Bidding War Scorecard: Is Designated Agency having a bipolar impact in Cambridge?


BiddingWar_Camb_July2014

BiddingWar_Camb_Sept2014

Has the housing market reached a tipping point, even in grossly overheated Cambridge, MA? Too early to answer that question, but our Bidding War Scorecard keeps revealing interesting data points about conflicts of interest in real estate. For example, during August 2014, four of five bidding wars selling $200K+ over asking price involved in-house sales, adding more fodder to our goal of repealing or neutralizing Designated Agency in 2015, the 10th anniversary of this flawed counterfeit buyer agency.

But as the Wall Street Journal reported earlier this year, designated agency can turn against sellers, too.  Designated agency and dual agency can have a bipolar impact on the housing market, because, “Having an agent represent both buyer and seller can either raise or reduce the final selling price, depending on the timing of the transaction.”

So what’s happening now in Cambridge?  Overall, MLS data reveals that sales in Cambridge have dropped a stunning 42%, falling from 122 in July to just 71 in September. One in 4 to 5 MLS listings continue to sell in-house, but during September one third of in-house sales resulted in savings of $50K or more off the listings price. In fact, half of the 10 listing selling $50K or more under the original asking price were in-house sales — all listings that had been on the market at least 40 days up to 146 days.

Our Dual Agency Detective says sometimes in-house sales result in buyers overpaying in bidding wars, other times sellers are shortchanged on stale listings. The only thing that is certain is the brokerage practicing designated agency collects both sides of the commission.

That raises policy questions, as we blogged in January 2014 before our real estate peers created a website to expose 25+ ways Real Estate is Broken:

Beyond the costs and opportunity costs to individual buyers, are complex questions with widespread public policy implications: “What impacts are conflicts of interest having on the housing market?” The question extends beyond individual budgets, to the composition of communities, and potential cost to tax payers who are insuring 90% of mortgages; even beyond the legal obligation of real estate brokerages, to the games agents play and the potential for a bidding war backlash, regulatory reforms, or worse, lawsuits.

What’s your take, homebuyers and new homeowners? If you felt “forced” to bid way over asking price in a bidding war during the first half of 2014, are you beginning to second guess that decision? What role did “your” real estate agent play encouraging to pay over asking price, or including an escalator clause? If you’re one of the four new homeowners who suffers from buyer’s remorse, you may want to read how buyers responded in the past:

http://bit.ly/Misled2014

Related Articles

Response to WBUR/NPR: American housing & finance: What went wrong & how to fix it

WBUR / NPR OnPointRadio:  Banks and Housing in Crisis
American housing and finance. What went wrong, and how to fix it.

You can join the conversation. What new rules should be in place? Should we make it more difficult to buy a home? Should we stop banks from playing with mortgage securities? Should we put up big firewalls on Wall Street to head off future disasters? Tell us what you think.

MY COMMENT TO WBUR BLOG, yours are welcome as well:

"Speed bumps" to protect the housing market from overheating? That’s the role of a buyer agent in individual real estate transactions. Unfortunately, over the past 15 years, the real estate lobby pushed state legislatures nationwide to remove speed bumps by legalizing conflicts of interest inherent in "designated agency."

BLOG POST: Misleading home buyers: Conflict of Interest? What conflict of interest?

From my day-to-day experience as a buyer agent in Greater Boston, I know there have been countless "bidding wars" over the past decade. Conflicts of interest and manipulative business practices made those bidding wars worse. Now the cost is being passed on to society as this case study demonstrates:

"My so-called buyer’s agent (who promptly switched roles at contract signing without explanation), initially advised me to bid $750,000 for my house of choice, which was listed at $699,900. When I told her that such an offer was beyond my price range, she was quite adamant that I not offer anything under the list price. When I finally backed out the deal because of her bait and switch scam, I later heard that the house in question sold shortly afterwards for $682,000—in other words, nearly $70,000 less than the bid suggested by my so-called buyer agent."

"This type of price inflation (caused by seller’s agents masquerading as buyer’s representatives) must have a very distorting impact on housing costs. The economic fallout is enormous: ordinary citizens are forced to move out farther in search of decent, affordable places to live, which leads to a host of problems connected with traffic congestion, suburban sprawl, etc."

"As I perceive it, the real estate cartel’s use of dual agency [a.k.a. "designated agency"], which works to the detriment of the average consumer while enriching dishonest agents through the practice of double-dipping, contributes significantly to the manifold problems we see in the residential housing market and therefore should be fully exposed."

This case study is an example of what’s wrong with dual agency / designated agency, and why I believe designated agency laws should be repealed and "blind" bidding wars should be managed with regulatory "speed bumps."

So, if Congress, policy makers, and consumers are asking what factors contributed to the overvaluation of housing markets, shouldn’t dual agency and blind bidding wars be included in that investigation? My hope is that others will agree that it’s time to expose systemic flaws and conflicts of interest in the residential brokerage practices, and the cost of blind bidding wars, not just to individual buyers but to tax payers.

This three minute audio post proposes four regulatory reforms to protect consumers — buyers, sellers, and tax payers — in the future. Please listen, comment, and / or join us for a TweetUp in Boston to listen to the rebroadcast of this program, 7-8pm in Boston.

AUDIO BLOG POST: What regulatory reforms are needed to protect real estate consumers?

Thank you WBUR for your continued coverage of this subject!

Edit for publication

If the NJ bubble blog post is correct and listing agents are being rewarded for getting sellers to drop their asking prices, industry regulators should begin asking serious questions about conflicts of interest and breaches of fiduciary duty. Isn’t the listing agent’s legal obligation to get the highest price for the seller? Wonder if the dual agency or designated agency — a form of brokerage where a single agency tries to represent both buyers and sellers — could be at work behind this anecdote. If so, my guess is that industry critics and a few class action lawyers will be watching this trends closely.

The authors of _Freakonomics_, or some other economists should also take note of this trends, and take a look at a trend we saw last year in Boston. Some sellers would rather drop their agents than drop their price, or more specifically their net profit after paying real estate commissions. If they can drop their price by the amount of the commission, why not say goodbye to the listing agent and their newest conflict of interest?

Responses

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

HTML Snippets Powered By : XYZScripts.com