Homebuying 101: Do seminars expose conflicts of interest, implications of speculative cycles?

 

Musical Chairs

In the documentary, Inequality for All, former Secretary of Labor / public policy professor Robert Reich uses an animated graphic (not the cartoon above) to describe the chain reactions and interrelationships that fuel economic cycles, both virtuous and vicious.

Do homebuyers need similar diagrams or parodies to expose the “speculative cycle” that is likely to peak this year, and the role of conflicts of interest in real estate?  YES, particularly right now, before sensationalized media coverage of bidding wars reignites another season of irrational exuberance.

BACK TO THE FUTURE

Last week, Nobel-prize winning economist, Robert Shiller told CBNC that 2014 is beginning to look like 2005 or 2006, when housing prices rose too far, too fast.

http://bit.ly/2005REPlay (please share this link via social networks)

While that’s not the case everywhere, this excerpt from The Behavior of Home Buyers in Boom and Post-Boom Cycles, written twenty-five years ago by Shiller and fellow housing economist Chip Case, once again describes some submarkets in Greater Boston:

“…we see a market driven largely by expectations. People seem to form their expectations on the basis of past price movements rather than any knowledge of fundamentals.  This increases the likelihood that price booms will persist as homebuyers in essence BECOME DESTABILIZING SPECULATORS!”

SENSATIONALIZE OR REGULATE BIDDING WARS?

Way back in 1988, those noted economists made the following observations:

“In boom cities, newspaper accounts feature stories of homes that sold well above the asking price, interpreting this phenomenon as evidence of investor frenzy or panic.”

“The news media seem to exaggerate the importance of such sales above asking price…”

What should be disturbing, and hence part of home buying education, is that bidding wars twenty-five years ago only accounted for 6 to 10% of sales in boom cities studied by Case and Shiller.  In contrast, Real Estate Cafe’s analysis of bidding wars during 4Q2013 in Cambridge revealed that sales over asking price have risen TENFOLD from less than 6% during 4Q2010 to nearly 60% during 4Q2013.  That led us to ask

Will runaway bidding wars create real estate refugees in Cambridge?  What would MLK do?

http://bit.ly/BidWarLab  (please share this link via social networks)

HOMEBUYING SEMINARS

Over the next four months, Harvard University Housing and Harvard University Employees Credit Union will offer approximately two dozen home buying seminars across their various campuses and professional schools.  Some will be delivered by Harvard staff, others are co-taught by their real estate partner, Coldwell Banker.  One year ago tomorrow, Harvard Alumni Association co-sponsored a home buying seminar online for alumni.

Given the apparent commitment to homebuyer education, here are some questions to ask to raise the level of services:

  1. Do Harvard and their real estate partner CBRB have an obligation to disclose agency options accurately, and describe ways to opt out of conflicts of interest inherent in Designated Agency?
  2. If Harvard receives a fee for referring faculty, students or alumni to CBRB, what implications does that have for content and advice provided in their educational seminars?
  3. If sales occur in-house at CBRB that are well over asking price as they did in Cambridge during 4Q2013, does informed consent require that those stats be disclosed to Harvard faculty, employees, alumni and others before they give up their right to representation without conflict of interest?

DEFENSIVE HOMEBUYING

Beyond Harvard alumni, what’s the best way to warn homebuyers, particularly first-time homebuyers who cannot afford to engage in bidding wars, of the risk of overpaying when they are involved in an in-house sale?  Maybe Harvard, CBRB and other Homebuying 101 instructors should require class participants to read this article:

How a Dual Agent Affects Sale Prices

http://bit.ly/DontOverPay (please share this link via social networks)

If you can get into Harvard, hopefully you’re smart enough to recognize the conflict of interest shown in the cartoon below.  As a cynical but keen observer down the street near MIT said,

“What a seller needs is someone on their side, pretending to be on the other side, telling the buyer that their overpriced home is a bargain, and encouraging them to bid over asking price.”

As an alum, I trust that Harvard University is wise enough to protect itself from worst-case scenarios.  As this New York Times story demonstrates, bidding war backlash is a potential danger as it was in the last boom / bust cycle:

Feeling Misled on Home Price, Buyers Sue Agent

http://bit.ly/Misled2008 (please share this link via social networks)

FRIENDLY CRITIQUE OR PUBLIC DEBATE?

Last year, working together with Consumer Advocates in American Real Estate (CAARE.org), we offered Harvard Faculty and Employees Real Estate Services a friendly critique of their / CBRB’s educational content and slides regarding Designated Agency.  Unfortunately, that offer was declined.  So far this year, we have not disclosed details of our Bidding War Scorecard to the public; instead we extended an invitation to share it with the Harvard Alumni Association.  On the eve of the next home buying seminar, the offer still stands.

In the meantime, maybe we should seed an ideas competition for Harvard alumni and thoughtful homebuyers everywhere who want to make informed decisions rather than being manipulated in blind in bidding wars:

Crowdsourcing question:  What’s the best way for Home buying 101 courses to use this image to expose Designated Agency?  Bonus points for identifying individual and societal costs of speculative real estate cycles and bidding wars

Opposing Teams

Should Real Estate Cafe host our own defensive home buying course entitled, What they don’t teach you in Homebuying 101?  If we do, let us know whether you prefer to join us online or in person?

Posted in Bidding wars, Buyer agent, Consumer protection, Defensive Homebuying, Dual Agency Detective, Dump Dual Agency, Housing bubble, Real Estate Bubble, Real Estate Consumer Bill of Rights, RECALL: Real Estate Consumer Alliance

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