It’s that time of year, the first weeks of the Spring housing market when overeager homebuyers rush into “blind” bidding wars. Is there a way to verify whether a competing buyer really exists before being manipulated, by fear of loss, into paying over asking price? That’s what readers are debating on Boston.com’s popular real estate blog. “Verify What?” is the latest in a series of posts about high pressure sales tactics used by listing agents to start bidding wars. Should they be regulated? That’s what we’ve asked for years, and were thrilled last year when Boston.con expanded that rallying cry.
To get government regulators involved, there would need to be a clear public purpose. In my professional opinion, “blind” bidding wars over an eight year period, 1998-2006, helped fuel the “irrational exuberance” that drove housing prices in Boston — and elsewhere — to artificial, unsustainable levels; and ultimately left the taxpayer to pick up the tab. To date, news sources say $135 to $145 billion has been spent to rescue Fannie Mae & Freddie Mac alone. Over the next three years, that number could rise to $363 billion, according to one source, while another estimates the bailout could cost taxpayers $1 trillion!
If Boston.com readers and others agree, a coalition of consumer and housing advocates could create an online petition to regulate “blind” bidding wars. That’s what happened ten years ago when real estate consumer advocates called on Congress to create a real estate consumer bill of rights (see history of similar efforts including one by Redfin on April 1, 2007). The goal is not to eliminate competition (that would be politically unacceptable in our capitalist system); but to maximize transparency and minimize deceptive buyer manipulation through a controlled bidding environment, like N-Play.com. If you visit their site, you will see their home page tell buyers, “You get to see instantly how your offer ranks and rates against the competition.”
How do you know if those competing offers are from real people? A variety of technologies ALREADY exist to verify digital identity. As one commentor, an advocate of VRM (Vendor Relationship Management), wrote before 20+ comments were inadvertently erased last year from a Boston.com blog post entitled Why not crack down on bidding wars?:
“A fair system that could identify real bidders can be built with today’s technology. Information cards are a digital credential that can be issued by an identity provider such as Equifax or Acxiom that can without revealing who you are, electronically and instantaneously verify (emphasis added) that what you claim about yourself is accurate.
While such a system does not exist today, a service that registers qualified home buyers and could be used to prove these folks are legitimate potential bidders without sharing identifying details or offer specifics could be built for under $1M from existing technology. (emphasis added)
The existence of such a system could become common practice in a few years.”
Believe it or not, some tech-savvy real estate companies and homebuilders are already using existing technologies to check you out. In fact, the home page of RealTag.com boldly proclaims:
Combining industry leading predictive modeling as well as over 225 pieces of information on 145 + million homeowners, RealTAG delivers a concise financial view of your prospect in 5 seconds.
If the statement above is true, think of what a listing agent can learn about you before you even leave an open house or before you raise your offer in a “blind” bidding war where you may be manipulated into bidding against yourself, rather than a competing buyer.
If agents already have to tools to access your digital identity and the Patriot Act requires homebuyers to verify their identity at the closing table, why not require bidders to verify their identity before making their opening offer in an open, transparent bidding system like N-Play, if it achieves a public purpose? It would certainly be less expensive than requiring each household in America to pay $5,000+ to bailout the housing market.
Like other conflicts of interest and market manipulations underlying the causes of the “Great Recession,” one is tempted to ask, “Where were the regulators?” If the Consumer Financial Protection Agency is not looking at residential brokerage practices, what’s the best way to organize a grassroots campaign that will result in real consumer protections and end BLIND bidding wars?
Using HomeBuyer or HomeSearchID’s to verify competing bidders, without revealing who you are, is just one of the many consumer benefits that could be achieved when VRM tools empower buyers and sellers to control their own data. For more information, read or contribute to our reVRM Minifesto.