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Bidding Wars: Will escalator clauses put designated agency into investigative spotlight?

48 Whitehall Zestimate 10yrs

 

Yesterday, the Boston Globe did it again — fanned bidding war fever in the region with another headline that read, Tight housing market drives rising bids:  Tight market drives escalation clause use.  Thankfully, the reader comment that has attracted the most LIKES may reflect a growing “bidding war backlash.” @Chrissie78 wrote:

“And in a year or two we will be hearing about how these people can’t afford their mortgages and that their mortgage is more than their home is worth…will we get to bail them out because the real estate agent “tricked” them into overpaying for a house?”

Well said, …probably better than @Chrissie78 realizes.  If you visit this property on Zillow, one could argue that the winning bid did not make sense when it was made and that will become more obvious as time goes on.  As the image above shows, a year from now Zillow estimates the value of the property at $573,363. That’s $6,500 below the original asking price and $23,600 less than the winning bid.

(Side note:  That’s about the same amount the brokerage collected last November if their commission was only 4%.  If their fee was higher, say 5%, then they collected $29,850 — not bad for a listing that was on the market for just five days.)

Conflict of interest

Dig a little further on the MLS, and the story gets much more interesting.  Like too many transactions, this high bidder was involved in an in-house sale; so that may mean both buyer and seller were represented by “designated agents” in the same real estate brokerage.

Opposing Teams

If their designated buyer agent advised them to raise their bid $42,000 – from roughly 4% under asking price to 3% over asking price to prevail in a bidding war, someday the buyer might conclude that was bad advice and sue their agent as other buyers did in 2008 for misleading or not restraining them:

http://bit.ly/Misled2014

Investigative Spotlight?

The story does not end there.  As taxpayers we’re now guaranteeing 9 out of 10 mortgages, up from just 3 in 10 in 2006. So, when someone makes a bad decision or gets bad advice from their agent because of a conflict of interest, it may negatively impact all of us.   Our research suggests that this is NOT an isolated case and we’ve got some data we’re ready to ask collaborators to cross-examine, expand to recognize patterns, and if appropriate, take corrective action.

So glad the Boston Globe may have unknowingly put this issue into the investigative spotlight.  Here are some more numbers to get citizen journalists, consumer advocates, and professional investigative reporters started.  Any homebuyers or victims of bidding wars want to talk to our Dual Agency Detectives ;-)

http://bit.ly/BidCon

http://bit.ly/BidWarLab

Posted in Bidding wars, Consumer protection, Crowdsourcing, Defensive Homebuying, Designated Agency, Dual Agency Detective, Housing bubble, Investigative Reporting, Real Estate Bubble, RECALL: Real Estate Consumer Alliance

InventoryGate: Fact checking “tight inventory” & “the rest of the story”

Cambridge Inventory 04/11/14 vs 2013

The headline, “Home buyers face tight inventories, rising prices this spring” followed a predictable script for the past two years, but the level of sensationalized reporting in the Boston Globe’s recent story may have crossed a line.  First a cash bidding war in Newton was reported without context, and second an alarming statement about inventory in Cambridge does not stand-up to cross-examination:

“In Cambridge, where listings plunged 65 percent from a year ago, …”
http://bit.ly/InventoryGate Please share this URL

Real estate fact-checking:  A brief history

When the Real Estate Cafe wrote it’s first blog post a more than a decade ago, we decided to call our blog “Counter Intelligence” because we wanted to use this powerful new tool to fact check real estate spin and tell the other side of the story.  Words we wrote in February 2004 were tragically prophetic and ironically, are still unsettlingly true:

“This is where blogs might find an entry point in the real estate industry. As you know Ralph Nader and SteveBrobeck of the Consumer Federation of America both called the real estate industry a cartel more than a decade ago. One of my visions is a network of home buyers who post reviews of open houses and report on local market trends from the consumers’ perspective. As the air comes out of the real estate bubble and the industry slides into a multi-year down cycle, home buyers will become increasing cautious and hungry for this kind of ‘citizen journalism.’”

http://bit.ly/REBlogs2004 Please share this URL

Last week’s headline in the Boston Globe provides another reason why citizen journalists and DIY homebuyers should fact check industry spin.

Fact check:  Inventory down by 65%?

As of Friday, April 11, a standard MLS report called “On-market snapshot” reveals that were 95 active listings in Cambridge.  That’s down from 124 on the same day a year ago, but that reflects a 23% decline in active listings not 65% as reported in story in the Boston Globe a week ago.

Is it possible that inventory was off by 65% before the Globe article was published on April 6, 2014?  Let’s check.  The same MLS On-market snapshot reveals:

77 active listings in Cambridge on April 3, 2014
64 active listings in Cambridge on April 1, 2014

Further, the “Inventory Lab” the Real Estate Cafe shares with clients documents that there were 60 active listings in Cambridge on March 9, 2014, so it’s highly unlikely that the stat reported by the Globe was correct a month later.

Full context

If you go back to the frigid days of early January, you do find that there were only 33 active listings in Cambridge on Jan. 9, 2014.  That number was 75% less that the previous year, an alarming fact even worse than what the Globe reported.  But inventory responds to seasonality and that includes both warmer weather and increased demand; so it’s not surprising to find that the inventory level had already risen to 45 active listings in Cambridge on Feb. 9, 2014.

Current inventory vs sales volume

ACTIVE MLS listings are up threefold in Cambridge since January 2014 and have doubled since February.  Equally significant is that the current inventory level is rough equivalent to the total number of MLS sales across all residential property types — single family, multi-family, condos & land — in Cambridge during the first three months of the year, 1Q2014.

We don’t know what source the Globe used to report that inventory was down 65% in Cambridge, but the good news is that appears to be wrong and there are more housing choices inside and OUTSIDE the MLS than homebuyers realize.

The Rest of the Story

A month ago, a headline in the industry press revealed this shocking finding:

Study suggests MLS played little or no role in nearly half of 2013 sales
http://bit.ly/MLSnoMas Please share this URL

Should homebuyers look to the Globe or other local journalists to ask what role pocket listings and pre-MLS sales are playing behind the “low inventory” hype?  Instead of waiting, the Real Estate Cafe has developed it’s own Inventory Lab and Bidding War Scorecard for clients, and is putting together a series of seminars on “Defensive Homebuying:  What they don’t teach in Homebuying 101.”

Call to Action

To learn more about those offerings plus our seminars on Proactive House Hunting and the Hidden Costs of Reactive House Hunting, please contact the Real Estate Cafe at (617) 299-8675 to schedule a free consultation.

We’re particularly eager to hear from DIY homebuyers who’d like to earn commission credits for their content contributions.  We call it the Real Estate Cafe’s Tipping Policy, and we’re eager to reward fact checkers and citizen journalists for their insights into what’s really happening.

Posted in Bubble Hour, Buyer agent, Counterintelligence, Crowdsourcing, Defensive Homebuying, DIY Homebuyers, In the News, Intention Inventory, Proactive househunting, Tipping Policy

Bidding War Cluster Bomb is homebuyer’s new Killer App

Cluster bid, under development at stealth location in Cambridge, seeks to transform runaway bidding wars into a "Force for Good"

CLUSTER BID under development at stealth location in Cambridge seeks to transform runaway bidding wars into a “Force for Good”

Tired of losing bidding wars, innovative DIY homebuyers in Cambridge, Massachusetts, one of the few cities in the world to have it’s own Peace Commission, are using the Social Enterprise Conference at Harvard Business School today to leak information about a “killer app” they are developing –

a cluster bomb designed to win bidding wars.

Last year, behavioral scientists in the city famous for innovation on both Harvard and MIT campuses, looked to the Slow Food Movement to inspire real estate reforms.  Attention generated by that research and the ongoing state of emergency in the Cambridge housing market caused homebuyers to crowd fund the new “Bidding War Lab” where the cluster bomb has secretly been under development.

“Despite building strong relationships with local law officials and consumer advocates, including the Consumer Financial Detention Bureau (CFDB), we realized there are limits to what the public sector and real estate regulators can achieve with the Slow Bid Reform Act, ” an unidentified sources confided.   “So we’ve turned to a new generation of app builders and social entrepreneurs to launch a “Peace Offensive” that will transform bidding wars into a force for good.”

Imagine the ideas you could generate if the estimated $7M in bidding war premiums homebuyers paid over asking prices during 4Q2013 alone in Cambridge were offered as prize money in an IDEAS COMPETITION, or redistributed to seed social enterprise start-ups, non-profit organizations, and causes?  See similar subversive, open-fundraising model from a decade ago:

ASAP:  AIDS Shelter Alliance Partners

We think the Bidding War Cluster Bid has the potential to become the “Mother of all Crowdfunding Opportunities;” but even if it doesn’t, we’re eager to use the period between April Fool’s Day and Patriot’s Day to recruit courageous consumers and innovative social do gooders to use this powerful new weapon to light up the bidding war process!

When buyers and sellers see the impact of this stealth project has on local communities, we hope Cluster Bids will inspire other legacy bid models — maybe even a new arms race between housing markets worldwide.

Let us know if you’d like online access to our secret lab or meet in person sometime before, during or after the Social Enterprise Conference.

Disclaimer:  The Bidding War Cluster Bomb / Cluster Bid are not products or trademarks of the Harvard Lampoon, The Onion, or the Colbert Report but we encourage all three to help us identify and honor altruistic Bidding War Heroes, both homebuyers and sellers.

Posted in ASAP: AIDS Shelter Alliance Partners, Bidding wars, Creative class, Crowd financing, Crowdfunding, Idea Bar, Real estate philanthropy, Social funding, Test kitchen

Return of frenzied real estate spin? Don’t be fooled again

Excerpt from broker facing MLS:

Named Exclusion

Concerned that the housing market this Spring could become irrational again, Boston.com’s real estate blogger raised questions today about the risks / rewards of waiving contingencies:

A buyer’s most foolish move

Yesterday, one of Real Estate Cafe’s DIY buyers received a conference call from a seller and their listing agent saying their offer was

the lowest of five competing buyers,

one had no financing contingency,

another had no inspection contingency.

However, the buyers were a “named exclusion;” which means they made an offer directly to the homeowner before they relisted in the MLS.  With that offer in hand, the homeowner wanted to see if they could net more profit by working with a well-known listing agent.  Fast forward three weeks from that date, and stir the frenzied FUD pot:

Fear, Uncertainty, and Doubt.

The buyers remained calm, raised their offer a bit, but did NOT remove any contingency clauses, and insisted on the right to get out of the transaction or renegotiate their price if the inspection revealed more than $10K in repair costs.

Guess who won?

Not a cash buyer, nor a fearful or poorly advised buyer playing Russian Roulette with contingency clauses.  Instead, a smart, PROACTIVE, DIY homebuyer who allowed the seller to NET more profit / retain more home equity by selling to them.  We don’t know if the listing agency will receive a partial fee for their role, but both the buyer and seller saved by outsmarting the traditional co-broke real estate commission buried in every MLS listing.

How common is that?  Named exclusions are probably pretty rare in Greater Boston because, unlike some parts of the country, FSBOs — for sale by owner listings — are less common than other cities, (eg. Madison, WI). Still, this isolated case study reflects two larger trends:

Megatrend #1. The MLS is playing a less important role in the housing market

Nationwide, guess what percent of homes are selling outside the MLS?  One study, which has generated considerable debate (including our own comments) suggests that the MLS played little or no role in nearly half of 2013 home sales

http://bit.ly/MLSnoMas

Megatrend #2.  New challenges the traditional two-sided real estate commission

The Consumer Federation of America first called for the traditional two-side real estate commission to be uncoupled more than 20 years ago, predicting billions in savings annually.  More recently, we were delighted to discover an academic paper and feature story in AOL Real Estate about the same:

Price Collusion and Adverse Intermediation

Significantly, one of the coauthors, Benjamin G. Edelman is an associate professor in the Negotiation, Organizations and Markets unit at Harvard Business School.

Real Estate Agents Who Rewrite the Rules on Commissions

CNN Poll Agents Over Paid (2005)

We’ll write more about these two trends and are eager to include them in a upcoming C2C / P2C Real Estate Conference.  In the meantime, we invite DIY homebuyers to contact us now for a complimentary consultation to learn more about alternative money-saving real estate brokerage models, including our PROACTIVE House Hunting strategies.

Posted in Bidding wars, Buyer agent, Commission Reform, Consumer protection, Defensive Homebuying, DIY Homebuyers, Proactive househunting, RECALL: Real Estate Consumer Alliance, Savings & Rebates, Unbundling the Commission

WARNING Homebuyers: Will feeling blue morph into feeling misled?

 

Misled 2008 NYTimes

Rising prices and games real estate agents play have Home buyers feeling blue, according to recent national surveys. Thankfully, Boston.com’s blog post this morning provided stats from Zillow and Redfin, even if it’s a bit confusing to compare and make sense of them.  Regardless, the direction is obvious:

“Only 25 percent of house hunters across the country think it is a good time to buy now, compared to 40 percent last year, Redfin reports.”

Compare those numbers Trulia’s Real Estate Regrets Survey a year ago, Marcy 22-26, 2013:  Then 75% of Americans felt it was a better time to buy a home than it would be one year from now.  Does that make today’s potential homebuyer cringe with regret or congratulate themselves for timing the market?  Before you decide, read today’s stats in the context of Zillow’s forecast / commentary six weeks ago:

Housing Recovery Entering Middle Innings in 2014, as Local Market Performances Are Expected to Vary Widely

“The housing recovery is entering the middle innings after an incredible run in 2013. Below the surface of last year’s market, a number of unsettling trends started to emerge as a result of rapid and ultimately unsustainable appreciation, setting up a bit of a mixed bag for 2014,” said Zillow Chief Economist Dr. Stan Humphries. “Affordability issues will help put the brakes on many markets that saw huge appreciation rates, like California and the Southwest, creating volatility that could potentially cause WHIPLASH (emphasis added) for homebuyers and sellers. At the same time, we expect more homes to be available this year as more sellers enter the market and more homes get built, and a decline in investor competition should make for a more hospitable market for many buyers. While a truly ‘normal’ market remains a ways off, we expect to take more steps in that direction as appreciation moderates, negative equity recedes, federal stimulus is withdrawn and foreclosures wane.”

FULL TEXT:  http://bit.ly/MidREcovery

Whiplash for buyers and sellers?

If you won a bidding war last year, and justified overpaying because rising prices would compensate, does receding buyer confidence and the caution above cause “regret?”  Before answering, check out the excerpt below about February’s pending sales prices across Massachusetts, and let us know if it causes you to do a double take.  Sound like Zillow’s warning about “Whiplash for buyers and sellers?”

When the Massachusetts Association of Realtors released their Pending Sales Report earlier this week, NPR / WBUR said NOTHING about declining median pending sales prices between January and February 2014.  Curious omission but consistent with the seller bias in the industry and real estate media.  In contrast, here’s what Boston Business Journal reported:

The median sales price of single-family homes put under agreement in February was $295,600, up 7.5 percent from $275,000 in February2013. On a month-to-month basis, the median P&S price was down 7.7 percent from the $320,000 posted in January.

The median sale price of a condo put under agreement in Februarywas $282,500 which was up 8.9 percent from $259,450 in February2013. On a month-to-month basis, under agreement median prices were down 5.9 percent from $300,000 in January.

FULL TEXT:  http://bit.ly/PendingPriceSlump

Regardless of whether individual homebuyers experience buyer’s remorse, will we see a Bidding War Backlash in the next 18 months and a repeat of regrets like those in 2008?

http://bit.ly/Misled2008

We’ve been collecting some stats that underline the importance of that question.  Want to see what bidding wars looked like in Cambridge during 4Q2013 or any other real estate market? Schedule a FREE consultation to learn more about our Bidding War Scorecard.

Posted in Bidding wars, Bubble Hour, Buyer agent, Consumer protection, Defensive Homebuying, Dual Agency Detective, Housing forecasts, iCovery, Real Estate Bubble, RECALL: Real Estate Consumer Alliance

Too many agents & too little consumer protection = regulate or disrupt real estate?

 MAgentMap_080912

Too many real estate agents?  Here’s one way to answer Boston.com’s question:  a map showing the distribution of real estate agents across Massachusetts courtesy of Matt Carroll, a former Boston Globe real estate reporter:

http://bit.ly/REAgentMap (click to search interactive map)

Beyond that simple question is a family fight between appraisers and agents about the lack of regulatory oversight and consumer protection. PLUS this complaint:  The appraisal industry took the brunt of the hit for the crash. Realtors? Absolutely nothing

“Why has the sales community not been dismembered and regulated like others in the real estate field? Why have the requirements not been increased to obtain and maintain a license? Why is there virtually no state or federal oversight like that in other areas? Why has the process to obtain and maintain a license not substantively changed?”

Inman News: Appraiser wonders why it’s so easy to become a real estate agent

REFORM AGENDA

Yes, why so easy and if there are so many agents, (1) why is there so little price competition, and (2) why hasn’t the obsolete one-size fits all, two-side brokerage commission been uncoupled?  We’re delighted to address that $60 BILLION dollar question in our proposed Defensive Homebuying class:

What they don’t teach you in Homebuying 101 

http://bit.ly/RExpose101 (please share this link via social networks)

The Consumer Federation of America first called the real estate industry an informal cartel in 1991; yet more than twenty years later, the “sleeping giant of the consumer movement” is outside the scope of the newly created Consumer Financial Protection Bureau — despite the industry’s role in the last boom / bust cycle.

One response is to ask Senator Elizabeth Warren why?

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

Alternatively, if you’d like to co-create a more open, transparent real estate marketplace, here’s another question to ask:

What would the real estate marketplace look like if there were no MLS?

CROWDFUNDING FANTASY

Imagine an Ideas Competition, where Harvard  & MIT students and alumni, and other innovators share a $7M prize? Why $7M, because that’s what homebuyers paid OVER ASKING PRICE in Cambridge during 4Q2013! Technology exists to build a more transparent real estate marketplace where buyers are not manipulated into making BLIND bids way over asking price.

Maybe a $7M prize is a fantasy, but have you ever met a homebuyer or seller who wasn’t interested in saving money?  Maybe some will be ready for table top versions of this:

Seeding C2C / P2P real estate unconferences for consumers to connect, save money

http://bit.ly/recallC2C  (please share this link via social networks)

Until then, if you’ve been burned by bidding wars or know anyone who has, you can help create some momentum to reform real estate by visiting this link, adding your thoughts, and share them via social media:

http://bit.ly/MyBiddingWarWish

MyBiddingWarWish:  UK + US

Posted in Bidding wars, Buyer agent, Commission Reform, Consumer protection, Defensive Homebuying, Real Estate Consumer Bill of Rights, RECALL: Real Estate Consumer Alliance, reVRM, Savings & Rebates, Unconference

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

Going postal parody or good governance? Dual Agency is a joke!

Don't Play Russian Roulette

BRAVO!!!  When money can buy political influence and the Colbert Report commands more respect than Congress, how refreshing to read that one government agency is chastising another for patronizing business practices based on a conflict of interest.

And no, it’s not a parody headline from The Onion; it’s the way our government was designed.

Checks and balances are built into our system to protect against abuses; and our legal code is built on the common law of agency, a Biblical truth not to mention common sense:

You can’t serve two masters. 

That’s why the Consumer Advocates in American Real Estate (CAARE.org) says that “dual agency is a form of representation that is illegal in every other profession and it is extremely harmful to consumers.”  Harmful to practitioners, too.  In fact, as shown in the cartoon above, there was a time when the National Association of Realtors’ leadership taught the disclosed dual agency is “the professional equivalent of Russian Roulette” (William North, Ex. Vice-President National Association of Realtors, 1986.)

So while some try to paper over the conflict of interest inherent in dual agency, others argue that it’s evil twin — Designated Dual Agency – is a fraud:

Agents from the same brokerage firm cannot negotiate on behalf of buyers and sellers in the same transaction. Despite heavily lobbied for laws that have “legalized” this impossible relationship, designated agency is a legal fiction that harms consumers.  Just because it is legal, does not mean that it is good or appropriate for consumers.  Designated agency serves only the interests of the real estate brokerage firm that desires to collect a double commission at the expense of appropriate client representation.  If you agree to designated agency, you will be giving up the right to honest representation and you will be putting the brokerage firm in a position to manipulate your transaction in order to collect a double fee.

Against that backdrop, it’s reassuring to see government agencies modeling moral leadership and insisting on best practices in real estate.  The Office of Inspector General’s criticism of the US Postal Service echoes the Mortgage Letter issued by HUD on September 23, 2013 prohibiting dual agency on pre-foreclosure sales (short sales).  Until it was overturned by pressure from the National Association of Realtors, the HUD policy read:

“No party that is a signatory on the sales contract, including addenda, can serve in more than one capacity. To meet the PFS Addendum requirements, brokers and their agents may only represent the buyer or the seller, but not both parties;”

After bailing out the last real estate boom / bust cycle, tax payers now guarantee nine out of ten residential mortgages, up from three in ten in 2006.  Shouldn’t we insist on arms’s length transactions, too?  Want to ask Senator Elizabeth Warren what she thinks?

http://bit.ly/REformRE

Posted in Buyer agent, Consumer protection, Defensive Homebuying, Dual Agency Detective, Dump Dual Agency, Humor, Real Estate Consumer Bill of Rights, RECALL: Real Estate Consumer Alliance

Tech-Hub Housing: Tech invasion or labs for innovation, corrective collaboration?


Corrective Collaboration

“In Trulia’s hometown of San Francisco, tensions are high over the lack of affordable housing and the growing wealth of technology companies and their workers.” — 5 Truths of Tech-Hub Housing Costs, Trulia blog

Techies driving up housing costs? is a question Trulia and Boston.com are asking; but without looking at a broader context, the query may blame techies prematurely, instead of other factors including games real estate agents play with pocket listings / whisper listings, bidding wars, and more.

At the start of previous real estate cycles, professor Chip Case, co-founder of the [Case-Shiller] Index, has quiped, “there’s a whistle that sounds that only dogs and home buyers can hear.”  With one in five properties in Cambridge selling for $50K or more over asking price and one in thirteen selling for more than $100K over asking price during 4Q2103, my hypothesis is that there are at least two other groups heeding that whistle:

1. Real estate speculators; and

2. Buyers who are encouraged to bid over asking price by their counterfeit buyer agents (designated dual agents).

This year, Cambridge has attracted interest from international investors, so additional research would be necessary to identify what role techies really have “driving up” housing costs. My guess is that real estate speculation events like http://RealtorToInvestor.com, which encourages real estate agents to become property flippers, do at least as much or more to create a “frenzied” housing market as techies (who some Boston.com readers are smart enough not to overpay).  Regardless of the quality of the upcoming seminar, when real estate agents change from advocating for their buyer clients to competing with them, a practice known as ”self-dealing;” industry regulators and consumer advocates should pay attention.

Corrective Collaboration

Beyond individual agents turned speculators, anyone want to take a look at what role large real estate brokerages, who insist they can simultaneously help buyers get the lowest price and sellers get the highest price in the same transaction, are having on runaway bidding wars? We’ve got ideas about how to get that conversation started and want to tap into the energy of a new generation of civic activists:

After attending an event last night at MIT where Code for America‘s founder was honored, my hope is that change agents — including techies, “alternative” real estate agents, consumer advocates, agency law experts, open data activists, and academics  – can collaborate to cocreate an open, transparent real estate ecosystem. Anyone want to use Cambridge as a lab to wake the “sleeping giant of the consumer movement,” and turn bidding war backlash into something transformative?

http://bit.ly/BidWarLab

NEXT STEPS?  Contact the Real Estate Cafe about participating in a visioning exercise, a variety of unconference models, or simply to share your ideas or frustrations.

Posted in Affordable housing, Bidding wars, Co-Living, Creative class, Dual Agency Detective, Extreme Househunting, Pocket Listings, RECALL: Real Estate Consumer Alliance, Unconference, Whisper listings

Fuming with “Holy Anger”? Can Millennials reform real estate, expand housing options?

The “double whammy” that has Millennials fuming isn’t “just” a problem of mega-trends, like the two described in today’s Boston.com blog post: weak job prospects and lack of affordable housing options. Too often, micro-manipulations also turn real estate is an insider’s game; and games real estate agents play, like Pocket Listings and Blind  Bidding Wars, add to already maddening obstacles. So, Millennials, and anyone else who cares about transparency, fairness, and the collective responsibility to house the next generation, want channel your “holy anger” into something transformative?

Let’s take a cue from the geek community, and experiment with local, peer-to-peer real estate unconferences to begin co-creating a more consumer-friendly real estate marketplace and, to the extend possible, inform policies and expand housing options.

Where should we start?  Tomorrow, February 5, 2014, several groups at Harvard have invited Zillow’s CEO to offer a Question & Answer session from 5 to 6pm, at the Harvard Graduate School of Design.  When Zillow hosted a similar event online with President Obama last year, Real Estate Cafe invited readers to submit question via this blog post:

Mr. President, how can we create an open, transparent, fair & affordable housing market?

http://bit.ly/SubmitQ (please share via social networks)

Should we use tomorrow’s Question & Answer to begin a series of  gatherings offline and on, in Boston and beyond, to invite consumer advocates, real estate change agents, app developers, and consumers — both DIY homebuyers and homeowners — to co-mingle and potentially collaborate?

We can use content from some of our recent blog posts to seed that conversation before or after the Zillow Q&A, and invite your insight, frustrations, insights and “holy anger” as well:

Seeding C2C / P2P real estate unconferences for consumers to connect, save money

http://bit.ly/recallC2C  (please share via social networks)

Millennials: Getting killed by housing costs, or killing homeownership?

http://bit.ly/REBlame   (please share via social networks)

Truth telling + Transparency = Transformative savings for real estate consumers

http://bit.ly/RETruths   (please share via social networks)

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

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

Buy before rates rise or wait, hoping prices fall?  Thank you for arguing

http://bit.ly/REBullvsBears   (please share via social networks)

Speaking as a Harvard (and MIT) alum, starting a conversation at Harvard about reforming the real estate industry would be particularly gratifying because last year, our offer to provide a friendly critique of the home buying seminar offered by Coldwell Banker online to Harvard alumni worldwide was rejected.  Should consumer advocates take a cue from the book What they don’t teach you at the Harvard Business School, and expose what Coldwell Banker doesn’t teach in their webinar entitled “Home ownership:  Demystifying the Process?

Posted in Affordable housing, Bidding wars, Consumer protection, Dual Agency Detective, FSBO: For Sale By Owner, Housing bubble, Mlllennials, Pocket Listings, RECALL: Real Estate Consumer Alliance, Unconference
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