SBP: The Irish Freakonomics show

[BottomsUp]

The Irish Freakonomics show
05 September 2010 By Kathleen Barrington
Home loan anomalies will arise as bankers are rewarded for recovering money from distressed borrowers

Freakonomics, the 2005 US bestseller, taught us that estate agents sell their own homes for higher prices than the homes of their customers.

Authors Steven Levitt, a University of Chicago economist, and Stephen Dubner, a journalist and writer, examined data covering the sale of nearly 100,000 houses in suburban Chicago - including 3,000 houses owned by estate agents.

They found that although, in theory, the commission charged by estate agents supposedly aligned the interest of the estate agent and the seller, in practice things weren’t so simple.

In the US, a 6 per cent commission on the sale price of the home is typically split between the seller’s agent and the buyer’s agent. Each estate agent then kicks back half the take to their agency. This means that only 1.5 per cent of the purchase price goes directly into the agent’s pocket.

Taking an example, Levitt wrote: ‘‘So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500.

‘‘Still not bad, you say. But what if the house was worth more than $300,000? What if, with a little more effort and patience, she could have sold it for $310,000?

After the commission, that puts an additional $9,400 in your pocket. Yet the agent’s additional share - her personal 1.5 per cent - is a mere $150. So maybe your incentives aren’t aligned after all. Is the agent willing to put out all that extra time and energy for just $150?”

When Levitt examined the Chicago data, he found that an agent kept their own home on the market an average of ten days longer and sold it for an extra 3plus per cent, or $10,000 on a $300,000 house. Selling their own house, an agent holds out for the best offer; selling yours, they push you to take the first decent offer that comes along.

‘‘Like a stockbroker churning commissions, she wants to make deals - and make them fast,” Levitt wrote. ‘‘Why not? Her share of a better offer - $150 - is too puny an incentive to encourage her to do otherwise. So her job is to convince you that a $300,000 offer is in fact very good, even generous, and one that only a fool would refuse.”
**
It is worth bearing all this in mind at a time when distressed middle-class borrowers are about to get a lesson in Freakonomics, Irish-style.

It is believed that one of our own leading banks has instructed a leading estate agency to sell a large number of distressed residential properties this autumn…**
…

There is more…

thepost.ie/post/pages/p/whol … qqqx=1.asp

[The_Naked_Chef]

The Irish Freakonomics show
05 September 2010 By Kathleen Barrington
Home loan anomalies will arise as bankers are rewarded for recovering money from distressed borrowers

Freakonomics, the 2005 US bestseller, taught us that estate agents sell their own homes for higher prices than the homes of their customers.

Authors Steven Levitt, a University of Chicago economist, and Stephen Dubner, a journalist and writer, examined data covering the sale of nearly 100,000 houses in suburban Chicago - including 3,000 houses owned by estate agents.

They found that although, in theory, the commission charged by estate agents supposedly aligned the interest of the estate agent and the seller, in practice things weren’t so simple.

In the US, a 6 per cent commission on the sale price of the home is typically split between the seller’s agent and the buyer’s agent. Each estate agent then kicks back half the take to their agency. This means that only 1.5 per cent of the purchase price goes directly into the agent’s pocket.

Taking an example, Levitt wrote: ‘‘So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500.

‘‘Still not bad, you say. But what if the house was worth more than $300,000? What if, with a little more effort and patience, she could have sold it for $310,000?

After the commission, that puts an additional $9,400 in your pocket. Yet the agent’s additional share - her personal 1.5 per cent - is a mere $150. So maybe your incentives aren’t aligned after all. Is the agent willing to put out all that extra time and energy for just $150?”

When Levitt examined the Chicago data, he found that an agent kept their own home on the market an average of ten days longer and sold it for an extra 3plus per cent, or $10,000 on a $300,000 house. Selling their own house, an agent holds out for the best offer; selling yours, they push you to take the first decent offer that comes along.

‘‘Like a stockbroker churning commissions, she wants to make deals - and make them fast,” Levitt wrote. ‘‘Why not? Her share of a better offer - $150 - is too puny an incentive to encourage her to do otherwise. So her job is to convince you that a $300,000 offer is in fact very good, even generous, and one that only a fool would refuse.”
**
It is worth bearing all this in mind at a time when distressed middle-class borrowers are about to get a lesson in Freakonomics, Irish-style.

It is believed that one of our own leading banks has instructed a leading estate agency to sell a large number of distressed residential properties this autumn…**

…

thepost.ie/post/pages/p/whol … qqqx=1.asp

Firesales?

[BottomsUp]

That’s what is implied, but it is just a rumour from a journalist.

[Dubhgeannain]

No smoke without Firesales as they say.

It might make sense for the banks to crystalise their losses and then go cap in hand to the Government while the Recap tap is still on.

[xman]

The big loser is, of course, the original buyer, who feels suckered as he has realised a big loss on his investment; is possibly homeless unless he has other property; and still owes €250,000 to the bank (though at least he doesn’t have to make the mortgage repayments on a €1 million loan for a house that is worth a mere €750,000).

Last week a nonsensical tirade about somone with extensive debt and no employment history looking for a 100% mortgage to buy a house off his daddy.

This week a nonsensical tirade about people who overpaid for property, who bought into an asset bubble and now cannot afford to repay their enormous debts, for whatever reason. Like someone who paid over a million euro for a house deserves sympathy.

Should we compensate them for the decrease in the value of their X5 and their Eircom shares too Kathleen

Jesus the Sunday Business Post is the new Sindo.

[shocked]

Does anybody on here know who the estate agency is rumoured to be?

[23rdbuchan]

@shocked

Does anybody on here know who the estate agency is rumoured to be?

Wanna get in a couple of early bids?

[shocked]

@23rdbuchan

@shocked

Does anybody on here know who the estate agency is rumoured to be?

Wanna get in a couple of early bids?

Nah, my “bids / insults” will leave them dis-illusioned and depressed, then the rest of you can get in with your higher offers.

If it is cheap and the right house I’ll take it.

[genki33]

Good article. Have to say Kathleen Barrington has been calling it fairly straight for some time.

[change_comin_on]

The big loser is, of course, the original buyer, who feels suckered as he has realised a big loss on his investment; is possibly homeless unless he has other property; and still owes €250,000 to the bank (though at least he doesn’t have to make the mortgage repayments on a €1 million loan for a house that is worth a mere €750,000).

Last week a nonsensical tirade about somone with extensive debt and no employment history looking for a 100% mortgage to buy a house off his daddy.

This week a nonsensical tirade about people who overpaid for property, who bought into an asset bubble and now cannot afford to repay their enormous debts, for whatever reason. Like someone who paid over a million euro for a house deserves sympathy.

Should we compensate them for the decrease in the value of their X5 and their Eircom shares too Kathleen

Jesus the Sunday Business Post is the new Sindo.

I think that this is a bit of an unfair and empty polemic (particularly with reference to your comment regarding last week’s article). The article in question (Banks shut doors to new homes; Kathleen Barrington) featured a corporate accountant and his wife, both on large salaries (170K combined) with small debt (30K). He wanted to purchase a property off his father at a relatively sensible LTV (68K%). The conclusion of the article is that the property market has seriously troubled times ahead when an ideal mortgage applicant is refused a mortgage at said LTV and for less than twice the combined annual take home pay (not even gross salary) of the couple. Does this make SBP the new Sindo? I think not. Or are you referring to a different article?

[What_Goes_Up]

I think that this is a bit of an unfair and empty polemic (particularly with reference to your comment regarding last week’s article). The article in question (Banks shut doors to new homes; Kathleen Barrington) featured a corporate accountant and his wife, both on large salaries (170K combined) with small debt (30K). He wanted to purchase a property off his father at a relatively sensible LTV (68K%). The conclusion of the article is that the property market has seriously troubled times ahead when an ideal mortgage applicant is refused a mortgage at said LTV and for less than twice the combined annual take home pay (not even gross salary) of the couple. Does this make SBP the new Sindo? I think not. Or are you referring to a different article?

The previous article was discussed here:
viewtopic.php?f=10&t=32544

The LTV is disputed.

[xman]

The conclusion of the article is that the property market has seriously troubled times ahead when an ideal mortgage applicant is refused a mortgage at said LTV and for less than twice the combined annual take home pay (not even gross salary) of the couple. Does this make SBP the new Sindo? I think not. Or are you referring to a different article?

He was not an ideal mortgage applicant in my view. He had no savings (debt in fact), no employment histrory (just back from Oz), no deposit and the 68% LTV is meaningless when a bank effectively cannot repossess a PPR in this country.

So the conculsion is flawed.