History Does Not Set Market Price
By Charles TurnerWith access to information comes power. That is, if you know what to do with it. One of the most frequent questions we are asked about a property is, “how much did they pay for it?” It doesn’t matter. We have no idea what the history of the sale is. Was it bought as distressed property from an anxious seller? Did the buyer pay top dollar because there were competing offers and they just HAD to have that home (or had been beat out on two or three before getting and accepted offer?).
Even with a flip property, we can’t tell if a coat of paint was slapped on the property or if every system was replaced by a master craftsman (though good marketing should make that apparent). Again, we can’t tell what the circumstances of the purchase were.
The number of times we hear, “They don’t deserve to make that much” is laughable. The market determines what they make. Do we get upset at stock market investors who buy low and sell high???
Zillow, Trulia and Redfin are probably the national market leaders in providing the consumer with information. Portlandmaps is probably the best sources for Portland area Real Estate.
I need to find a copy of the 60 minutes report on real estate from over the weekend.
Charles, I can understand that from your point of view history should be downplayed. And you’re partly right. However, it is quite telling when you see a property that was bought a month ago and is now being resold at a significanly higher price because it has a new coat of paint – how much serious remodelling can be done in a month, especially if the flipper has multiple homes in the pipeline? That’s one of the things I really want to find out about a house and Zillow gives me that info. (of course, I suspect that now there’s a lot less flipping going on than there was even a few months ago)
The number of times we hear, “They don’t deserve to make that much” is laughable.
Perhaps, but I think there is definitely a psychological effect from having the sales history readily available now. People can see that the price went up a lot and rapidly in the last few years and they start to think of the old “what goes up” addage.
But really, if you think that prices are too high, then don’t buy – wait out the market. It’s as simple as that. Nobody’s got a gun to your head forcing you to buy.
The market determines what they make. Do we get upset at stock market investors who buy low and sell high???
No, but potential stock buyers can look at the charts and see what kind of run-up there has been and then determine whether it’s wise to buy at this time at these prices. Now we have the same kind of data for houses. More information is always good for the consumer.
I need to find a copy of the 60 minutes report on real estate from over the weekend.
Didn’t see it yet, but it’s all over the housing-crash-mortgage-implosion blogs. You won’t like it. How to say this nicely… it would appear that your profession, along with the mortgage industry, has begun to be viewed in a negative light in the current popular culture…
In addition to TiP’s comment, knowing the price the seller paid can give valuable insight into his ability to move on price. It is not a perfect metric for that, but certainly enhances the buyer’s insight.
If you know that you are buying from a flipper, you better ask the right questions. Phoenix Redelopment (www.phoenixredevelopment.com) is a local flipper that has built a reputation of remodeling old homes (“cash in one day”)into quality high-end homes. They have a published plan of what they do. They clearly have the ability to buy at the bottom of the market. Should the resale price have anything to do with their purchase price?
I haven’t watched it yet. All 13 minutes of the story on the CBS website:
How to say this nicely… it would appear that your profession, along with the mortgage industry, has begun to be viewed in a negative light in the current popular culture…
And that is different how?
Industries evolve or die. Real estate is no different.
The CBS 60 minutes video can be found on the link I posted in my comment yesterday on the “Hillsboror – mini NYC” thread.
The best part is the sheer magnitude of the outrage from realtors expressed on that CBS webpage in the comments section. Hordes of REIC minions are regurgitating NAR’s damage control talking points.
There was even a fight between brokers and realtors. Those comments are a great showroom of the absurd logic and desperation of the realtors as their MLS cartel inches closer to a collapse.
PDXrenter
Proud to have never paid a red penny to a Sixpercenter.
One of the most frequent questions we are asked about a property is, “how much did they pay for it?” It doesn’t matter. We have no idea what the history of the sale is.
If you can’t even give such BASIC info to the buyer (who is PAYING you an EXORBITANT amount of money for your ‘service’ then you prove the point of the critics like me who charge that realtors are not worth even 10% of what they are paid.
And on top of that you have the gall to insult your customers when you say:
The number of times we hear, “They don’t deserve to make that much” is laughable.
This kind of anti-customer attitude is possible only in a monopoly or a cartel.
The MLS cartel is under attack and I am personally very happy to see more and more people, and media (like CBS), beginning to pay attention to this anti-customer behavior of the NAR/realtor cartel. The days of the cartel are numbered.
I will leave it at that, because I don’t think it is worth going into an economic analysis of the RE market and price levels on a marketing blog like this.
PDXrenter
Happy to have never flushed a single dollar down the Sixpercent toilet.
In addition to TiP’s comment, knowing the price the seller paid can give valuable insight into his ability to move on price. It is not a perfect metric for that, but certainly enhances the buyer’s insight.
But that is totally irrelevant to a typical commissioned agent from the Real Estate Industrial Complex. Why would they help you with this kind of stuff, when all they want you to do is plunk down the downpayment, sign the loan docs and cut them their commission checks?
This is precisely why Charles is so adamant about the irrelevance of sale history. That is worthless to him. He needs the buyer to close their eyes and commit NOW. So much for the NAR’s “strict Code of Ethics”
PDXrenter
Watching the cartel collapse without paying for it.
I’ve got no problem with people making money selling houses. I do have a problem with ponzi schemes based, in part, on dishonesty and fraud.
Capitalism depends on the accuracy of financial information. Given the complete disconnect between the S&P/C-S index and MLS numbers, its my belief that the NAR and local MLSes are manipulating the market by fraudulently inflating value.
This is precisely why Charles is so adamant about the irrelevance of sale history. That is worthless to him.
It looks like PDX renter got up on the wrong side of the bed. The ability to twist words and infere stuff from what I never actually said is amazing.
Did I say I won’t supply the info? No? I said, in my opinion, that info doesn’t have a baring on current market price.
Why have an anti-customer debate with someone who has made it so clear that they will never be a real estate customer? You don’t need me or this blog.
And frankly, questioning my ethics just invalidates every possibly constructive thing you have had to say in the past because you clearly don’t know me but claim to be an expert on my thoughts and the reason portlandrealestateblog exists.
Charles, you are wrong on all three counts:
1. You claimed price history does not matter. I pointed out it does not matter TO YOU. To any thinking buyer, it certainly DOES matter. It will tell them when to stay out of the way of a train wreck and save themselves from mortgaging their future away at the exhortation of commission-earning REIC agebts.
2. Anti-customer behavior: In your own words, you found the opinions of your own customers LAUGHABLE. That says enough about your opinion of many of your own customers. The fact that you’re laughing at them is well in concordance with my opinion that realtors practically rob their prey (customers).
3. About this blog being a marketing blog: that’s again your own words, in a discussion on this very blog a few months ago. I could go look for that post/discussion.
Now, it’s true I don’t know you. There is a good reason I am averse to using the exorbitantly overpaid realtors, who are typically unethical and condescending towards the very people whom they depend on for a living. It will be a rare realtor with whom I will do business, at a reasonable price. Your blog posts like this one have only reinforced my belief that you are highly unlikely to be that rare realtor.
Nevertheless, good luck to you on your business. I will continue in my interest in pointing out the problems I see in this field so that friends, family and strangers can benefit from examining the process.
1) I stated an OPINION that past history is irrelevant to current market price. Past history may be instructive to what has (or hasn’t) occurred at a property. I am yet to see direct evidence in previous comments that the past price should play a part in determining current price. I never said that I hide that history from our clients.
2) If I hold to my OPINION above, educate the buyer on that and can receive no conclusive argument that I am wrong… Maybe laughable wasn’t the best choice of words but it is close. There was no anti-customer sentiment intended.
3) It will be a rare realtor with whom I will do business, at a reasonable price.
If you are working with a buyer’s agent and the seller is offering commission, what does this mean? You will ask the buyer’s agent to give you part of the commission?
Marketing is but ONE reason to write this blog. You took the one “negitive” and took a broad swipe with it. I probably wouldn’t write this if I wasn’t hoping to gain a client out of it (and we do get clients from it). Thing is, those clients are some of the best to work with. That’s because we have hopefully played a part in educating them about our market. Another side effect is that it makes me a better Realtor by researching our market and hopefully having intelligent conversations about it. I don’t market our listings on the blog.
As stated before: you don’t need a Realtor to buy a house any more than you need a doctor, lawyer or dentist. Barriers to entry and maintaining a real estate license are to low. The industry has brought a lot of the negative sentiment on itself and has no one to blame but itself.
Charles: I suspect there are a lot of PDXrenters out there. You may want to change professions before the pitchforks come out. Maybe you could get into something with a better reputation: How about running for congress?
Well, just be glad you’re not a mortgage broker. Those guys will probably need bodyguards soon as a lot of people lose their homes to foreclosure.
“The number of times we hear, “They don’t deserve to make that much” is laughable. The market determines what they make. Do we get upset at stock market investors who buy low and sell high???”
I think it would be worthwhile to think about this a little more…
If you simply reverse the timescale, you can apply a simliar argument. “No one cares what the property will be worth in the future. The market decides what the property is worth now!”
This argument is true in the same way your argument about past prices is true. But what you’re missing is that what the property was worth in the past, and what it might be worth in the future, heavily influence the price people are willling to pay for it (the market price). Past and future prices are not entirely independent of market price.
You might laugh when one out of 100 prospective buyers says that a seller doesn’t deserve the profit he would get for his asking price. But when 99 out of 100 prospective buyers say it, you would conclude that the seller’s asking price is above the market price. So where do you draw the line between laughing and realizing that the market will not bear the asking price. 50 out of 100? 75 out of 100?
And no, we do not get upset when stock market investors buy low and sell high. We simply do not buy high.
You might laugh when one out of 100 prospective buyers says that a seller doesn’t deserve the profit he would get for his asking price. But when 99 out of 100 prospective buyers say it, you would conclude that the seller’s asking price is above the market price. So where do you draw the line between laughing and realizing that the market will not bear the asking price. 50 out of 100? 75 out of 100?
Leo, I agree with what you’ve said. However all it takes is for that one sucker…. err, I mean buyer… out of 100 to buy at a ridiculous price and thus set or confirm the market. Actually, I think we’re in the phase right now where it’s primarily the suckers… err, let’s be charitable and call them the uninformed buyers… who are buying. And as we eliminate them from the market the more informed potential buyers are left. It’s those more informed potential buyers who balk at the current prices and will make offers much lower than the asking price. When there aren’t enough uninformed buyers in the market those lower offers will be accepted – actually, that’s already been happening in lots of areas of the US and probably has begun in certain segments of the PDX market right now.
We’ve definitely seen inventory rise and listed prices fall slightly over the last couple of months – and this is the peak selling season. ARM resets have begun, but they really start in earnest in August and continue to rise through the end of the year and into 2008. Option ARM resets haven’t started in a significant way – the chart I looked at from Credit Suisse shows they mostly get going in 2009. We’ve got a long ways to go yet.
Oh, and I see the Countrywide now has $1.5Billion in REO – houses they now own because their borrowers couldn’t make payments. Houses that they’ll need to unload soon. And that’s only one lender.
“Leo, I agree with what you’ve said. However all it takes is for that one sucker…. err, I mean buyer… out of 100 to buy at a ridiculous price and thus set or confirm the market.”
As you alluded to yourself, that is what is happening across the nation now. This is why the number of transactions have plummeted, but prices have only barely moved.
Just give it some time. Supply and demand works; it just isn’t instantaneous. Housing is a notoriously illiquid asset, and real estate is about as far from the efficient market model as you can get.
Glad to see you recommend PortlandMaps.com, it is a very informative site with a lot of good information. According to it, a random sample of listings from around P-town that I have been looking at are priced around 32% – 44% over the market value. Wow, that means that the prices are even more inflated than they look on Zillow!
And oh, I have absolutely no problem with anyone making (and loosing) tons of money investing in the stock market. But how much commission does that person’s stock broker make? 1%? 3%? It also seems that there are plenty of people foregoing a broker altogether (gasp! The horror!) to do business on-line for a small flat fee per transaction.
According to it, a random sample of listings from around P-town that I have been looking at are priced around 32% – 44% over the market value.
That sounds great… but, how do you figure that?
And oh, I have absolutely no problem with anyone making (and loosing) tons of money investing in the stock market. But how much commission does that person’s stock broker make? 1%? 3%? It also seems that there are plenty of people foregoing a broker altogether (gasp! The horror!) to do business on-line for a small flat fee per transaction.
And even that small 1% to 3% commission and flat fee is endangered: check out http://www.zecco.com they give you 10 free trades per day. Market innovation continues to drive down prices.
Price history of a house doesn’t matter if you are filty rich. Otherwise, all prior history, including price matters.
Most prospective buyers can find out what has been done to the property since its last sale. Price history is a component of the overall picture, just as elbow grease and renovations are.
I am completely and utterly appalled reading this – it is very irresponsible and indicates a complete lack of concern for a homebuyer (as well as investor and speculator).
Charles wrote: If you are working with a buyer’s agent and the seller is offering commission, what does this mean? You will ask the buyer’s agent to give you part of the commission?
Absolutely, because the buyer is paying for EVERYTHING, including the commission. The smart buyer will get as much back from buyer’s agent as possible, to minimize his/her cost.
The only thing a buyer doesn’t pay for is the check that the seller has to bring to a closing in case of an upside down mortgage. And this, by the way, will be happening a LOT more in the coming months & years.
Don’t forget for a moment who is actually bearing ALL of the cost and risk of the transaction: the buyer. No amount of realtor schpiel will obscure that fundamental truth.
I am completely and utterly appalled reading this – it is very irresponsible and indicates a complete lack of concern for a homebuyer (as well as investor and speculator).
Clearly my opinion of past pricing differs from some of you. I think the personal attacks are misguided and inappropriate though. Note the title of the post, “Past history does not SET market price.”
Never did I say that I hide anything from our clients. History is a FACTOR not the only determinant. That seemed to get lost as the sharks circled. I just reread the entire thread and all I can see is that the furor stems from inaccurate inferences by commenters of what I didn’t say which I thought I had cleared up.
Price history is a component of the overall picture, just as elbow grease and renovations are.
EXACTLY.
This post has run its course so I am going to close comments.
Charles wrote: If you are working with a buyer’s agent and the seller is offering commission, what does this mean? You will ask the buyer’s agent to give you part of the commission?
Absolutely, because the buyer is paying for EVERYTHING, including the commission. The smart buyer will get as much back from buyer’s agent as possible, to minimize his/her cost. .
I was just about to hit post when PDXRenter posted. PDXRenter is directly asking an Oregon Realtor to break the law and be unethical by rebating their commission. Current Oregon law does not allow for that.
Market innovation continues to drive down prices.
The NAR thinks it has solid levees against the massive force of the free market, via their lobbying and absurd legislation (like the kind preventing Redfin from entering Portland where a commission rebate is made illegal – check the CBS video).
One of the most spectacular items to be found on the beach as this real estate tide goes out, will be the realtors who drank their own Kool-Aid and will be left holding the bag on their own ‘investments’ as well as the liability of things on which theyt follishly spent money while the gravy train was rolling during 2003-2006.
This is the last RE market cycle with the absurd amount of market friction we’ve been used to. It was the same way with stockbrokers 15 years ago. Now $7 trades and even free ones like Zecco’s and Bank of America’s have eliminated most of that market friction.
Real estate’s turn has come, too.