The market's down, but not my house

Great article. A truly shocking truth in today's real estate market.

My in-laws are trying to sell their house. It's been on the market for 9 mo. with no offers. They asked my opinion on why it's not selling because I invest in RE. I told them it’s very simple: your home is priced too high. Drop the price and it will sell. Drop it a lot and it will sell faster. They got defensive and cited area comps, improvements they've made, blah, blah, blah. I responded that I don't care about area comps or improvements or how close you are to the local ice cream parlor. Price is everything. If your home isn't selling after 9 months, it's priced too high. Period. In this market, if you want to sell quickly, you need to be ahead of the curve, meaning you need to be priced BELOW the comps. Their response: okay, okay…beside the price, why do you think it isn’t selling? I was speechless.

A week later, they emailed me to say they respect my opinion but decided to go another direction. They said their realtor has a new strategy, and they’ve decided to RAISE the price. The realtor feels this will generate interest in a higher income bracket. His opinion was the home wasn’t selling because it was priced TOO LOW and was flying under the radar of more qualified buyers. Again, I was speechless. I wrote back that this was one of the single dumbest ideas I’d ever heard and that they should immediately fire the realtor and stop being so damn greedy if they ever want to sell their house.

Zillow is worthless in establishing the current value of a home. I don't give it creedence.

One fundamental point of the delusion came in this quote of your story:

" "For $900,000 you are getting a little, tiny house that would be $200,000 anywhere else in the country," she told me."

At what point do people become aware that paying 4.5 times for the same type of house in different parts of the country delusional? Are our salaries 4.5 times as much and how sustainable is that? It is not like the other areas of the country are cavemen. Our IQ's aren't 4.5 times greater. Why doesn't that person want to have his wealth go further in other areas?

The result is building a community with a cross section of high earners without common sense to lift their heads out of a delusion.

I've been watching Zillow as a spectator sport, and I've been pleasantly surprised to see that, by their calculation, my home has indeed gained market value since the summer. I have a general idea how they calculate their estimate, but not certain of the details. I know I live in a desirable urban neighborhood, so that helps... but it does look like by some metrics at least, that some homes have stayed in positive territory... at least for now.

I currently rent in a condo building brought to market in 2005-06. .The unit owners were delivered a concrete box with upscale cabinets, fixtures, stone, etc, but the balance of the build out was at their discretion.* The building/complex is large enough to develop a decent set of comps based on real transactions. The price per square foot has been remarkably stable if you factor in the cost to build-out the units - that is in 2008 they are selling at '05-06 prices including the build-out. However, the price invariably starts at the 2005-06 cost of the apartment plus the build out. Then when it doesn't move they remove the parking spot as part of the listing and offer it separately then lower the price equal to the amount of the parking spot. So a listing that was, "$500,000 with ALL AMENITIES" is now "$450,000 BARGAIN LUXURY! MOTIVATED SELLERS! parking available for $50,000".

I presented an offer on one of the condos based on actual transactions. The owners of the unit believed that the comps did not apply to their unit because of this and that special feature and that they spent $XX,XXX on the build out. While the special features part is somewhat subjective, I did not factor the full cost of the build-out into my offer because they were either exagerating or they were ripped off, the underlying construction was poor, & the GC adds a percentage on top of the bid as his/her fee.

Anyway, I eventually raised my offer to the aboslute high end of the comps range because the special features would increase my quality of life more so than what I estimated the market price to be. They rejected the offer, it languished, and are now renting the unit to a very nice couple.

Were the owners prideful or delusional?

Was I "correct" to not value the build-out at full cost to the owner? Or did I get lucky because while my methodology wasn't sound, the price I offered was?

** Some owners chose to put in custom harwood closets, maple flooring, fullly framed walls, etc. & made significant changes.

Others chose Ikea, Brazillian Cherry (what a ripoff BC is, BTW; what an amazing marketing job), room dividers,etc & basically remodelled.

How can RE agents complain about unrealistic expectations by sellers? They're the ones who started this fantasy to begin with.

Amazing. Prices are down almost 25% from the peak in the US, 25% in Massachusetts, 50% in places like Phoenix and Las Vegas and yet about 50% of all homeowners still think that the value of their home as either stayed the same or gone up? How can it be that so many people are still in the denial phase of the bubble collapse?

I guess since the value of people's 401Ks are down 40-50%, they can only hope that the value of their home has held up. Since they can't look at a monthly statement of the value of their home like they can with their 401K, it's easy enough to delude themselves into thinking that the value of their home is preventing their net worth from collapsing.

Unattractive neighborhoods (high crime/poor schools) will tank and plunge. However, in areas where property is in a desireable location the prices will be more likely to hold their values (i.e. newton, brookline, etc...)

One of the biggest problems in the real estate market are real estate agents. In sum, IMHO, they are paid too much for their services for what they provide and add unecessary fat to a transaction. Does a lawyer or accountant get 2.5% of your networth for completing a transaction? I expect that in this market a $100 per hour real estate consultantcy business will flourish. It's amazing that a robust commission based model has survived this long, especially given that real estate data information is ubiquitous and there are a plethora of real estate agents, with and without college degrees, who are not busy.

Real estate agents are also seeing transactions take longer which means a longer road to pay-day. I think this creates a conflict of interest on both the buying and selling side.

More concerning is the whole commission based model. If a seller uses a discount broker and offers a 1% commission to buyers' agents, which is significantly less than what's being offered in the marketplace, based on numerous conversations I've had with real estate agents, it is very unlikely they will show that property to their buyer because of that low commission -- even if they think it's a perfect fit for their buyer. I'd like to see the Boston Globe, Attorney General's Office, and/or class action attorneys investigate to see which brokers in Boston engage or tolerate this seemingly form of price-fixing and unethical behavior. Hiding a property from a potential buyer or making it sound like it's not available is a bad practice, as ultimately the consumer loses. Does your real estate agent decide which $500,000 properties to show---the one that makes them $10,000 or $20,000.

Perhaps it is not delusion, but the homeowner's reality. Homeowners refuse to lower their prices because they can't due to what they owe or what they paid for the houses.

I, for one, will continue to struggle to pay for my mortgage, rather than throw away the $100,000+ downpayment I put down on it when I bought it a few years ago. I will not GIVE my house away to someone who is dying to take advantage of my misfortune.

I am not misinformed as to the market...I just would rather struggle than take such a huge loss.

My fiancee and I are very discouraged right now. We are pre-approved for around $350K but find that decent listings for properties on the South Shore won't budge lower than $399K. Instead, they freeze at that amount or get taken off the market. We are convinced that sellers are delusional about the true value of their homes in this market, especially when higher-priced homes have been reduced, in some cases, by up to $100K. Is this a failure to recognize the reality of the situation? Will sellers only lower their expectations and prices when enough buyers offer less? We are pre-approved and ready to go...whenever some sellers accept that the market isn't what it used to be.

Well, then Zillow should update their comps. It says my home is worth $958K but the comps from my local real estate brokers put it at about $100K less.

Great. This blog post presents another fantastic opportunity for people who don't own houses to complain about how greedy the people are who do own houses. Happy reading...

The Massachusetts decline in home prices is just delayed, it will kick in and follow suit to the rest of the country. Back in the early 90's this area was hit especially hard, we're due to have a major decline in home prices over the next couple years. People holding out on accepting lower bids right now may end up kicking themselves for not taking what they are offered now as opposed to what they'll be offered next year.

What is that doctor complaining about anyhow. When you buy in Concord, price is no object; you buy there to say "I am such a Bourgeois jerk, that I take pride in overpaying!".

Our town is reassessing all our houses to determine taxes -- what do you want to bet our house has probably NOT decreased in value, according to the folks who rely on this for our town revenue???

Cindy,

I would love a rate per hour based real estate model. As an agentI would make so much more money! Bring it!!!

For all those potential buyers who are whining about sellers not dropping their price enough, they are forgetting one thing.

This is still a free country, and a seller has the right to ask whatever price he wants. If he's not in a hurry to sell, maybe he doesn't want to throw away the $100,000 downpayment he made originally? Is that so crazy? The only people selling in this market are the ones that are being forced to sell.

#13 said: "Great. This blog post presents another fantastic opportunity for people who don't own houses to complain about how greedy the people are who do own houses. Happy reading..."

News flash to clever homeowner who knows nothing about economics: you purchased a dwelling AND an investment. Investments ebb and flow with changing conditions. We're at an ebb right now. If you can't accept that, sit it out and wait for prices to rebound. Otherwise, the market - not your attitude - dictates who gets to live where and for how much.

Hey big honkin- the entry is about delusional home owners- frustrated buyers expressing agreement are just saying what home owners don't want to hear.... if you think your house in a good town is still worth what it was two years ago, perhaps you should re-read what's printed at the top of the page.

This December when people are layed off and can't afford to pay for their upside down mortgage they will lower the price or walk away. It won't matter about your down payment or your agent.

To the people who have $350 but want the houses that cost $399: Just because you want more than you can afford does not mean someone is a jerk or selfish for not lowering their price to your level. They may only want to sell if they can get a certain amount towards a next house or whatever. Heck, I'd like a Porsche but I only have $20k...hmmmm, why won't those jerks sell it to me for $20k? It's just sitting there on the lot...People on this blog never fail to complain about sellers wanting to much, they all fee like someone owes them a house. If you have $350k look further west. Metro Boston is not at risk of being abandoned so the fire sale is not coming.

Antigravity nailed it.

Not all areas or types of houses are down.

Massachusetts is down 25%!? Based on what? Every house in Mass has lost 25% of value? I don't think so. Some towns, yes, some towns or areas, more. Many towns less. Some areas have gone up, based on recent sales. What's the South End or Jamaica Plain doing for value? Hmm...down 25%? Nope.

Hows Springfield or Brockton holding up?

Some areas just have a snob factor, and if people don't need to sell, they won't. Prices will stay elevated there.

Here's the bigger issue as I see it - everybody is trying to time the market. How successful are people when they do that? Anyone tried timing the stock, bond or mortgage rate market in the last year? How did that work out? Where are those low rates that *everyone* has been saying would be coming?

If you need to buy a house, see what you can afford, choose where you want to live, and buy something that meets your needs, in your price range. If you want to make money on your house, good luck. If you are afraid of prices falling further, shut your yap and rent for a year or two.

If you need to sell your house, price it right based on true comparables. The market will tell you where it needs to be. If you're getting no activity, it's too high. If you're getting showings but no offers, it's close, but still too high.

The problem is that you have a real estate industry with systemic problems and an outdated, pre-Internet business model. The marketing message is always to tell buyers that "now is a good time to buy" in spite of the facts, such as buying into a housing bubble, buying a depreciating asset - a used house - when it is only the land which (oftentimes) increases over time, higher interest rates, a world wide financial meltdown, the value of personal investments (stocks, 401k's) way down. I wish all my dot com and tech stocks would go back to the level they were at when I bought them back in 2000.

Well, buyers are no longer stupid. They have many real estate web sites to go to so they are not forced to go to a realtor for slanted information any more. All the NAR TV commercials and your local realtor never address the true market conditions for fear that they won't get the listing (which they will then use to market themselves instead of the over priced house they know won't sell, for if they told the sellers the truth about what the house should be priced at, they also know that the next realtor following them in the door will tell the sellers what they want to hear.

Any listing overpriced or not, provides realtors with an opportunity to market themselves - yard sign, directional open house signs, newspaper ads, floor calls, and open houses. There is an old real estate saying "If you don't list, you don't last in this business", for the realtor holding the listing controls all the action - for themselves. We know that the odds of someone buying a house at an "open house" is about on par with getting struck by lightening, but it shows activity to sellers who are not employed in their day jobs as salespeople, and we get to meet all sorts of potential buyers and sellers to work with us in the future.

For some reason, most sellers seem to be unaware of what really happens behind the scenes. Then again, how many homes have the sold a home in their lifetimes, what were the market conditions when they did buy or sell, and lastly and most importantly, "are the sellers employed as commissioned salespeople?” If not, then they only can guess as to what a true salesperson does and how they are trained and motivated. They fool themselves into thinking that a realtor should act as they would act if they were in sales, but they don't know the half of it.

Sellers seem to think that realtors perform some type of magic, but realtors can't force someone to buy anything. They don't control interest rates, employment rates, Wall Street, the U.S. or worldwide economy.
Realtors always tell buyers that "the seller pays the commission". Nonsense. It is the buyers who bring their borrowed money to buy the house and the commission mark up. If a seller knows that his/her house is worth $500K or that is the price they will settle for, the home is automatically marked up 5 or 6% to cover the commission to at least $525K. All the realtor does is to take a couple of photos of rooms full of furniture, fills out a form to upload it to the MLS database (where it automatically gets posted to Realtor.com, and then pray that it sells.

Agents hold "accompanied showings", which means it is hard to see the house if the agent is at their daughter's soccer game or down on the Cape, or you need to see multiple homes in multiple towns during the day or at the last minute with a relocation buyer who may be in town for only one day.

Realtors have little, if any; need to go to a brick and mortar office building, so why does the public have to fund this expensive and outmoded method of doing business by paying 5 or 6%? We write the offer, we attend inspections, we try to keep a deal together, but it is the attorney who does the bulk of the work, along with the title insurance company.

One gripe I don't understand that I see repeated in the comments of this blog time and time again is that sellers are being delusional and ridiculous for not selling their homes at huge losses based on market forces and instead are taking their properties off the market and renting them out or simply staying put.

If I were a homeowner considering selling, I'd have to be out of my mind to put my house on the market right now unless I had absolutely no choice. Depending on who you talk to, we are either on the brink or in the middle of a significant market downturn. Sellers are not going to be able to get what they paid for their homes just a couple of years ago in most communities. A lot of sellers are underwater. Why sell now and recognize that loss if you don't have to? Why not hold onto the property and hope for some kind of rebound within the next 5-10 years? Most sellers realize that if they have any equity, it's going to be wiped out in the event of a sale - and if they don't, in Massachusetts, the lender can go after you for any deficiency if/when you sell. If the market doesn't come back any time soon, you haven't lost anything because in both cases, you're screwed. If it does come back to some extent, you can dodge a potentially devastating loss.

Some of the potential buyers posting on here are acting like sellers need to face reality and accept tremendous losses on their homes. Why do that if you can possibly avoid it? If I were in that position, I'd hang on for dear life, keep paying my mortgage and hope for the best. At the very least you're paying off principal unless you were dumb enough to take one of those exotic interest-only loans they were handing out back in the day. Is it realistic for sellers to try to get more for their homes than they are currently worth? Absolutely not. But a lot of people here act like selling at a huge loss should be no big deal. You'd have to be out of your mind to approach things that way. Put yourselves in the sellers shoes and things make a little more sense.

Concord and Brookline are special. That house in Concord for 900,000? You don't have to go to another part of the country to get it for much cheaper. You could just go to Tewksbury and get it for like 350000 (yeah, that's not 200,000, but it's a lot less).

My wife and I have been looking to buy a two family home in Somerville for almost 9 months now. We are well qualified and have put offers in on multiple homes. It seems that people have no idea of the value of their homes. Many of the places we have looked at need considerable work and are still listed at a price that would make you think that they are move-in ready. Anything that is reasonably priced sells almost immediately and often over asking. And often these houses are almost impossible for us to get because developers put in a cash offer with the plan to convert them to condos.
There is a backlog of houses on the market which are overpriced and have been listed since we started our search. A $5K drop in the listing price doesn't impress anyone. What are people thinking. In a supposedly "buyer's market" there is very little worth actually buying.

If you are so convinced it's that simple, put your money where your mouth is. Get licensed, get going, get rich. C'mon $100/hr consultant, sell that house!

John- what evidence are you using to support a 25% decline in MA? Shiller shows MA is down around 10% from peak...

Zillow isn't very good when it comes to pricing properties, I've found in most cases that it is usually very high. One of the problems is that they're basing comps on public data, including property tax assessments and sales. Realtors base comps on recent sales and usually have more information (from MLS). For the several properties that I own Zillow has very wrong data in all cases (things like SQ FT, # Beds, # Baths), which would badly effect comps.
If you want to find out what your property is worth use recent sales of comparable. I've found that my properties in the Boston Suburbs are generally 10 - 15% down. I'm guessing less modern properties, fixer-uppers or properties in less desirable towns would be effected more.

True, buyers do determine what a home will sell for, because a buyer will only pay what he/she thinks it is worth to them. HOWEVER, it may mean that sellers would rather not sell at that price; hence we will not know what a house is worth unless it sells.
ALWAYS - supply & demand. If someone wants to buy it, it will sell. If someone has to sell, it will sell, and they will drop the price to where it will sell. $900K in Concord or $1.3 Mil in Carlisle will sell if someone wants the house/location bad enough. And many do.
Cindy - attorneys & accountants perform hundreds of transactions per year; RE agents perform (depending on ability) anywhere from 6 to 18 per year. Also - agents will show a 1% home, but they may not show in the first tier or with enthusiasm. As always, you get what you pay for.

"For $900,000 you are getting a little, tiny house that would be $200,000 anywhere else in the country," she told me.

Then go live "anywhere in the country", what's stopping you?

If you're looking at Concord, or other expensive towns, there's some reason, right? quality of schools?, proximity to job/ commuter rail, etc? It's simple supply and demand. There are other cheaper towns in Massachusetts if that's your main criteria. If you don't want to move to cheaper towns, ask yourself why that is--what matters to YOU other than price. Chances are other people see some benefit in living in concord, or burlington, or wherever, and they decided it was worth it to THEM vs the alternatives. I could get a stylin' place in New Orleans for what my house in MA costs, but SO WHAT, I don't want to live there. That's the whole point to the "location, location, location" phrase.

I agree with BDK in that the home prices in most desirable communities are just delayed. This economy is like slow train wreck. With each wave of bad news, another industry will be hit.

The "not my house" or "not my neighborhood" attitude will change over the next year or so in my opinion. So far, we have seen drastic price reductions in areas effected by the subprime debacle like Dorchester, Lowell, Chelsea, Everett, Lawrence, etcetera. So, the "not my house" attitude for some has been justified. But, times have changed recently. ...and oh boy have they changed.

Nationally 45% of the foreclosures in June were due to job losses, not subprime mortgages. One can anticipate that percentage value climbing higher with the rising unemployment numbers. Economists out there are predicting that we will have 8% unemployment by January meaning many more lay-offs. Some economists are saying 10% or higher unemployment before the economy turns around. If you take a look at the companies in the area that are laying off these days and the level of the employees getting axed, you can start to deduce that there will be an impact to some of the desirable areas in and around Boston. The fact that local employers such as State Street, Fidelity and Putnam are laying off mainly highly paid individuals (perhaps other companies are too), we will start to see increases of price reductions in nicer neighborhoods as some people become desperate. If the people getting laid off are living within their means pay check to pay check, they will be in dire straights within six months if they have little savings and no jobs are found. Also keep in mind that "new" buyers are dwindling these days as banks tighten their credit standards. How many of your friends are sitting on a hundred or two hundred thousand in cash for a 20% down payment on a house? Think about it..........

Hey John P - you answered you own question - the reason our real estate is more expensive is because people want to live here for a variety of reasons (jobs, education, costal, etc.) and we have a relative scarcity of buildable land vs. areas where the same house is $200k.

People aren't willing to accept less than they feel their house was worth at the high point of the boom. I've been looking to buy a condo for 2 1/2 years now but I haven't because I release prices WILL drop. They will drop due to inflation though, not because home owners are going to lower their asking price. The people who have to move will have to lower their prices but everyone else will either take their houses off the market or just let it sit there. That $400,000 they want today won't really be $400,000 five years from now in 2013 dollars but they will be more likely to be willing to take it.

I see this point of view from my Dad who is trying to sell my grandmother's condo (she passed away). He is ending up having to rent it out because he's been stubborn about dropping the price. He should know better too because he's been helping me look at ridiculously overpriced Boston condos the past couple of years.

Seller's aren't dellusional. The answer to this question is that they can't afford to come down in price because they all borrowed against their house between 2004 and 2006 and now their interest only payments on their 5 year ARMs are going to be resetting with principal being added and their payments are going to double. My wife and just bought a house and closed last week. My seller needed to sell because of relocation and priced accordingly so my wife and jumped at it. We made a couple other offers on houses along the way but non the sellers really wanted to budge. One came back with an offer higher than asking price. I was later told by another realtor that they couldn't budge on their price. Every house we were interested in I looked at the registry of deeds website to see when they bought and what their mortgage was. Many, Many people refied in like 2002 and then again in 2006. Out of the 20 homes we had looked at in various towns I would say about 75% of them had refied. Almost all of those houses are still on the market or have been taken off without a sale. Also a lot of those houses were in alright shape but would need something big with a couple years like a new roof, or furnace. The things that are selling quickly are priced right and are good shape and will go within two weeks of being on the market. My wife and I saw it time and again. A house would come on that we wanted to see that weekend and it would be under agreement in a matter of days. The price range were looking at was between 325,000 and 350,000. This is the price range for first time homebuyers. As soon as you go below 350,000 and your house is in decent shape then you will get some traffic and maybe a couple of offers within a week. If it needs a new roof within 5 years shave off 10,000 from your asking. If it needs a new furnace then shave off another 10,000 from your asking. Also, mortgages are much tougher to get now and the only buyers out right now are the who can actually buy. Remember they have plenty of inventory to look at too.

Oh yes owner of a mcmansion in a good town, us "bitter renters" love blogs like this so we can complain. I'm definitely bitter that instead of paying 50% of my income on an overpriced home that is plunging in value, I spend a paltry 10% of my income for my monthly housing expenses. I'm definitely bitter that in another 3 or 4 years when home prices are down another 30%+ I'll only have to finance 50% or less of my home purchase. I'm just do damned bitter!

EH, the median home price in Massachusetts is down 22% from the peak based on the numbers reported by the MAR and Warren Group for September. This is a fact.

Unlike all the perma bulls that post on Boston.com, those of us that have been calling this downturn for many years use actual facts and numbers to back our claims.

Here's another FACT for you EH, Refin reports that Jamaica Plain, the same Jamaica Plain that you report is holding up so well, has the second fastest rate of price reductions for Boston neighborhoods.

The commission structure is in place because neither buyer or seller can usually pay until the transaction closes. In a per hour model they would also owe money even if it did not close. We've tried the consulting model and we haven't had anyone choose to hire us that way yet, the reason they tell us they won't is because they do not want to pay upfront. By the way, attorneys generally take 30% of civil lawsuit payouts as payment for services. There is a premium to getting service now and "possibly" paying later and that is reflected in 4-6% commissions in real estate.

I echo Sally I would love to take it by the hour and even be able to charge extra for the 10 PM phone calls and 7 day work week.

So do these same people that believe their home has not lost value also believe the we are not in recession and the we are not in a bear market in stocks? Probably. Can't wait to buy a home from one of these morons in a few years for 50 cents on the dollar.

Sellers are delusional / prideful if they put an overpriced home on the market. They or their agents are not aware of current market conditions.

Of course no one wants to lose money, but to borrow the car analogy from a previous poster, if I bought a Porsche for $50,000 and owe the bank $40,000, I don't list the car in the classifieds for $55,000. To expect someone to pay more than the car is worth is delusional.

Previous posters rightly pointed to supply and demand. The factors affecting each are negative. Supply will increase as people lose their jobs, slightly offset by people that do not have to sell pulling their house off the market instead of lowering price. I think we will see a sudden sharp drop in prices.

Demand will decrease as borrowing costs go up, buyers lose their jobs, and income flattens. I think this will stagnate the market.

Remember, in normal markets, people are buying and selling a house. In this market, the normally relatively stable equation strongly biased to selling i.e. foreclosure, affordability, jobs, death, divorce.

The best case scenario in this situation is that home prices increase at the rate of inflation.

I'm a sideliner going after a couple condos in Brookline...not getting much traction from the sellers though. I don't get the impression there are too many distressed properties there. I keep running into lots of Dr.'s and executives, so it seems that a deal is not likely to be had.

I don't believe owners are delusional for not coming down on their price. As somebody above pointed out it is still a free country. However, that also means that free markets should sort this out in the end. So I say no bailouts for owners being foreclosed. Let the prices fall as a result of free market forces. 'Cause some owners want to have it both ways. They [complain] about a single foreclosed house messing up values in their neighborhood calling the taxpayer to the rescue, while at the same time justifying their high prices by free market rationale. It is not delusion here, it is something else. I don't want to use expletive here.

AMEN ALEX!

One aspect that helped drive the housing bubble is the stigma attached to renting or the prestige associated with buying helped motivate people into buying a house that they could not afford.* This is either greed or pride. Either way, homeowners should not be given a free pass (bailout) in this mess.

* Not having enough cash to pay your mortgage if you get laid off means you could not afford the house.

The people who bought in the 90's for a reasonable price are the ones that refuse to lower their asking price. What they are trying to do is now take advantage of a market that is declining. They would like to upgrade to that 800k house that was worth 1.2 million in 05 and was out of their reach. But in order to do that they are trying to get the 2005 value of their current home so they can buy that upgraded house they want. News here people... it goes both ways you can’t expect to get top dollar for your home now and expect to get a deal on the home you would like to upgrade to. If everyone realized that prices are not sustainable at these levels and let everything correct this mess would work out much quicker. Until that happens I don't care what everyone says prices will go down. Even in these "immune" towns. Just wait look at gas, 401k's jobs, retail, stocks.... it's going to happen it's just a matter of when. It’s amazing that it takes people so long to realize this

Sally and NF,

I recently sold a condo I owned myself, no agent. I documented every aspect of the sale, every penny I spent, every minute I worked on selling was accounted for. I did this because I wanted to see precisely what a realtor would have earned on an hourly basis for selling my condo.

The results only confirmed my suspicions that realtor's are way overcompensated.

Expenses:
For sale signs: $25
Color flyers: $115
MLS flat-fee listing: $100
Website: $30 (note: I created it myself so I documented the time as well)
Gas: $30 (trip to Home Depot, posting flyers, trip to closing, etc.)
Boston.com advertising: $70
Child care for open houses: $180
Total: $550

Time: 39 hours (this includes everything: time on phone, time at Staples making copies, multiple showings, two open houses, creating website, time at closing, etc.) (BTW, the condo was only on the market for two weeks because I priced it very aggressively)

Sale Price: $370K

Buyer's Agent Commission: 2.5% = $9250

My Savings: $9250 (the 2.5% I would have paid a seller's agent, or, the way I see it, my commission earned)

Hourly Rate:

$9250 - $550 (expenses) = $8700
$8700 / 39 hours = $223 per hour

In other words, breaking it down on an hourly rate, I would have been paying a seller's agent $223 an hour to sell my condo. After handling the entire process myself, you'd be hard-pressed to tell me a realtor deserved $223 per hour to sell my condo.

I'd say the Globe's getting its money's worth. Congrats, Scott, you've created a following with just a couple of posts.

And a few more things:

- Cindy, really. Get the $100/hr thing started. It looks good on paper, but…, ah you’re smart, you’ve got it figured out.

- Out of State Realtor: An agent's Stock in trade is his/her time and advice.

“but the bulk of the work is done by (attorney, landscaper, my uncle, my cat, internet, etc...)". Any agent who thinks so will not survive this downturn, sorry, out of business.
Commission is paid out of the proceeds of the sale, not solely by/from the buyer. I agree with the rest of your post.

- Buyers, there's only one other person who has any input on the price you pay for a house: The other buyer. Buy accordingly within your means and your plans. You will know when the time is right, regardless of market conditions. If you’re losing houses to other buyers, you have to adjust your expectations or seek cheaper locations.

- Sellers, oh dearest sellers,

Prices are set by the market, were and always will be. All other rationalizations will only make you feel better while costing you tons of money.

Prices go up overnight, but go down slowly through competition. Here’s how it happens: First Neighbor Joe relocates and his $450k house ends up selling for $405,000. Then Neighbor Suzie goes to the nursing home and kids have to sell that house for $401,500. Then Neighbor Mark gets foreclosed. Asset managers put it on the market for $350,000 and it sells for that.

Who would then buy your similar house for $500k? The answer: not even you.

The good news: this is one of the best markets to sell low and buy even lower. At least, that’s what I see the smart ones doing.

… now back to the regularly scheduled program…

Congrats Antigravity,

How much did you leave on the table to save $8700.00. You're so focused on what a Realtor deserved, you probably got less than you deserved. Key word is "Probably".

Also, your expenses are far from typical, and exposure was limited. But hey, you sold.

antigravity,

Thats assuming that your agent would have actually put in the time you did.. In reality you may have got half the hours out of an agent. So in reality you would have been paying them 446 per hour

day job,

i'm an investor. i've bought and sold numerous properties in my market in the past eight years. i know my market intimately, better than most agents. given that, i priced my condo to perfection. in a down market when nothing was moving, i sold in two weeks, saved $9250 and left nothing on the table. my only regret is i had to hand the incompetent buyer's agent $9250 for little more than showing up at the closing and yapping on her iPhone.

THANK YOU SCOTT,

After all the fluff and stuff from the other blog topics about areas that are goigng up in value, it is nice to see that there is some one who doesn't wear blinders to the rest of MA. I could just pick you up and carry you around on my shoulders .

We own a home and have been watching the market closely. We intend to keep our home as it is a 2 family and we will rent it. We do not need the rental income, or the sale of our, proprty to afford a new home.

I am just amazed by the number of sellers who think their house is worth 5 times what it is. I think some of them secretly like having their house constantly on the market because they certainly aren't interested in selling. My husband and I joke that maybe they need an excuse to clean.

Sellers need to know that what they paid/ what they owe/ what their neighbor sold for 2 years ago has nothing to do with the current market value of their house.

People who are in a position to buy in this market, are smart enough not to over buy or over pay. While there might be the occasional sucker, they are far and few between now-a-days.

I just don't know why they do it to themselves or their poor families. Do they know we are laughing at them? Do they tune it out or are they really just not that bright?

Thanks for pointing out what I think sellers were missing, Keep your day job.

Sellers are right that only the truly desparate should put their homes on the market now. But after a year or two of selling homes for lower prices because of the market and because of seller desparation, you all aren't magically going to be able to get your asking price 2-3 years from now nor even 5-6 years from now. In fact, I would point to those comps and the only way I'd offer more is if your house WAS truly exceptional in excellent condition with buyer competition. However, it seems many people skipped out on house maintenance during the bubble years.

The only way prices will go up is if buyers (I'm a first time home buyer) enter the market. The buyers who want to upgrade, can't, because they can't sell. There aren't enough starter homes in good condition for first-timers to buy. Many would-be buyers can't because they don't have the scores and the cash. Others have those things, but can't afford to spend $350K on a "starter home" that needs a new roof, furnace, etc. For us, there just isn't a lot of competition out there with buyers either.

At this point, I don't see a stigma in renting although I definitely felt it in '05 when I got married and had friends in condos. Those same friends want to upgrade to a house so they can start a family--they can't sell either. So now I'm really, really glad I didn't stretch and buy myself. And after what owners are going through, there is no way I'm going to stretch myself and end up the same way.

I started looking a year ago and our budget would have bought a condo in Eastie or Dorchester--not even a Southie condo. Now Southie single families are well within our range as well as single families in Milton. And now...I'm seeing small single families and large condos in Arlington, Concord, Lexington, Dover, and Brookline (yes, "immune" communities) come into our range---not masses, but a few. Most of these (but not all!) need some work done. I give it another half year and I think we'll have some nice options.

To the poster Susanne for post #10,
I agree with the part of your statement which you say: "Homeowners refuse to lower their prices because they can't due to what they owe or what they paid for the houses". That's their problem. Just because they overpaid for their home does not mean they are entitled to get their money back. They were the ones who made a poor decision by falling for all the RE hype. Just because they overpaid for their property does not mean they get to dictate the market.

With that being said your last sentence states: "I am not misinformed as to the market...I just would rather struggle than take such a huge loss." Well I have news for you. If you have to throw away the $100K payment on your home due to the market correction then you were misinformed when you bought the house, and continue to be misinformed if you think holding is your best option.

The truly amazing thing is sellers future expectations. Given that everyone now agrees that there was a bubble in real estate post 2000, and given that a bubble in real estate is NOT going to happen again soon, why will prices go back up to bubble levels?

It simply makes no sense. The sellers thinking prices will go up in 5-10 years are nuts. Take a look at dot com stocks and see how many of them went back up....

As Marcus and I have been saying on this blog for over a year, its simple math. Prices will reflect fundamentals. Reversion to the mean is a powerful "force"

And that is roughly 3 to 3.5x incomes. We've still got a long way to fall in central Boston. Note - I don't expect this to happen before the END of the spring market in 2009 at the earliest - we need to see seller capitulation. And in the expensive markets, sellers have more resources to delay capitulating to market forces. That's why cheap markets are crashing and expensive markets aren't.

And I could go out and write a check for a place in the south end right now, but am far from "bitter" to be renting. Quite pleased that I sold my investment property in 2005 in fact.

Everyone seems to think there are 2 buckets of sellers: the desperate and the delusional. How about the realists? I just sold a home this year. Did I need to sell? No. Want to sell? Yes. Did I cut the price to where I took a hit? No. I priced it for what I was willing to sell for and waited....I turned down low ball offers, I ignored my idiotic realtor ("the first offer is the best offer") and it sold after a few months. Everyone's happy.

So, while there are distressed sellers out there, there are also folks who might like to sell, but are not going to do so at a loss. It's a free market, and as long as the number of people willing to buy at or near what people want to sell for...well then, the great price drop is not going to come. A few places, sure. Some unfortunate communities, sure. Across the board? Nope.

To the guy shuddering at listing a $50k Porsche at $55k...why not? No harm in asking. Unless you need the $40k right away, that is. If you just think that maybe you want a boat instead but need $55k to make that happen...well, why not try? No harm done.

Good, cheap and fast, pick 2...you won't get all 3 in a home search. A bargain will need work, a great deal takes time, and a good house is worth waiting or paying for.

To Joe:

I'm not the moron you make me out to be. What I didn't say in my post and others touched on is that I am frustrated that my real estate agent wants me to lower the price so he gets $25000 and I get nothing. Who made the payments and put down the money, me or him?

It just so happens my house was supposedly worth more than what I paid for it when I bought it. My husband and I put more money into it with home improvements since we bought it. We didn't buy our house to make money off the inflated real estate market. The only reason we are thinking of selling is because we fell on hard times and my husband lost his job.

Try having a little sympahty and understanding instead of judging people's intelligence without knowing the circumstances.

Keep Your Day Job (#49 post) used the famous Abraham Lincoln quote "An agent's Stock in trade is his/her time and advice". Lincoln wrote that about Lawyers, as they do not hold stock on the shelf for sale/trade. I agree with the intention of the quote as to the value add a (good) Realtor will bring to the table, however, and as any Realtor will understand and admit (if only to themselves and not in mixed company), Realtors legs are undercut by other Realtors (unlike corporate sales, one is not a member of a team, but all are individual competitors out for themselves) and the NAR - for creating a system where anyone who can fog a mirror can become a "Real Estate Professional" after sitting through only 24 hours of classroom time. No offense to people who cut hair for a living, but they have over 1,000 hours of classroom time and mentoring time!
Some of the chapters taught and tested on are MA. R.E. Law. I don't care where one sells real estate (including all the States which use Title Companies in place of Attorneys), a Realtor will never give either Legal or financial advice - let alone square footage (unless independently verified), interpretation of inspection reports, whether or not a child will be enrolled in a certain public school, known sex offenders living in the area - the list goes on - as we can and will be sued. The famous “all information has not been verified” etc. etc.
So, we have to ask ourselves, what exactly is "our time and advice?" I will grant you that some agents know the inventory or the neighborhoods better than others, but when all is said and done, it is the buyer's ultimate responsibility to buy or not to by a house. All of the information (comps, selling prices, asking prices, neighborhood and school information) is all on the web.
Someone – maybe a newspaper writer as they are not on straight commission without benefits - as it won’t come from the NAR or from us, the Realtors on the front line - should ask sellers what the market, local, national, world wide, economic, interest rate, “consumer confidence” and several other factors are RIGHT NOW, compared to where they were WHEN THE SELLERS BOUGHT THEIR HOUSE! Maybe then, a few sellers might “get it”, instead of being in denial.

MP, Japan has a severe scarcity of land and it didn't prevent their real estate market from going through a 17 year and counting downturn.

Suzanne, I do have sympathy for you. But I don't think being unrealistic will help. Look at your original post:

I, for one, will continue to struggle to pay for my mortgage, rather than throw away the $100,000+ downpayment I put down on it when I bought it a few years ago. I will not GIVE my house away to someone who is dying to take advantage of my misfortune.

First, if your house has declined in value, that $100K, or part of it, is already gone. Same with your 401(k) and part of my 401(k). That's what happens when an investment goes down.

Second, no one is asking you to give your house away. Selling a house for what it is actually worth is not a "gift." And if you don't want anyone to "take advantage" of your misfortune, well, then you can just keep your house. Because no one is going to overpay just to set things right for you. Buyers aren't going to give their down payment away, you know.

You need to be realistic. Whether you sell or not is up to you, and no one knows your circumstances. But it will be many, many years before we see 2005 prices again. Maybe not in our lifetimes. The consumer price index just posted a massive drop, the first since the early '80s. That means we are in a deflationary environment, as we were in the first Great Depression. Prices are coming down--prices of financial assets, houses, commodities, consumer durables and non-durables, pretty much all of it. Many, many people who complain about "giving their house away" will look back wistfully next year on the prices that they could have sold for today had they not been so stubborn.

As usual, Marcus post bears repeated reading.

I'm not as sure we are going into a deflation cycle as he is. But I'm very worried about it, and its very much worth factoring in.

Now is a good time to hoard cash, I'm afraid. I hope we can print our way out of this though.

What individual sellers or major corporations need to know about any product that they are trying to sell, from Boeing jets to new or used cars to shampoo to houses is always the same. There is a price which consumers will justify the value in their minds and purchase the product, but the purchase is tied to individual needs/wants/desires, along with the economy and consumer confidence at the time of purchase. Things and circumstances change over time. People who have had their stock portfolio go under water recently or are worried about their future employment are not out buying homes. For instance, how many people are rushing out to buy SUV’s or luxury cars any longer? Few, very few.
All any Realtor can do is to show (advertise/broadcast) the house in the best possible light to the largest possible audience and that audience is on the Internet. If a house doesn’t sell pretty quickly, it costs the Realtor time, energy and money, so all we can do is to keep hounding the seller to cut their price down and down until (maybe) someone buys it. By then it could be too late, due to changing market conditions, etc.
It pains me every time I see a $1M house with (1) picture on our “internal and agent only MLS” (the one the public doesn’t see unless they are Realtors), or a house is advertised as having a barn (or whatever) and there isn’t a picture of this, or all the pictures were taken by Realtors – and as far as I know, not too many Realtors have a second job as professional photographers – or they don’t have virtual tours. Those cost money. Sellers would be appalled if they saw the lousy pictures of their house which other agents (and their clients) see on-line, or the cheap Xerox copies of listing sheets during Broker’s Open Houses or on Open Houses during the weekend. It is the blind leading the blind, but one of the parties has to pay 5 or 6% for very poor marketing.
There are not too many buyers who don’t do their homework on-line or trust their Realtor completely, as in the old days – maybe 10 years ago. That died after too many buyers were hoodwinked and sold down the river to the listing agent and to the seller before the (recent) existence of “buyer’s agency”, as they would divulge whatever the buyer told them as to their motivation and strategies to the seller, for the seller – in their mind - was paying their commission. As you know from my first posting, the buyer is the one who pays the commission markup. All the seller does is mark up the price of the house to cover that cost.
Take it from an agent and sell by owner: Foreclosure/investment guru Dani Babb, PhD claims real estate agents' commissions are hindering the recovery of housing markets. "Their added fees are creating inflated home prices and keeping sellers and buyers from reaching deals”. What can you expect if you hire an agent to help you buy or sell a home? "Wasted energy and time, which could be spent house hunting, financing or moving," the Newport Beach, Calif.-based "technologist, consultant, author and professor" says. The kicker is that Babb -- who teaches a course on finding foreclosed properties at UC Irvine Extension -- also happens to be an agent.” Bottom line? From an agent?" Babb asks. "Sell by owner. Putting your house on the MLS is as easy as going to housepad.com. “Unless you have some overly complicated situation, don’t waste your time or money with agents."

the out-of-state realtor apparently doesn't have much confidence in his/her abilities. Advice from "gurus" got us into this fix in the first place. People who think of their home as an investment rather than a place to live make a fatal mistake and expect others to bail them out, the REAL reason we have a subprime mortgage crisis.

Couldn't resist countering a comment on buyer's in the 90's.

Bought our house in '98 for $250K. Top of market in '06 realtor said we were at $525K. Agents told us in '08 to list from $460K - $480K. Put on market in '08 for $450K. Sold at $450K next day. House is in 495/Rt 1 beltway. Sold our house to "move up" to the $800Ks.

Yeah, I guess us '90s buyers are greedy and delusional. I'll apologize for us all that want something nicer than our starter home. FTB, talk to me when you are ready to move up.

Zillow is a joke. They have no idea about the homes condition, the locations condition and the towns outlook going forward. Its just a pretty slick interface that looks nice. And people who believe what it tells them are just lazy.

Out of state realtor (uh huh) should find a different job. NOTHING goes on the private MLS except open listings which sellers will not give us an exclusive for, and for that we are doing them a favor by listing it anywhere, NONE of my market materials are cheap xeroxes, and p.s. my last career WAS professional photographer and graphic artist.

Commissions aren't hindering the recovery of the market. Houses are WAY more overpriced than just 5 or 6 percent. And the discount listings are also overpriced.

My home was built in 1972 by a contractor for his personal use. He added features that were top of the line at that time. I bought it in 2001 as the fourth owner. I added another $20,000 and during the last three years another $30,000. Yet according to some realtors, my house should sell for less than my investment. I have added chair rails, crown moldings, marble floors, kitchen upgrades of counter tops, refrigerator, gas stove, wine cooler, etc. New outside lights, fence around the pool, and others improvements. I have a pool on 1.34 acrea. My house is 100x50 =t 5,000 sq. ft. heated and cooled with 2 heat systems
with