Realtors take a large percentage of a home’s sale price for their services. It has never made much sense to me. It does not seem like the services are proportional to the sales price. I don’t see how it costs 5 times more to sell a $1,000,000 house than a $200,000 house. The Freakonomics authors have commented on the problems caused by the way realtors charge for services.
Study Offers Provocative Comparison of Selling a Home:
“Our results are good news for buyers,” he said. “The price buyers pay appears to be driven entirely by the characteristics of the property and of the seller. Whether the property is sold through FSBOMadison.com or a realtor appears to make little difference in terms of purchase price.” “Realtors undoubtedly can provide value to sellers,” Nevo concluded. “But our research shows that for-sale-by-owner Web sites increasingly are making selling your own home more appealing and offering a viable alternative to realtors.”
Study: The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com (pdf)
Very nice illustration in Personal Finance Success Comes More From Smart Budgeting Than Smart Investing:
Now, Kevin’s a smart investing cookie and is able to crank out a 16% return each year. I just take my money, dump it in a Vanguard 500, and move on with life, which means over the long haul I earn a 12% return. Who earns more in the long run?
After five years of this same investing, Kevin has $34,385.68 in his investment account, while I have $63,528.47 in mine, a difference of $29,142.79 in the frugal guy’s favor. Even at the twenty five year mark, if the investments have continued for that long, Kevin has $1,246,070.12 in his account, while I have $1,333,338.70 in mine, a difference of $87,268.58.
I would use lower returns (to better match what I think is reasonable to use in projections about the future) but by using higher returns it actually makes a stronger point (the compounding at 16% is extraordinary – I was actually surprised that at the 25 year mark that the results were the way they were). The lesson is powerful. Your personal finance situation is a factor of several things, but very close to the most important is just actually saving money, as the post illustrates.
Related: Trying to Keep up with the Jones – Earn more, spend more, want more – Living on Less – Saving for Retirement – How much have people saved?
At the bottom of the education scale, the picture is reversed. Among high-school dropouts, the divorce rate rose from 38% for those who first married in 1975-79 to 46% for those who first married in 1990-94. Among those with a high school diploma but no college, it rose from 35% to 38%. And these figures are only part of the story. Many mothers avoid divorce by never marrying in the first place. The out-of-wedlock birth rate among women who drop out of high school is 15%. Among African-Americans, it is a staggering 67%.
Does this matter? Kay Hymowitz of the Manhattan Institute, a conservative think-tank, says it does. In her book “Marriage and Caste in America”, she argues that the “marriage gap” is the chief source of the country’s notorious and widening inequality. Middle-class kids growing up with two biological parents are “socialised for success”. They do better in school, get better jobs and go on to create intact families of their own. Children of single parents or broken families do worse in school, get worse jobs and go on to have children out of wedlock.
The article is definitely worth reading, read the “related items” also – The Poverty Business from Business Week:
Why? Mainly due to financial illiteracy. Except in the most extreme circumstance (and then for a short time only) it does not make sense to borrow (given the current interest rates) at an interest rate above 15% (and other than large purchases – car, house… borrowing is normally unhealthy for your financial well being). If you want a new computer, new TV… “rent to own” effective interest rates are horrendous. Just save the money needed and then buy what you want. Borrowing worsens your financial position and since most making such bad financial choices already have a very weak financial position the impact is even more negative. One goal of this blog is to help people become financially literate, so they can improve their economic position by making intelligent financial choices.
One very simple but powerful personal finance tip: save money to buy what you want, don’t borrow to buy what you want. And a related tip, save money to act as an emergency fund. If you don’t create an emergency fund it is far too easy to find yourself in need of emergency funds and then being forced to borrow and getting yourself trapped in a downward spiral.
Example 30 year mortgage rates (from myfico.com – see site for current rate estimates):
| FICO score | APR | Monthly payment* |
|---|---|---|
| 760-850 | 5.860% | $2,362 |
| 700-759 | 6.082% | $2,419 |
| 660-699 | 6.366% | $2,493 |
| 620-659 | 7.176% | $2,709 |
| 580-619 | 8.820% | $3,167 |
| 500-579 | 9.679% | $3,416 |
Amounts shown for borrowing $400,000 and rates as of May 7th. For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.
FICO scores are determined by your:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Types of credit used – 10%
Related: 30 Year Fixed Rate Mortgage Rates – Learning About Mortgages
Many of the Self-Employed Are Simply on Their Own:
But elsewhere, in dealing with insurance companies, the nation’s estimated 20 million self-employed are on their own. In Virginia, a state with relatively few controls on insurance rates, Clay Williams, a 59-year-old self-employed real estate agent in Falls Church, said the cost of health insurance for himself, his wife and two sons, had tripled in six years. After it ballooned last year to $1,956 a month, he angrily refused to renew.
Fixing the health care system is not easy. But it is broken and doing serious harm to the economy and individuals and needs to be fixed. Post on our management improvement blog on fixing the health care system. In addition to the obvious harms the broken system discourages many people from taking on the challenge of self employment. It also greatly increases the friction in the economy for moving between jobs.
Live From Omaha: The Berkshire Hathaway Meeting a nice series of posts at fool.com, including:
On a final note, he gave a not-too-surprising suggestion to always look a stock in terms of the whole company. So, for example, if you’re thinking about buying GM (NYSE: GM) at $30, he said, you should consider whether you think the entire company is really worth $18 billion.
I wish someone would post a transcript or at least more details. If you know of a good source, please let me know.
Related: Great investors, Warren Buffett – Buffett’s Newest Letter to Shareholders – Warren Buffett’s Annual Report 2004
Dragged Down by Debt by Jane Bryant Quinn (Newsweek broke the link so I removed it):
Of all the predatory loans, “exploding mortgages,” with interest rates that wing up after two or three years, are probably the most toxic and have made the most headlines. They’re typically granted to borrowers classed as “subprime”— those with credit scores under 620 (a 900 score is tops). But these are the very people least able to handle monthly payments that suddenly double or triple.
Related: Personal Loan information – Learning About Personal Loans – articles on loans
Personal Loans are either secured of unsecured loans to an individual. Secured loans have some form of collateral such as a car, stocks (margin loan) or a house (home equity loan). Unsecured loans are usually involve less paperwork (which is often an attraction to the borrower – though margin loans often take no paperwork). The interest rate on unsecured loans is normally higher since the lender does not have collateral.
Credit cards are a form of unsecured personal loan. They normally are the worst way to borrow money (though for a very short term loan – say a month or two – when you factor in the ease of use they can be the best option). The problem is many people treat their credit card as a normal source of loans. This is a bad personal finance strategy. See our credit card tips for more information.
Personal loans often have “teaser” rates – interest rates that are low (and quoted in big bold colors) while the real rate is hidden in small type. Don’t fall for the hype. The Annual Percentage Rate (APR) helps you look through the hype to the real cost, but is still not a perfect measure of the cost to the borrower.
A MSN money article discusses the horrendous terms of some “payday loans”: Loans with triple-digit interest. Read more about personal loan terms such as: payday loans, Annual Percentage Rate (APR), line of credit, etc..
Related: Payday Loans = Costly Cash, FTC Alert – Learning About Mortgages – How Not to Convert Equity – personal finance articles on loans
Victim of Real Estate Bust: Your Pension – Part 2:
The central premise of this post is that risk is being mispriced by the market (by failing to account for the risks bonds… are overpriced). And that when those risks are exposed (for example, as the sub prime crisis builds, recession…) prices will fall. Historically markets do exhibit this pattern – when times are good risks are not fully factored into prices, then those risks are appreciated and prices decline.
Related: adjustable rate mortgage – investment risks – Mortgage Defaults: Latest Woe for Housing – Coming Collapse in Housing? – How Not to Convert Equity – Saving for Retirement
This interesting graph, shows the amount of adjustable rate mortgages due for interest rate adjustments (which will increase mortgage payments for millions of people).
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