the logical home buyer: madison, wi and beyond…

There are a lot of people who aren’t going to like this article…and most of them are going to be members of the largest non-voluntary trade association in the world–a group which possesses enormous national and state lobbying power and influence–the National Association of Realtors®, NAR.

Unless you live under the proverbial rock, you’ve undoubtedly heard about how lenders are supposedly at the heart of the housing meltdown, and the devastating effect their actions have had on our economy.

Well, beneath that story, is one that has either never been told…or is only whispered, regarding how all of this mess started with a hugely powerful trade association…the NAR.

NAR, however, would likely be the first to proclaim that they don’t do anything…that everything of any importance about real estate happens at the state level. In that regard, they’re partially right. It is the state level Realtor® associations that–using the research and legal advice of the NAR–carry the NAR’s recommendations to the politicians at the state level, lobbying for anti-consumer change, which is ultimately what–as far as agency laws go–wreaks havoc upon all of us.

While the list of NAR’s transgressions against consumers is long and varied…the biggest problem leading up to our national economic meltdown has been NAR’s push to make Designated Agency the law of the land.

Under this concept, licensees from a single real estate brokerage can represent both a buyer and seller’s “best” interests…in the same transaction…and, supposedly, all conflicts of interest disappear.

In reality, the fact that you have one firm exerting influence over, and advising, two parties with opposing interests, in the same transaction–something which was ILLEGAL prior to the introduction of Designated Agency–is extremely poor policy, and leads–by its very nature–to dealmaking that is best for the company’s interests…potentially at the expense of one, or both, clients.

The standard that existed prior to Realtor® lobbyists foisting their self-serving, self-drafted, legislation on unwitting, under or non-disclosed consumers, was the standard imposed by the common law of agency. In other words, the firm had to put the interests of the client ahead of all others…including its own. Not the individual licensee mind you…but the firm.

But, listing firms, which all firms were, didn’t want to see that standard–which really only began being properly applied when buyer agents came on the scene in the mid 1980’s–become the recognized norm…because they would lose their precious market share to upstart buyer agents.

All Designated Agency did, was allow the “make the sale” mentality to continue as before, with the states which had adopted it giving their blessing to the conflict ridden practice!

Yet, even without Designated Agency…a problem already existed. Realtors® could affect the housing system adversely by their selection of the lenders to whom they would refer their customers and clients.

Just as appraisers–in the bad old days before May of 2009–understood that they had better “hit the number” that the lender wanted to see hit, in order to keep the deal together…lenders understood that if they didn’t find a way to close the loan, they should expect to see the income they were receiving from Realtor® referrals disappear.

Did this happen every time? No. It did, though, happen often enough to–due to ridiculously high valuations of properties–crash the system. Did the Realtors® do the appraisals? No. They did however, exercise influence over the lenders, who exercised influence over the appraisers.

And Designated Agency only makes all of this worse, in that an absence of true (usually) buyer advocates in the system, makes it so that buyers have no one working to ensure that they aren’t overpaying for their homes before it had gotten into the hands of the lenders.

What needs to happen, is that the buyer side and the seller side need to ALWAYS have representation from two separate, distinct firms…under the dictates of the common law of agency. In other words, back to the standard of the firm putting the interests of one client party ahead of all others, with no more pretending that it’s just fine for the same firm to represent both.

We’ve all seen where that conflict of interest ridden scheme leads, and we can’t afford to go there again.

Jay w/Excel-EBA

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This entry was posted on Friday, July 17th, 2009 at 9:54 am and is filed under Designated (DUAL) Agency, National Realty News.You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.