Vacation homes. Dismal math & a dead horse

[Kamban]

The problem I see in non commercial RE here.

The pre 2022 pricing was based on an mortgage interest rate below 2 - 2.5 %. Then the Fed started raising interest rates and the mortgage rate went up to 7% at one point. It is still above 6%.

The new home buyers can afford only a smaller house for the same monthly payment they can afford. But they still want that bigger house that they could afford when the interest rate was 2%. That requires the house value to fall to that level. The seller still want the pre 2022 house price, higher interest rate be da**ed. Neither side is budging much.

[Dont_know_mind]

The problem I see in non commercial RE here.

The pre 2022 pricing was based on an mortgage interest rate below 2 - 2.5 %. Then the Fed started raising interest rates and the mortgage rate went up to 7% at one point. It is still above 6%.

The new home buyers can afford only a smaller house for the same monthly payment they can afford. But they still want that bigger house that they could afford when the interest rate was 2%. That requires the house value to fall to that level. The seller still want the pre 2022 house price, higher interest rate be da**ed. Neither side is budging much.

Yes it's a standoff.
I tend to think the buyers can't afford to offer more at the current mortgage rates and can wait it out.
Sellers are pressured because some of them will have to act due to having to move geographical location or job loss.
Once there is a seller in the area at the lower price to meet buyers, a sale is made and the comparable is out there.

I tend to think the issue is going to be worse in commercial as credit facilities tend to need to be renewed more regularly. And commercial rates on a 4.5 fed funds rate will be in the order of 7% plus, so liquidity will be bad. Which I think is why there started to be problems in B-Reits redemptions last month.
A lot of home buyers used multi-year mortgages in the last 2 years. So a smaller % of them will have credit lines needing to be renewed.

Debt service is still good for commercial and households at up to 7% interest rates.

The main problem is in the event of recession and job (for residential) or tenant loss (for commercial), banks may not want to renew credit facilities that become due. So can become a liquidity and forced sale issue, even though they may have adequate assets and sometimes even the interest cover for a 6 months.

[Tangler]

Drove down, had a delicious lunch and a long discussion. No surprise, she really doesn’t want a second home. We looked at house.
She thought it was a very nice house but despite this was not interested.
Won’t bore you with all the details.
She does not want it. Thinks renting a vacation house is more reasonable approach.
thanks for input.
I am taking a break from looking and harassing her.
Strange housing market anyway and “seems” like a good time to sit on sidelines.
Sorry for wasting your time.

[jfoxcpacfp]

Drove down, had a delicious lunch and a long discussion. No surprise, she really doesn’t want a second home. We looked at house.
She thought it was a very nice house but despite this was not interested.
Won’t bore you with all the details.
She does not want it. Thinks renting a vacation house is more reasonable approach.
thanks for input.
I am taking a break from looking and harassing her.
Strange housing market anyway and “seems” like a good time to sit on sidelines.
Sorry for wasting your time.

No apologies necessary - we all got a lot of good input and a variety of perspectives. That’s what this forum is about.

[Tim]

She loves to eat the fish. She likes Cape Cod. She is anti-second house, but the intensity of this varies and she told me: “keep looking and do some homework and then I will look if you like it”
She sometimes goes fishing with me but often would rather stay home. Hobbies: she loves to garden & cook and I could see her enjoying that in this house. She has other interests too but I think she would like the place.

Other than cost me .03 x600k = 18k or so, what exactly is the benefit of a “buyers” agent when you have already found a house (or 3) you like? For 20k I am willing to spend a few hours doing due diligence and pulling comps.

Mistake:
The 3% "seller's commission" is not eliminated. Whoever sells the house gets that. Listing agent gets 3% for listing and marketing the property.

You call the listing agent and arrange a showing: they get both. I mentioned before, a real estate agent can save you a ton of effort and give advice. Without a buyer's agent agreement, they (the listing agent and the selling agent) have a fiduciary responsibility to the seller. You don't pay any commissions.
You can't begin to provide the insight of a good buying agent. They know the history of the area, this house and the complete picture.
A good buyer's agent isn't looking for selling a specific property, they want to wait and find exactly what you are looking for.

There is no way that you would come close. And it is free. Just tell them you have an agent you are working with.

Tangler
I think you will eventually get your vacation house. The problem is (and she is right) you are still working. This isn't a true vacation house. $600k is a lot for driving to fish in her point of view. I tend to agree. Maybe Alabama 6 months per year? I don't think you are ready to commit to 6 months per year either.

[Tangler]

Mistake:
The 3% "seller's commission" is not eliminated. Whoever sells the house gets that. Listing agent gets 3% for listing and marketing the property.

You call the listing agent and arrange a showing: they get both. I mentioned before, a real estate agent can save you a ton of effort and give advice. Without a buyer's agent agreement, they (the listing agent and the selling agent) have a fiduciary responsibility to the seller. You don't pay any commissions.
You can't begin to provide the insight of a good buying agent. They know the history of the area, this house and the complete picture.
A good buyer's agent isn't looking for selling a specific property, they want to wait and find exactly what you are looking for.

There is no way that you would come close. And it is free. Just tell them you have an agent you are working with.

Tangler
I think you will eventually get your vacation house. The problem is (and she is right) you are still working. This isn't a true vacation house. $600k is a lot for driving to fish in her point of view. I tend to agree. Maybe Alabama 6 months per year? I don't think you are ready to commit to 6 months per year either.

All $ comes from buyer.

Commissions come out of the $ paid by the buyer.

I have no agent so I would insist that I pay no buying agent commission.

I would only agree to pay 3% total.

My understanding is that a selling agent gets 3% and the buyers agent gets 3% for a total of 6%. the entire 6% comes from where? The sale. I would insist the selling agent get 3% and that is all. the rest goes to the seller thus the seller will agree to a lower overall cost.

All $ comes from one place: the buyer.

Any commission is paid by buyer IMO

Another example: in 2004 I sold a house for sale by owner. The person buying had no agent. Zero commission paid, but if agents had been involved I would have asked for a higher price so the buyer would have to pay for the agent’s commissions and the house. Since there was no agent, I agreed to sell for a lower price than I would have with an agent.

Regardless, irrelevant b/c no sale occuring.

[wideopenspaces]

Drove down, had a delicious lunch and a long discussion. No surprise, she really doesn’t want a second home. We looked at house.
She thought it was a very nice house but despite this was not interested.
Won’t bore you with all the details.
She does not want it. Thinks renting a vacation house is more reasonable approach.
thanks for input.
I am taking a break from looking and harassing her.
Strange housing market anyway and “seems” like a good time to sit on sidelines.
Sorry for wasting your time.

Nah, I love looking at houses so thanks for letting us tag along! I'm still hoping you'll get your place someday 🤞

[Tim]

All $ comes from buyer.

Commiss,ions come out of the $ paid by the buyer.

I have no agent so I would insist that I pay no buying agent commission.

I would only agree to pay 3% total.

My understanding is that a selling agent gets 3% and the buyers agent gets 3% for a total of 6%. the entire 6% comes from where? The sale. I would insist the selling agent get 3% and that is all. the rest goes to the seller thus the seller will agree to a lower overall cost.

All $ comes from one place: the buyer.

Any commission is paid by buyer IMO

Another example: in 2004 I sold a house for sale by owner. The person buying had no agent. Zero commission paid, but if agents had been involved I would have asked for a higher price so the buyer would have to pay for the agent’s commissions and the house. Since there was no agent, I agreed to sell for a lower price than I would have with an agent.

Regardless, irrelevant b/c no sale occuring.

You can insist, the listing contract for the seller specifically defines the listing agent and selling agent commission percentages. The title company uses the purchase contract amount to divide the money. You don't have the legal power to decide your are not paying a seller's commission.

You will need to lower your price by 3% and let the agent and seller decide who gets shorted. This is not your option in a real estate transaction.
Your $600k to you is really $582k. See if the agent and seller accept your offer. They will look at it as $18k below LP.
The listing agent is typically the one that gets a haircut. Someone that opens the door for you and entertains you while you have looked at all these properties wants to get paid.

The reality in the RE business you are skipping tipping a "waiter" for taking your order and bringing your food. Or refusing to pay a menu price that includes a tip.

[OldSoul]

Drove down, had a delicious lunch and a long discussion. No surprise, she really doesn’t want a second home. We looked at house.
She thought it was a very nice house but despite this was not interested.
Won’t bore you with all the details.
She does not want it. Thinks renting a vacation house is more reasonable approach.
thanks for input.
I am taking a break from looking and harassing her.
Strange housing market anyway and “seems” like a good time to sit on sidelines.
Sorry for wasting your time.

Do NOT apologize for your vacation home posts. I really enjoy reading them! You'll get your water home eventually. However, it's going to be a very different style, size, and location than the ones you've shown us thus far.

If I may read between the lines, your wife sees these homes as compromises. They're small, cute and very pricey per sq ft, and there's not much in it for her. At some point, I suspect that you're going to find a beautiful home/ lot that's better than your primary home, with enough gardening to keep her busy, and it'll be closer to the water. This new house will be way more expensive that what you've shown us. But that won't matter as much when she's ready to move.

[Kamban]

All $ comes from buyer.

Commissions come out of the $ paid by the buyer.

I have no agent so I would insist that I pay no buying agent commission.

I would only agree to pay 3% total.

My understanding is that a selling agent gets 3% and the buyers agent gets 3% for a total of 6%. the entire 6% comes from where? The sale. I would insist the selling agent get 3% and that is all. the rest goes to the seller thus the seller will agree to a lower overall cost.

All $ comes from one place: the buyer.

Any commission is paid by buyer IMO

Another example: in 2004 I sold a house for sale by owner. The person buying had no agent. Zero commission paid, but if agents had been involved I would have asked for a higher price so the buyer would have to pay for the agent’s commissions and the house. Since there was no agent, I agreed to sell for a lower price than I would have with an agent.

Regardless, irrelevant b/c no sale occuring.

Actually I agree with Tim here.

You are not paying a commission as a buyer. The seller pays it from the purchase price and he has increased the price by 6% to take care of it. Even if you come in without an agent and insist on paying 3% less it won't occur as the seller will still have to pay 6%. That is why when I got a house that I did the leg work on my own I got a friend who was an RE agent as my agent, and he split the commission of 3% with me - 1.5% back.

It is a different scenario if you don't list and do FSBO.


P.S.: Now you know why I said earlier to get a buyer's agent. You don't save anything by not having an agent.

[Kamban]

Drove down, had a delicious lunch and a long discussion. No surprise, she really doesn’t want a second home. We looked at house.
She thought it was a very nice house but despite this was not interested.
Won’t bore you with all the details.
She does not want it. Thinks renting a vacation house is more reasonable approach.
thanks for input.
I am taking a break from looking and harassing her.
Strange housing market anyway and “seems” like a good time to sit on sidelines.
Sorry for wasting your time.

Tangler , I actually enjoyed the thread and I suspect many others did. Both you and many people lurking learned a lot.

My suspicion is that your wife wants one home, whether it be the town home you have now or a future nice larger home on the water. But not two homes where one is used sparingly and costs a ton.

In the meantime your investments in the indexes will continue to grow.

[99mkw]

You can insist, the listing contract for the seller specifically defines the listing agent and selling agent commission percentages. The title company uses the purchase contract amount to divide the money. You don't have the legal power to decide your are not paying a seller's commission.

+1. When listing with an agent, the seller is usually (almost always?) out the same % whether you have an agent or not. If you don't have one then the listing agent collects both fees. In some sense you are correct that the buyer is supplying the money for these fees, but as Tim said you don't get to decide how those fees are split.

If you don't like the POV that the buyer's agent is "free to you" then consider this alternative mindset: The buyer without an agent is basically paying for a service that they have chosen not to receive. It's more like tipping 20% at a restaurant but dismissing the waiter and bringing the food to the table, getting up to refill glasses, clearing dishes, etc.

A good buyer's agent is tremendously valuable. S/he can put you on to places that haven't even been listed yet, can help you avoid land mines that you didn't know were there, and often put you in touch with contractors and tradespeople in the new area. For example, the agent paints a ton of houses to get them ready for selling. They know the best local painters who charge reasonable rates. When you call up that painter and say that your agent recommended them, they are incentivized to do a good job for you because if you complain later to your agent that painter might lose their business.

[Tangler]

Actually I agree with Tim here.

You are not paying a commission as a buyer. The seller pays it from the purchase price and he has increased the price by 6% to take care of it. Even if you come in without an agent and insist on paying 3% less it won't occur as the seller will still have to pay 6%. That is why when I got a house that I did the leg work on my own I got a friend who was an RE agent as my agent, and he split the commission of 3% with me - 1.5% back.

It is a different scenario if you don't list and do FSBO.


P.S.: Now you know why I said earlier to get a buyer's agent. You don't save anything by not having an agent.

Guess I was wrong. I know with a company like redfin the buyers agent only charges 2% and thus the total was 5% commission.

I think this is why I thought the commission was “negotiable “

If it is possible for 3% to buyers agent + 3% to sellers and possible for 3% to buyers agent and 2% to redfin
why is it not possible for 3% to buyers agent and 0% to me since I have no agent? Seems like that should be negotiable?

If it is 6% regardless then in this particular case: ( since she is rhe agent + owner ) then it seems like she would get 3% more if I have no agent.

6% a law? Not negotiable? state specific?

So you are saying it is 6% period.
Always.
If no buyers agent, the sellers agent gets 6%. Question: So sellers agent gets 6% (twice as much) if u have no agent. Would this not make your offer more “attractive” for sellers agent when you don’t have a buyers agent taking 3%? Would (even subconsciously) she not be incentivized to accept my offer over an equally priced offer from another person with a buyer’s agent?

Buyers agent to me always seemed to have a conflict of interest (they get paid as soon as you buy) so they have an interest in you buying immediately.

6% also seems expensive……

Anyway, thanks for input

[Tangler]

+1. When listing with an agent, the seller is usually (almost always?) out the same % whether you have an agent or not. If you don't have one then the listing agent collects both fees. In some sense you are correct that the buyer is supplying the money for these fees, but as Tim said you don't get to decide how those fees are split.

If you don't like the POV that the buyer's agent is "free to you" then consider this alternative mindset: The buyer without an agent is basically paying for a service that they have chosen not to receive. It's more like tipping 20% at a restaurant but dismissing the waiter and bringing the food to the table, getting up to refill glasses, clearing dishes, etc.

A good buyer's agent is tremendously valuable. S/he can put you on to places that haven't even been listed yet, can help you avoid land mines that you didn't know were there, and often put you in touch with contractors and tradespeople in the new area. For example, the agent paints a ton of houses to get them ready for selling. They know the best local painters who charge reasonable rates. When you call up that painter and say that your agent recommended them, they are incentivized to do a good job for you because if you complain later to your agent that painter might lose their business.

I see what you are saying.

I am not sure I 100% agree.

Maybe I am just a difficult person?

Maybe I am just cheap?

In an ideal world perhaps the buyers agent adds a lot of value and both agents really earn the 6% but today (with everything online and electronic locks opened with a phone) it sure seems like the 6% should come down (especially since the home prices are insane).

Feels like a 3% AUM fee

Maybe I am just a cheap unappreciative rascal.

[Tangler]

Tangler , I actually enjoyed the thread and I suspect many others did. Both you and many people lurking learned a lot.

My suspicion is that your wife wants one home, whether it be the town home you have now or a future nice larger home on the water. But not two homes where one is used sparingly and costs a ton.

In the meantime your investments in the indexes will continue to grow.

This 100000%
Did you talk to her? Just kidding.
Yes, she says the words: “Duplicated costs”
and “two sets of everything”
and thinks it is a huge waste.

I think I only see the awesome side when i dream about it…….garden with greenhouse….coffee in kitchen before fishing at 0400, frying fish in kitchen…..napping in bedroom after lunch.

Anyway, i need to appreciate what I have.

Good time to buy stocks anyway.