Jay Akasie reports in the New York Sun:
New York City is in for a banner 2007 if the rule holds true that the vigor of the local economy is highly correlated to the year-end bonuses paid to Wall Street’s investment bankers.
Goldman Sachs Group Inc., already the financial world’s most profitable bank, announced yesterday that third-quarter revenues, bolstered by its investment banking and trading operations, set a new Wall Street record.
As part of the announcement, Goldman told employees it was setting aside $13.9 billion in compensation — averaging out to some $542,000 for each of the 27,647 workers on its payroll — at the end of its third quarter. The firm allocates 50% of revenues to pay for the first three quarters and about 36% in the final quarter.
Although Goldman Sachs is just one of many Wall Street firms looking for a greater share of its earnings from its sales and trading operations these days, the firm’s investment banking fees rose 27% during the third quarter. And it is bonus checks earned for striking old-fashioned investment banking deals that are cashed and trickle down into all areas of New York City’s economy.
Wall Street bonuses are one of many reasons why the New York City market is an anomaly. Combined with falling mortgage rates, this strong showing by Wall Street may continue to buoy our market. Only time will tell.
In the last few days, I have had two contracts called off at the last minute, apparently by buyers who got cold feet. Oh, they didn’t say exactly that. But it was pretty clear:
- In one case the stated reason was a story about an air conditioner. The buyers backed out because it wasn’t included. When told they could have it, they replied "it’s too late."
- In another, a seasoned real estate investor expressed shock that he would be responsible for the closing costs. How could this surprise him? He backed out all the same.
Why the need for excuses? Who knows. "I have cold feet" is an acceptable position as far as I’m concerned. With so much talk in media of bubbles bursting it is hardly surprising that some people might not feel like buying.
There is a mantra among real estate professionals that buyers are liars. I have never been too keen on that. Certainly some of this buyer stigma must come from buyers’ inability to trust certain real estate professionals. That said, if everyone invloved in a transaction would be straightforward, the real estate market would be much more efficient.
Let’s not talk about real estate today.
It’s time to remember the trauma, and those who lost their lives on this day five years ago.
Our city and our nation have showed a great deal of resilience after the horrors of 9/11, but many still find the anniversary difficult to get through and almost unbearable. We all have those stories–a friend, a loved one, a nightmare. That was a day the news and our actual lives collided in immensely painful ways.
Five years later, there are lots of interesting thoughts (and article after article, and too many profiles of the deceased) about what happened, who is to blame, why we can never forget, and how we have moved on. Everyone will mark this day in their own way. I prefer simply remembering what we were doing that day, and the heroic efforts of an entire city. Through all the dust, smoke, and tragedy, that day I learned a lot about what it truly means to be a New Yorker and an American. The loyalty, camaraderie, and strength on display five years ago fill me with the confidence that our city and our nation will always manage to work together enough to handle the toughest challenges.
Today, my thoughts and prayers go out to those who lost their lives, the families they left behind, and everyone who was so deeply affected by the tragedies of that horrific day.
Bloodhound Realty wants to see some changes:
1. Buyers should negotiate the buyer’s agent’s compensation in detail and prior to looking at any homes
2. Sellers and listing agents should concede funds directly to the buyer to be disbursed at the buyer’s discretion to compensate the buyer’s agent
Much more discussion at the above link.
Of course I love this idea. As I have stated before, I believe this is inevitable and an excellent way to protect the consumer and reduce conflicts of interest for real estate agents. These changes are going to continue to be met with great resistance as most fear change. That said, change is coming and if we embrace it and work together to make these positive changes, not just the consumer, but agents and their firms will benefit from this reform.
TrueGotham, in part, would like to dispell the notion that all real estate professionals are always telling everyone to buy, buy, buy! HHRealty Group is not helping us change that image:
No one regrets buying in New York and if you see something you want and you need a home you’re crazy not to take it. All people who seriously buy and have sold and bought over the years in this area are saying this. We are not comparable to other markets. Take a look at the population vs. housing ratios in these parts. Only 20% of people own here anyways, if that! If you have the money and you were fully prepared to buy don’t not do it because you read an article saying it was a bad idea. The market was crazy and now its correcting itself which is good for everyone with the exception of the sellers and top real estate agents.
It’s not a bubble bursting and nothing abnormal has occurred. If anything worry that interest rates are going to rise and if you’re financing you won’t be able to afford as much as you could– a concern should be to buy something sooner rather than later. When everyone else is getting cold feet you have negotiating power– why not choose to be thrilled at these media reports as a buyer?– it cuts out the competition and scares the sellers and you have more negotiating power.
If you’re buying a home in a neighborhood that is insulated and in high demand if you sell in a few years you will make a profit– unless some kind of catastrophe occurs. Walk around and you can smell the growth in this city, why just let the super rich profit off of it. Buy now– but in the end it’s your decision.
My first question is, HH Realty Group, who are you? And how long have you been around?
This “love letter” to buyers is laughable. Fortunately, I believe that most buyers are sophisticated enough to laugh at this letter as well.
Sure, it makes one good point: that the current market is more buyer friendly than we have seen in about eight years. But it’s insulting to anyone who has been through a difficult market. Property was on the market for as long as TWO YEARS (circa late 80’s early 90’s).
At that time, when I received a phone call from a seller wanting to give me an exclusive, I and many of my colleagues were reluctant to take on property that wasn’t somehow “special.” In addition, many of those who purchased in 1986/87 had to wait approximately seven or eight years (some even longer) before they could recoup the money they had sunk into their apartments. Those who were forced to sell before then, often lost money and some quite a bit. There were even those who handed there keys to the bank and walked away from their apartments defaulting on their mortgages before sinking more money into their “investment.”
Look, I don’t believe we are headed for this type of environment now, but I do believe it is irresponsible for anyone to suggest to the entire buying public that you know for a fact that if they purchase something today, they will make a profit “in a few years.” That’s simply impossible to predict. A more accurate statement would be purchasing Manhattan real estate for the long term is a relatively safe bet. We as real estate agents are constantly getting slammed by the public for allegedly always saying “now is the right time to buy.” I would change that to “now is the right time to buy for some and if you are honest with your well-informed agent, they can help you to determine if it makes sense for you.’”
Over the weekend, Damon Darlin wrote in The New York Times wrote about the doomed payment structure of the real estate industry.
Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.
“It’s a case where nobody wins,” Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. “Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.”
Traditional agents spend very little time brokering a deal, Mr. Hsieh added. Most of their time is consumed looking for new clients, which is of no benefit to consumers. An agent working for a salary, he said, would be freed of the need to prospect and would thus be more inclined to focus on negotiating.
Others agree. Steven D. Levitt, an economics professor at the University of Chicago, found that commissions did not align the interests of agents with those of their customers, a conclusion he recounted in his book “Freakonomics.” The agent has little incentive to get a few thousand dollars more for a homeowner, he wrote, because it will not much improve the commission. It is far more important for an agent working on commission to get the deal done and move on, he added.
A salaried agent is less likely to pressure a customer to make a deal, especially if the agent’s bonus depends on customer satisfaction, as at Redfin. Agents at that company, like Allie Howard in Seattle, are quick to point this out. “I don’t have to sell anything to the client,” she said.
New and quite possibly better payment structures are inevitably on the way. The article focuses heavily on Redfin, for instance. That’s exactly the type of business model that I believe will shake up the industry and ultimately bring about big changes in commission structure.
As I have stated before, I believe we’re headed for hybrids of the current model and these new models, in markets across the country. That said, I believe that there will remain a place for the traditional “full service” agent who brings more to the table than simply opening a door. After all, I couldn’t agree more that 6% is a hefty fee to pay someone to turn a door knob. I also believe that a segment of the population deosn’t want the “do it yourself” type of service and will continue to hire those with real expertise to handle their transactions soup to nuts. For example, those who invest their money with Sanford Bernstein are not the same as those who trade stocks on Ameritrade.
One thing to keep in mind, however is that it’s a mistake to set up any system that denies there is expertise in real estate. Certainly, the way things work now, plenty of real estate agents don’t have expertise, but that doesn’t mean expertise (in custom pricing, marketing, closing deals, helping sellers assess the quality of offers, etc.) isn’t real and valuable. Buyers and sellers will be doing themselves a disservice if they rush to a system that just makes the process cheaper–without giving themselves access to real, hands-on expertise.
To me the real driving force behind these changes probably isn’t even new technology, but consumers who are fed up that they are paying 6% and not getting all that much for it, in terms of expertise, service, and the like. That’s fixable–choose a different broker! You don’t have to wait for a new commission structure to do that. We have a whole podcast episode (it’s no an infomercial, I swear) with practical advice about how to choose a good broker.
The latest Carnival of Real Estate is up now and worth a read.
- Economy: perhaps not so terrible, by some measures. And vacancy rates are down. But consumers aren’t fired up.
- A reader asks MarketWatch’s Lew Sichelman if it’s reasonable to ask an agent to take $10,000 less because the sale went really quickly–before any advertising has even been done. Sichelman’s response: "I’m going to pop your bubble on this one. Totally off-base here! Left field and beyond! You should have negotiated the commission before the fact, not after. I don’t know what you do for a living, but if MarketWatch.com came to me and asked me to take less money because your question was easier to answer than most others, I’d be so angry my eyes would pop out of their sockets."
- Basketball City is about to be homeless.
- Josh Barbanel reports on a good investment: "She bought her newly renovated house on West 138th Street, just off Riverside Drive, for less than $250,000 through a city housing program. Now she has it on the market for $1.4 million."
- An admittedly unscientific poll about Zillow shows most people are suspicious of those prices.
- Carol Lloyd looks at sellers who refuse to believe the realities of today’s market: "Some agents are less politic about the frustrations of dealing with unrealistic sellers. ‘She’s in for an education, all right,’ one agent, who asked to remain nameless, told me after dishing the dirt on a prospective client. ‘She thinks her condo is worth more than it is, she wants to live there while it’s up for sale, she doesn’t want to stage it and she doesn’t want to do a speck of work on it. Not even painting!’ He pauses. ‘Well, she’s gonna learn the hard way, and it’s not going to be pretty.’"
Although Summer doesn’t officially end until September 21, Labor Day marks the traditional end of the summer season. As far as the real estate market is concerned, the myth is always that September brings with it a major influx of inventory as well as a new pool of buyers. In 15 years, I have found that September is usually a month of waiting and anticipation of the market "pick up."
Why? The truth is, these next few weeks are still a great time to vacation. Plenty of people will be away these next few weekends and not at open houses. Secondly, many prospective purchasers are families who are beginning the school year. That means an unruly number of meetings and events for parents. Looking for a home is not their top priority. Thirdly, in New York, the Jewish holidays of Rosh Hoshanah and Yom Kippur certainly prevent a certain number of properties from appearing on the market, and a certain number of buyers from shopping. Finally, most sellers who have decided to wait until the "Fall" to put their property on the market are themselves just getting back into the swing of things and usually end up delaying the marketing of their homes.
So as brokers wait for an early Fall "boom," sellers anticipate the arrival of buyers en masse, and buyers eagerly await more inventory to peruse, I have one piece of advice for all: PATIENCE. The Fall market should indeed see more activity, but in my experience in NYC, the "unofficial" start of Fall is October.
Have a wonderful Labor Day weekend and thanks to everyone who reads and comments at True Gotham.
