Sunday, July 16, 2006

Is There a Realtor Bubble?


Members of the National Association of Realtors (NAR) are called Realtors. As of 6/30/2006 there were 1,327,425 Realtors. The above graph only shows full years, thus 2006 is not graphed.

The number of Realtors has grown tremendously over the past 5 year. This corresponds precisely with the housing bubble years. Is there a Realtor bubble?

92 comments:

  1. Wow. I have a friend who became a realtor about two years ago. He admitted recently that they have one client who is keeping his business afloat. Not sure what industry former realtors will be going to now.

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  2. That is striking. I have some friends who have been in the business for 5 yrs and did not save for a rainy day. They recently said they may have to sell their house. I warned them.

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  3. If you want to see something striking....

    Google 'housing market' for News. The vast majority are stories about a locally declining market. And it is very widespread. NY, CA, WI, OH, NJ - stories from all over the US. Pretty amazing, and troubling.

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  4. There's no Realtor Bubble, the numbers are softly growing and 2006 is on track to be the 3rd best year for membership...

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  5. thanks Mr. Lereah.

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  6. "Is there a Realtor bubble?"

    No, but 2005 was a record year for new realtors named "Bubbles"!

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  7. The decrease in numbers will be just another reversion to the mean. In the old days, agents could get on board with a minimum of personal expense. Nowadays, savvy brokers heap all the expense of joining onto the hapless newbies. Those not particularly experiences are totally expendable, like call center employees -- cannon fodder.

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  8. There is a real estate agent bubble. I nominate lying David Lereah as the first to leave. Any seconds?

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  9. David,

    Excellent graph. Another blogger award for you!

    M

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  10. marinite,

    Thanks. I actually got the idea from someone's post on Ben's blog.

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  11. waiting for godotJuly 16, 2006 2:06 AM

    There is a bubble in housing bubble blogs...this is one of the better ones because it is balanced. Great charts, the numbers speak volumes about the current state...pretty ominous. Lance, tell me the positive story about this chart, and the soft landing that these realtors will experience.

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  12. waiting for godotJuly 16, 2006 2:27 AM

    "Not sure what industry former realtors will be going to now."

    Travel Agents. Oh, never mind, those dried up about the time that the housing build up started. I did see a middle aged woman wrangling some grocery carts today. Coincidence?

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  13. David,

    Thanks for the great information. Is there any way to determine their location geographically? e.g., realtor trends for DC+Virginia&Maryland or California?

    For the realtors who made great money in this boom... how many are in a position to ride out a few bad years? VA_investor noted he has friends that didn't save for the "rainy day" that's now hitting.

    I have an aunt who is a NYC realtor... she points out that every realtor has to be ready to survive three "very dry" years. So obviously some of the old hands will do ok as they know the industry is cyclic and are thus prepared. Heck, I know she'll pick up properties in the downturn to flip during the next boom. But she only invests in premier properties that accept her lowball offers. :)

    But are enough realtors not ready for their earnings "haircut" that we'll see news stories of them selling their cars/homes/etc. cheap?

    I'm also amazed that the internet hasn't cut the membership... Interesting as every time I move the internet is the first place that I'm finding information on housing and neighborhoods.

    This will be interesting...
    Neil

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  14. Neil,

    http://tinyurl.com/ottvk

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  15. Hey David
    If the NAR and NHB are not posting this information... how are you able to obtain it? I've been looking for all this info (and much granular metro based stuff too)... how do we do our own fact finding?

    Oh yah, Keep up the great work!

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  16. Ron,

    The NAR does post the information regarding their membership numbers.

    http://www.realtor.org/libweb.nsf/pages/fg003

    As for other sources for real estate info their are many different sources. You have to dig. Thanks for the compliments.

    David

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  17. Proposition JoeJuly 16, 2006 10:31 AM

    After the bitter realtors lose their their jobs, investments, families, and homes in this collapsing RE market, I'm sure they will try to sue the housing bears who have talked the market down and caused the bubble to burst.

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  18. I think all of the laid of realtors will soon become bloggers..there really aren't many jobs left in America for anyone with their skills...

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  19. This comment has been removed by a blog administrator.

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  20. What's this obsession with realtors? Do the bubbleheads really think realtors are to blame for high prices? Or is it just jealousy that they have been doing fairly well as a profession during this last boom time. It's always been my experience as a seller that realtors try to list your place for as low as possible so that they get a quick sale. Would any former/current house owners who have sold a house or condo please relate their experiences with realtors? If this is jealousy, it's really not very pretty. Some bubblehead talked about tone the other day. I think this is another example of tone from bubbleheads that is anything but flathering for the bubbleheads. If you, bubbleheads, can supply proof to counter my assertion that realtors do NOT tend to overprice properties, please do so. Also, please provide the proof that a gun was held to buyers' heads forcing them to pay the overpriced price. Thanks.

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  21. That's interesting. My girlfriend has relatives who lives in Vegas. One is a realtor and her husband is a RE broker. They are currently driving a Bentley and a Rolls Royce after upgrading from Hummers. They are currently taking like thier third major vacation this summer (probably because they aren't moving any inventory at the moment).

    I hope they're saving some of that cash. My guess is they're waiting for the temporary lull in the market to end.

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  22. It's going to be hard going in the economy as these people are losing their source of income. Retail sales and hiring are already taking a hit.

    This thing isn't going to be confined to housing, unfortunately.

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  23. waiting for godotJuly 16, 2006 1:44 PM

    "What's this obsession with realtors?"

    I actually had a good experience with a realtor once...back in my less enlightened days (have fun with that one), I called a realtor to sell a house that a tenant trashed. She basically took over for me and arranged for new carpet, called the painters, and got a handyman in to fix the issues for considerably less than it would have cost me if I had called out of the phone book. It was hell to get her to have an open house, but she did sell it quickly.

    I am surprised that in this age of technology that we still pay our hand holders 6%. Since then, I have not sold through a realtor, nor will I in the future. I do continue to offer the buying agent 3%.

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  24. Lance,

    You accuse the bubbleheads of certain things which are untrue.

    "Also, please provide the proof that a gun was held to buyers' heads forcing them to pay the overpriced price"

    As far I know no bubblehead has claims this.

    "What's this obsession with realtors?"

    I am not obsessed. Are you obsessed with this blog. You might actually spend more time on this blog then I do.

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  25. Lance said - "Do the bubbleheads really think realtors are to blame for high prices?"

    Not completely, but they did contribute to the problem. Think of the typical new home buyer contemplating his first purchase. He goes and looks at an open house. The realtor says "Trust me, I know this market. Now is a great time to buy before prices go up even higher due to zoning restrictions, population growth, and high government spending in our area."

    Didn't the biggest cheerleader of them all, David Lereah write a book a year ago called "Are you missing the real estate boom?" Why, yes he did. Here is a quote from the description of his book at Amazon.com:

    "Continued high demand from baby-boomers buying larger homes, second homes, and retirement homes, and a new wave of immigrants and echo boomers buying first homes, ensure that the boom will continue into the next decade. The long-term fundamentals for housing remain strong into the foreseeable future, claims Lereah. Far from a real estate bubble, what we are experiencing today is a phenomenon that takes place only once every other generation: a long-term real estate market expansion. Isn't it time you started taking advantage of it today? Are you missing the real estate boom?"

    No gun held to the head, but the realtor's use of perceived authority convinces the guy to overpay for real estate before he "misses out" on the boom. The NAR's party-lines have been spewed by almost every realtor for the last few years.

    So yes, realtors do deserve alot of the blame. The fanned the flames.

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  26. Very well said John Fountain!

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  27. Anyone who is stupid enough to blindly trust anyone, including a realtor, deserves the consequences.

    Due diligence people!

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  28. va_investor,

    Isn't a civil society built upon a certain amount of trust?

    This sounds like a very callous attitude towards the uninformed.

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  29. Did I trust Henry Blodgett or Abbey Cohen when I lost a small fortune in the stock market? Yes. Was I stupid and uninformed? Yes. Is it their fault or mine? Mine.

    Anon 11:36, everyone is looking out for number one. Sad, but true.

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  30. My experience with realtors has convinced me that most of them know nothing about the underlying economic facts or real estate. They just want to sell the house/condo and make the money. For example this realtor was not even aware that prices have dropped in our bldg, the bldg where she lives. She repeated to me the same old tune: prices of real estate are still going up and real estate never goes down!!!

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  31. buleind,

    You are right. Many agents are completely clueless. The bar to entry into the "profession" is extremely low. I've taken the exam!

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  32. waiting for godotJuly 16, 2006 3:14 PM

    I took the RE exam back when I thought I would do some part time deals...two deals later, and I realized that it was not for me. I did pick up some good info that has been helpful to my FSBO and purchases. Of the 30 people in my class, only 9 passed the test that would allow them to take the state exam. It is not a cake walk, but the fact English was a second language for half the class contributed to the failure rate.

    I suspect that the spike in realtors could be similar cases where people got licensed, but never left their day job. I would guess that the impact of these people leaving the industry will not be as impactful as it appears in the chart.

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  33. How can you blame the broker for a crash that hasnt happened yet? If a new buyer is uncomfortable with their purchase, they can return it(sell). It seems like people want to roll the dice and blame the dealer/broker if it doesnt pan out.

    What this graph does show pretty clearly is that housing addded a min 600K new jobs to the economy since 2002. 600K realtors, plus a couple hundred thousand in support staff. Add to that a couple hundred thousand loan orginators and staff. Add title processers, apppraisers, lawyers. Easily 2 million white collar jobs as a result of the bubble.(no mention of carpenters, electrians, plumbers etc)

    As the industry slows, its gonna be brutal for these folks. By the time people get around to suing their broker, the broker will already be out of work....

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  34. Freakonomics, Lance. The book clearly demonstrates that realtors left their own homes on the market longer in order to get the best prices, while they told their sellers to take any reasonable offer.

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  35. Yes, there are over 1 million realtors in the United States. However, what most of America doesn't understand is the majority of these are not actively pursuing it as a career. When the "part-time" agents license is up for renewal or their board dues come due, they will drop out. In my office, there are 45 agents of which 10 are full-time and those 10 are doing just fine (including me!).

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  36. waiting for godotJuly 16, 2006 4:52 PM

    I read Freakenomics...that book sucked. I find it hard to believe that the authors continue to get credit for discovering this common sense occurrence. I think in the next book they will discover the relationship between mortgage brokers and appraisers and how it leads to appraisals that fall within 1% of the loan amount. Riveting...

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  37. anon 1:42,

    "However, what most of America doesn't understand is the majority of these are not actively pursuing it as a career"

    Wasn't that the case 6 years ago before the bubble?

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  38. Nothing new under the sun. You would have seen the same spike in technology jobs 1996-2001. As I am in tech, I can tell you that a lot of my former co-workers are not in it anymore.

    A sector goes hot. The sector needs employees. Standards for what makes a good professional in the field go to hell as demand beats supply, while the bidding of wages shoots up.

    Eventually you get tons of un or underqualified twits in the field, and the output goes to hell. The field collapses, and people who thought they were top tier professionals find themselves saying "Welcome to Wal-Mart" (or cleverly they moved to management). The good ones survive.

    Expect a lot of the recent Realtors to be saying "Welcome to Wal-Mart". They've never had to work for a living, as houses sold themselves during their tenure. Now they will have to actually do work...and a lot won't be capable of it.

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  39. As a vile Realtor (and I wish I had more time) but I must go off and lie, cheat and steal before I lose my new Lexus...read sarcasm. In the short amount of time I have here are a couple of comments...

    1. I stumbled on this blog doing some real estate homework for clients.

    2. I graduated Cum Laude from an Eastern University, was a Director in a for-profit company for a few years, worked in a social field for a few years and still do extensive volunteer work.

    3. Part time Real estate agents should be ashamed because they know how things work and that they are part of the problem with Real estates public image.

    4. Many (many) buyers and sellers I have worked with have been mind bendingly dishonest about the ability to buy or covering up problems with the properties they are trying to sell.

    5. We are not "salespeople" in the traditional sense...when was the last time someone you know got "sold" a house they didn't want? Houses sell themselves. Realtors are facilitators.

    6. Real Estate agents are the same as in any industry except I don't think you call your Doctor or Attorney on Christmas during dinner and want to talk about your concerns.

    7. There are 14 primary players on one side of a real estate transaction and if you are the real estate agent that listed AND sold the house then there are over 20.

    8. Real Estate agents have to know about finance, home inspections, surveys, elevation certificates, pest reports, flood maps, building codes, county, city planning and building guidelines, structural reports, and that is naming only a few things we have to know about and are responsible for understanding.

    9. I have been successful in the military, a corporate structure, a non profit social structure and in traditional sales (not real estate) and I have never done a harder or more interesting and fun job. Stress on harder and more interesting.

    10. Buyers and sellers will blame absolutely everything on the real estate agent and give them no credit for anything that goes well. So 8 out 10 times it is a thankless job.

    11. Realtors that I know and have known give more money to charity and fundraising for special interest than any other groups I have been affiliated with whether they made more money or not. They get involved in the community because they are tied to it both personally and in the business.

    12. Realtors are governed by a strict code of ethics but real estate agents are not: example of NOT being Realtors Keller Williams agents. Do you know what companies have Realtors and which do NOT?

    13. If you find a Realtor you trust and get to know them they will be worth their weight in gold to you financially. Realtors know almost everyone (2 in 10 people realize and capitalize on this) the rest write juvenile blogs complaining about an industry they never took the time to learn about.

    14. Your real estate agent or Realtor in a average to good market will effect more money in one transaction than your stock broker will in your life time for you. Find a good Realtor and treat them fairly and you will not regret it.

    Now with all that said I must go have my Lexus waxed and contemplate selling my luxury real estate in case I lose my job lying cheating and stealing for a living.

    Yours truly,

    A Realtor

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  40. One last comment: Anyone who thinks Real Estate is easy money I challenge you to go to your TOP agency in your town and ask a TOP agent (based on number of listings and sales) to follow them around for a week. You won't know what to do when you actually see what they do (and deal with). But I lay wager to you will want to apologise.

    Realtor

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  41. waiting for godotJuly 16, 2006 6:25 PM

    "In the short amount of time I have here are a couple of comments..."

    I think you might have clicked the wrong link...did you meant to go to the "rants" section of Craigslist? I am sure that being a realtor is a pain in the ass...especially when things slow down...how is the health of the market in your opinion?

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  42. anon Realtor,

    If you have been in the business any length of time, you would have to agree that there are all too many incompetent and/or unethical agents out there.

    You won't have any credibility if you will not acknowlege this fact. And, no offense to Godot, that exam is a joke. We were out of there in 25 minutes.

    I am a former RE Attorney.

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  43. Va_Investor said:

    "And, no offense to Godot, that exam is a joke. We were out of there in 25 minutes.

    I am a former RE Attorney."

    With your background as a RE attorney, it's not surprising that you would have found the exam easy.

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  44. Waiting for godotJuly 16, 2006 8:16 PM

    "that exam is a joke"

    I don't think that I missed any questions on the exam, but I did have to study. I must have had a difficult teacher if 2/3 of our class failed; In fact, I thought college classes were easier than that course. Maybe you are just gifted, VA

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  45. I am not gifted. My personal background did help, but my spouse had no such background and breezed right through it.

    That aside, when I was "in the business" I saw alot of incompetence and dishonesty. If agents want a better rep they need to police themselves better.

    And how they get away with the price-fixing and Antitrust issues is just a testament to their lobbying power.

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  46. Ok, as for the "rant" comment. I was only responding to the comments in this posting including the one about Lexus driving, lying etc. so if you missed that one go back and read that before judge my reaction to the comments.
    Secondly, I will say each state's test is different and that some are harder (a lot) than others. I will also say real estate should require a college degree and be a course field on its own.
    Anyone who took the test, deems it easy and judges an entire industry from the sidelines is ridiculous.
    As for market questions, I can only speak for the one I work in everyday.
    And as for admitting there are dishonest agents...I really don't know what to say about that. I can only speak for the ones I have worked with and although there may have been some mighty incompetent ones I have not personally dealt with any blatant dishonesty in the agents, personally. Now stupidity yes, laziness yes, inability to juggle the demands of the job yes, but just dishonest ones not yet. I guess tomorrow is another day but as of right now my peers are just exactly like yours.
    Enough about this.

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  47. waiting for the godotJuly 16, 2006 9:26 PM

    NC realtor, do you cover charlotte? I was asking aboutit the other day

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  48. An attorney casting stones is pretty funny. The test was not that difficult for me either but the job itself has been a tremendous but fantastic challenge. Understanding everything that we need to to do a good job is daunting but does have its draw to personalities that like a chanllenge. Yes I have been in the business a while, longer than there has been a real estate "bubble" if that is what you meant. I came into real estate in NC right before real estate became the next big thing. I came into it because of a desire to invest myself and decided to take the course and then the exam to learn as much as I could. Within a short time I realized real estate was the new challenge I wanted and since then it has been more interesting and harder work than anything else I have done. I do enjoy working with both buyers and sellers. I will say that part of the dishonest reputation we have is a direct result of what our clients do in regards to their honesty in transactions whether they are buying or selling. In both buyers and sellers I have seen blantant dishonesty.

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  49. No I cover the Albemarle Area. I do have family in Charlotte. I am new to blogging...today is a first for me! Charlotte is a neat area of NC though. I am originally from Asheville which is the opposite area end of NC from where I now live and work. What was your question about Charlotte?

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  50. waiting for godotJuly 16, 2006 9:46 PM

    condos at lake norman are way up from a year and a half ago (2br was $125k, now $200k) Is the rest of charlotte experiencing similar gains, or is this a "lake effect"

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  51. Now that is not a question I can answer responsibly, I am in an area to far away to be of help. My suggestion is to call a local Lake Norman Realtor (emphasis on Realtor) and ask a few questions. Find a Realtor who has been in the business for at least five years (pre market jump) and is full time and is in the top 20% of their area. Then you can get the information you need. Sorry I can't be of more help but I am serious when I tell you that only a Realtor in the area who is full time and busy will be able to give you a responsible answer! Hope that helps.

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  52. I used Help-U-Sell to sell my home recently. I opted to do my own open (I only had to do one because we priced it correctly). It was interesting that many agent (and REALTORS too!) who came through tried to fast talk me out of using Help-U-Sell and bad mouthed the organization as well as my broker there right in front of me. Really classy.

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  53. >>If you, bubbleheads, can supply proof to counter my assertion that realtors do NOT tend to overprice properties, please do so.

    I don't believe realtors overprice properties. In fact, they try to move properties along as quickly as possible to get their commissions. This is covered in "Freakonomics." It's the way the incentives are aligned for the realtor.

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  54. Here's one way I believe that realtors have helped the bubble. A few weeks ago at an open house, I mentioned that I didn't like the price. What did I get back?

    "Oh, but we can get you a good monthly payment on a zero down loan."

    I believe I know how that loan is likely to play out in the long run.

    This is a car saleman trick--push the payment, not the price. And now with exotic mortgages, the payment is as low as you like (for a while).

    This "pushing" of payment allowed overpriced houses to sell and raise the price for all. After all, the price is set at the margins.

    Well see this on the way down, too. The people that have to sell will sell, and it won't be at prices other sellers like.

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  55. "waiting for godot said...
    condos at lake norman are way up from a year and a half ago (2br was $125k, now $200k) Is the rest of charlotte experiencing similar gains, or is this a "lake effect"


    "NC Realtor said...
    No I cover the Albemarle Area. I do have family in Charlotte. I am new to blogging...today is a first for me! Charlotte is a neat area of NC though. I am originally from Asheville which is the opposite area end of NC from where I now live and work. What was your question about Charlotte?"

    NC Realtor,
    You know the stats, don't play the I don't know game...Please!

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  56. This comment has been removed by a blog administrator.

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  57. anon 11:36 said:
    "NC Realtor,
    You know the stats, don't play the I don't know game...Please!"

    Albermarle County and Charlotte are hundreds of miles apart. Why would NC Realtor know if lake-front properties in a place hundreds of miles from where he does business are going up in price faster than non-lake front properties in that same area. Again, bad "tone" from a bubblehead. It is a "tone" embodying unwarranted suspicion of all those individuals involved in a process which they really don't understand very well at all. It's a "kill the messenger if you don't like the message" tone. It's childish and sophomoric as NC Realtor said in his first post.

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  58. are other discount agencies like ZipRealty included? I dont think they are considered Realtors and would only further escalate these numbers...

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  59. Two things set the price for a proerty, the seller and the market. Realtors are just like Doctors or any other profession. If you go to a Dr. for a problem one might suggest surgery and one might suggest doing nothing. They come from differing schools of thought. Realtors are no different. But sellers are the most likely to set a price based on what their neighbor is selling for or what they believe a neighbor sold for.
    Real estate is different from medicine though in that everyone with a peice of property or that has bought and sold successfully thinks they are an expert.
    About discount brokers, there are many factors that go into an issue. Discount brokers do a deep diservice to the business and drive up the price for everyone involved especially buyers and sellers. Discount brokers are bad for everyone. I can explain this in detail if you are interested. It drives the price of real estate up and causes service quality to go down. Again, I can give examples to anyone interested.

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  60. NC Agent,

    Why are commissions a percent of sale's price vs. based upon work performed?

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  61. NC Realtor,

    The problem with the perception of your profession is that the barrier to entry is very low, the issues can be very complex and a high proportion of the practitioners are part time.

    In the DC area there is a growing practice of real estate firms presenting the buyer with a "document prep" fee of about $300. I have had this presented to me when I have made offers on prperties and I have had it show up on settlement statements without any notice. Of course, every time I refuse. The selling agent is not performing any services for me, it's a blantant money grab.

    Is this completely dishonest practice used by your firm?

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  62. I don't know if anyone has discussed this before but does the flood of infomercials on how to get rich through real estate on TV (like the Carlton's "No Money Down" scheme) drive many people into investing in real estate in the last couple years? I know the low interest rate and other factors contribute mainly to the boom but those infomercials sure make investing in RE sound like easy money and I'm sure some people were suckered into it.

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  63. NC Realtor,

    “Two things set the price for a property, the seller and the market. Realtors are just like Doctors or any other profession. If you go to a Dr. for a problem one might suggest surgery and one might suggest doing nothing. They come from differing schools of thought. Realtors are no different.”

    Wow, no offense but you cannot compare what a doctor does to what a realtor does. And unbelievably, in the last few years many top real estate agents have made more than doctors. In addition, you your self point out that there are many intermediaries in a real estate transaction; escrow company, title company, appraisers, banks, etc. Yet why do the agents get the bulk of the commission? It seems that you have something to say about discount brokers so say it. I will tell you why they are a good thing and why the flow of information will drain the industry:

    • Sites like www.zillow.com, www.ziprealty, and other online MLS information give would be buyers an advantage regarding pricing. In one or two years it will be easy to go online and get previous sales data for all homes in the country. How this affects the market is a seller cannot over price a home because a would be buyer can have access to the previous sales price. This thus forces the seller to justify the price more accordingly. Say a house was purchased last year for $400,000 and now is being sold for $500,000; this data is public and will become easier to find. This in my humble opinion is great for buyers and sellers. Definitely not good for realtors hence their attempt to block sites like www.zillow.com (in its infancy stage).
    • Again, entry into the field is non-existent. The exam is a joke and not even a high school diploma is required for the exam! Figure that out for yourself. So discount brokers or facilitators of information provide a service of information gathering. I’ll use the example of travel agents. Once information became accessible, I can go online to www.expedia.com, the airlines website, maybe go on Craigslist to see if someone has a vacation package that they cannot use and decide what is my best option. This is available because the information is out there. It is a matter of making it flow better. Again, some people still use travel agents but the industry is a shadow of what it once was. Real estate agents use to have a monopoly on information such as sales history and comps but this will be gone in a few years.

    Good agents will survive because they are good sales people, bottom line. Just like good used car sales people do extremely well because they can sell ice to Eskimos. Let me offer the example of the late 90s. With tech booming many people sought to chase the gravy train. Students with an AA in computer science or even basic tech courses were starting at $50,000 a year. A bachelors in the same field was commanding $65,000+ a year. But what happen? Ironically the industry that was built by these people brought them down. Why pay someone $10,000 for a website when you can have someone in India design it for you for $2,000. After all, you’re paying for the information. And now that the industry has purged itself, you are left with high quality educated tech workers here. The rest had to retool their skills. The same will occur with real estate on a much larger scale. Once information is easily accessible and at the public’s hands, they will realize “why am I paying this person $20,000 in a commission?” Is it worth your time to do a little research and protect yourself for $20,000? I’m sure a lot of people will say yes. Some would rather pay a real estate attorney $2,000 for a couple of hours of work to make sure the documentation is in line.

    I have no doubt you are a good agent and obviously you have a vested personal interest on how the market reacts. Hate to be the bearer of bad news but this is how the future looks. But like I said a good agent will always have buyers and sellers. Yet there will be a major purge in the industry in the next few years.

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  64. anon 10:37,

    Your post shows a gross ignorance of what agents do. I'll leave it to NC to fill you in on the details, but as a clue I'll tell you that when I was looking my agents (like most agents in DC) gave me direct access to the MLS listing via his website since, as you accurately observed, serving as an intermediary for finding properties to search is not a real value add now that the information is out there on the web. This left him time to coordinate other activities such as helping me strategize for a successful bid in getting a house (which in my case never happened because I found one on my own, which was not on the market, after gone through 4 unsuccessful bids.) On the sale side of the equation, the agent is your marketer. Why do you think large companies go to marketers (e.g. adverizing agencies) rather than rely on their own selling skills? ... 'Cause marketers do this for a living and can do it far better than you can. For example, when I listed with my agent he prepared a pamplet on the house containing pictures, a floor plan, and a text desription ... He also arranged to have a broker's open house as well as getting it into MLS getting it well know. He sent out a postcard of the listing to zip codes he had targeted as potential buyers' areas, etc etc. He was a professional in all this. I am not. I wouldn't have depended on myself for this anymore than I would depend on myself for making a diagnosis on a foot problem. Yes, all the information for the foot problem (like house listings) is out there on the Internet, but it's interpreting that information and coming out with the right conclusions that is important. It is also dealing with all that information on a constant basis that is important ... i.e. "knowing the market". Lastly, there is objectivity and what the benefits of having an intermediary. Even doctors go to other doctors when they have problems. This is because when you are too close to a situation, it is impossible to be objective. As an example, we all think our homes are the best homes and thus worth the most. An agent can be more objective about what needs to be repaired/replaced before putting it on the market and as to setting the price. Likewise, it is much easier to negotiate when you have an intermediary. When buyer and seller aren't directly sitting across from each other negotiating a price and conditions, the final agreements made will not have been influenced by human factors such as one person being a better negotiator than another. Which as I recounted earlier is what happened to me when I sold my first condo myself and I found myself sitting across the table from a realtor and her just out of college buyer. How could I easily say "no I am sticking to my price" when the agent portrayed her client as this helpless young girl just looking for an affordable place ... with my being able to grant her wish ... if I lowered the price. Yes, I could have been heart harded ... but even that carries a price to it. Lastly, someone asked why it is the realor gets the bulk of the commission when all those other people like lenders are involved. That is because it is the realtor coordinating all these actors in the sale/purchase transactions. This is all stuff you have to do yourself if you are going with a discount agent or doing it yourself. And not doing this on a daily basis, you will probably do it wrong .. AND, in the end drive up costs for everyone because (a) you are bringing in-efficiencies into the system such as learning curve that get "paid for" by these other actors who would otherwise be dealing with a professional and not having to explain everything every step of the way and (b) these other professionals will by necessity have to take up some of these functions that your realtor would otherwise be doing because you as an untrained person will not be able to do them.
    Now, do I think all that is worth 6% commission in this highpriced environment? Not in the least. Realtor association is acting like a monopoly and setting prices .. which is illegal, and the day will come when Congress or others will break that monopoly. Then we can expect prices (percentages) to drop to more reasonable levels in respect to sale prices. Perhaps we'll even see the concept of fixed price components being substituted for variable pricing as in when a fixed "Document Handling Fee" is charged. (It just has to be instead of one or more percentage points ... and not in addition to the full 6%!)

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  65. Looks like 600,000+ soon to be unemployed total losers. Say hello to McDonalds as a burger flipper you tards.

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  66. seems like some realtors now being told to encourage clients to "hit any bid" this will generate more sales and more commissions, while also driving prices lower..so the RE agents will screw the fools coming and going..http://www.boston.com/business/articles/2006/07/17/to_fight_the_glut_home_sellers_push_their_prices_down/

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  67. Loan officers get a percentage of the loan they sell to you. And they collect from the fees that are also a part. People don't know how they get paid so they don't complain but you will be paying your mortgage broker for the next 30 years.

    A six percent commission breakdown looks something like this:

    A 300,000 home sells for full price
    with a buyers agent working for the buyer and a listing agent working for the seller.

    The commission is split 4 ways depending on the split worked out with the agents and companies most are 50/50.

    So Each agent gets 4500.00 each company gets 4500.00.

    The agent is an independent contractor so they pay both sides of their taxes (in case you don't know this your employer pays half your state, federal/social security for you). So 30% is taken in taxes equaling 1350.00 so that leaves 3150.00 for each agent. Then a typical "package" for a listing is sign 45.00, directionals 8.00 a piece, virtual tour 90.00, lockbox 35.00 equalling 178.00 for each listing. Some signs get reused by a busy agent is always having to buy new ones. These fees vary from area to area. Then you have a newspaper ad (which is worthless only 5% of sales are from newspapers) a typical newspaper ad runs 250.00 a day for weekend or prime spots. Then each glossy book or homebook runs about 300.00 a month most agents run at least one or two a month and an ad a weekend equaling 1600.00 for a months run on ads. So now we are down to having 1372.00 left out of our pay and this does not count any time we spent which involves many many things. And the companies pay even more for larger scale advertising and for office costs. I can also break down further cost and go into an explanation of how time is used. Agents do not just work with you they work with multiple families at a time. They list and sale multiple properties at a time. They work on ads for muliple publications and newspapers all coming out on different schedules. Just setting up homes to show is way more involved than a layperson understands. When you want to go see a few houses on a weekend the agent has to call the owners or their agent (and both parties may be busy and have to call each other back and then you back) we make an appointment for each house, may have to pick up keys from different offices if they are not of lockboxes, pull the information about each house. Map between them depending on how big the area is and make arrangement to meet you the buyer at a location. All that is just for one buyer and agents do tons and I mean tons of other things.

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  68. Nc,

    This still does not justify a percentage payment scale. How is it twice as much work to sell a 300K house vs. 150K townhouse. This is where the antitrust issues come into play.

    Back in the day when I was a real estate lawyer, it was often much more work to close the low priced stuff because of title problems and the difficulty of purchasers to get loans (i.e. judgements, liens, divorces, bad credit, multiple co-signors, etc.)

    The EASIEST smoothest deals were the high dollar sales. Please justify the percent.

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  69. anon said:
    "Anonymous said...
    seems like some realtors now being told to encourage clients to "hit any bid" this will generate more sales and more commissions, while also driving prices lower..so the RE agents will screw the fools coming and going.."

    uh ... would you expect them to tell them to "hold firm for a price you can't get"? an if they had advised to do that, then you would have accused thme of propping up prices. the complete cynicism and bad "tone" being shown by bubbleheads such as this one are just astounding!

    it's been my experience that it is unbridled jealousy that leads to this kind of cynicism. and i suspect that is the case here. any comments bubbleheads as to why such cynicism and poor tone is exhibited over and over in bubblehead posts?

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  70. Please GIVE up the jealousy argument. Bubbleheads believe that home buyers were foolish to have bought in the past two years (like you did). Why would they be jealous of people they believe are fools?

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  71. anon asked:
    "Why would they be jealous of people they believe are fools?"

    Because, as you said they believe are fools as in really hoping are fools rather than knowing. Because the alternative is that it is they who are sh*it out of luck having made one of the biggest miscalculations of their lives!

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  72. There are differences in price for high end homes. Check the prices for the magazines that cater to those listings...Robb Report, Residence, Farms and Land. The cost to advertise is much much higher as the time investment from the Realtor. Most of these homes requires special showing instructions anything from Listing Agent must accompany to the time spent with higher end purchasers. The markets are so different. Over a certain price there are many things that Realtors must handle specific to high end listing and sales. It is almost more lucrative to sell middle priced listings and even in some cases 10 lower end listings than 1 high end listing. And it is not a smart agent doesn't deal in higher priced listings to try and sell one every now and then it can be waaayyy more costly than worth it even if the take home is 10-15K. The break down on cost there are even more shocking and the time involvement immense. So yes there is much justification for the same fee for one as another it is the only fair way to do it. It costs increase as a percentage of the sales price and so does the time involved for all actions. Again you have to be in the real estate field to understand the flow of work and cost.
    again what's with the X attorney casting stones...

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  73. NC,

    I am not talking about muti-million dollar estates. The example was 300k vs 150k. Please respond.

    Also, please address why your "pay" doubled in the past 3 yrs simply due to price appreciation.

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  74. Lance said....

    "any comments bubbleheads as to why such cynicism and poor tone is exhibited over and over in bubblehead posts? "

    my cynicism and poor tone based on my knowledge experience and reason..yes I actually developed my own opinion..and I am telling you how I see the world now..my own perception of reality...I think it is a huge bubble..I think it will casue a lot of pain for many Americans , directly (their home price drops) and indirectly (deep long recession jobs losses in mnay industries housing boom was major reason for post 2002 recovery , consumer tapped out, and the leveraging of America by greedy bastards, is going to make it especially rough)..I remember how the 2000-2002 Nasdaq fiasco went down..I remember how the japanses bubble burst in stocks and RE...I have read about other asset bubbles history...and they all end up bad...so this is why I am cynical and not cheery..because this has Focked up America's economy immensley and it is going to make the next 10 years very rreminiscent of the 1970's..and they kind of sucked.....

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  75. anon said:
    "so this is why I am cynical and not cheery..because this has Focked up America's economy immensley and it is going to make the next 10 years very rreminiscent of the 1970's..and they kind of sucked....."

    funny, I too think we'll be returning to the 70s ... but not for the reasons you state but rather because of the huge debts the government will have to incur to finance both Iraq and huge tax cuts ... and the resulting inflation ... I just pray and hope we don't have to watch Olivia Newton-John and John Travolta do that disco thing again!

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  76. "The agent is an independent contractor so they pay both sides of their taxes (in case you don't know this your employer pays half your state, federal/social security for you). So 30% is taken in taxes equaling 1350.00 so that leaves 3150.00 for each agent. Then a typical "package" for a listing is sign 45.00, directionals 8.00 a piece, virtual tour 90.00, lockbox 35.00 equalling 178.00 for each listing. Some signs get reused by a busy agent is always having to buy new ones. These fees vary from area to area. Then you have a newspaper ad (which is worthless only 5% of sales are from newspapers) a typical newspaper ad runs 250.00 a day for weekend or prime spots. Then each glossy book or homebook runs about 300.00 a month most agents run at least one or two a month and an ad a weekend equaling 1600.00 for a months run on ads. So now we are down to having 1372.00 left out of our pay and this does not count any time we spent which involves many many things. And the companies pay even more for larger scale advertising and for office costs. I can also break down further cost and go into an explanation of how time is used. Agents do not just work with you they work with multiple families at a time. They list and sale multiple properties at a time. They work on ads for muliple publications and newspapers all coming out on different schedules. Just setting up homes to show is way more involved than a layperson understands. When you want to go see a few houses on a weekend the agent has to call the owners or their agent (and both parties may be busy and have to call each other back and then you back) we make an appointment for each house, may have to pick up keys from different offices if they are not of lockboxes, pull the information about each house. Map between them depending on how big the area is and make arrangement to meet you the buyer at a location. All that is just for one buyer and agents do tons and I mean tons of other things."


    we know what realtors do, thanks.
    but you err in bundling all this with buyer's and seller's agents, 80% of the costs you mentioned are only incurred by a selling agent. further, most of these costs are tax deductible, which you conveniently left out. if the newspaper ads dont work, dont waste yours and the sellers $ doing it, you're only keeping newspaper companies alive and probably getting kickbacks from them anyway. so what you're saying is we're paying 4500 for you to map us to the property.

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  77. When you sell houses for a certain amount 150k and under you can actually lose money based on what I explained above (long post).
    There have been years that realtors have had to live off of savings, months even now and even in the best markets.
    The easiest part of real estate is finding a buyer for a property it is the getting it to close that is the hard part (and sometimes the sale part is hard if the house is overpriced or messy, smelly or hard to show). In an industry based on "selling" something as emotionally riddled as a person's home it is a mindfield. It is not like selling a car in any way. I have a top selling car salesman in my office he can attest. A car is cleaned up or brand new and only certain types of people would look at certain cars. The two can't be compared. Houses are homes and people get emotional about their homes.
    As far as justifing to anyone why an industry gets a pay raise is silly. Why have you gotten pay raises? Why does anyone? Why does Bill Gates get to cash in on everyones dependence on something he created? Why do hospitals charge 40.00 for an ace bandage. Why is there a 90% mark up in diamond and jewelry? why do cars drop in value by 35% when you drive them off lots? come on.
    Only because homes are owned by almost everyone and almost everyone wants one is it an issue.
    All I can say is Real Estate is a tough tough industry. The money that is made by ethical agents is warranted and if people took the time to understand real estate they would benefit greatly personally.

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  78. anon,

    Thank you for your excellent educated insight into my industry. i have left this discussion enlightened and better off for taking the time to read your response.

    I am glad you know what realtors do and how deductions on taxable income work.

    The listing agents are all selling agents in my neck of the woods. We do not have companies that do one thing and not the other yet. So the agent showing you property is paying for listings and showing you property which is a lot of time and a lot of gas. Then the REAL works starts AFTER you find a house and write an accepted contract.

    But thank you again for explaining to me what I do everyday, and what I pay in taxes it was enlightening.

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  79. Lots of words but no explanation of why you get twice as much to sell a 500k home as a 250k home.

    Also, your comparisons to Gates, cars and diamonds are not germane to the issue of your pay doubling. Ads didn't double, taxes didn't double, cars didn't double, the value of your time didn't double.

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  80. va investor, i wrote an entire entry above as to the difference and then someone said what about the 150-300 range so I wrote more? Did you not take the time to read the explanation? i clearly outlined why in the first post.

    My comparisons are very relevant if you understand economy.

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  81. anon 4:08 said:
    "further, most of these costs are tax deductible, which you conveniently left out."

    no he didn't ... he told you what his gross taxable income was (i.e., revenues minus expenses = gross taxable income). He must still pay income taxes on the amount he gave you (AND pay the other 30% taxes he mentioned.) I.e., he didn't tell you how little he actually cleared. Why such a cynical and mean tone? Are you trying to blame someone else for your own bad housing decisions in life? Believe me, it's not flattering.

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  82. nc,

    va_investor was the poster you originally reponded to with the long post and then followed up with a second post. so, i think she is still looking for you to justify such changes. i sympathize with the work you do, but i think you can't justify it because lacking the monopolistic practices that the Realtor's Assoc. has been engaging in, they wouldn't have doubled along with the price of homes. Your comparison to the other industries you list is not an accurate one because none of them engage in the same monopolistic rate setting policies that the Realtors ...with it's strong lobby ... has thus far managed to avoid being called to the carpet on. In all those other industries, when the revenues doubled, and the costs didn't, there was competition between the players to gain as much market share as possible ... and that competition was waged with price lowering. Look at Wal-Mart and how it beat K-Mart almost into the ground. That is what happens in a non-monopolistic industry. It brings in less overall revenues to the industry, but more to those with the lower rates and effectively passes on the savings of economy of scale partly to the consumer via lower prices. The Realtor's Assoc. mandates that all its members charge a 7% or 6% rate and enforces against serious deviations from this. This brings in more overall profits to the entire industry ... at the expense of consumers who would in a true free market share in the savings.

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  83. NC,

    Also note that you are talking to people in DC who have seen average house prices go from something like $150K to close to $750 in the span of something like 7 years ...

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  84. waiting for godotJuly 17, 2006 11:44 PM

    "Lots of words but no explanation of why you get twice as much to sell a 500k home as a 250k home"

    Similar syndrome to Exxon...as prices go up, margins go up, thus higher profits....$500k houses could sell at $250k in the future, and realtors will have more competitors for the same house, thus less income.

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  85. There is no mandate for 6 or 7% by NAR I live in an area that gets more 5% listings than above and it is set soley by the individual companies. The prices sellers are asking for their properties right now is off the charts and in our area our inventory has quadrupled compared to the first six months of last year and nothing is moving, so as for an income increase you should think again. My income this year has been cut in HALF because of the prices of houses, and in the top 20% of agents in my area. Not to mention the agents have tripled so as far as a monopoly that works against your theory. Three to four times as many agents in the feild, four times higher prices and 37% less sales...you tell me the math on that one and then compare Realtors to EXXON again so I will get it...

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  86. NC,

    There is no doubt that real estate agents bear the brunt of the cyclical nature of the real estate market. It is "feast or famine" and those real estate agents that know how to save for the eventual rainy day are those that survive. And yes, you are correct that individual agents are justified in grabbing as much as possible when it is out there to be grabbed. HOWEVER, the issue of your salary over time is not the direct issue at hand here. It is the fact that over the short term, commission rates should theoretically lower in times of rapid price appreciation ... since over the shortterm it is not anymore expensive to market and sell a property at $300K when 12 months earlier it was valued at only $150K ... and half the commission if the commission rate remains the same.

    Ironically, the lowering of rates charged to reflect actual costs of production during such times of price appreciation would also serve to lessen the very onslaught of parasitical new agents that find their way to your profession each and every time the market is booming ... and then disappear again shortly thereafter. The relatively extraordinary profits that agents can get on a per-sale basis during times of rapid price appreciation serve as a great incentive for these part timers and others with little investment in your profession to come in and share in what should be your business ... and your "savings" for a rainy day. I.e., yes, you should be storing your nuts when times are good so that you can make it through when times are bad ... but you shouldn't have to be fighting for these nuts with your fair-weather agent friends ... and more importantly, buyers and sellers shouldn't have to be paying for these inefficiencies casued by price fixing mechanisms that may not be readily apparant to you the Realtor but which are well documented as occuring on an industry level basis.

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  87. Lance,

    Are you a Real Estate agent?

    NC

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  88. Hahahahahahahahaha! Takes one to know one?

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  89. NC Realtor asked:
    "Lance,

    Are you a Real Estate agent?"

    No, but I grew up around the business as my dad was a RE broker (30 - 40 years ago) and I at one time (1979?) had studied and gotten my license ... though I held it long enough just to sell one house and list another before deciding I wanted to go back to college! It's a tough business, I know. I remember very well all the interupted Thanksgivings and Christmases and the "feast or famine" income scenario ... with average earnings over the long haul being a lot less than those of other professionals which my dad worked with daily including the lawyers.

    I sympathize with you, however I still think that in today's environment where everything is automated, there is no justification for keeping rates so high .. and that doing so in the end keeps you (i.e., your industry) from evolving as you otherwise would. When stocks were selling fast, brokers hired assistants to help them process transactions. Why? (1) Because the barriers to entry were high ... I've held a Series-7 and I can tell you it is much harder to get one of those than a real estate license ... and getting a real estate license is not exactly easy, and (2) they were thus able to cut their commission rates and capture more trades from the other brokers. It was a win-win for good brokers, their assistants who were paid in line with what they were bring to the table (and not the same percentage as the experience brokers as is the case in Real Estate), and the customers who saw lower transaction costs for buying and selling. However, from everything I have read, the NRA has done everything in its power to "fix" rates.

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  90. Lance,

    That is interesting, I wish I had known about real estate while I was going to college I would have been doing it back then!
    I think it is a lot of fun, loads of work that is ultimately unappreciated but still (for my personality) and for where I live it is a lot of fun.

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  91. www.fooledbyrandomness.com

    Interesting website for all the Economic brainiacs on this blog.

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