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Zillow Offers Follow-Up

Susie asked for a Zillow Offers update, and yesterday they announced that the unwinding is going just fine. While the debacle did tank their stock price, they figured it would be a good time to buy more for themselves:

SEATTLEDec. 2, 2021 – Zillow Group, Inc. today announced it has made significant progress in winding down Zillow Offers inventory and has sold, is under contract to sell or has reached agreement on disposition terms for more than 50% of the homes it expected to resell during the entire wind-down process. Zillow Group’s Board of Directors has also authorized the repurchase of up to $750 million of its Class A common stock, Class C capital stock or a combination of both.

“We are pleased with the progress of our wind-down efforts and recognize that no longer operating Zillow Offers will allow us to have a more capital-efficient balance sheet and business moving forward,” said Zillow Group co-founder and CEO Rich Barton. “With that, we see today as an opportune time to announce a share repurchase program and reduce the cash balance we built up to support Zillow Offers.”

We can expect them to gloss over their little boo-boo and carry on.

More below – thanks Bode:

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Reverse Mortgage, Or Sell?

The less equity you have, the more likely you will move.

Q: I guess it may be too late, but figured I’d ask. We did a reverse mortgage. We got almost no cash out of it, but it is eating up whatever equity remains with our loan that has an effective interest rate of almost 5 percent. Is there anything we can do? Thank you.

A: Reverse mortgages have been around for more than 20 years. The concept is enticing: If you’re over age 62 and you have equity in your home, there are a number of lenders who will give you a loan for a certain percentage of available equity (often up to 85 percent, but sometimes quite a bit less). The loan provides you with cash and no requirement to repay the loan until the home is sold or the owners pass away.

If you’re house rich and cash poor, and want to stay in your home but perhaps need funds to make repairs, pay off the mortgage to lower your cash burn or even augment your retirement income, a reverse mortgage can help. But it comes at a fairly steep price: a higher interest rate plus higher fees.

The higher fees eat away at the amount of cash you’ll get. The higher interest rate eats away at your remaining equity. And you still have the requirement to pay your real estate property taxes and homeowners insurance premiums.

It sounds like you needed cash, maybe didn’t qualify for a home equity line of credit and turned to a reverse mortgage as a way to secure the funds you required. The problem is the one you now face: You had a home without much in the way of equity, took what you could, and now have run through the cash and are out of options to get more.

It’s an unfortunate position to be in if returning to work is no longer an option or a possibility. When we get asked about reverse mortgages, we’ll often recommend that homeowners sell the property, take whatever equity they can and rent something that’s affordable. Or, better yet, move in with family or into some sort of shared living arrangement to cut costs.

Link to full WaPo Article

Commission Uncoupling

This report should be the last dagger for buyer-agents.

Won’t buyers who are empowered by searching for homes on the internet themselves just go direct to the listing agent, rather than paying extra for their own representation? They don’t think they need representation – they can find houses on their own! 

Listing agents will encourage this program too – and just charge 4%-5% and keep the whole fee (which this report didn’t see coming).  In addition, without buyer-agents there will be no need for the MLS.  The search portals will become an option, rather than a requirement, for listing agents to advertise their listings if they feel like it.

Also, realtors will be extremely reluctant to advertise their true rates and services. How do we know that? How many realtor blogs do you see today?  Instead, the braggadocious fluff will prevail.

Bold added:

Washington, D.C. – A new report by the Consumer Federation of America (CFA) on residential real estate commissions – The Relationship of Residential Real Estate Commission Rates to Industry Structure and Culture – shows that buyer agent commissions are highly uniform.  This rate uniformity is strongly supported by the industry’s compensation system in which home sellers pay the commissions of both the listing agent and the buyer agent.  Uncoupling (or untying) seller and buyer agent compensation would spur price competition that would substantially reduce the some $100 billion in commissions paid annually by consumers.

“The current commission system is designed to thwart price competition among agents,” said Stephen Brobeck, a CFA senior fellow and the report’s author.  “If home buyers were allowed to negotiate their agent’s commission, agents would be encouraged to compete on price and service,” he added.

CFA’s analysis of more than 10,000 home sales this year, in 21 cities from the eastern half of the U.S., shows that buyer agent rates were highly uniform.  As the appended table shows:

  • In eight of the cities, more than 80 percent of the rates were identical.
  • In 14 cities, more than 88 percent of the rates ranged between 2.5 and 3.0 percent.
  • In all cities but Brooklyn NY, at least 72 percent of the rates ranged between 2.5 and 3.0 percent.

The report’s analysis of these buyer agent rates and their relationship to listing agent rates reveals that the typical total commission in these cities ranged between five and six percent.  The report also explains why the most widely-quoted estimate of a national average rate – by industry-related Real Trends and now below five percent – is misleading and probably inaccurate.

In a Price-Competitive Market, Commission Rates Would Vary Considerably

In a price-competitive marketplace, rates would vary greatly because of several factors:

  • The work-related costs of agents can vary greatly. Listing agents can do as little as just listing the house on their local multiple listing service (MLS) or also arranging high-quality photos and videos, developing and distributing marketing materials, and meeting potential buyers.  Buyer agents can, for example, show only one house or more than a dozen homes.
  • When the work does not vary, the compensation usually does. Total agent compensation, at a five percent rate (of the sale price), varies from $5,000 on the sale of a $100,000 home to $50,000 on the sale of a $1,000,000 home.
  • The quality of agent service often varies but the rate usually does not. Experienced agents typically charge the same rates as agents who have just received their license.
  • In home sales, some agents are fiduciaries with total loyalty to clients while other agents work as dual agents or transaction brokers, with loyalty to neither seller nor buyer. Fiduciaries, in general, deserve higher compensation.

Industry Structure and Culture Block This Price Competition

The report shows that the above factors, which should result in highly variable commission rates and agent compensation, are minimized by the structure and culture of the industry.

  • Historic Rate-Setting: It was only through determined efforts of the U.S. Department of Justice, Federal Trade Commission (FTC), and some state attorney-generals that toward the end of the last century, the industry shifted from explicit rate-setting to “covert-price setting,” the term used by a 1983 Federal Trade Commission report.
  • Industry Rules: The industry requires listing agents (and clients) using local multiple listing services (MLS) to offer fixed compensation to buyer agents selling the properties.  Buyers are unable to negotiate this compensation, and buyers are usually told, if they ask their agent, that sellers pay the agent’s commission.  Sellers, on the other hand, are informed by their listing agents that lowering this buyer compensation will risk buyer agents “steering” their clients to higher-commission properties.
  • Industry Norms: The industry promotes a “cooperative” culture in which agents are expected to be “team players,” according to the FTC’s 1983 report.  Company policy manuals often constrain rates charged, and agent scripts explain how agents can avoid negotiating lower rates.  A core norm of the industry culture is not talking or writing about commission rates, which helps explain why very few firms, except discounters, advertise commission rates, disclose them on websites, provide them to inquiring consumers who call firms, or typically discuss them at all with home buyers.
  • Agent Surplus: The high ratio of agents – over 1.5 million realtors – to number of home sales – about six million annually – forces agents to spend much time and money seeking clients.  It also provides a strong incentive for agents and firms to support high, uniform rates.

The report notes that there appears to have been some recent erosion of rates and their uniformity.  Over several decades, typical rates in urban areas have declined from six to seven percent to five to six percent (with no loss of agent incomes because of rising housing prices).  In some cities, there are now a large number of sales at both 2.5 percent and at 3.0 percent.  And in Brooklyn, where expensive homes generate substantial fees, typical buyer agent rates are well below 2.5 percent.

Uncoupling Buyer and Listing Agent Commissions Would Spur Rate Competition

The report suggests that the one measure which could spur rate competition is uncoupling buyer and listing agent commissions so that buyers can negotiate compensation with their agents.  Buyer agent commissions, now baked into listed prices, would instead be negotiated by buyers.  That would lower home sale prices, and both the mortgage and real estate industries would ensure that these commissions could be included in mortgages whose amount financed would not need to increase.

The uncoupling of rates would also free listing agent discounters from the shackles of current industry rules that force them to charge typical buyer agent rates.  Over time, there would be a much wider variation in rates (and service options) reflecting agent experience, work, effort, representation, and willingness to compete on rates.

There is a broad and increasing consensus that commission rates should be uncoupled.

Studies published on both the Right (Cato Institute) and Left (Brookings Institute) argue strongly for this untying.  Lawsuits filed by major class action firms seek to uncouple commissions.  The U.S. Department of Justice is pursuing antitrust issues beyond improved disclosures.  The Biden administration’s antitrust agenda targets tied commissions.  Even some voices from the industry have suggested the consideration of changes in current rate compensation practices.

A week ago, the National Association of Realtors (NAR) announced changes that would allow agents, firms, and portals to publish buyer agent rates.  In an analysis of these changes, CFA noted that they would discourage agents from steering consumers to higher-commission properties, but would not permit significant rate competition because buyers would still not pay, or be able to effectively negotiate, compensation of their agents.

https://consumerfed.org/press_release/research-on-more-than-10000-home-sales-reveals-that-buyer-agent-commission-rates-are-highly-uniform/

San Diego Case Shiller Index, September

‘Deceleration’ at +24.9% YoY compared to when our market was just ramping up for the year-end frenzy of 2020? I’ll take it!

San Diego Non-Seasonally-Adjusted CSI changes

Observation Month
SD CSI
M-o-M chg
Y-o-Y chg
Jan ’20
264.04
+0.2%
+5.1%
Feb
265.34
+0.5%
+4.6%
Mar
269.63
+1.6%
+5.2%
Apr
272.48
+1.1%
+5.8%
May
273.51
+0.4%
+5.2%
Jun
274.91
+0.5%
+5.0%
Jul
278.00
+1.1%
+5.4%
Aug
283.06
+1.8%
+7.6%
Sep
288.11
+1.8%
+9.4%
Oct
292.85
+1.6%
+11.5%
Nov
295.64
+1.0%
+12.3%
Dec
297.52
+0.6%
+13.0%
Jan ’21
301.72
+1.4%
+14.3%
Feb
310.62
+2.9%
+17.1%
Mar
320.81
+3.3%
+19.1%
Apr
331.47
+3.3%
+21.6%
May
341.05
+2.9%
+24.7%
Jun
349.78
+2.6%
+27.2%
Jul
355.33
+1.6%
+27.8%
Aug
357.11
+0.5%
+26.2%
Sep
359.88
+0.8%
+24.9%

“If I had to choose only one word to describe September 2021?s housing price data, the word would be ‘deceleration,’ says Craig Lazzara, managing director at S&P Dow Jones Indices. “Housing prices continued to show remarkable strength in September, though the pace of price increases declined slightly.”

Extremely tight inventory, as well as heavy investor activity in the housing market, is keeping prices elevated. While the gains are falling, it is unlikely that prices will drop dramatically as they did during the housing crash. The fundamentals of supply and demand still favor an expensive market.

“The market has cooled since the beginning of the year, when dozens of competing bids, contingency waivers and price escalation clauses made home shopping a struggle, especially for first-time buyers. A growing number of homeowners are preparing to list in the next six months, hinting at an uncharacteristically active winter season,” said George Ratiu, manager of economic research at Realtor.com.

Second Homes – Tax Benefits

A primer on second homes vs rentals:

Before buying a second home, it’s smart to know how owning a second property could impact your taxes. There are many second home tax benefits to consider, but they’ll vary based on how the IRS classifies the property — as a second home, an investment property, or a little of both. Here are the main differences:

A second home:

  • Is occupied by the owner at least 14 days out of the year
  • Is rented to others 14 days or fewer out of the year

An investment property:

  • Is occupied by the owner fewer than 14 days out of the year
  • Is rented to others more than 14 days out of the year

A mixed-use property:

  • Is occupied by the owner more than 14 days out of the year
  • Is rented to others more than 14 days out of the year

Second home tax benefits

As long as you occupy your second home for more than 14 days a year, you may qualify for these second home tax breaks: 

Mortgage interest deduction

Single filers and married couples filing jointly can deduct mortgage interest up to a total of $750,000 from all properties they own, including a principal residence and their second homes. This is subject to change in 2025, when the Tax Cuts and Jobs Act is scheduled to expire. At that time it is expected that the $1 million limit will return.

Property tax deduction

You can deduct property taxes on all the properties you own, with a maximum deduction of up to $10,000 per tax return, or $5,000 if married filing separately. Keep in mind that this is included in the deduction for state and local income taxes (SALT), so you might reach that $10,000 quickly with your principal residence and be unable to deduct property taxes from a second home.

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Inventory Watch

The active listings are plummeting, but the pendings will not be deterred!

We are setting up for an very active spring selling season, whether we have inventory or not. I actually hope we don’t get a surge of new listings, and it forces the industry to adopt the auction format sooner.

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Real Estate Soliciting

Excerpts from this article about real estate soliciting – it’s going to get crazier! Hat tip to just some guy:

Jennifer Folden-Nissen’s three-bedroom, Victorian-style house in Duluth, Ga., isn’t for sale. But that hasn’t stopped a guy calling himself Henry from phoning her at least once a week. She says the pitch is always the same: “I want to buy your house. I’m willing to pay cash. Today.”

She says it’s sort of like having to deal with an insistent car salesman. “I just let him leave voicemails,” she says. But even those are pushy. “Call me back, call me back, call me back, call me right now — I’m out front of your house.”

Folden-Nissen works at the local fire department, and she’d call home and ask her husband to see if the guy was outside. But nobody ever was.  Then she started to get postcards from the same guy — with no stamp, so apparently hand-delivered — with photos of her own home on them.

“It was a little freaky because some of it was just like, OK, is the guy really outside?” she says. “And why is he taking pictures of my house if I haven’t given him the time of day?”

“They have just gotten increasingly worse in the past six months, six or seven calls every day,” says Lauren Barber, who lives in Columbus, Ohio.

“If you know anything about Columbus, it’s growing and it’s hot,” she says. “People want to live here.” Barber bought her house about 10 years ago for $155,000. She says now it’s worth more than twice that.

Investors can go on the internet and buy lists of phone numbers for people whose homes have risen in value, maybe more than the owners’ realize.

Barber works in human resources, so she says she has to answer her phone. “It could be one of our employees calling me with a question.” She says she tries to block the homebuyer calls, but they always seem to somehow call from a different local-looking number.

She says one of them even called her mother’s house, on purpose, to ask if Barber would sell.

“Like, really, you’re going to call my mom and ask her if I’m going to sell my house to you? It was just the most absurd and amazing thing,” she says. “But I told you no. Stop calling me. Don’t bother my mom.”

https://www.npr.org/2021/11/20/1056912546/hey-i-want-to-buy-your-house-homeowners-besieged-by-unsolicited-offers

Does Tilt Matter?

During the inspection of the fixer in Olde Carlsbad, it was determined that further investigation was warranted due to the slope in the floor.

A geologic engineer came out with his fancy altimeter and found that there was a 5-inch difference between the foundation height from one side of the house to the other.

Here’s how it looked. When you have seen me do this, I have set the ball down and let it go where it goes.  In this case, the buyer rolled the ball in one direction, only to have it make a U-turn and go the other way…..and it picked up speed:

In the course of the discussion, I asked, “What is the worst you have seen?”

The engineer said, “A nine-inch differential.”

I said, “Ok, so this is kinda in the middle”.

To which I added a solution. Install the popular wood-tile, and have the installer add some extra mortar to help make up the difference. It doesn’t have to get to zero – if it was down to 2-3 inches it wouldn’t be as noticeable.

The buyers asked for a $50,000 reduction in price, and the seller agreed.  It could have been worse – cancelling this sale and finding a new buyer who would pay more than $1,050,000 seemed unlikely.

Our sale closed on Tuesday, a couple of days after this closed nearby:

https://www.compass.com/listing/2992-elmwood-street-carlsbad-ca-92008/881820694284113633/

On the same day we closed, the model-match flipper directly behind us RAISED their list price from $1,299,000 to $1,510,000 and went pending:

https://www.compass.com/listing/1801-ratcliff-road-carlsbad-ca-92008/909359166289330529/

Not only does it appear that the tilt didn’t matter much in this case, it also seems like prices in the area just went up 10% to 20% in a month!

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