patrick.net

Who is FORCING shepole to listen and follow realt-WHORE advice?

Nobody is FORCING people to invest their IRAs in mutual funds either. But we regulate that, as we do real-estate brokering. The question is more whether the regulation or Realtors(tm) is performing a service, or perhaps a greater disservice to the public.

But she's a licensed Realtor(tm)! She must know what she's talking about.

Now let me ask you, how do you view:

“Use Car Salesperson”

But, a used car is not (usually) a critical factor in determining your family's wealth position. Interestingly, people are far more likely to do research, be skeptical, and challenge the used car salesman than the Realtor(tm).

I agree, this *shouldn't* be the case. But it is. Why are we willing to heavily regulate wealth planners, but not Realtors(tm)?

Randy H. wrote here are a few questions:

> Should the examinations, certifications, and licenses for Realtors(tm)
> be more rigorous? Should we require something more akin to a CPA,
> CFA or CWPP?

The current license tests are a joke, but I don't see any point in making it any harder to become a "used real estate salesperson". I had a photocopied list of questions and answers from Anthony Schools that I read for a couple hours the night before I took (and passed) the real estate salespersons test as a college freshman. The broker exam that I passed four years later was not much harder (the correct answer to at least 10% of the questions was "All of the above. It is never OK to discriminate based on a person's race")

> Should Realtors(tm) be prohibited in their roles from giving
> specific “investment advice”? Should they be allowed to publicly
> and privately make specific statements about where people should
> put their money without recourse?

Why do we care what a Realtor (tm) says? If an idiot with a JC education says all real estate will go up by 25% per year forever he has the right to say it (just like I have the right to say I think he is an idiot and I think values will soon drop)...

> Are Realtor(tm)/Broker credentials worthy of any respect in
> the world of rigorous/tightening certifications in most other fields?

A person had to earn respect you don't get it from a credential...

> Is it just me, or does there appear to be a pretty strong
> inverse correlation between quality of education (the Junior
> College Liberal Arts “business” type versus various BS, MS,
> MBA, MFE types found in the rigorous certification population)
> and Realtors(tm)?

You don't need any formal education to be a good real estate agent you just need to "overcome objections and close for the sale" (I learned this from Harvey Green who is now CEO of Marcus & Millichap and one of the greatest salespeople I have ever met despite the fact that the only “degree” he has is a High School diploma).

The packs of uneducated Realtors(tm) using greed to sell a product are not much different than the highly educated VC guys using greed to get people to buy the stock in new companies and cash them out...

The packs of uneducated Realtors(tm) using greed to sell a product are not much different than the highly educated VC guys using greed to get people to buy the stock in new companies and cash them out…

I have to strongly disagree on this point, being something I now quite a bit about. It is *extremely* difficult to get into a VC fund's LP (limited partnership), even if you have enough capital and are a qualified investor. Further, there is a regulatory hurdle to qualify as a LP.

One simply does not stroll into a Sand Hill office and plop down money. I contend that VC/PE is probably the one area of High Finance where the libertarian ideal of buyer-beware is functioning reasonably well.

*know

I’m not sure that rigorous certiciations prevented stock brokers from pushing stocks during 2000.

The certifications did not prevent it, even though the brokers were required to be NASD registered, and have Series 7 licenses, and the investors were forced to read and comply with terms clearly outlining the risks of investing.

So it will only be so much the worse when RE corrects. The percentage of personal wealth is larger, and the quality of broker is lower.

I don't disagree on the comments others have made about mortgage brokers and lending practices. My primary point is that the average homebuyer conducts the entire transaction through the guidance of their Realtor(tm), so this person has taken on an implied responsibility that may or may not be legitimate.

Randy,
your premise is that the exams mean something. But if that premise were to be wrong thne we have a problem. let me explain here. different medical specilaities have something called the board exams. these exams are overrated. If the doctor passes the test then the speciality board gives a paper certifying that the physician is board certified in that speciality.

Do board certified physicians any superior to non boarded physicians? Superior I mean providing better/compassionate care? The answer is probably "no". In fact theoretical/ practical one day exams have no correlation to how a practitioner performs in real life? By the way have u ever asked any of your physicians if he /she is board certified?

Next if u throw in the economic incentive. Insurance comapnies, hospital privileges etc which control the pay for doctors if they mandate that their physicians need to be board certified then obviously physicians are forced to pass these stupid exams.

I think it comes down to each realtor at the end of the day. some may be honest. but some are bork crooked and wicked and if u happen to be an unfortunate victim of their scam only god can help. no amount of exam is going to weed out that human element called greed.

full disclosure: Iam board certified.

BNY hasn’t been in business for over 200 years for nothing and they knew they had to “cover their 6″ when liquidating A+ rated companies to buy some start-up with no visable earnings trading (I kid you not) 1,800 times earnings.

I kind of miss the late 90s. It was a contrarians dream wasn't it? I remember times when you couldn't get a short in for your life on one of those recently IPO'd rockets.

I wrote that:
"The packs of uneducated Realtors(tm) using greed to sell a product are not much different than the highly educated VC guys using greed to get people to buy the stock in new companies and cash them out…"

Then Randy H. (misunderstood what I was trying to say) and wrote:
"I have to strongly disagree on this point, being something I now quite a bit about. It is *extremely* difficult to get into a VC fund’s LP (limited partnership), even if you have enough capital and are a qualified investor. Further, there is a regulatory hurdle to qualify as a LP. One simply does not stroll into a Sand Hill office and plop down money. I contend that VC/PE is probably the one area of High Finance where the libertarian ideal of buyer-beware is functioning reasonably well."

I was talking about what VCs do when they hit the road to pump the "stock" so they can cash out their initial investment along with their PE friends (I've been on more than one "roadshow"). There are not any hurdles that I know of stopping people from paying $400 a share for Google so they can sell it for $800 next year and double their money just like their friends who bought it for $200 a share...

There are not any hurdles that I know of stopping people from paying $400 a share for Google so they can sell it for $800 next year and double their money just like their friends who bought it for $200 a share…

Ok, I disagree a bit less. But there are hurdles here. The GOOG broker-firm is NASD registered, and the stockbrokers are licensed. You as the investor are required to read, acknowledge and sign risk disclosures. If you are in-and-out of GOOG on the way, you become a pattern day trader and have your margin requirements increased. Finally, GOOG themselves must provide GAAP statements in accordance with FASB rulings. Finally, finally, everyone involved must abide by strict SEC regs, not the least of which are 10, 13, and 17.

I see no parallel in the world of RE, whether it be lenders, mortgage brokers, agents or buyers.

SQT Says:
"Since my Dad’s been in the used car business for 20+ years, I can personally guarantee that most used car salesmen often know very little about the product they are selling."

My Dad's been in the apartment business for almost 40 years and we were recently talking about the huge consumer debt load that almost all our tenants now have. We have been pulling credit reports on every prospective tenant for close to 20 years and the average amount of credit card debt has increased from about $1,000 to well over $10K. My Dad said he recently had a tenant show him three new guitars that he bought on line with his credit card. It reminded my Dad of a tenant in the 70's that asked him for help with his tie so he could look good going to a bank and trying to get a banker to loan him the money for a new guitar...

An additional thought on the "stock market parallel"...

In reaction to misconduct, regulations were tightened, SOX and PCAOB were legislated, and existing regulatory misdeeds were (are being) punished. We can argue about the theoretical merits of regulations, but the fact is that misdeeds in equities have been historically met with increased oversight.

Misdeeds in the world of RE/lending have gone not only unpunished, but rewarded. There is no "threat of enforcement or dislocation" as occurs in other fields (including medical boards). Instead, the RE lobby seems just succeeds in pushing agenda wrapped in the American Dream lingo.

Isn't RE more critical both personally and in aggregate to the economy than even equities? Yet there is no effective independent audit regime nor meaningful certification and licensing. Something has to change if we're going to rely upon "home equity" as a pillar of the economy.

CORRECT! Since it is the CREDIT BUBBLE that we need to focus instead of HOUSING BUBBLE….

They are all related through reflexivity. We have an interconnected network of feedback loops.

If you are in-and-out of GOOG on the way, you become a pattern day trader and have your margin requirements increased.

I thought pattern day traders actually have more liberal marginal requirements (4x intraday vs 2x in Reg T). However, they need 25K equity in the account.

This is a such a stupid rule. Those who choose to day trade with small accounts should be allowed to lose.

In a world where like it or not EVERYONE is getting more regulation (and we can argue the virtues endelssly) realtors are going about their lives unscathed!

Reflexivity of regulations! Once this bubble bursts there will be more regulations than the industry can bear.

"Realtors are salespeople. People should do their own homework like they do before buying cars..."

IMO: If people make a bad decision with their money then they deserve what they get.

But my real question is: why is it that people don't do their homework when it comes to houses? I mean we are talking about life altering amounts of debt here! People shop around and do their research when buying electronics, cars, etc. People still clip coupons to save $0.25 on toilet paper or whatever. But not houses it seems. Some do, but most don't I'd wager.

Maybe the answer is that the information they need to do their homework has not been readily available. I think that is changing now with the internet and web searches. But until it becomes really really really easy to look at the pricing history of a house, and to get that info from a disinterrested third party, etc., realtors will continue to be the easiest source of info for lazy people to get.

But I think realtors provide one service that the internet will never be able to provide: hand holding. Yes, people look at the outrageous price of houses and get a little scared but the realtor is always there to say soothing and comforting things like "don't worry, real estate only goes up", etc.

End o rant.

Marinite
Marin Real Estate Bubble

People still clip coupons to save $0.25 on toilet paper or whatever. But not houses it seems. Some do, but most don’t I’d wager.

Because people are inherently irrational. They are very prone to framing biases. (How they look at a problem affects the decision).

Humankind is simply stupid.

Some numbers from San Joaquin County...

Homes for sale January 2005: 794
Homes for sale January 2006: 2718

According to Jerry Abbott, President of Coldwell Banker Grupe, "Closes have decreased 30% countywide and new sales have decreased by 29% and both continue to trend downward..." He went on to say, "The number of expired listings has increased rather dramatically and when relisted they usually appear with price reductions." From The Stockton Record, 2/26/06 p.H1.

The real estate field is NOT unique in this… it keeps getting compared to other INVESTMENTS (stocks, bonds, etc) but instead should be compared to other CONSUMABLES (clothes, cars, etc).

Actually real estate -- the type you live in as your primary residence -- is neither a consumption item nor an investment. It is a form of savings. When people take out home equity and use that for anything other than savings or investment, then it becomes consumption. The same is true when people sell (or die and it is sold by the estate), assuming the money is not rolled into another savings or investment vehicle.

And I remind that it is the Realtors(tm) who keep insisting that "buying a home" is an "investment".

For forecasting purposes, making the assumption that homes will increase at a rate of 5 percent per year should be a safe and conservative estimate.

What can be said? It always goes up(tm). It's always a good time to buy(tm). Buy now or be forever priced out(tm).

The logic is infallible. Even though prices are declining at 1% a year, they're going up 5% a year if you broaden the sample set. In fact, if you average temperatures across the entire year it never freezes in Chicago.

Re: realtors being salesmen

Being on the seller's side in a seller's market guarantees income because the house will be sold no matter what.
The same goes for siding with the buyer in a buyer's market.

I've never seen a buyer's market around here, but wouldn't agents be more inclined to side with buyers in one?

But I decided to be nice and simply chatted along and relished my personal witness of this inevitable reality.

I no longer discuss the bubble with realtors. With them, I talk like a realtor and say things like how prices will go up and up. Sometimes, I just need the entertainment. :)

In the mean time, the bubble is deflating as we speak...

Well just about everything that I might have said about R&R (Realtors 'n Regulation) has already been said, but... my 2 centavos:

1. Realtors --not just consumers-- would also benefit from Series 7/CPA style requirements, as well as legal prohibitions from making absurd Gary Watts style prognostocations about what future profits their customers are "guaranteed". More barriers to entry (of the right kind) would cull the herd down to better educated people and ensure more volume per agent.

2. "Past perfomance is no guarantee of future results" should be plastered at the top of every mortgage application in bold red letters.

3. Caveat emptor. Yes, the public also has a responsibility to do their homework. I.e., ignorance of the (economic) laws is no excuse. Why anyone assumes advice proffered by a salesman of anything is unbiased or not self-serving is beyond me. Regulation --no matter how well intentioned-- is not likely to change this stupidy/laziness bias of human nature.

4. The fact that the press regularly quotes and publishes op-eds by such jack-holes as "Realtor Pete" as fact and without pointing out the obvious vested interest reveals just how lazy and morally/intellectually bankrupt most of the MSM is. Whether or not this trend has worsened, improved, or stayed about the same over decades past, I can't say. I'm not that old and have only really been paying attention to RE press for the past few years.

5. I agree with statements to the effect that the HB is primarily the result of massive Fed liquidity injections and the systemic off-loading of mortgage risk to institutional investors (and taxpayers), courtesy Fannie/Freddie and the magic of MBS/CDOs. Even if all Reators were perfectly honest, I doubt the current HB could have been avoided, ceteris paribus. It might have made a measurable impact in some areas, but not enough to avoid speculative excess.

@PS & Peter P,

It's funny, but not only is agreeing with housing bulls a lot of fun and much easier/less stressful than arguing, but if you lay it on thick enough, you can sometimes cause a 'reverse psychology' effect. If they hear their own BS restated back to them in the most extreme form, the absurdity of the claims can even trigger self-doubt in some people. Not often, of course, just occasionally.

Slob,

They have a place where properly priced products sell themselves ALL DAY LONG! It's called Walmart. And just look at all the happy people that work there! So if that is your vision for America I'll take El Salvador any day. Please to visit Jib Jab.com and click on "Big Box". While simplistic (and quite funny) it's basically true.

Peter P,

I've tried the reverse psychology angle and it's extremely difficult! Firstly, I have a tough time finding anything at all positive to say about this "greater fool" pricing model. I've even tried to "keep the peace" by saying (true or not) that Portland is the most affordable market on the west coast. That has backfired more times than I care to count b/c the very next time the topic comes up said Bull is beating you to death with your own statement which btw, based on our median income is untrue. We've gone from being one of the most affordable cities to one of the least. Because the largest employer in Oregon is? The State of Oregon! Our median wage is very low, in fact for many years we've ranked just above MS, LA, AL etc. around 38th. in the Nation for per capita income. Based on that our RE could be more out of whack than the BA.

Secondly, rather than being the sporting good fun I thought it would be I've found myself feeling kind of queasy. Not fun, for me anyway!

Harm,

I agree! There should be "disclaimers" and disclosure on a scale realtors can't imagine. Actually, the "Past perfomance" red ink should start on the Earnest Money Agreement. It needs to be handled in a serious and sober fashion so the RE closing isn't handled like some kind of "I'll bet you can't wait to get moved in" celebration. This is a serious, long term commitment. Why are we treating it in such a casual manner?

Which brings me to the Title Companies. Along with realtors and mortgage brokers these people have been allowed to grossly over step their bounds! They've morphed from their traditional role into a "marketing arm" for both realtors and mort. brokers. All those annoying telemarketing calls from mort. brokers? They get lead lists from the title company ( in exchange for some love) which btw keeps records of loan terms, conditions and RATES! This is how the MB's know just who to target. They know you're at X% and haven't re-fi'd in 2 years. So you're ripe for an equity extraction pitch! Stop it dead in it's tracks! A less discussed bubble factor but perhaps as important as int. rates and "it always goes up". At the very least buyers should be able to "opt out" and have their personal data kept private, so we need to get the title companies back in their cage too.

SF Woman,

I wish I could say exactly but it would only be speculation on my part. I believe you've mentioned being swamped with calls to your message machine and I wish I could say. One thing you can do is to participate in the National Do Not Call List and in about 90 days the telemarketing calls taper off to a trickle. It's worth a try. This goes hand in glove though with what I was saying in an earlier post about the "mortgage marketing machine"! For you, these calls are a pain, for folks that are in over their heads the calls SEEM like a blessing. Behind a few months on your payments? No problem! Then homedebtors have no choice but to "stick to their guns" on their asking price b/c there are about $15,000 worth of refinancing fees built into their asking price and I for one refuse to pay it! It's bad enough that many believe that we should pay for everything from THEIR kids college to Suburbans and jet ski's but now you want me to cover the "equity extraction fees" as well?

FormerAptBroker,

Yeah, in a way I kind of hear ya but there are some sobering issues here. There was even a columnist here in Portland that had alot fun poking at some warnings she found the most entertaining. Like "Do not use this lawnmower to trim your hedges". Another implored users not to "insert in their p*nis"? But we're not talking about a household items here and frankly there is more "disclosure" when we buy a ladder with three moving parts. Would having realtors explain that a home IS NOT guaranteed to go up in value and is not FDIC insured be such a bad thing?

nomad,

One of the most precious rights that we have in America is the right to "peddle our wares". I'm not a fan of scare tactics and not for the reasons you might be thinking. I don't know anyone in a professional sales environment that would be able to scare a prospect into believing that we are running out of ANYTHING. Quite the opposite actually, we have more mfg. capacity than demand. Everyone knows this. One day someone who's selling me is going to say, "DinOR, I know what I am asking for is hard money but I'm giving you a HARD value"! If I don't keel over and die I'm going to give this guy/gal a job!

OutofSanDiego,

Oh yeah! My favorite is when people use glam shots that have got to be at least 5 to 10 years old! The last few years (bear equity market and 2 teen age daughters have aged me to where I look like the "Kieth Richards" of financial planning) but that's who I am. I'm O.K with getting older! I don't do "fluff" advertising but if I did it would have to be a picture from this decade and without my guitar!

SFwoman,
those old Mercedes were great cars. Don't trade or sell that one. The new ones are pieces of junk. Mercedes actually had the dubious distinction last year of being rated WORSE than the other company they partially now own- Chrysler, which is ironic given that some of the new Chrysler models have various parts from older Mercedes models, thus the point is driven further.
Most people I know simply don't take care of their cars, or anything else. My housemate has a Mercury Sable he never changes the oil in, cleans, or maintains. I helped him change the brakes and rotors because he let the pads wear all the way down and eat into the discs themselves.
You look at people like my grandad who kept a bottle of oil in the trunk so he could check the oil at EVERY fillup, cleaned the lawn mower , even underneath so the pan wouldn't rust out from the accumulated grass, and saved jars to use for nails and buttons and you see the results of what happens when people go through an extreme period of economic hardship. They cherished their things and took excellent care of them. Like the mixer my grandmother got the day she was married back in 1941. People these days just want to buy and buy, and the notion that everything is now made in China, cheap, and disposable is troubling. If it breaks.. into the trash.
My other car is a 1955 Mercury, never restored, with close to 400k on the speedometer. The man who I bought it off of had kept it since he was a teenager, and he babied it to death. I try to carry on with his practice and it still drives like it was new. Now can you imagine if everyone was as timely and caring over what they spent their money on? The savings level would be insane here. Perhaps we would'nt have anything close to a national debt, the rush to build equitty in order to replace the money we wasted on knick-knacks and disposable cars.

@FormerAptBroker,

Yeah, I hear you about all the warning labels (see my comment #3 Caveat emptor). However, like DinOR & others pointed out, you get more such warnings for a ladder than you do for the biggest single purchase of your life: your house/mortgage.

No, we can't "idiot-proof" everything, and there will always be ignorant fools out there. Even so, if a warning prevents a few hundred couples each year from buying into realtor/media hype & fear, then I'd say it's worth it. Besides, I'm not recommending it be placed on the HOUSE itself (that would be pretty funny, though :-) ), just the mortgage application forms.

New Buyer: "Hey, what's that giant “Past perfomance is no guarantee of future results” warning sticker doing over my front door?"

Reator: "Oh, that's one of the new requirments from the Truth in Mortgage Lending Act" Congress just passed.

New Buyer: "Can I remove it?"

Realtor: "Technically, it's against the law, but if you want to, I'll just turn around and whistle."

I can agree that the primary responsibility in this entire fiasco lies with the HomeBuyer. But, this is more of a philosophical position; not a very practical one. Although I would like to think that a "libertarian/rationalist" world would be better, we live in a Democracy which means that once there are more losers than winners the rules of the game will be changed by the losers.

I want to see just enough barriers, regulations, certifications, disclaimers, licenses, and professionalism injected into the Realtor(tm)/Mortgage Broker/Title Company circus to cause Joe Homebuyer to take even a brief pause to try his hradest to think about what he's doing.

There's a great book published by the Wall Street Journal. "Guide to Understanding Personal Finance". Page 56 starts the Home Finance section, complete with pretty pictures, shaded info boxes, and an objective Buy vs. Rent checklist.

Maybe they should prepare some kind of a booklet based on this and give it to perspective homebuyers when they first put their earnest money down.

Until that mythical day, I just want to see used real estate salesbarbies stop dispensing dangerous, flawed, innacurate financial and economic advice. C'mon, even the guy who sells you the used car isn't permitted to make forward looking statements about the future value of the car.

Harm,

If realtors, MB's and title co's were smart they should embrace this! It would eliminate a lot of liability going forward. Because every seems to move every 2-3 yrs. anyway it wouldn't be long before most people in the U.S would be covered by the "Past performance, may lose value, NOT FDIC insured" clause! But they won't. They NEED the mystique that RE always goes up alive and well.

Oh, and the old lady who sued McDonalds after spilling hot coffee in her lap got two million if I remember correctly.

I believe the award was ultimately reduced in appeals to a couple hundred thousand, most of which went to the lawyers. She didn't make out all that well (in fact, she may not be alive at this time, if I recall).

@SQT,

Last I heard, "hot coffee lady's" award got seriously reduced on appeal. Even so, yes, I agree that we live in a culture that has a general "my stupidity is your responsibility" bias.

But I just can’t feel sorry for someone foolish enough to put a cup of hot coffee in their lap, and then have the audacity to sue when they get burned.

I agree 100%. I am most upset by the raw cynicism of the lawyers who exploit the necessary system of torts for this kind of crap. There was another case that happened shortly after that one which involved Starbucks and the Chicago-based manufaturer of their coffee cups/lids. The sad part is that this was (from what I read) a very valid case because there was a flaw in the cup process which caused something like 1 in 10,000 cups to not be coated properly on the lip. The lip would then become "soggy", and the lid was prone to "leap off" of the cup when the cup was grabbed.

There were something like 200+ people seriously burned because of this. But the case never got near the attention or consideration because of the huge backlash against the McDonald's case. I think Starbucks did fire the supplier, but the victims should have at least had medical compensation.