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

Related Articles

Bungee Jump pricing

Call it Retail 101: Low prices attract shoppers. Increasingly, real
estate agents are coaching home sellers to list their homes at an
asking price that clearly undercuts the competition. Agents have taken
to calling it ‘drama pricing.’ Others, the ‘eBay effect.’ Either way,
the logic is simple: In a housing market with a glut of properties for
sale, an unusually low price is a surefire way to make your home stand
out and attract more prospective buyers.”

“One homeowner who recently adopted this strategy said her real estate agent referred to it as ‘the bungee jump.’”

“‘You go down and then you get sprung back up,’ said the seller, who
did not want to be identified because the deal has yet to be completed.
‘You would rather have that effect than overpricing your home and
getting no bids at all.’”

“Realtors said many sellers are reluctant to take ‘the bungee jump’
for fear the offers will come in lower, not higher, than the asking
price. Still, with the housing market slack, more and more sellers are
willing to give it a try, Realtors say, particularly those with homes
priced between $500,000 and $1.5 million.”

“‘When buyers see good value, they will come and they will buy with
a sense of urgency,’ said Cara Moxley, a Realtor in Summit. ‘Ultimately
those underpriced homes bring more, even beyond most sellers’
expectations.’”

“‘I take pains to help clients understand that the rationale behind
a lower list price is to maintain a position of negotiating strength as
a seller,’ (realtor) Howard Bunn said. ‘A low price pits the buyers
against one another. They must compete or lose the house. A higher list
price pits the potential buyer against the seller and the seller is
then playing defense, negotiating with a buyer who knows he’s operating
alone and not concerned with the actions of excited other buyers.’”

“Still, Bunn said he always cautions sellers never to list their
home at a price they would be sorry to sell at. As with any real estate
deal, a seller is under no obligation to accept an offer. But once the
asking price has been set, there’s no going back: It won’t help sell a
house to later raise the asking price.”

“‘That kind of pricing is the devil’s workshop and will lead at best to a severe loss of credibility,’ he said.”

“There’s also some risk for a buyer in this situation, Realtors say.
Make sure you’re not the winner who ends up feeling like a loser in the
morning because you overpaid for a property, said Lorrie Cohen, a
broker in West Orange.”

“‘People always want what they can’t have, and they get caught up in
the frenzy of this bidding war and they get the house, but the next day
they wake up and they say, ‘What did I do?’ Cohen said.”

DRAFT: April Fool’s Day 2008

Time to begin a discussion about systemmic flaws and conflicts of interest in the current real estate transaction, and cost of blind bidding wars, not just to individual buyers but to society. 

If attorney general office m

Two years ago: 

Is designated agency an April Fool’s Day joke?

http://realestatecafe.blogs.com/real_estate_cafe/2006/04/is_designated_a.html

RealEstateCafe

August 16, 2007 02:15 PM

What do real estate agents think about "bad brokers?"

http://tinyurl.com/2ryrdd

Speaking as a buyer agent, I hope it is just a matter of time before
the press begins asking if questionable real estate brokerage practices
contributed to the overvaluation of housing markets and unfolding
mortgage meltdown.

Here’s an example of another kind of "bad broker" from our blog post
entitled, Double Bubble: How counterfeit buyer agents inflated the
housing bubble:

"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."

"This type of price inflation (caused by seller’s agents
masquerading as buyer’s representatives) must have a very distorting
impact on housing costs. The economic fallout is enormous: ordinary
citizens are forced to move out farther in search of decent, affordable
places to live, which leads to a host of problems connected with
traffic congrestion, suburban sprawl, etc."

"As I perceive it, the real estate cartel’s use of dual agency
[a.k.a. "designated agency"], which works to the detriment of the
average consumer while enriching dishonest agents through the practice
of double-dipping, contributes significantly to the manifold problems
we see in the residential housing market and therefore should be fully
exposed."

The homebuyer above concluded, "Isn’t there any investigative team
or media personage with the courage and tenacity to shed light on this
problem?"

Full blog post online at:
http://tinyurl.com/yp8ocw

Proof of concept: Managed competition:  Auto insurance

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