I was wondering the other day whether it would be better for buyers and sellers if the real estate market were more like the stock market.
Real estate agents could act like brokers do on the stock exchange - they take a request for a purchase or sale and facilitate the transaction. If no one is willing to complete the transaction at the price sought, then they shop the deal to other brokers who may have a client interested in the house.
Marketmakers could provide liquidity to the market. Currently, bridge loans, contractors, flippers, We Buy Houses, and even some real estate brokerages offer assistance to some homeowners who face a lack of liquidity in what is probably their biggest asset. But these seem to me imperfect solutions to the problems of the real estate market. On the stock exchange, it would be the job of the specialist/marketmaker to step up to the plate and buy the stock even though there is not a buyer waiting in the wings.
One problem would be in the method of valuation of the home. That’s a serious problem. But at the same time, I can imagine a day in the not too distant future when an online home valuation company could put forth a reasonably accurate price that could be traded on subject to a “home inspection.”
Another problem that would require city/state cooperation is the problem of transfer and property taxes. There would at least need to be a waiver of transfer taxes for licensed real estate marketmakers for some portion of the transaction.
Don’t think that a stock market for residential homes would attract any investors willing to play the game? You may be right. But if they were able to buy a home at fair value minus 10% (which for the homeowner is probably a 6% realtor commission plus a couple of months of mortgage payments), and then sell the home at fair value in 1 to 4 months, on average, you might get enough investment companies to play the game.
And with a central exchange for buyers, sellers, and their agents to hang out, there may be a bit more transparency in the state of the market.
9 responses so far ↓
1 Tim Mancuso // Jul 25, 2007 at 2:16 am
Interesting approach you mention here. I’ve heard this mentioned in similar fashion in the past as well.
A point to consider with the current volume of foreclosures: with the number of displaced homeowners, presumably unable to reacquire a mortgage (read: purchase) in the near term - then where will the buyers come from? Today’s model coupled with the question above is creating strong opportunities and shift for alternate strategies.
Perhaps someone is willing to take a run at your proposed model and proof it for us all - It’s really only a stone’s throw from the mass auctioning and foreclosure sale models of today. (online valuation, market-based ‘bidding’, Broker interaction merely as an intermediary and not for search, research, and counsel, etc.)
Well stated and keep it coming. Yours are engaging and timely writings, and enjoyed.
Here’s to a bold and exciting future.
-Tim Mancuso
MyREALTY.com
“…shift - is not disintermediation.”
2 stacey m. // Jul 26, 2007 at 10:34 pm
Very well timed post - considering todays market activity. Funny, though, that Pittsburgh is like the bonds market of real estate (rarely wavering and usually rather consistent with appreciation/return). The recent overseas purchase/interest of U.S. property may only increase with the market dip and potential for the decrease in the dollar. Maybe these investors are those who are “waiting in the wings” to help the housing market.
3 Linda // Sep 6, 2007 at 2:16 pm
I like your post.. it’s good to see that more and more people are starting to get that mentality. Imagine real estate traded like a commodity… imagine real estate as its own asset class. You should check out Blue Moon Capital’s site http://www.bmcsquared.com (I work for them). They are beginning to start this trend by creating “Residential Rental Real Estate as an Asset Class” (RRRAAC) and also selling property to real estate investors all over the country all fixed up at a 20% discount. Investors out in Las Vegas or California can easily buy property in Pittsburgh or Philadelphia without taking on as much of the risks. Good luck
4 Larry Cragun // Dec 31, 2007 at 12:29 pm
It won’t happen as all real estate is hyper local.
5 Broker price opinions // Jan 7, 2008 at 11:38 pm
Have a third party with no interest in the deal give the value.
6 Jaime // Jan 10, 2008 at 5:23 pm
Does anyone out there have any idea if there is a website that talks about what 2007 houses sold for as opposed to what they were listed at? I am trying to determine (percentage wise) what should be offered for a house. I know there are a number of variables (including location, market, and owner desperation). Ever heard of anything like this?
7 Pennsylvania Home Buyer // Mar 24, 2008 at 8:15 pm
There are other potential holes in this scenario. As someone posted above, with inventory at records highs, we’d be looking at home prices at a level that hasn’t been seen since the Reagan years.
8 Reno Real Estate // Mar 29, 2008 at 2:41 pm
Viable idea my friend.
Never thought about that.
“And with a central exchange for buyers, sellers, and their agents to hang out, there may be a bit more transparency in the state of the market.”
That’s what we need: transparency
9 Milan // May 6, 2008 at 1:13 am
The one thing that really could transform real estate is if the government ever mandated some kind of central exchange. I’m not sure if that would be such a good thing though.
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