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Let us always remember the ancient concept, caveat emptor, “Let the buyer beware!”
Why in the world would a home buyer go to the listing agency to see its advertised listings? Aren’t those the most conflicted agents for those properties?
From the days when land ownership was vested in wealthy and respected land Barons, and the working people and slaves were not entitled to own land, came the concept, caveat emptor, or “let the buyer beware”. This concept has governed real estate transactions forever. So, you were either a Baron or a commoner, and Barons didn’t need real estate brokers, and commoners weren’t allowed to buy real estate.
In the United States, from the 1800’s into the early 1900’s, homesteads were passed from generation to generation, and we were socially and economically rooted in the farm. As the cities grew, commercial ventures developed that needed to be sold and leased, and real estate sales people emerged to fill those needs.
Along with the many reputable real estate sales people emerged the notorious and now legendary land swindlers. The questionable land deals reinforced the concept of “let the buyer beware”, and the tradition of only the seller’s being protected was further perpetrated.
After World War II, and the post war baby boom, the American dream of having a family, a good job, and a home became possible with the V.A. loan. For the first time, home buyers were not just the wealthy, for V.A. loans often came with zero down payments. But, this new generation of home buyers was still a victim of tradition. Traditionally, unless you were wealthy, you acquired the family farm or estate. But, there was no such history, or tradition, in the city.
Buying demand was high, and prices skyrocketed. The Multiple Listing Service, a REALTOR®-owned cooperative source of property listings emerged. MLS rules required all other agents to be sub-agents of each listing agent, so every MLS member represented the interests of all the sellers, whether or not they had ever met those sellers. Nobody represented the buyers; buyers merely went to the sellers’ agents to see their listings, and bought properties as customers of these sellers’ agents.
Seller’s agents treasure the old two-sided transaction, in which they may retain both halves of the commission, instead of having to pay half to another selling broker. By attracting the buyer to the office that is marketing the property, the brokers can keep all the commissions “in-house”, but the buyer, while working with an agent of that office or of another MLS office, actually goes unrepresented. Many agencies even offer their agents bonuses for keeping and selling their listings “in-house”.
If you find that agents are stressing and showing their own firm’s listings before offering you listings of other firms, you might be missing homes you need to see. These agents may have an added incentive, offered by their brokers, to sell you one of their listings, and can literally plan your showings to the exclusion of other available homes. They also could show you just those homes that offer them the highest commissions, to the exclusion of lower commissioned homes. And they certainly won’t show you any for-sale-by-owner homes or any other available unlisted homes because they have no commission arrangement, and these unlisted homes may represent up to 25% of the available homes.
The selling agent is really still 100% on the seller’s side, and can not legally or ethically provide the buyer with many of the very services the buyer needs most. Therein lie huge conflicts of interest when the buyer answers an ad, calls on a yard sign, or follows an employer’s recommendations to use a particular real estate firm primarily because they may be the biggest, have the most agents, cover the most territory, advertise the most property listings, or give themselves the most awards for sales success.
Many employers actually withhold their nice relocation packages from employees who exercise their absolute right to select their own real estate professional, instead of using the employer’s designated sellers’ agents or dual agents. And, unknown to the employee, many employers demand commission kick-backs from these brokers, claiming they, the employer, are the real procuring cause of that sale and therefore are entitled to a piece of the action. Brokers that balk at such unethical kick-back demands are threatened with removal from the employer’s recommended Realtor® list. Connecticut’s Real Estate Commission has been holding public hearings on this issue, at which this writer has testified, and is preparing corrective legislation.
To this day, most agents still have tremendous difficulty withdrawing from their representation of all of the sellers so as to be able to offer exclusive representation to the buyers. It would require them to divest themselves of their property listings, from representing sellers in any way, even from working for an agency that lists so much as a single property. Unless your agent can offer you exclusive buyer agency representation, he or she is bound to have many huge and serious conflicts of interest for which you, the buyer, will somehow inevitably pay.
These conflicts of interest make it impossible for you to be certain that you are being shown all available homes, that you are being told about all of the home’s material defects, that you are getting the lowest possible price or the most favorable terms and conditions. When you ask the agent showing you homes what offer you should make, that agent cannot legally or ethically give you such real estate advice when the agent represents the seller. You’re simply on your own!
And when your employer engages a relocation firm to assist its relocating employees with their moves to their destinations, and these firms in turn refer employees to sellers’ agencies for buyer services these agencies cannot legally or ethically provide, you and your coworkers are at risk of falling for The Great Relocation Hoax. In effect, you are being handed over to the “other side”! You may not suspect it. Your employer doesn’t suspect it. Even the third party relocation firm hired by your employer to help you may not suspect it, and certainly might be expected to take offense at the mere suggestion of impropriety. Relocating is one of the top ten most stressful events in our lives, and the real estate industry’s perpetuation of the “good-ol’-boy customs” is not helping!
Thus is born The Great Relocation Hoax that causes buyers to over-buy, over-pay, not get to see everything they need to see, and use or share agents obligated to their adversaries. Out of it all will necessarily come hasty decisions, feelings of having been compromised, and inflated purchase prices that these very same new homeowners may not get back when they must relocate once again. The Great Relocation Hoax is not intentional. It is not malicious. In fact, it is not yet recognized by the organized relocation industry. But it is very real, it is very expensive, and it is very serious!
Business is dynamic. Corporations are merging, forming, growing, scaling back, hiring, laying off, and relocating. When business is good, inflation is forgiving to owners of real estate. Prices go up and up, and each successive seller reaps a price higher than the last. So what if we overpaid a little! We’ll get it back, and more, when we sell. And, thinking like everybody else, we naively perpetuate The Great Relocation Hoax.
But things always change. In the late 1970’s, we developed high interest rates. Creative financing extended the careers of many agents. The oil crunch depressed real estate prices. The 1986 Tax Reform Act burned many real estate investors and lenders, along with virtually every homeowner. The 1987 stock market plunge, and the 1988-1989 savings and loan fiasco caused record numbers of foreclosures and bankruptcies that are repeating today. Many home sellers experience property resale prices lower than prices they originally had paid for their homes.
Companies that were hiring or relocating employees found it necessary to take the losses on the resale of homes in order to get the employees they wanted, at the prices they wanted, located where they wanted. These costs became huge, even before taking into account salary increases, as the employers began to realize that their employees may have overpaid. Part of that overpayment may have been due to the fact that the buyers used real estate agents obligated to the sellers to help them buy their homes, when those sellers’ agents were employed to get the sellers the highest prices possible. Top sellers’ agents are extremely skilled at selling at the highest possible prices.
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