Question Details

Chuck, Home Buyer in 22314

Do realators inflate the housing market?

Asked by Chuck, 22314 Mon Mar 3, 2008

I don't want to start a fight, but I am looking for your take on housing and economics.

Here are a few assumptions that I need to frame my argument around, (or else I will get a million "it depends" answers)
1. There is no increase in the value of a home. It doesn't appreciate, nor depreciate in value.
2. Lets not take taxes or inflation into consideration.

Here is my argument-- If I buy a house for 100K (to keep the math simple) and sell it (the length of time doesn't matter) a realator will charge me about 6k to sell it. Since my home didn't appreciate, (and I don't want to loose money) I need to sell my house for 106K. (I break even, the relator gets her commission).

The next person buys my place for 106, and decides to sell. He tries to sell his house for 112K (simple math). This cycle goes on and on. Of course 6% on a 500K is much more, and the price of the homes will increase that much faster. Does this argument hold any water or am I way off base?

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Answers

8
When you sell your home doesn't the title company, the attorney, the escrow agents, the mortgage underwriters, the various governmental recording fees also inflate the housing market? There are costs that the agents pay in advance of a sale without recourse prior to sale:
1. Marketing materials, flyers, newspaper ads, other print media, online advertising memberships & packages.
2. For Sale signs (purchasing, storing, maintaining & installing them)
3. Contact methods for prospective buyers (internet, phone, websites)
4. Hosting open houses, broker tours and showings

These are just some of the overhead costs that go with every listing, and they don't disappear if the listing doesn't sell. How many mortgage appraisals will your lender pay for if you never end up purchasing? For every listing that does not sell it could cost the agent/broker hundreds of dollars without any recourse to the seller. Oh then there's cost of doing business: gas for vehicles, increased insurance costs (liability and automotive oh yes and health insurance), heat, electricity, office space, franchise fees, signeage, municipal business licences, commercial office taxes, water, computers, professional affiliations, then uncle sam who wants his 38% and paying double social security taxes.
1 vote Thank Flag Link Mon Mar 3, 2008
Well, first things need to be straightened out:
1) Realtor is spelled Realtor and is pronounced Real-Tor not Real-a-Tor, Real-a-Ter, or even Real-Ter.
2) Realtor is always with a capital R
3) The majority of the time I give a professional opinion and usually the client decides what he or she wants for a price and it is always above my opinion. The only thing that counts is can you find a buyer at the price it is listed and will that buyer buy the real estate. To say that Realtors cause the inflation of real estate is absolutely like saying do doctors cause more illness and injuries. Realtors do not control prices...the buyer's do.

Your $100,000 home for sale is 6%, but let's agree that 3% goes to the buying Broker who splits it with the buying Realtor for 1.5% each. The same is done with the other 3% on the selling side with the Broker and the Realtor. To say I as a selling Realtor get 6% is not accurate.

You can add your $6,000 and if it sells great. I can guarantee you that the buyer generally is not going to pay list price on the real estate so you might as well, in this market, add another $6,000. You need to find a buyer now at $112,000. I am sure when you purchased the home you utilized a Realtor and received their services FREE.
0 votes Thank Flag Link Tue Jul 14, 2009
Your theory is only theory....it is Realtor not realator please
0 votes Thank Flag Link Mon Mar 3, 2008
I couldn't expand on my question as I ran out of room, but I think you missed my point.

Does the transaction cost of buying and selling add to the increase in the price of homes? If normal home appreciation is 5% per year (for arguments sake) how much does the cost of buying/selling add to that appreciation? Is that one reason(out of many) why home prices increase at a rate faster than salary's increase?
~~~~~~~~~~~~~
Sellers inflate the price of a home for various reasons. Greed usually.
0 votes Thank Flag Link Mon Mar 3, 2008
Chuck,

Selling costs, which may or may not include a Realtor's fees, do tend to inflate asking prices but rarely the selling price. It is the market (and in today's market that means buyers) that determines selling price.

In fact, we did an informal survey of FSBO's in Carlsbad (see article below) and discovered that most were overpriced, in spite of reduced selling fees. The best bargains, and those that attract buyers, are those that are very aggressively priced by motivated sellers (whether listed by a Realtor or not).
0 votes Thank Flag Link Mon Mar 3, 2008
Roberta Murp…, Real Estate Pro in Carlsbad, CA
MVP'08
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The answer can be yes and can be no...depending up the quality of the CMA one does to price the house that eventually will sell. The sold homes only tell what people are willing to pay for a likeable home.

Please do not spell Realtor as realator. Spelling is one thing and pronouncing is another. It is with a capital R and it is pronounced Real tor not Real ter. Most real estate instructor, Realtors, and others associated with the real estate market mispronounce the occupational name. Not good!
0 votes Thank Flag Link Mon Mar 3, 2008
I couldn't expand on my question as I ran out of room, but I think you missed my point.

Does the transaction cost of buying and selling add to the increase in the price of homes? If normal home appreciation is 5% per year (for arguments sake) how much does the cost of buying/selling add to that appreciation? Is that one reason(out of many) why home prices increase at a rate faster than salary's increase?
0 votes Thank Flag Link Mon Mar 3, 2008
As I always answer in that situation, it's irrelevant what you bought your house for, or what you "have to get". If the market is going down, you aren't going to get it. I'm sure you read this board. Buyers aren't stupid, they aren't going to pay more because you need it.
0 votes Thank Flag Link Mon Mar 3, 2008
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