Real Estate Transparency

real estate transparency
10 Steps to Home Buying

Ten years ago, I reported on the growing demand of transparency in real estate.  As you can imagine, mistrust of real estate agents was at an all-time high after the housing market crash.  At that time, home buyers and sellers felt betrayed by an industry that was perceived as keeping their cards close to their chest.  However, times were changing and consumers demanded real estate transparency, especially from their agents.  Home buyers and sellers not only want their agents to act in good faith, but also want more information and communication during the transaction. 

Since then, the National Association of Realtors (nar.realtor) has been trying to mend their reputation.  The 2015 DANGER Report was intended to identify issues affecting the industry as well as provide a roadmap to the future.  One of the major issues identified was agent competency and ethics.  However, it was obvious that ethical Realtor behavior didn’t guarantee competency. And vice-versa.  The upshot of the Report was that many of the identified concerns were already known.  Ironically, the identified issues and answers only prompted more questions.  It was not known if and how the industry would provide real estate transparency.

Fast forward to 2019, when the real estate industry is at a crossroads.  Earlier this year a class-action law suit was filed that challenges how agent commissions are paid.  Also, earlier this year, the Consumer Federation of America (consumerfed.org) published the first in a series of reports focused on “the lack of real estate agent transparency on representation, compensation, and service.”  The Consumer Federation of America (CFA) is described as an association of non-profit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.

The class-action suit filed in March, if successful, has the potential to force a major change to the industry.  Besides having the potential to change how agents are paid, it may force increased real estate transparency in agent compensation.  Nevertheless, similar past challenges to the NAR and the real estate industry resulted in minimal (if any) change to how business is conducted. 

Serendipitously (or not), Stephen Brobeck’s most recent CFA series report, “Hidden Real Estate Commissions: Consumer Costs and Improved Transparency”was published this month (consumerfed.org).  The report confirms consumers’ “lack of understanding” of commissions.  It also points out how “concealment of commissions” does harm to consumers.  The report indicated that 70 percent of the agents surveyed charge six-percent commission.  Commissions are mostly uniform, more so for buyer agent commissions.  The report also indicates that there was a general rationale that buyer agents would not show property if the buyer agent compensation was below the average for the area.  Of the agents surveyed, 73 percent indicated they won’t negotiate their commission.  It also calls attention to administrative fees of several hundred dollars, which is typically charged in addition to commission. 

The report concludes that the real estate industry must change its attitude about agent compensation, or risk eroding consumer trust.  Home buyers and sellers are savvy, and are increasingly sensitive to the role that commissions play in housing costs.  Home seller costs could be reduced if consumers compare commission rates and ask if they are negotiable.  Home buyers can also be helped if they are aware how their agent is paid, as well as knowing the offered buyer agent compensation on homes listed in the MLS. 

Original article is published at https://dankrell.com/blog/2019/11/23/real-estate-transparency/

By Dan Krell
Copyright© 2019

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Mortgage Choice Act good or bad?

Monday’s Reuters “exclusive” report about the Consumer Financial Protection Bureau dropping their investigation on the Equifax data breach caused quite a stir in DC (Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources: reuters.com February 5, 2018).  The exclusive cited unnamed sources.  However, a spokesperson for Transunion (a credit repository) suggested that cybercrime is not within the jurisdiction of the CFPB.

Later that day, Reuters cited Democratic Senators’ concerns and outrage over the alleged investigation pullback (Senators urge Trump administration to resume Equifax probe; reuters.com February 6, 2018).

The next day, Reuters reported that Treasury Secretary Mnuchin desired to meet with CFPB’s Acting Director Mick Mulvaney, based on its initial reports of dropping the Equifax investigation (Treasury’s Mnuchin says he wants answers on Equifax breach; reuters.com February 6, 2018) .  In the same report, Reuters cited the CFPB’s spokesperson saying that the CFPB was working with other government agencies on the Equifax data breach.

The veracity of Reuters’ unnamed sources in the report is not clear.  However, there may be something to the fact that cybersecurity falls under the domain of the FBI and Homeland Security.  Additionally, there are many other agencies investigating the Equifax data breach, as Housing Wire reported on Monday (CFPB reportedly pulling back from Equifax data breach investigation: Reuters reports that bureau is not aggressively pursuing investigation; housingwire.com; February 5, 2018).  The FTC appeared to be the lead agency investigating the matter when the data breach became public news.  Additionally, the House and Senate Financial Committees, as well as all fifty states attorney generals are investigating.

Mortgage Choice Act goes under the radar…

News created drama, such as the Reuters’ CFPB story, allows real consumer issues to fly under the radar.  Consumers should take note that the once dead Mortgage Choice Act has come back to life.  Much like a scene out of Tin Men, the revived legislation is being promoted by the likes of the National Association of Realtors® under the guise of being good for the consumer.

According to the CBO (cbo.gov/publication/53497):

Under current law, a ‘qualified mortgage’ has certain characteristics that make it more affordable…To meet the qualified-mortgage definition, certain costs that are incidental to the loan and that are paid by the borrower…cannot exceed 3 percent of the total loan amount. Lenders offering “high-cost mortgages” (home mortgages with interest rates and fees that exceed certain thresholds) must make certain additional disclosures to borrowers and must comply with restrictions on the terms of such loans.”  The Mortgage Choice Act “…would exclude insurance premiums held in escrow and, under certain circumstances, fees paid to companies affiliated with the creditor from the costs that would be considered in determining whether a loan is a qualified mortgage or a high-cost mortgage.”

The NAR is urging support for this legislation, as well as issuing an open letter to Congress.  The NAR’s rationale is that the Mortgage Choice Act:

“… will enhance competition in the mortgage and title insurance markets, and ensure that consumers will be able to choose the lenders and title providers best suited for their home buying needs.”

This sounds virtuous, but in reality it’s a play to allow broker affiliated lenders and title insurers to charge consumers more without additional disclosures.  NAR says that lenders and title insurers would still be subject to RESPA (which prohibits steering and kickbacks).  But charging consumers excessive fees and affiliated businesses giving kickbacks are not mutually exclusive.  Meaning that a lender charges can be excessive independent of the lender providing a kickback to the broker.  (the CFPB has recently fined brokers and lenders for kickbacks).

Is NAR interested in building consumer trust?

The NAR has for years tried to influence public opinion of Realtors® and the industry.  The NAR Code of Ethics has been used as a focal point to increase positive sentiment towards Realtors®.  However, NAR’s desire to implement a Code of Excellence may have been a beginning shift towards building public trust.

The Code of Excellence, like the Code of Ethics, is a desire to increase competence and proficiency.  But research has demonstrated that showing off accolades and awards doesn’t instill value, nor does it increase sales (Valsesia, Nunes, & Ordanini: What Wins Awards Is Not Always What I Buy: How Creative Control Affects Authenticity and Thus Recognition (But Not Liking). Journal of Consumer Research. Apr2016, Vol. 42 Issue 6, p897-914).

Value, along with quality and price,  has much higher regard than ethics in a consumer’s mind.  This was demonstrated by Carrigan & Attalla’s ground breaking consumer research (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing. 2001.. 18(7),560-577.)

If the NAR is truly interested in building consumer trust, the NAR leadership should get on the correct side of this issue and provide value to consumers instead of giving lip service.

By Dan Krell
Copyright © 2018.

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector


Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Real estate BS detector

real estate BS detector
Become a real estate BS detector (infographic from visual.ly)

DARPA issued a recent request for information seeking ideas about how to create automated capabilities to assign “Confidence Levels” to scientific studies, claims, hypotheses, conclusions, models, and/or theories.  In other words, the Defense Advanced Research Projects Agency wants to create a BS detector.  First reported by Adam Rogers for WIRED (Darpa Wants to Build a BS Detector for Science; wired.com; July 30, 2017), DARPA doesn’t look at it as rooting out “BS” but rather establishing the what, why, and how scientists know stuff. Imagine how this could be applied as a real estate BS detector!

The Defense Advanced Research Projects Agency’s stated mission on their website is “to make pivotal investments in breakthrough technologies for national security.”  So, chances are that if they are able to devise a real working BS detector, you won’t know about it.

When it comes to real estate, people sometimes bend the truth.  Additionally, real estate agents are known for “puffery” and are generally not trusted because of the salesy techniques they employ.  But having a real estate BS detector would be huge breakthrough!  Imagine being able to weed through the BS and nonsense that many real estate agents spout when they are clearly trying to sell.  Wouldn’t it be wonderful to check your real estate BS detector, when an agent is pontificating about a house or themselves, to know if the agent is wasting your time?  Unfortunately, the real estate BS detector is not a real device.  However, there are strategies to help you detect real estate BS.

“Luke, trust your feelings.”  Ok, there’s no such thing as a Jedi, but empirical research has demonstrated that intuition can be used to weed out lies.  Many say they rely on their gut instincts to protect themselves.  But the truth is that many ignore or don’t trust their intuition because the rational mind takes over and dominates.  Increasing your intuition could help you detect the real estate BS and prepare for (and maybe prevent) regretful situations.  Becoming more aware about your “gut feeling” can increase your intuition.

Being cynical can also help detect real estate BS.  Don’t be rude of course, but questioning what others say helps you clarify and understand them at a higher level.  It can also reveal untruths.  Question all claims and over-the-top statements.  For example, if you’re dealing with a real estate agent, ask for support to any assertion they make about themselves or their services.  Ask to speak to their references.  Also, ask for additional information that support their opinions on the housing market and deciding on a price to sell or buy a home.

Do your due diligence to discover real estate BS.  After asking questions, take what others say or do during the real estate transaction at face value and take it upon yourself to verify it.  It can save you a headache down the road.  It’s easy to verify many aspects of the real estate transaction, because many local jurisdictions have their databases online.  However, making a call or two to a helpful government employee is straightforward and can provide bonus information.  Verify licenses of real estate agents, loan officers, and even home contractors.  Verify permits of home improvements.  Verify the local schools and the home’s zoning.

Finally, don’t feel pressured to do anything.  The BS artist will make it seem as if you have to act immediately.  But if you are not comfortable with the situation or are not yet ready, take a pause.

By Dan Krell 
Copyright©2017

Original published at https://dankrell.com/blog/2017/08/06/real-estate-bs-detector/

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector


Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home listing syndication is big business

home listing syndication
Home listing syndication (infographic via trendmls.com)

Your home listing is a hot commodity!  Not just to home buyers looking to buy, but to those who buy and sell information on the internet.  MLS home listing information syndication is big business.

Much of what you see, hear, and read on TV, radio, and the internet is syndicated and distributed through a broad network of affiliated outlets.  The purpose is to have as large of an audience as possible.  The larger the audience, the larger the advertising revenue.  Syndicating and distributing media content has been around for a very long time, and has been very a lucrative industry for those involved.

Internet syndication is no different and has become sophisticated, such that websites will pay for licensed content.  The content attracts visitors and generates revenue via ads and/or pay-per-click.  Needless to say, internet syndication has developed to become a multi-billion-dollar industry.

When you think about making money in real estate, you probably think about buying and selling property, not the internet.  Most people don’t realize that real estate information generates $billions on the internet.  Real estate portals generate revenue by publishing content that attracts home buyers and sellers.  The sought after content, of course, is your home’s MLS listing.  Websites generate income by selling real estate and other professionals access to consumers who visit their sites to view your MLS listing.

You may not know this, but your home’s listing is copyright-protected by your agent’s Multiple Listing Service.  The content is licensed and syndicated to internet real estate portals and other publishers for a fee.  How much do websites pay for MLS licensed content?  Heck, you’d be hard pressed to find that information, much less acknowledgement that there is a fee paid at all!  And I suspect that information is not readily disclosed because consumers would be up in arms if they knew.

However, an article by Natalie Sherman appeared in the Baltimore Sun on January 27, 2015 (MRIS looks to partner with Zillow) gives a hint about the monetary relationship between MLS boards, syndicators and publishers.  Ms. Sherman wrote:

“Under the current system, Zillow pays to receive listings from Listhub.com, which has agreements with hundreds of multiple listing services, including MRIS, to provide syndication services to sites such as Zillow. Earlier this month, Zillow and Listhub said their existing deal would not be renewed.

A representative for Zillow, which has been working to establish more direct relationships with brokers and listing services for years, said a new deal would help keep the site more up to date.”

The article refers to the 2015 shakeup of real estate listing feeds to specific websites, such as Zillow.  At that time, Zillow sought direct deals with individual MLS boards, such as our local MRIS (now part of Bright MLS), to get MLS home listing feeds.

Chances are that you are unaware that the information about your home that is uploaded to the local MLS (including pictures of your home) become the property of the MLS.  Much less, you may not know that the information is licensed to others for a fee to be used on other websites.

Even though the MLS boards charge subscription fees to agents for the privilege of uploading and viewing content, they might argue that the fees generated by licensing and selling your information helps maintain the MLS system.  However, not disclosing this aspect of the real estate listing poses some ethical questions that must be addressed.

Of course, there are real estate brokers who have opted-out of syndication of their MLS listings.  These brokers want to retain control of  home listing information to ensure accuracy and maintain professionalism when presenting your home to the public.

Copyright© Dan Krell
Google+

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Transforming real estate – whom do agents really represent?

The continuously transforming real estate industry continues to change because of two forces, consumers and real estate professionals.  It would seem intuitive that the forces should be complimentary, but a deeper analysis might suggest conflicting interests between consumers and real estate agents. Whom do agents really represent?

Efficiency, although not openly stated, is a main goal of both home sellers and real estate agents.  Home sellers want to sell their homes efficiently (as quick as possible and for the most money); while the real estate agent may be focused on collecting the most commission in the least amount of time.  A.W. Jenkins’ ground breaking research looked into why consumers continued to use brokers in a transforming real estate environment as a means of buying and selling a home.  Jenkins determined that the only reason why consumers did not use a more efficient “used house dealer” is because they don’t exist (Home, Sweet Home: Real Estate Brokerage in Canada, Vancouver, Canada: The Fraser Institute, 1989).  Jenkins discussed the incentive for consumers to sign commission based broker agreements, even when there are more efficient means of buying and selling a home; including a used house dealer, sell the house on their own, or even pay a flat listing fee.

Anglin & Arnott furthered Jenkins’ line of questioning and came to the conclusion that although a used house dealership (like the used car dealership) may be the most efficient means of buying and selling a home for the consumer, it is not an efficient business model for residential real estate professionals (Residential real estate brokerage as a principal-agent problem; The Journal of Real Estate Finance and Economics; 1991, vol 4, no 2, pp 99–125).  The cost of maintaining a used house inventory for the dealer is prohibitive because home resale usually takes longer than reselling an automobile.  Another reason for non-existent used house dealers is government regulation: The sale of residential real estate by individuals other than the owner is highly regulated and sets standards for real estate brokerage.

Furthermore, they hypothesize that there may be broker “collusion” in maintaining existing business models:

…Collusion, we argued, is particularly easy to sustain and enforce in the residential real estate market because transactions require cooperation between the buying and selling broker…

As the transforming real estate industry continues its journey, the notion of efficiency has taken a substantial turn in favor of the real estate agent.  The advent of buyer agency and dual agency has allowed agents to leverage their name and reputation to other agents through a “team.”  Much like the medical office business model of luring patients through someone’s name and reputation, only to see the lower techs; the real estate team has become a popular business mode because an agent can leverage their time by having other agents do their work.  To further the confusion, in some cases there are teams within teams. But to understand the structure of the real estate team concept, think of a Russian nesting doll.  The team is a smaller nesting doll which is embedded in the larger nesting doll (the broker); and the team members are even smaller nesting dolls embedded within the team nesting doll.  To be fair, there are various team models in use today; some are better than others with respect to transparency.  The transforming real estate industry has moved towards real estate teams, which essentially operate as a brokerage within a brokerage.

Real estate team advertising and disclosure have become the focus of regulation in recent years, but has not entirely thwarted unscrupulous advertising that intends to mislead the consumer.  Furthermore, agents who are independent contractors and sub-contractors of brokers and other agents, can not only muddy the waters of agency, but can further distance the agent’s incentive and duty to their client.

In his article about the dual agency controversy (From subagency to non-agency: a history; inman.com; Feb 27, 2012), Matt Carter reminded us about a 1993 treatise by the former National Association of Realtors general counsel William North titled “Agency, Facilitation and the Realtor.”  The essay was written at a time when transforming real estate was about acknowledging buyer agency.  Agency relationships between Realtors and their clients were under scrutiny.  North was questioning whom agents really represent and if agents actually knew their role.  To make it easier for agents to know to whom they have a duty, North made an argument for eliminating the independent contractor status that prevails throughout the industry.  He stated:

An approach more difficult of acceptance by NAR membership would be the abandonment of the independent contractor status…The prevailing independent contractor relationship between broker and salesperson encourages “quantity” over “quality…It is clear from the letters which have been received by Realtor News on the Agency issue that far too many Realtors and Realtor Associations simply have no concept of what an agent is, does or cannot do or that their status as an “independent contractor” vis-à-vis their broker has nothing to do with their obligations, as an agent, to the seller or the buyer.  It only compounds the public confusion as to the status of a Realtor when Realtors themselves do not understand who and what they are.

By Dan Krell
Copyright © 2017

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector


Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.