Realtor Doom


Link to full HW article HERE:

Zillow Group is positioning itself to take the lead in bringing the entire home-buying process online.

During a Tuesday call with investors, Zillow CEO Spencer Rascoff revealed Zillow’s reasons for acquiring DotLoop, a Cincinnati-based company that aims to simplify real estate transactions by enabling brokerages, real estate agents, and their clients to share, edit, sign and store documents digitally, and what Zillow plans to do with DotLoop.

The short version? Rascoff believes the time of the paperless transaction is now, and believes that Zillow and DotLoop are well-positioned to lead the revolution.

“DotLoop is very exciting for us,” Rascoff said during the call. “There is no question that real estate transactions are moving online, any of you who have bought a home, know that signing hundreds of pages of documentation is a burden and that the day of the paperless transaction is here now, and DotLoop is the clear leader in the category.”

Rascoff said that Zillow’s acquisition of DotLoop allows the company to provide increased value to the industry by bringing the paper-heavy real estate transaction online, from “the creation of a listing agreement to the submission of offers to the actual closing.”

Read the full article HERE.



Spence has said that they are here to help realtors, not replace them, and this acquisition sounds like it falls in line with that mission.  Except the real estate industry went paperless about 3-4 years ago.

Yes, a buyer has to physically sign a load of bank-generated loan documents, and Spence isn’t going to change that.  But he is using the ‘hundreds of pages’ excuse to justify bringing DotLoop to Zillow.

There are plenty of realtors using DotLoop already – they are closing $30 billion in sales every month.  Does Spence just want to help more of his realtor buddies hook up with his DotLoop buddies?  On the surface, that’s what it sounds like.

But here’s the problem:

The industry is changing to a transactional business.

This business used to be relationship-based.  Realtors used to rely on getting new clients from family, friends and past clients.  While those referrals will still be appreciated, they aren’t enough to support the big realtor teams.  Instead, they hire marketing people and newly-licensed agents to maximize volume.

We closed a sale this year with a big team, and the only time the team leader got involved was after the deal was signed, hoping to change title and escrow to their in-house companies.

The big teams put their clients on the transaction conveyor belt, with each team specialist doing their part to close the deal. But does it feel like somebody really cares start-to-finish, or just processing the order?

For-sale-by-owners already use Zillow to promote their homes for sale.

If, and when, Zillow allows FSBOs to use DotLoop, you will know that the end is near.

If consumers get the feeling that they just need to have someone process their order, and Zillow is offering those realtor-like services, then realtors, as we know them, will be extinct within a year or two.

Those of us who are swift and nimble will adapt, and become consultants who use the best online features to process the order, and include a good dose of advice and counsel for a reasonable fee.  Single agency will flourish, and hopefully auctions will become popular.

The big teams might adjust, but the big-box brokerages that rely on less-experienced agents on lousy commission splits will be toast.

Housing Costs and the Future

In the last video, the presenter speculated that prices could go up 700% by year 2027, which would make homeownership all but impossible for regular folks.

Prices seem likely to rise over the long-term – what could keep a throttle on their gains?  Building more homes could slow down prices, and this week L.A. Mayor Eric Garcetti suggested a host of ideas and changes in order to achieve 100,000 new housing units by 2021:

The two best ideas?

1. The permitting of more granny flats is a viable solution for homeowners with larger lots.  An excerpt:

Dana Cuff, director of cityLAB at UCLA’s School of the Arts and Architecture, has spent years studying so-called backyard homes — or “granny flats” — that can house a renter, an in-law or a still-at-home 20-something. They exist all over town, often illegally, and regulations make them hard to build in many neighborhoods. Permitting more could go a long way toward helping L.A.’s housing shortage, Cuff said.

“There’s a half-million single family-houses in the city of Los Angeles,” she said. “If 10% of those added a granny flat, we’d be halfway [to Garcetti’s goal]. And it’s free land.”

2. The lack of available land located within driving range of San Diego is a real problem.  If there was a concerted effort by governments to make it easier to change zoning from commercial/industrial to residential, they could unlock additional parcels for development – like this one:

It’s likely that any new developments would be higher density, which would provide an interesting choice for future homebuyers. Are you willing to live like sardines to get a new or newer home, or will older homes on bigger lots be preferred – and retain their value better?

Rob Dawg said in the beginning, “Forget all previous assumptions about real estate”.  With the cost of living on the rise, will the newer, smaller, and less expensive homes topple the traditional SFR as the preferred choice of tomorrow’s homebuyer?

Comps Are Almost Worthless In Boom

Speaking of those high-tech internet tools we use to determine value….

This is from the FHA Underwriting Manual of 1936:

307 (2.) It must be noted, too, that sales prices are of varying usefulness and importance according to the rapidity with which price levels of real property may be changing. In an unusually active sales market, such as exists in “boom” times, accompanied by rapidly rising prices, the stimulus given to prices by strongly competing buyers becomes such that fairness, as regards the prices paid, disappears.

Stability and permanence are nonexistent at such times, as well as in times of rapidly declining prices, and the prices then obtained in sales are almost worthless as useful information in estimating value, though their frequency, coupled with pyramiding prices, constitutes a warning of the imminence of a reversal of the price trend. Only in times of comparative stability of the price structure are sales prices of substantial worth in valuation work.

Read the full article discussing home valuations during booms here:


Why Home Prices Will Hold or Go Up

Home buyers are hoping that higher rates will cause prices to come down, and while it could certainly happen – here are reasons why they won’t:

  • Prices have increased so much, so fast, that sellers are emboldened.  If it would have taken the 5-10 years to bottom out like many predicted, there would be more seller fatigue.  But today’s disappointed sellers will be more likely to think that the next rise in prices in right around the corner – and they will wait, rather than dump.
  • Rents are rising; which puts pressure on buyers to buy and sellers to stay.
  • Loan mods are working.  They might be temporary, and there are probably a number of defaulters getting a free ride, but with higher prices, those psuedo-homeowners will do whatever it takes to hold out longer to see if they can cash in…again.
  • The media keeps saying that it is still cheap, historically.
  • Lenders keep getting more creative. The mortgage industry is known for its hybrids – you hear them pushing more of the 5, 7, & 10-year adjustable loans now, and the piggybacks (where the buyer gets a 1st and 2nd mortgage to lower the down payment required) are back!
  • REOs and short sales are over, and nobody is going to ‘give it away’ now.
  • How homes are sold is changing.  You saw on video where Spencer said that his Zillow is already the national MLS, and other players have to be licking their chops when they see the buffoons at NAR stumbling all over themselves.  Google could be a game-changer too – click HERE to see their patent for ‘software applications for real estate multiple listing services’. The excitement will help to propel sales.
  • Inventories may be up, but you don’t see many quality buys.

All factions are lined up in support of housing, and today’s buyers are comfortable with looking long-term.

The higher prices/rates are reasoned away by the pull of the ultimate goal – owning a home in which to raise the family.  The most-motivated buyers are the ones buying, and with prices only going up at 1% at a time, a few more bucks won’t slow them down.

REO Bubble Next

The foreclosure tsunami appears to be on its way – new defaults, re-defaults, and foreclosure numbers are rising, and there’s still the backlog of those who are attempting to loan mod that will eventually get denied.

According to foreclosureradar, there are 4,047 bank-owned properties in San Diego County, and 20,215 outstanding NODs and Notices of Trustee Sales. 

Will the impending flood of REOs depress sales and prices further?

I don’t think so.

I think an increase of foreclosures would IMPROVE the coastal market, turning it into a frenzy-like condition.  The lack of well-priced inventory up and down the coast has been very frustrating for summertime buyers, and they’d love to have a shot at buying a well-priced “bank deal”.

The banks are listing their REOs for close-to-retail too, so sales prices would only crash if they did literally flood the market with new REO offerings.

Here are a few examples for evidence that when a decent REO comes on the market.

There were 28 detached north-coastal REOs that closed escrow in the last 60 days, and their average SP/LP was 100%. Fifteen of them sold for OVER LIST PRICE:

Street Address List Price Sales Price DOM
Park $385,900 $415,000 12
Laguna $399,900 $413,000 38
Orpheus $410,000 $436,000 5
Crest $436,900 $453,000 15
Corte Loma $446,500 $448,000 2
Olmeda $479,900 $551,000 20
James $499,900 $597,000 2
Bressi Ranch $545,730 $565,000 48
Turner $559,000 $562,000 14
Contour $574,800 $600,000 34
Corte Romero $731,900 $742,000 8
Magellan $884,000 $907,000 9
Lemon Leaf $999,900 $1,008,653 18
Cam de Orchidia $1,299,800 $1,325,000 2
Corte Lusso $1,757,500 $1,787,000 8

It’s safe to say that sales will definitely improve if REOs flood the market – if the bank-sellers need to lower the price to find a buyer, they will. But frustrated buyers just want to buy a house, and if they have to pay list price, or higher, just to get a “bank deal”, they’ve been doing it. It would take a blunder by the banks – unloading hundreds of REOs at a time – to cause prices to plummet.

Grand Poobah of Predictions

Admittedly, this prediction and about four bucks will get you a cup of coffee today.  However, if in a few years we look back and I was right, I’ll be happy to take the credit.

From a logical standpoint, there is no way these prices can be sustained – let’s face it, if you want to buy a decent house today you have to spend a million dollars – how many people can REALLY afford that?

But there are intangibles that are hard to assess.  Let’s look at what they are and attempt to assign a value to them, because if we can, we can predict the future.


Let’s use santa monica’s number of 33%.  In the last downturn, most everywhere in Southern California saw prices roll back about 33% between 1990 and 1995.

What about over-shoot?  Aren’t buyers going to be so scared that prices will have to actually go down a little extra, before they have the guts to jump back in?

On June 9th we talked about ‘The Big Split – the Flight to Quality’ (see journal archives).  We’ve seen it happen all year, and I don’t think it’s going to change – that the inferior properties are taking a bath, but the high-quality houses in great locations do a lot better.

Combine the Big Split with over-shoot, and it looks like this:

Inferior properties go down 40% to 50%

Superior properties go down 5% to 10%

Blended rate of decline of median sales price from peak = 33%.

This is where the real estate industrial complex is going to shoot ourselves in the foot – the median sales price will be submarined by the inferior properties.  Where the MSP has been holding artificially high the last 12 months due to fewer sales in general, once the bottom falls out of the inferior homes, the MSP will drop like a rock.

The foreclosures are pouring in right now, and the bulk of them are the inferior properties on the low-end.  The ones that were bought in the last 1-2 years with 100% financing are most susceptible – those homeowners have no skin in the game and are the least likely to find a way to save the house.

If you are a waiter or landscaper, the only way you can handle an additional pop in your monthly payment is if your parents help out, you add a lot of roommates, or you hit the lotto.  True, there will be plenty on the upper-end in trouble too, but they are more likely to find a way out.  People with more affluence have more resources available to them, and if they have a high-quality home, there are more buyers.

It’s all relative, but if this year is a snapshot of things to come, the low-end is going to be hit harder.  That’s in direct contrast to my previous article on Feb 8th called ‘the big squish-down’.  I thought for sure that the million-dollar market would cause all the trouble, but that hasn’t happened so far.

Three general reasons the high-quality properties will do better:

1.  They’re older houses, owned by older people, with less debt

2.  They have it so good, there’s no better place to go

3.  Buyers are holding out for the good stuff.

Because of these three reasons, the supply-and-demand curve is much more healthy in the high-quality-home market.


A.  If there are serious, meaningful changes in loan underwriting and/or elimination of currently available loan programs, then knock off another 10%.  Not very likely in my opinion, but I’m probably in the minority of those reading this.

B.  Major terrorist attack or earthquake, knock off a temporary 10%, but it’ll come back within 1-2 years.  We were back in business within 3-6 months after 9/11.

C.  Complete failure of pension/retirement systems, and healthcare cost.  Even if you have your house paid off, if those two categories go nuts, you could run out of dough and have to sell your house to live.  God help us all if it gets to this point.  It is possible though, so it’s on the board.

Those are the big three negative intangibles, now for the positive:

A.  Interest rates under 6% would help a lot, and I think they’re coming back.  The recent boom was the hottest when rates were the lowest.  It’s both a financial and a psychological benefit that helps get buyers off the fence.

B.  Sales over the next 1-2 years will be determined by buyers who care more about buying the right house than the bubble.  Whether they are ignorant about the bubble, or just don’t care about the bubble, it doesn’t matter.  If the bubble talk doesn’t bother you, then you probably won’t insist on waiting, or driving the price down another 5-10%, before you buy.  Because people need to live somewhere, there are reasons to buy that can supersede money.

C.  Lower prices should help those who rent to be able to buy – both the first-timers and the bubble-sitters.  Especially the bubble-sitters.  I don’t think there are any previous homeowners that don’t want to own, they just don’t want to buy at these prices.

D.  The OpenMLS would help alot.  If it were easier to find good deals, we’d have more sales.  If there were one centralized, super-duper website open to everyone, not only would it be easier to find deals, the novelty alone would spur activity. is an embarassment, and the realtor community deserves to be left behind if we can’t do better than that.

 Those four intangibles could greatly temper any steep decline.

But who cares, all that matters is how you can take advantage, right?


1.  If you know you’re moving in the next couple of years, see if you can move your plans up a bit.

2.  You can’t move your house, but see if you can get it into a higher-quality bracket.  Fix it up nice, that’s what buyers want.

3.  Be more attached to getting out, than getting your price.


1.   Set your goal at getting a high-quality house at 33% under peak prices.  Who are they, and where do I find them?

         A.  Distressed sellers with both high loan balances and equity

         B.   Long-time owners who still think a half-million is a lot of money

         C.   Dumb listing agents you can take advantage of

2.  Stay educated on the market, especially on recent sales.  That education gives you confidence that you’re doing the right thing when making offers.

3.  Be persistent, but patient.  Be prepared to make 100 offers, and hopefully you’ll only have to make 5-10.

4.  Know what you’re looking for, and keep looking!  A good agent can help.

That’s what I think, what do you think?

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