Bidding Wars: Will escalator clauses put designated agency into investigative spotlight?

48 Whitehall Zestimate 10yrs


Yesterday, the Boston Globe did it again — fanned bidding war fever in the region with another headline that read, Tight housing market drives rising bids:  Tight market drives escalation clause use.  Thankfully, the reader comment that has attracted the most LIKES may reflect a growing “bidding war backlash.” @Chrissie78 wrote:

“And in a year or two we will be hearing about how these people can’t afford their mortgages and that their mortgage is more than their home is worth…will we get to bail them out because the real estate agent “tricked” them into overpaying for a house?”

Well said, …probably better than @Chrissie78 realizes.  If you visit this property on Zillow, one could argue that the winning bid did not make sense when it was made and that will become more obvious as time goes on.  As the image above shows, a year from now Zillow estimates the value of the property at $573,363. That’s $6,500 below the original asking price and $23,600 less than the winning bid.

(Side note:  That’s about the same amount the brokerage collected last November if their commission was only 4%.  If their fee was higher, say 5%, then they collected $29,850 — not bad for a listing that was on the market for just five days.)

Conflict of interest

Dig a little further on the MLS, and the story gets much more interesting.  Like too many transactions, this high bidder was involved in an in-house sale; so that may mean both buyer and seller were represented by “designated agents” in the same real estate brokerage.

Opposing Teams

If their designated buyer agent advised them to raise their bid $42,000 – from roughly 4% under asking price to 3% over asking price to prevail in a bidding war, someday the buyer might conclude that was bad advice and sue their agent as other buyers did in 2008 for misleading or not restraining them:

Investigative Spotlight?

The story does not end there.  As taxpayers we’re now guaranteeing 9 out of 10 mortgages, up from just 3 in 10 in 2006. So, when someone makes a bad decision or gets bad advice from their agent because of a conflict of interest, it may negatively impact all of us.   Our research suggests that this is NOT an isolated case and we’ve got some data we’re ready to ask collaborators to cross-examine, expand to recognize patterns, and if appropriate, take corrective action.

So glad the Boston Globe may have unknowingly put this issue into the investigative spotlight.  Here are some more numbers to get citizen journalists, consumer advocates, and professional investigative reporters started.  Any homebuyers or victims of bidding wars want to talk to our Dual Agency Detectives 😉

Posted in Bidding wars, Consumer protection, Crowdsourcing, Defensive Homebuying, Designated Agency, Dual Agency Detective, Housing bubble, Investigative Reporting, Real Estate Bubble, RECALL: Real Estate Consumer Alliance

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