Columbia University’s Edmund Phelps was on American Public Media’s Marketplace last week contending that we rethink our national obsession with home ownership.
Both pieces are very thought-provoking. I do think there is something disconcerting about the American Dream somehow becoming synonymous with home ownership (it wasn’t always like that), and I do have concerns about the many aspects of our government policy that encourage this mindset. To me, it is undeniable that the mortgage interest deduction played at least some role in the housing bubble run-up.
While I do believe that home ownership and renting should be theoretically economically equivalent over the long run, there are some intangible attributes to home ownership (pride of ownership and emotional investment to neighborhood development and care among them) that cannot be ignored. Anyway, the spirited back-and-forth in the comment section of the Marketplace piece is as interesting as the Phelps interview itself. Hope you find this interesting as well.
Craig and I were chatting yesterday about my March 24th blogpost regarding SmithAdams for buyers and an interesting issue came up. It was my assumption that MOST people shopping for homes sign an exclusive buyer representation agreement with the agent helping them. Craig corrected my misconception — in fact, MANY people shopping for homes do NOT readily sign any type of representation agreement with their agent.
I suppose one might think, “I just want to look at this property – why should I commit to any type of agreement before I know I can work well with this agent or that I will like any of the properties he or she will show me?” This attitude is likely exacerbated by the exclusive buyer representation agreements put in front of buyer prospects by most agents (there ARE non-exclusive buyer representation agreements, but that is a topic for another day). I can certainly understand why home shoppers might not want the commitment. WAIT! There is more to read… read on »
The Real Estate Matters column in Saturday’s Washington Post identified some of the reasons why this is a great market for first-time home buyers, ranging from the falling home prices, low interest rates, and the tax credit. I would add this reason why I believe the first-timer segment will grow as a proportion of all home buyers: by definition, first-time home buyers will not be saddled by the prospect of selling a current home at a loss, which definitely undermines the impetus to move.
The column got me thinking about why SmithAdams is such a great fit for home buyers, first-time or otherwise. I was talking to a buyer client this morning who summarized it neatly for me:
“If I do my own research and find the house on my own that I want to buy, why should I pay a 3% commission? I just wanted help determining the offering price, preparing and presenting the offer, and negotiating the deal. SmithAdams did just that, and I didn’t have to pay for anything I didn’t need or ask for.”
In this market, there are many opportunities to identify bargains relative to prices over the past few years. Doing so will require you to do some homework and research. SmithAdams can certainly help do this for you. But, if you indeed do that homework yourself, shouldn’t you be rewarded with lower fees? I think so. If you agree, give us a call.
Our friend Jill Erber, owner of specialty cheese shop Cheesetique in Alexandria, VA, makes a wonderfully articulate and down-to-earth protest of protectionist measures taken by the outgoing Bush administration against, of all things, Roquefort cheese. You tell ‘em Jill!
On Sunday, the New York Times had this article about the growing use of buyer’s agents on Long Island. The article implied that buyer’s agents are fairly rare there; my feeling is this is less true in the DC area. Regardless, my focus is on this issue: the article cites real estate brokers who now focus exclusively as buyer’s agents to eliminate “the ’smoke and mirrors’ and ‘dual-agency conflict that has caused so much mistrust among consumers and real estate agents.’”
It is true that when there is a documented and disclosed (this is important) relationship between a buyer-client and a real estate broker, then the broker representing the buyer has a fiduciary responsibility to represent the buyer’s interests. This is clearly stated in Article 1 of the NAR Code of Ethics (Standards of Practice 1-1 and 1-13). Classes for agents pursing an Accredited Buyer’s Representative (ABR) designation.
That being said, it is hard to ignore the reality that, in a traditional commission model, the buyer’s representative gets paid a commission amount stipulated by the listing agreement and only at the consummation of a transaction. Sure, this means that buyers don’t have to pay any fees unless a purchase actually occurs. But as I have pointed out in earlier posts, the commission model, even for buyer representation, creates real potential for conflicts of interest that the SmithAdams fee-for-service model avoids. And by the way, most buyer representation agreements keep open the potential for dual-representation, should the buyer agree (I wouldn’t).
So, of course I think it is better for any buyer to have his or her own representative. I just think buyers should be fully educated on dynamics that the NYT piece glossed over.
When talking to people about SmithAdams, the first question I frequently get is this: “You’re starting a real estate business in this economy? What are you thinking?”
“That doesn’t mean you can ignore the economy. Both customers and investors will be feeling pinched. It’s not necessarily a problem if customers feel pinched: you may even be able to benefit from it, by making things that save money. Startups often make things cheaper, so in that respect they’re better positioned to prosper in a recession than big companies.”
That’s precisely what I’m setting out to do. SmithAdams fee-for-service model can save consumers money. In this housing market, I think any of us would benefit from real estate transactions being more efficient and less costly.
To this point, I believe potential customers are more likely to be open to new ways of doing business in times like these. During the recent flush years when real estate property values were skyrocketing and homes were sold in a weekend, few questioned the wisdom of paying a 3% (one-sided) commission on property transactions — a commission that often translated into thousands of dollars. With the realty market in disarray, the SmithAdams value proposition has resonated strongly with almost everyone to whom I have spoken about our company.
Now is the time to apply the simplicity and straightforwardness of a fee-for-service model, similar to other professional services industries, to the business of real estate. Despite new technology and other changes in the real estate marketplace, the commission-based fee model has not evolved in decades. The bursting of the housing bubble presents an ideal time to reevaluate current real estate practices. Now is the time to start SmithAdams.
As some of you know, we launched our new corporate web site yesterday. I’m going to try to not take this as a bad omen, but today the web hosting company had what I can only characterize as a catastrophic network issue, making our web site (as well every other web site they host) unavailable for about 8 hours today. Fortunately, things have been repaired, and our site is available now. Let’s hope that is our last hiccup on that front for a while. I hope you find the new site informative…
