Bill McCord's Blog

The following is a question posted recently by an individual on Trulia Voices

“CAN SOMEONE GIVE ME CONTACTS OF REALTORS WHO ARE WILLING TO TAKE $4,000 AND DO MY PAPERWORK. I HAVE A HOUSE IN

Which i am interested . I have decided and know what i want to offer. I just want a realtor to make my offer and do the paper work. I want the total commission back ( 2.5% – 3%) and I’ll pay the realtor $4000.”

(Unedited for grammar)

This has stirred up a in increasingly strident series of answers from agents, and responses from the originator.

The originator is a rather opinionated, ethically dubious, and extremely ill informed person, but is perfectly entitled to ask the question without being subject to the level of vitriol which has come back.

The question of negotiable Real Estate Commisions continues to haunt our industry. I can’t claim to know the best way to resolve the question. However, I can reliably predict that we are going to have to develop a system which supports and regulates a structured Service Model to allow Buyers and Sellers to choose from a Bundle of Services offered on a sliding scale fee system.

The best Realtors have already left the 20th Century behind and are working co-operatively with a new generation of technology savvy consumers who know that Norman Rockwell is dead.

The $4,000 question is just a request for someone to perform a finite task for a fixed fee.

Is that really such a strange concept.

These days when every mass media empty suit is competing to see who can spread the most gloom and doom let me point out one very positive outcome of all this, especially for the Real Estate Market.

It’s great for mortgage interest rates. When stock markets go down it’s because a lot of people are selling. Where do you think they put the money received from the sales?

How about the traditional safe haven BONDS? This drives up the prices on Bonds.

When Bond prices go up, interest rates go down. That is exactly what happened yesterday when we saw 2 reductions and modified rate sheets during one day.

If your mortgage was in process you might have received a call late yesterday to discuss locking in the interest rate.

Do you know anyone who’s 401k has gained during the past couple of years? How many people realize that their 401k is actually gambling money in a rigged game?

If you had invested $1,000,000 in the S&P 500 0n Jan 1st 1973 and withdrawn $100,000 per year (inflation adjusted) on Jan 1st of each following year you would have run out of money in 9 years!

Had you invested the same $1,000,000 on Jan 1st 1982 and made the same yearly $100,000 withdrawl you would have accumulated $4,500,000 by Dec 31st 2007.

How many of us are conceited enough to believe we would have avoided the 1st choice in 1973, AND chosen the same strategy in 1882?

The Stock Market is GAMBLING. That may be exciting but it’s not the smart way to accumulate the wealth we will all need in order to enjoy a comfortable retirement. It is most certainly not the place for the money you expect to live off for your last 30 years or so.

Source of Data was BTN Research http://www.behindthenumbers.com/

Any and all comments are welcome.

I don’t deny we’re going through tough financial times. However, I would like to suggest some positives amidst all the gloom and doom emanating from our so called “experts” in the media. Let us remember it is their job to sell more advertising, not to give us the factual news.

1. 93% of all U.S. Mortgages are being paid on time every month.

2. Mortgage interest rates are the lowest in 5 years.

3. For the first time in many years it is a Buyer’s market.

4. There is an ever increasing number of great 1st time buyer programs being     created by Federal, and State Governments, and from the Counties and Cities in and around Silicon Valley.

5. There is still an up to $8,000 tax credit on offer for 1st time home buyers.

6. Any intelligent Seller is going to be willing to give credits toward Buyers closing cost.

Now, if we can just get more of this news out we can start restoring normality into our business.

For some people this market is a great oportunity. Obviously the 1st time buyer who thought they had missed the chance to own their own home, but less obviously, the existing homeowner wishing to move up. Though he might get 25% less than a year ago, he will also be able to buy at 25% less on the more expensive home. Selling a $600,000 home at $450,000 then buying a $1,000,000 replacement for $750,000 is pretty sweet. Lastly come the Investors. Individuals and groups of people able to buy at super low prices and either hold for long term income, or fix-and-flip for quick profit.

Wherever there are losers there will be winners. That’s the system we live under.

Major profits are going to be made by the big investors (including Governments) who buy the “Toxic” mortgage Bonds currently available at deep discounts from their original prices. Think of it this way:

These Bonds are each made up of hundreds, even thousands of individual mortgages such as yours and mine.

Currently only 7% of all mortgages in the U.S. are in default. Even assuming they all go to foreclosure the Lender still only loses a small percentage of the total mortgage value once the property has been resold. Let’s allow for a loss of 25% of the original value on 7% of all the mortgages in a given $20 million bond. That equates to a $350,000 loss.

For our purposes let’s say the interest rate on the Bond was 6%. That’s $100,000 per month income.

Now let’s see how buying this Bond in todays market will work out for the cash rich bottom fisher (or Government).

Purchase price of the $20 million Bond at 50% of book value = $10 million.

Note: This is way above the prices paid on the 1st Lehman Bro’s sales of similar assets.

Interest income is unchanged at $100,000 per month. The interest rate though is now 12% based on the $10 million invested.

Finally, let’s suppose our government is the the buyer, and they have promised to do everthing possible to help the 7% of homeowners who are struggling. Given a 12% effective rate on each mortgage they have plenty of scope to re-negotiate the loan into a much lower rate at which many troubled borrowers will be able to save their house.

Remember, Uncle Sam can borrow easily at rates less than half of that which will be earned. If the Treasury borrows $10 million at 5% and is able to earn 12% on it, and therefore help prevent large numbers of foreclosure, then I’m all for it..

This is a pretty simplistic example but hopefully the big big picture is clear.

As always comment are welcome.

This is the text of a remarkable lecture given by Nobel Laureate James Tobin in 1984. He was discussing whether a more simple Economic System would provide most if not all that is needed in a modern society.

“I suspect we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this “paper economy”, not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges…I fear that, as Keynes saw even in his day, the advantages of the liquidity and negotiability of financial instruments come at the cost of facilitating nth degree speculation which is short-sighted and inefficient.”

It seems to me that this gentleman saw the current situation developing 25 years ago.

Let’s not lose sight of the fact that it is taxpayers and savers who pay the price for the recurring financial crises, not the whiz kids who benefitted most generously from its complexity.