It Actually Is Not Personal - They Just Suck

I got some feedback about my recent real estate-oriented essays that felt that I was a bit too harsh or maybe just too strident in my reproach of real estate agents. It's true, I did leave it sounding a bit unfair, but unfair it is not. I'll try to make it sound a bit more reasoned and then I'll try to drop the real estate topic for a little while. The fact that it's huge mainstream media news right now probably means I should move on to more interesting topics.

Real estate agents a.k.a. REALTORS® (note that is a trademarked word), are they feckless creeps? Yes. They are. Here is why.

1. They have a dreadful conflict of interest. The book Freakonomics does a fine job of reviewing the ways that RE agents are *not* on your team. They are on their own team and that is generally at odds with your team's objectives. An extra $10k might be a lot of money for you, but it is only $350 to them. On a $200k house (imagine a market far away from Southern California), they stand to make $7000 anyway. Why would they want to do hard work by going the extra mile for just $350? And it turns out, empirical evidence shows that they do *not* go that extra mile.

2. They take way too much money from the transaction. Bring me a RE agent who has sold a *median-priced* home in San Diego ($566,700 in 2005) and let him/her look me in the eye and tell me they *earned* every penny of $19,834 (!). And the buying agent, who also makes as much, would do well to not get too close in case I vomit on them in the middle of their lie. Imagine that your sewer backs up one day and you call a plumber and he tells you that a long section of pipe in your front yard has collapsed and 30 feet of sewer pipe needs to be replaced. Do you think, even if you took the highest bidder, that this would cost anywhere near $19k? Not a chance. Between that and selling a house, which job would you rather not do? So look at what you're getting and think about that. One more thought experiment- what would help to sell your house more? An in ground pool or a real estate agent; the former is much cheaper!

3. They are largely useless in performing useful services. This mostly pertains to the selling agents. If I stood to make $19k from just selling someone's house, damn, I'd make a crusade out of it. But RE agents can't even put together a coherent web page of a property. I have done this myself, yet the RE agent who is probably going to be the most expensive service worker you'll ever hire, can't accomplish this. The MLS as a web page does not count. For $20k, I want them to buy a domain or three and host a flawless website with dozens of professional quality photos and video walk-throughs narrated by Robin frickin Leach. I want detailed floor plans and text about all flattering aspects of the house. Just look at a typical MLS listing and it's pretty much disgraceful for its dearth of all but the most rudimentary information. For $20k, I want a Pulitzer prize winning work of prose fiction designed to make a potential buyer visualize the perfect life which can only be realized by living in this house.

4. They perform many useless services. Driving me around in a Cadillac to look at houses? I'm sorry, but I wouldn't take a $10 cab to go buy groceries; why would I take a few $5k cab rides to go buy a house? It doesn't make sense. The big post in the yard, is that strictly necessary or is that actually the homeowner fronting billboard space for the RE agent's business? Looking up things on the MLS used to be a critical "service" provided by agents, but in reality this practice was actually the withholding of information.

While I sincerely want this profession to die in the blaze of ingloriousness it so richly deserves, I'm not advocating death camps for these people. I'll settle for a radical reform of the profession. Buying a house is a complicated matter and having an advocate is not categorically a terrible idea. But they must actually be on your team. Perhaps the banks could pay them just like my credit union pays for a service that will help you find and buy a used car. There is no commission and these people really are only motivated to give you a good experience so that you're encouraged to not avoid it in the future - more business for the banks financing loans. I would suggest a flat fee or even better, an hourly rate with itemized billing. If you put a REALTOR® crucifix in my yard and want to charge me 100 times more than a team of gardeners who would make the yard into an immaculate garden that would impress a Buddhist monk, then that should probably be printed right up front on the invoice where people can laugh openly at it.

RE agents should be integrating information, not still guarding Balkanized databases. The fact that some bigger real estate outfits are doing a good job in this area (Zillow, Redfin) gives me hope that this is changing. All house listings should be free and available to everyone instantly. That's the modern reality unless some very powerful trade lobby (like the N.A.R.) is damming up that information flow.

Finally, RE agents need to professionally sell the place. I'm astonished by the poor quality of photos that plague the MLS. It seems that only the builders hire professionals to take their photos. And why be skimpy with photos. Photograph *everything*. Why waste my time making me go look at a house that could have been culled from contention by more easily obtainable information? And I mentioned dedicated websites showing a degree of professionalism. If it were my house for sale, I would not want my marketing message drowned amongst the dross of the REALTOR'S® stupid web site with it's ads for various agents, loan products, the parent company, etc.

If real estate salesmen started acting in their clients' best interests and started actually doing a professional quality job at marketing and/or providing advice or analysis, I'd be much less likely to spend my time thinking of ways to eradicate this profession.

Ok, let us not mention this topic again for a long while.

Real Estate - The Storm Hits (Part 1 of 3)

PART 1 of 3

"The money feels good
And your life you like it well
But surely your time will come
As in heaven, as in hell."

I just sat down to write this and since I just saw my fellow duplex dwellers leave our small building, I put on the Clash nice and loud. It sure seems like the perfect music for the topic, which today is real estate finance.

In all of the other parallel universes, this topic is as dull as it sounds, but unfortunately in our very bizarre universe, this topic is so important that some normal people are actually starting to notice it. According to the mainstream media (aka MSM in blog speak), here in California, 57,158 families noticed because their dwelling was the object of a foreclosure filing. Folks, that's almost half a percent of all residences in the state in one month!

I really hate being interested in the real estate market, I really do. Although there should be nothing wrong with it, real estate is where con men, realtors, and other punks get their rich quick.

In the last week, I've been reading a geometrically increasing amount about the housing situation. It's weird to see the MSM suddenly realize what for years should have been patently obvious to anyone smart enough to fog a mirror: the housing market is in serious deep shit. The shit is so serious and so deep that if the damage was merely contained to recent home buyers becoming indentured servants to Saudi princes, we'd be getting off lucky.

When I first arrived in SD in around 2000, I wasn't really concerned about real estate. I couldn't have afforded it and I figured that when the time came and I could, that I would be at least as well off as normal people and it wouldn't be a problem. Turns out that was wrong in two ways. When I finally had a credible amount of capital, I learned that, one, I still couldn't properly afford real estate and, two, which is much more bizarre, that it didn't matter. Nobody could afford California real estate so banks were basically buying houses for people to take care of. This investment was justified with the unassailable logic that house prices never go down. I suppose mortgage lenders are not very bright, are mostly criminals, or both. This is one of those times where I was happy to have the ability to empirically size up the situation and determine that just because everybody else seemed to be doing something stupid, was actually evidence that everybody else was indeed stupid.

I was sitting on plenty of cash by the end of 2005. I'd roughly noticed some house prices without too much research. Things seemed crazy, but I wasn't really paying attention. By the beginning of 2006, I felt that things must have cooled down a bit and I'd go out and see what was what. I went and looked at a lot of houses. For such an expensive market, San Diego has some spectacularly awful real estate. Always the feeling I got was, first, I could only barely stand to live here, and second, what kinds of millionaires wanted to live here? I was not oblivious to the median income here which led me to believe that the only people who could afford the houses I was looking at were bank presidents, movie stars, real estate con men, etc.

Since I'm a "do the math" kind of guy, I calculated exactly how the typical home would affect my day to day finances. It looked like it was vaguely possible, perhaps, for me to pull it off, but there was one problem. What if real estate didn't "always go up"? Of course the real estate agents must have a special laugh they practice designed to convey, "Good one! Ha ha! That's hilarious because real estate prices never go down. Ha ha!"

This actual quote is taken from "www.realtor.org".

"Know What to Say
Get scripts on how to respond to prospective clients' most common objections, from those pesky questions over a sour housing market to FSBOs who think they don't need you."

You know what other profession uses and practices scripts to allay their victims' misgivings? Con artists. I guess that probably pushes nervous thoughts from the minds of most buyers, but I am highly suspicious of these clowns and when they insinuate something like this, I start imagining prices changing levels as they've done in the last 10 years, but going the other way. I started realizing that even small fluctuations of a few percent could wind up being financially ruinous at these overblown prices. These real estate agents are sending families to their dooms.

Real Estate - Meltdown (Part 2 of 3)

PART 2 of 3

I became rather fascinated by just how screwed one could become by buying a house in 2007 and I started to really research things. The more I learned the more I realized that California was in for a huge nasty shock when reality caught up with real estate. I realized that these houses that were worth a million dollars were not actually worth a million dollars unless there was an endless supply of suckers. While this is not far from true, the supply is finite and I realized that this was like any other classic Ponzi scheme.

I have been explaining it to people in terms of a Ponzi scheme for a year. Now, it's funny to hear that mentioned in the news by "credible" people. The basic problem with any pyramid scheme is that once you start dealing in the *idea of getting rich* as the commodity, it is easy to lose sight of what's really going on. Through this mess I have learned that I can indeed get rich in real estate. The only thing that's required is patience and an endless supply of people who will stupidly ignore the fundamentals.

(To instantly understand what "the fundamentals" entail, see these simple graphs .)

The rules for guaranteed success are shockingly simple, and I would have thought difficult to ignore, but ignored they were. Basically a house has a utility. This is the aspect of a house that is like a hotel room, you need a place to stay? Here it is. If you go to a normal motel and they want $1000/night, you aren't going to say, it's ok, I'll book two nights and find a sucker to sell the second night to for $2100. This is how the California housing market worked for the last 8 years.

Since so many people got caught up in this game, there are a lot of people who aren't going to get the cake now that the music has stopped. All indications that I've seen indicate that the unimaginable number of houses empty and owned by banks is going to continue to increase. A lot. What compounds the problem is that houses, thanks to the bubble, represent a lot of money. For this huge segment of the economy to suddenly go very flat is very unsettling. Basically people were taking out home equity loans or taking profits from earlier in the Ponzi scheme and fueling the economy very nicely. That will be coming to an abrupt halt, oh, about right now.

This is, in my opinion, so huge and so many people are so screwed that if the USA avoids another "great" depression, I'll be amazed. People are losing their homes and they are saddled with incredible debt levels. The credit party is finally over as lenders are so over extended, they're not really in a position to postpone financial Armageddon with yet more bad loans.

What I worry about is even more insidious. The banks loaned huge, huge money because that's what they thought made them money. And it did. Huge money. For a while. But now they find themselves hugely over-invested in deadbeats and real estate that isn't worth anything. You can try to imagine some accounting trick that can bail them out, but fundamentally, when they loaned $2 million so someone could buy a house that should have been $1 million, someone got that real money. The banks (whom we presume to be left holding the bag as the borrowers bailed out) just lost a million real dollars. And this scene is repeating itself with disturbing regularity.

My concern is that when I go to withdraw my hard fought savings, the bank will just say, whoops! Sorry! Because if everyone who has an oppressive mortgage is bailing on the banks, do you think it's far-fetched to imagine the banks bailing on their investors, the depositors? Of course that depends on if the bankers are more scrupulous than the borrowers. Oh shit!

One idea to help with this problem is to invest liquid capital in foreign markets and currencies. Here's the problem with that scenario: the rest of the world had the same kind of ridiculous housing Ponzi scheme too. If you think the Pound and Euro are going to do great after the shit hits the fan in Britain where real estate stupidity was similar to that in the USA, I think you'll be in for a shock.

"London calling to the underworld
Come out of the cupboard, all you boys and girls
London calling, now dont look at us
All that phoney beatlemania has bitten the dust."

Real Estate - I Have A Dream: Cookie Kwan, Homeless (Part 3 of 3)

PART 3 of 3
I don't really know exactly what to do. I guess I'll diversify among a couple of banks and maybe invest in something else too. If you can pull your cash from under the mattress at the right time, I think this market collapse could be quite advantageous. But things should never have reached this point. It's ridiculous that the situation has to get to the point of a complete economic meltdown before a correction occurs. One could blame Alan Greenspan and the Federal Reserve or other aspects of the government. While this may have merit and I'm sure many will, I don't blame them. One could blame the mortgage companies, and to the extent that they loaned what they couldn't cover, they deserve tons of blame. But the heart of the problem, in my opinion, is the most nefarious collection of miscreant scoundrels that currently stake out a place on the economic landscape - real estate agents.
One of the things I like about working in computer science is that I imagine that I'm doing my part to obliterate this profession. I want to make the entire idea of real estate agents obsolete. I want the entire profession crushed and it's foul practitioners relegated to the status currently enjoyed by "interviewers" during the Spanish Inquisition.
Let's consider how these feckless creeps affect life. Tradition dictates that real estate agents receive a commission on the sale of property, usually 7%. This means that if you want to buy an expensive, difficult-to-afford thing like a house, you'll have to work 7% harder to get it. Thanks to real estate agents. This means that you'll be making mortgage payments for an extra 25 months on a 30 year loan just for your real estate agents' invaluable help. How invaluable is their help? In my experience, their help is entirely without value.
When buying or selling a house, these jackasses obstruct my access to centralized databases. This cartel with the MLS has fuelled the entire profession for 30 years. Once the emerging competitors (zillow, craigslist, etc.) achieve a critical mass, it is my fond hope that all real estate agents will be homeless, sheltered from the cruel elements only by poetic irony. Other than acting as very expensive gatekeepers to the MLS, real estate agents seem to do very little. They can't market a house using the web worth a damn. I've been involved in several projects where *in my spare time* and *for free* I use the web to market a property far better than a real estate wanker will.
You'd think that with such a brazen plan to rip you off that they'd at least be at your house everyday to help you clean and mow the lawn, etc, but, really, has anyone ever heard of that?
Think about the numbers for a second. If the median home price in the US is around $200k, then the shifty agents are going to pocket a whopping $14,000! At $20 per hour (I'm being generous) one would expect to have a dedicated advocate working an exclusive full-time job for 4 months. But is that the reality? No. I'd say the typical investment is far less than a brain surgeon who removes a tumor from your head. Who do you think makes more?
One thing that I found tedious about the book "Freakonomics" was that it presented the factual conclusion that real estate agents do not generally act in their customers' best interests as if it were some kind of scientific breakthrough when, in fact, it should be readily apparent to most primates. The book goes into detail regarding the obvious regarding that, but consider this different way real estate agents screw you. Imagine you're looking for a house and a good deal doesn't exist, but a *great* deal does. Say you want to spend $250k and the real estate conman finds the perfect house that's easily worth $250k, and it fulfills all your needs, but imagine the price is $25k. This kind of thing can happen. Are you going to be delighted to pay a dime on the dollar? No, because you will never find out about a truly great deal. The fact is, if a house is really, *really* a great deal, the real estate agent will have the first shot at it and buy it themselves.
My proposal is this - get it into your head that real estate agents taking a commission is bad. Very bad. Bad for me, bad for you, bad for everyone. If they want to mow my lawn for $20 to help me sell my house, fine, but don't ask for $20k and leave the grass uncut. Whenever possible, support alternatives to real estate leeches. Use Zillow, and on-line "For Sale By Owner" services (you know your agent isn't going to check there). If enough people finally get it that these devious charlatans are bad news, they will simply cease to exist. It's really that simple. And people will be free to buy real estate with out pressure from some cretin with a severe conflict of interest. Maybe that can help curb future cycles of idiotic price increases and false hopes of a quick path to riches.
"Baby, baby drove up in a Cadillac
I said, Jesus Christ! Where'd you get that Cadillac?
She said, balls to you, daddy.
She ain't never coming back!"