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Realtors RIP?

The old Statler Brotehrs song, the Class of 57 opines that one class member is

selling insurance and part time real estate.

Back then real estate was a marginal occupation, it simply did not pay enough money nor was there enough property speculation to make a full time career of it. The inflation of the 1970s, the mobility of the US workforce, and finally outright property specutlation changed all that.  Incredibly realtors have decided that one needs to be a college graduate to sell a house, handily gtrandfathering everyone in that already had a license of course.

What little looking I have done in San Antonio suggests that most sellers and certainly their realtors have not been watching hte rice of home builders nor the overall stock market. Prices are unrealistically high with 25 year old homes of 2300 s f asking for over a quarter of a million dollars.

Meanwhile most other services have fallen in prices. ON interactive brokers I can buy and sell stocks for about $2  a trade. Other discounters are at $50 and below. Even doctors see lots of patients a day as their per patient charges are limited by insurance companies. But not the realtors, they still hold out for a whopping 6% commission, ofr doing really no more than e bay does for a lot less.  IN short here is the list of houses, buy one and pay me 6%. 

I suspect we are or will shortly see the end of all that. If exec compensation will be limited, so will realtors. The conomics argues against it, as follows.

Let's say I have the choice of 'buying' a $200,000 house or renting. If I buy and sell the house over the next few years the realtors take a whopping 6% x 2 x 200,000 = $24,000. NOw add to that say $5,000 in property taxes the next two years.  Now add the $1500 a year insurance plus utilities.

Gee we are spending

RE Commissions    $24,000

Prop Tax                10,000

INsurahce                3,000

Util et al                who knows

WE can easily spend $40,000 over and above the cost of the house just to live there, we have not improved the property but are being soaked by eveyrone who sees the home owner as a target from the local property taxer to the insurance companey to theutility7 company.

I would be we can rent something in the meantime for say $1,000 per month, that would equal the real estate commission.

Which would you do?

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9 responses to “Realtors RIP?”

  1. Jordyn Scheide Avatar
    Jordyn Scheide

    I don’t think I would use a realtor. A friend of mine sold her house the other day and they used a realtor but she was so upset with the person because she feels like they did nothing to help with the sell. I don’t think realtors need to make that much off a sale.

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  2. Dennis Elam Avatar
    Dennis Elam

    We used one to sell our house in San Marcos two years ago, I have never seen one do so little and make so much money.
    dle

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  3. Jordan McClary Avatar
    Jordan McClary

    RENT RENT RENT RENT!!! That’s exactly what I would do. For many of the reasons listed above. I too am with you in saying a real estate agent is a joke, in the consumer market anyways. It may be more well advised to have one when it comes to purchasing large factories and the like due to complicated negotiations, but even that deserves a line drawn in the sand. Taken your example that’s roughly $40,000 I spent in one year. I believe I can get a much better return on my investment by eating $12,000 and investing the remaining $28,000. While argument is always yeah but you don’t have anything to show for it, I like to say wanna bet. Check out my bank account and check yours. I have $28,000 and you have???? -$0,000. Now I am no finance major but I believe I’m already in a better position. Not to mention the fact that I’m not responsible for mowing a lawn or maintenance of the building, the renter takes care of all of those sometimes costly expenses. And to top it all off I can move a lot faster then if I was in a house. So just rough math for you, assume you pay that mortgage of roughly $250,000 for 30 years. Your payment should be roughly $2,200 buck give or take with taxes. Your total payback $724,000. Given that includes taxes on the home. Now If I can rent a decent apartment at $1,000, that leaves $1,200 for me to invest on a monthly basis. Given the same time period and a rate of 8% I would have and $1,200 invested monthly I end up with $1,788,431 and some change….hmmm so do I pick the house option which has the potential in 30 years of being worth $500K or do I take the 1.7 Million. You decide. It’s basic math but mortgage companies and realtors sell us all the time on these same basic issues and we always seem to fumble. And Dr. Elam it seems as though I was more right then ever when I was in your Acct 5130 class. I said this whole mortgage game was about playing hot potato and someone was going to drop the ball. Well I didn’t know they were going to try and cut the potato up so everyone had their own. Seems as though they all got burned now we just gotta figure out who we can save in the mess. In my view looks like JP morgan isn’t doing to shabby amongst the big giants of banking. Stocks trading a little above $40 a share and the closes competitor BOA is struggling to hit $30. EWWW don’t look at WAMU.

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  4. Dennis Elam Avatar
    Dennis Elam

    Jordan
    Well put, with more and more new vacant houses on the market, the banks will shortly be demanding some money on the bridge loans, looks to me like the builders will have no choice but to put them up for rent. THis means the realtor basically functions as ebay furnishing a list of homes available for sale or rent. Like E Bay, I suspect we will see properties auctioned in an effort to ‘force’ a bid, thereby eliminating hte lengthy and expensive process of 6% realtors.
    How long till graduation Jordan?

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  5. Jordan McClary Avatar
    Jordan McClary

    Graduating in May. Can’t wait cause then I can really focus on my career and some me time.
    Jordan

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  6. Tina C Avatar
    Tina C

    Which would I do?
    We did the rental thing for 13 years – moving from apartments to duplexes/fourplexes to houses, etc (always hauling our boxes of books ). We put up with all sorts of landlords, noisy neighbors, neighbors who every holiday would plug up the plumbing in the 4-plex, places that wouldn’t allow pets or said “we’re selling, get out”, not to mention how much of a hassle it always was to get something repaired or the pest control service to come out.
    Nine years ago we bought a modest house in the country with a very good interest rate with low taxes and lower insurance (not in Bexar county, not within any city’s limits). All of these years I’ve been paying less (cost per square foot wise) than I ever did by renting & paying utilities & moving constantly & always renting a store-room. My kids have not been constantly uprooted from school to school and have grown up with their friends. We can also have whatever pets we desire (while NOT a prudent investment, most folks have a hobby/habit/addiction of some sort that is not prudent). Whether or not buying a house was a prudent investment financially, the non-economic value exceeds the financial value in our situation.
    Given your case above, I can see the investment side of it, however there is an arguement for the prudent home investor or those who subscribe to the notion that wealth does not buy happiness.

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  7. Dennis Elam Avatar
    Dennis Elam

    You were renting as house prices went up. The Distinctive Properties section of the WSJ got ever larger, the number one stock market newspaper was making more money advertising real estate than stocks and bonds, gee could that be a top. Like yourself, the dogs and cats must have a place. Now the balance I thnk has switched for the time being to the buy rather than sell side. As best I can tell there are lots and lots of empty properties. I agree particularly if one can get outside the city and their taxes and buy a modest place, we lived outside the city in San Marcos. For the time being I think this may be the better alternative while we watch and wait for one of those fallen from grace on the note real estate speculators to say ‘uncle’ on the right property.
    Glad you are enjoying your life in the country, is there a vacancy next door?

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  8. Tina C Avatar
    Tina C

    Actually we sold the lot next door a couple years ago for a profit – before things started falling off and right after some idiot paid $300k for a house in the area. Good for us at the time since it drove prices up, but bad for them since the house was not worth anywhere near that much.
    Ours was a good deal because it had sat on the market off and on for over a year. The folks decided they really wanted to sell, we had good financing already lined up and offered them well below what they were asking. Everybody told us it was too low, they would never go for it… My sister-in-law just picked up a vacation home in Maine under the same situation.
    I wonder if a prudent investor might not pick up a few of these foreclosed properties, rent them for a few years until the real estate market goes back up and then sell them off…

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  9. Dennis Elam Avatar
    Dennis Elam

    Tina
    That is my point, I think the builders with too much inventory will face declining prices, in the swing economy of West Texas houses were bulldozed in the 1960s just to get them off the market, in Lavernia right now there sit many empty brand new homes all priced at $250K and up, how long can that go on without someone having to pay something to the bank, we shall see. As you say $300K is an incredible price to pay for
    a house, yet I see many many that are 25 yeras old that probably originally sold for less than $100K back then, the declining dollar will finally bring things back to reality
    speaking of reality I have some exams to grade…

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