Author Archives: Galen

Good comments on the NYT For Sale By Owner article

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Thanks for the comments on my commentary here – they were interesting. I’m enjoying writing here and getting feedback from folks.

I found some more interesting thoughts on the New York Times article over on the Freakonomics blog. “Chubin,” one of economist Steven Levitt’s readers proposed a novel approach – the hourly realtor.

Lastly, the 6% commision model is little incentive for agents to get the highest price for the seller or lowest price for the buyer. I continue to think an hourly fee, based upon actual work provided, is the fairest of all. I just don’t think the public is ready to accept that model.

If consultants and lawyers can do it, why not real estate agents. Has anyone heard of agents trying this? Any reason this would be a non-starter from the gate? I don’t think it would take over the industry, but I could imagine some buyers and sellers really liking it. The comments are open…

FSBO will not take over the world

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And with a title like that, I might just eat my words. There was an interesting story in New York Times story about FSBO yesterday. It describes a (ugly!) FSBO online service in Madison Wisconsin that has grown immensely over the past few years. I feel a little like a curmudgeon when I say this, but I agree with the sentiments of the real estate agents quoted – FSBO sites don’t directly threaten the real estate brokerage industry. That said, the real estate agents are just as wrong about their own business if they think that margins won’t drop and market conditions won’t dramatically change over the coming 10 years.

As I see it, this is a great illustration of a large scale change that the real estate industry (and many other industries) is undergoing right now. Consumers today have vastly more information available to them, which means they rely less and less on a realtor to guide them through the process. Imagine (as I must) what it was like 15 years ago as a home shopper; you either drove around the entire city to see what was for sale or asked a realtor to essentially do it for you. The realtor held the cards and had the computer system with all the information. You, as shopper, really couldn’t make a short list of 5-10 houses you were really interested in without the help of a realtor. Today sites are springing up left and right to give consumers lots of information.

Today, home shoppers can (but don’t necessarily) figure out exactly what they’re looking for, sellers can get an approximate value of their house with free tools (like by site, ShackPrices.com) and in the end, are real estate agents really do not provide the same service they once provided. Supporting my assertion is Steven Levitt’s research that shows the extra amount that real estate agents make on sales of their own home versus the homes of their clients has dropped over the past 10 or so years (which I maddeningly can’t find a link to now); customers today can much more accurately assess the value of their home without a real estate agent.

Ms. Miller and Ms. Murphy, however, built a separate and alternative listing service – a parallel market, much like the Nasdaq, which rose in recent decades to challenge the New York Stock Exchange’s dominance and sparked competition that eventually reduced transaction costs for all stock investors.

This is an interesting, but misleading comparison, at least for the time being. Consumers can look up Nasdaq and New York Stock Exchange quotes from the same place and can buy those stocks from the same people. In fact, your broker will be happy to sell you stocks from either market. My real estate agent will not be happy to sell me a FSBO property and I certainly can’t look them up on Windermere’s web site.

These cracked me up:

To real estate agents, “for sale by owner” conjures up some cranky tightwad trying to sell an overpriced, ramshackle house. Agents utter FSBO as if there was something foul stuck to the bottom of their shoe. “It’s a commission-avoidance scheme,” said Sheridan Glen, manager of the downtown Madison office for Wisconsin’s biggest real estate broker, the First Weber Group.

Kevin King, executive vice president of the local Realtors’ association, runs the multiple listing service but says he pays no attention to FsboMadison. “It’s not important; I don’t follow it,” he said. “I don’t even know the people.”

First – commission avoidance scheme!? That’s like saying the classifieds are a low trade-in value avoidance scheme for cars. This looks much more like a agents-aren’t-worth-six-percent scheme. The problem seems to be that even the discount brokers aren’t doing a good job at covering the market; Madison effectively has a (usually) 6% commission market and a no commission market. The future is probably somewhere between, with most agents working on a flat fee model (Steven Levitt agrees).

Agents swear up and down that they’re worth every dollar they charge, but is that usually the case? Here’s a scenario: A friend of mine moved to Seattle last year and decided he wanted to buy a home with his girlfriend. They looked at a few places and decided they would buy a townhouse that wasn’t yet finished. They picked the place they wanted after doing much research on their own and then hired an agent to do the paperwork and cover the details. They effectively worked out a flat-fee agreement, which the agent was happy to sign.

FYI: the NYT article really struck a chord and has been the most emailed story for the past two days now.

Galen
ShackPrices.com

Seattle's jogging routes

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I like this site, although I really wish I could hit a “show all routes in my area” button. Still, if you’re looking for a new jogging route, take a look. Furthermore, if you’re wondering how to follow through on your “exercise more” resolution, this might be a good starting point.

Here are Seattle’s routes. Add your own if you are so inclined.

Galen
ShackPrices.com

Seattle running routes

Real estate is a smaller part of American's income than ever before… and rent is an even smaller part

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Yesterday, the New York Times reported that “Twenty Years Later, Buying a House Is Less of a Bite.” Two points on this:

1. It’s a macro-level article and points out that housing on the coasts is not necessarily a deal:

In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country’s population.

2. They entirely ignore the fact that 20 years later, most things are cheaper. For instance: food, beer, wine, appliances, computers, telephone service, and so on. Some things, particularly services, have become more expensive, but the most important thing when you’re talking about the relative cost of houses, rent, is still cheap. An older article from the New York Times points this out:

In the Bay Area of California, a typical family that buys a $1 million house – which is average in some towns – will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.

Seattle is not the Bay Area, but owning here is still much more expensive than owning in Dallas. I think this fits with anecdotes about buying rental properties. Twenty years ago, it was fairly easy to buy a rental property in the Seattle area and have the rent pay for repairs and the payments; you could earn equity for the cost of finding tenants. Today, the search to find a property like that is a challenge.

So will house prices plummet or flat-line this year? I don’t think anyone can say. A lot of people seem to be betting on increasing prices (they are still buying rental properties), however I believe that the stock market is beginning to bet against builders because they fear an over-supply of housing. My advice: If you have above 50/50 odds of staying in the same house for 10-20 years (unlike most Americans), you should definitely buy. If you can’t save money to save your life, maybe you should buy because your home could serve as a sort of inefficient savings scheme (again assuming you won’t sell right away). If you really value owning a home, buy one. Just don’t expect prices to continue increasing at the same rate as they have over the last 5 years. And don’t get an interest only loan!

-Galen
ShackPrices.com

Introduction, The CanterHole and other reasons you shouldn't live near a bar

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Howdy folks, I’ll be guest blogging here for a while. Like Dustin said, I’m the co-creator of ShackPrices.com. I’m not much for introductions, so I’ll jump right in.

Since Washington’s smoking ban went into effect, I have been happily wearing my nice-ish clothes to bars and generally enjoying the dank, non-smoky smells of the bars near my house. I tell you this because if you live near a bar or are considering buying a place near one, you might soon be savoring the sweet smell (and noise) of smokers hanging out at the door. In densely populated Capitol Hill, the complaints have already begun, as supra-bar apartment dwellers have found that just enough air gets through the cracks in their windows for them to reconsider their hip living quarters. The Stranger reports:

Maybe a case can be made for the enforcement of the laughable 25-foot rule that comes with the smoking ban. Just ask those on the first floor of the apartment building above Canterbury Ale & Eats on 15th Avenue. On Friday night they felt like a chimney for the pack of smokers who gathered outside the bar’s entrance. The Seattle police told one apartment dweller that they weren’t enforcing the 25-foot rule but that the public health department was. Naturally, the health department said the police were enforcing it. Which is it? In practice, none of the above.

I will definitely keep this in mind when I next move. If it’s bad in the middle of December, imagine smoke sneaking into your sealed condo at 7 P.M. on a 90-degree summer day.

On a side note, I went to check out the “smoke-free” Canterbury last night (it wasn’t after 9:30) and met the “Rosa Parks of smoking.” I guess I have no idea what a hard life smokers live.