A Boston home buyer recently asked Trulia readers if his “mortgage interest rate [would] be higher if the listing agent and buying agent is the same person?” He had allegedly been asked to pay 0.5 point more because he “chose” to work with a dual agent. Beyond his case study is a larger question that could impact millions of transactions:
“Should market forces penalize conflicts of interest in real estate if mega-brokers pretend they don’t exist and regulators turn a blind eye?”
Several months ago, Yale economist and co-founder of the Case-Shiller Housing Index, Robert Shiller cautioned that “we are in a totally artificial real estate market.” My question is whether lenders are now pricing individual loans to reflect different RISK scenarios, and if so, whether that violates any laws.
Speaking of legal requirements — Using the same agent or agency to represent buyer and seller is risky, and considered an act of fraud without informed consent. That is why the state of Massachusetts REQUIRES agents to disclose that conflict of interest inherent in BOTH dual agency and designated agency before entering into any agreements. Whether the agent or agents involved comply with the state’s mandatory disclosure, or whether the buyer and seller know enough about the possible financial harm to give “informed consent” – an important legal standard — are complicating factors and add to risk.
If the rate penalty above is more than an isolated incident, could lenders be saying, we don’t care whether uninformed or misinformed buyers see the conflict of interest, we do and were going to charge a higher interest rate to reflect our RISK. What’s the risk?
The fear of rising interest rates may tempt dual and designated agents to manipulate some buyers into “panic buying” driving bids well over asking prices, as they did in the last real estate cycle. The video above shows an interview with the victim featured in these blog posts:
01/25/08: Misleading home buyers: Conflict of Interest? What conflict of interest?
http://bit.ly/REConJob (please share this tiny URL)
03/16/07: Double Bubble: How counterfeit buyer agents inflated the housing bubble
http://bit.ly/REConCost (please share this tiny URL)
“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.”
As of 2012, nine of every ten new mortgages are backed by the U.S. taxpayer, up from three in ten in 2006. We’ve nationalized the mortgage market so million TAX PAYERS in the US are at risk if dual agents and designated agents drive bidding wars to unsustainable levels again. Should we as tax payers insist that our financial stake in the real estate transaction be protected by buyer agents without a conflict of interest? Or at least insist on ZERO TOLERANCE conflict of interest on any real estate transaction involving a mortgage with a government guarantee?
If tax payers are guaranteeing nine out of ten mortgages, doesn’t it make sense to protect millions of transactions annually from fraud? Sounds like good public policy to me, how about you? Watch the video above to learn what’s at stake, and follow CAARE.org for more discussion of this topic.