This morning, Boston.com’s real estate blog is asking whether 2014 will bring the “Return of the crazy buyer?” It’s a complex discussion, but beyond behavioral economics and predictable irrationality are legal responsibilities to protect individuals and calm the housing market overall. Today, in honor of the Three Kings Day, we’ll ask three questions hoping that homebuyers and real estate regulators have a “real estate Epiphany” before repeating mistakes of 2013 and the last real estate boom / bust cycle:
QUESTION #1: What if buyer agents really acted as buyer advocates, instead of counterfeit buyer agents (aka designated buyer agents)? Would that reduce the level of “craziness” in the market?
If the buyer agent’s legal responsibility is to get the best price and terms for their buyer clients, what if they could be sued for the equivalent of malpractice if that buyer is upside down on their mortgage within 5 years?
Ridiculous idea? Read this Flashback from January 2008 and then consider this angle:
QUESTION #2: If tax payers are guaranteeing 90% of mortgages, should we insist that offers by “crazy buyers” be approved by a financial advisor / buyer agent — without any conflict of interest — to PROTECT OUR collective investment against another tax payer funded bailout?
During the last boom, research revealed the impact of conflicts of interest in real estate and here’s what they found:
“Cornell researchers found that listing agents *** INCREASED asking prices by 10 percent “when an internal buyer with a high willingness-to-pay is available,” *** and generated sales prices 5 percent higher on transactions involving in-house sales.”
Significantly, that was BEFORE nearly half of sales were all cash transactions and international money was bloating bidding wars.
It sounds too simplistic to say, “Keep calm and use a buyer agent (without a conflict of interest),” but seriously, how do regulators protect tax payers when well-intended, ordinary homebuyers are competing against crazy buyers advised by agents a legal responsibility to get the highest price for the seller?
Fellow real estate consumer advocates, correct me if I am wrong, but wasn’t 2013 the first sellers’ market since agency laws in MA were rewritten to create designated agency — a hypocritical way to paper over conflicts of interest? Regulators, investigative reporters, and class action attorneys, is it time to revisit the impact designated agents are having on prices?
BONUS QUESTION #3: My question is what legal recourse do buyers—and TAX PAYERS in general—have against designated agents who helped create overvalued housing markets that we are paying BILLIONS to bail out? If you scoff at that notion, read this blog post about the “so-called buyer agent” who advised their client to “bid $750,000” …on a house listed at $699,900. It later sold for $70,000 less!
Taxpayers beware: Dual agents & designated agents expose all of us to risk
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Footnote on Question #2: Wait, isn’t that one of the by-products of an independent bank appraisal?