Who will put savings back into buyer agency?

My assumption is that many buyer agents who take fiduciary duties seriously have worked with buyers willing to pay over asking price because they believe rising prices will offset their leap of faith. In 1988, Nobel prize winning economist Robert Shiller and Karl Case said those kind of calculations turned homebuyers unknowingly into the drivers of a speculative boom / bust cycle as 6 to 10% of homes sold over asking price. In some locations like Cambridge, Massachusetts that pace is now up TENFOLD, as bidding wars are at a dangerous unprecedented pace.

Recognizing that, this stunning finding asks what role are buyer agents playing. By one quantitative measure of ROI or ROA – Return On Agency, buyer agents generated savings beyond their paycheck in just 17 or 217 transactions in Cambridge. That’s a paltry 8%:

When buyer agents pioneers launched their practices two to three decades ago, they routinely quoted excerpts like this:

HOUSE HUNTING? SAVE BY HIRING YOUR OWN BROKER

“If you ever doubted the value of real estate agents who work solely for home buyers (as opposed to traditional agents who report to sellers, consider this: A recent study by U.S. Sprint found that 232 relocating Sprint employees who hired buyer’s brokers paid an average of 91% of a home’s list price. People who use traditional agents typically pay about 96%. On a house originally priced at$150,000, that’s a difference of $7,500.”

MONEY MAGAZINE

“…Buyers average a 5% savings when represented by a buyer’s agent rather than a seller’s agent.”

What happened, and what will happen when the market changes? Will we see a repeat of 2008 when clients began suing counterfeit buyer agents?

With Keller William’s founder warning about a shift in the housing market — http://bit.ly/BewaREShift, is it time we develop a meaningful if not quantifiable measure of buyer agents effectiveness that exposes fake buyer agents? Maybe something as simple as:

Put the savings back into buyer agency?

Some say the next major housing crisis will be generated by “disruptive demographics,” and in retrospect, it may be clear were’s headed for another lost decade in housing. What’s your take?

Are we approaching a tipping point in housing?  Should you or your buyer agent be concerned?

If you’re in Greater Boston, join us offline for our next “Bubble Hour.”  Follow @RealEstateCafe for the next #REonTap

Posted in Bidding wars, Bubble Hour, Buyer agent, Defensive Homebuying, Dual Agency Detective, Great Senior Sell-Off, Housing bubble, Housing forecasts, Real Estate Bubble, Savings & Rebates, Seasonality, Timing the market

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