Notice of Rescission
Foreclosure Record
Recording Date: 03/12/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Foreclosure Record
Recording Date: 12/09/2008
Document Type: Notice of Default
Foreclosure Record
Recording Date: 10/02/2008
Document Type: Notice of Rescission
Foreclosure Record
Recording Date: 06/26/2008
Document Type: Notice of Default
Foreclosure Record
Recording Date: 05/05/2008
Document Type: Notice of Rescission
Foreclosure Record
Recording Date: 04/09/2008
Document Type: Notice of Default
How is that for playing the loan modification recycling game?
When reading the comments today, see if you detect the faint cries of realtors with a small “r.”
You know - I have occasionally wandered over to some used house peddler’s active rain blog and made perfectly reasoned arguments only to watch them get deleted by the administrator within a half hour of posting.
I never see anybody showing up here claiming that you have deleted their observations. Over the weekend there was some trolling that was clearly off-topic and personal which was not censored either.
It’s actually a good thing. The blog serves as a check; if anyone felt they were swindled by your business then they could always come on over here and let us all know about it. Since you do not pre-screen comments on here - I think it adds quite a bit of credibility.
I would be really glad to see the real-estate industry move to an informative open format like that and do away with all of the deception and hustling that attracts some of society’s less prestigious elements.
The word realtor is now just another dirty word, disgraced by a corrupt lobbying group and propaganda machine. I don’t doubt that there are some good people out there but they need to repent and disassociate themselves from the turdherd.
You could try, but you will have a problem showing many properties because the Supra key system is controlled by the associations of Realtors.
I would prefer not to be a Realtor, but joined for this reason alone.
I’d like to see the people break that stronghold. Good luck.
I see a need for a new, competing designation.
People do prefer to be told the truth. Besides, of what benefit to friends, family, clients, and society is advising everyone to go broke?
OT For those that are predicting a USD doom, check this out:
http://finance.yahoo.com/news/Dollar-mixed-against-cnnm-1171037887.html?x=0&.v=1
Traders also flocked to the yen for safety after credit rating agency Standard & Poor’s downgraded Japan’s debt to “negative” from “stable.”
Looking for the soundness of a currency by comparing it against other currencies is analogous to comparing the health of a room full on heroin junkies and declaring one to be healthier than the rest, therefore that one is healthy.
I got a good chuckle this morning when I read an AP article that highlighted government spending and debt.
Look at that last line about gold assets, and see how it compares to all the other numbers!
“If a buyer is looking at a $400,000 home, very low interest rates make the payment affordable, but when interest rates go up, it will be harder and harder to finance that $400,000 home. In fact, if interest rates go up a full point, a buyer might lose as much as $100,000 in buying power; therefore, you should buy before interest rates go up.”
This obviously isn’t true, but what is true is that home prices will be very sticky with interest rates rising. If interest rates jump 1% today, home prices don’t immediately drop 10%, in fact they may never. It depends on other factors in the economy. Typically if interest rates go up it means the economy is heating up.
Given the current environment if interest rates go up, the economy will quickly head back into recession which will lead to lower interest rates. MBS will be purchased by the government until the bad debt is off bank balance sheets, you can forget any BS deadline. This is what is needed to come remotely close to justifying higher interest rates in the economy.
If we see another huge crash in the stock market, or unemployment heading considerably higher we will see 4% mortgage rates.
I should qualify that in less desirable areas prices may be far less sticky. In areas like Irvine prices will be very inelastic with interest rates, due to the relationship interest rates have with the economy and those with cash reserves.
Prices will not immediately drop because most sellers are oblivious to the current market conditions. Rising interest rates mean nothing to them - they are looking at what the house would have sold for in 2006.
The realtors will start suggesting that the price be lowered but depending on how stubborn and arrogant the seller is, it will just sit there on the market wasting everybody’s time.
Sellers can keep whining all they want - but from what I am seeing, those that drop their price under the comps by a significant amount not just some 5K window dressing, find their buyer very quickly.
The problem is all the misinformation being given to sellers by the media. Daily calls of prices bottoming, median prices rising, sales increasing, etc. It’s giving sellers false hope which leads to more unwillingness to drop their fantasy price.
So we all just sit in a quagmire waiting.
MCHCMP, I respectfully disagree.
I think your analysis of interest rates is way over simplified. As long as there is a heavy appetite for U.S. debt, then yes, I think you may be correct. But if buyers of our debt, like China and the petrol states, decide to stop or significantly slow down buying our debt, then the Fed will be reluctant to buy further MBS. That is one example. There are also other instances in which the Fed would be prevented and/or reluctant to continuing buying MBS.
Also, I am not sure about your sticky argument either. I’ve been watching a lot of very desirable Jumbo loan markets crashing relatively quickly due to the Jumbo loan market not being supported by the Fed/Treasury. I fail to see why the same would not happen if the Fed/Treasury stopped or reduced its support of the conforming loan market.
It is futile to fight free market forces forever. Interest rates will rise no matter what our gov/t & fed do.
They are buying time and in doing so, will cause rates to rise even higher.
The gov/t can only manipulate rates so much. Free market forces win every time.
Let’s see how Irvine does by the end of this year - or better yet, end of 2012, when the second Option ARM wave of recasts hits. According to Dr. Housing Bubble, the foreclosures and shadow inventory now on the market is low-hanging fruit, compared to what’s coming.
“So we all just sit in a quagmire waiting.”
Giggidy!
IR - I want to get this straight. There exists seminars to teach agents how to create urgency to buy in their clients? The goal of the seminar is not framed in that context, is it? What is the theme of the seminar? How to increase your sales? I now this will sound extremely naive, but does anybody in the seminar ask why it would be necessary or desirable to create urgency rather than prudence? It is not a rhetorical question. I really want to know.
If you have ever works in sales: cars, computers, houses, mortgages, etc., etc. you will find “how to sell more” classes.
They will will have names like “Have your best year ever with my amazing class”, but they are basically techniques for selling classes. The quality/value of the product is not the focus of these classes.
I have never worked in sales.
Well I will some it up this way:
These classes remind me of watching the movie Boiler Room - http://www.imdb.com/title/tt0181984/
I have a question: What is a Notice of Rescission and do you have any ideas as to why they were issued on this property?
A Notice of Rescission is the legal document recorded when a lender is satisfied the loan is current. It erases a Notice of Default and a Notice of Trustee Sale and thereby restarts all statutory clocks. They are most common after a loan modification.
The owner of the featured house has not made a payment since 2007…that makes my blood boil! Get those good for nothing deadbeats out of that house asap and sell it to someone who can make the payments.
These people literally robbed the bank for almost half a million dollars and will get off with a less than stellar credit score. How is this fair? I demand debtor’s prison be reinstated!
I have heard a story that a short sell house actually goes to a relative of house owner and the owner does not need to move out the house.
So essentially everything is the same, the only difference is the owner gets principal reduction and a couple of months free rent.
Yeah, it happened to someone I know,and the guy said what the heck, you messed up your HELOC and ask me to the rescue (and asked him to put $75000 downpayment). he so pissed off.
It is a lie that they didn’t pay since 2007. And the lender will be out a few thousand - at most. They owe less than $600k.
This house appreciated - it’s a simple concept, but one that shall not be uttered here.
Oh wise one…where do you get your info from? We should compare sources so see who is right and who is wrong.
Everyone, the realtor from yesterday posted on the blog!
I am leaving him the last word, but you can engage him if you wish:
Rebuttal from John Mulkey
While I like John’s blog a bit too, I have to side with IrvineRenter on this issue.
I like how he calls himself a free market conservative yet his entire thesis was in calling for a hard core Socialist intervention on behalf of the rest of us. John doesn’t like the free market when his own equity or job on the line.
Aren’t they all the same.
Look at the McCains (Cindy), Chenneys, and that San Diego Mayor on the gay and same sex marriage.
They are all for it now and are sympathetic to the movement because they are directly in it, have an interest in it.
“Don’t do what I preach; Just do what I do.”
This house has been on the market for more than a year. I saw it last year, it is was dump, it will need a lot of money to fix the mess. The house is rented out. It is amazing how people are able to game the system… If someone in an IAC appartment does not pay rent for a month or two, their ass would be in the parking lot in a matter of days.
I can’t say this was my quip, but from the Redfin forums I read:
“I wouldn’t want to invest in a home, but I might buy one to live in”.
IMHO, a great, one sentence summary of how people should look at buying a house today.
Homedebtors have been convinced that when you buy a house you are “investing”. I beg to differ. Investing assumes a manageable return with some measure of liquidity. Neither of these features are guaranteed when you buy real estate.
I’d like to see realtors (small “r”) compelled someday to ask two questions of their clients before “putting them in the car to look at houses”
1) What do you see the benefit of buying is now?
2) Did you know the new house you want has a payment nearly twice the amount of a similar home in the area that is for rent?
I won’t hold my breath for that day to come.
My .02c
Soylent Green Is People.
SGIP,
Excellent point. The likelihood of a Realtor (TM) asking those questions is the same day a car salesman says, “that 5 yr old Accord you drove in looks and runs great, why would you want to trade it in for a new one.” The real estate industrial complex will be a tough nut to crack. They are a very powerful organization peddling to mostly uneducated (when it comes to viewing the big real estate picture) buyers.
I would love to own a house of my own, but not at the insane mark up compared to renting.
A question on the loan modification process. Hoping the experts here can shed some light on how this makes sense from the financial side. I have tried to figure this out, but cannot for the life of me. Have seen all the docs and know the numbers are true.
A co-worker bought eight years ago, paid $370,000. 2 refis later, balance was up to $640,000. Mortgage was at about $2400 then, but 5 years later reset to around $3300. Of course, that was too much and about 9 months went by without a mortgage payment. The loan modification process began and a couple months ago a trial modification began with a payment of $1760.
How can the lending company (GMAC) stay in business? Could the modifcation process involve a 40 or 50 or 99 year mortgage to keep the payment that low?
Making loan modification work?
Simple
1. Lower the principle for the “home owner,” i.e. debtor and lower the interest rate.
2. Govt to give the banks $30000 to $50000 upfront for the principle reduction and have the govt. also give a reoccuring 1.5% interest subsidy.
3. Govt assumes liability of the loan if it goes bad. If loans are good, the bank makes a huge profit, if the loan goes bad, banks breaks even to a middle size profit.
4. Debtor no longer can pay (as in most of the modifications after a year), but would be better if delay until after the elections.
5. Bank FC and Taxpayers are made to pay for the FC cost, loan servicing, deliquent payments, and other bank fees. Liability of the remainer is transfer to the govt and then the taxpayers are forced to pay.
6. Banks made more than whole.
Program is a huge success.
BWB, BHO, TG, Berne and WS are leaping with joy on the sucessful loan modification program.
“Does this make my butt look fat?”
Why of course not.
It looks fat regardless of what you’re wearing.
No, your fat makes you look fat.