Even with the loss of Pluto as a planet, Matrix readers have been cleaning the lenses on their telescopes while accepting the risk of placing the remaining planets out of alignment. Here’s a few of this weeks comments from the Matrix Zeppelin:
I have been told numerous time that if I am representing both sides of a deal, then I am really only loyal to the deal… not the clients. This is one reason I choose not to be the main representative for both sides of a transaction. If an unrepresented seller is handed our state contract for sale, possibly with addendums, that seller will want to seek out his or her own representation from another representative in most cases. I believe it is worth the money spent to have a representative working for client interests, rather than the transactions interests. Afterall, if you are going to court you wouldn’t want the same attorney working both sides of the case, right??
Yes, brokers and agents clearly want to close the deal, but so do the parties, so the interests align. The broker’s fiduciary duty to the client should cover advising of those instances when closing a particular deal is not in the client’s best interest. There is every reason to get advice from as many sources as you need or want, the experienced agent being one. Ditto negotiating skills.
The problem arises when consumers do not fully understand the products they are signing up for when rates are higher when their mortgage resets. Of course, lenders see no problem with these programs because they say they inform the consumers and it helps get buyers into their new houses and do not want to discourage consumers from applyhing for mortgages. Lenders are already facing lower loan volume as rates creep upward. There is a saying I’m sure you’ve heard before… ‘Buyers are Liars’. It’s just as true for mortgage brokers as it is for real estate agents
There are overpriced properties that are purchased and under-priced properties that are sold, and Bazerman’s point is that its not in the brokers interest to inform the buyer/seller of these inequalities.
It is the same as my first point, or I wanted it to be, which is, that there is a “higher law” at work in any real estate transaction involving a broker and a client. An agent must act in the best interests of their principal. Consequently, the self interest of the broker must play second fiddle to the client’s interests. And my experience has shown that brokers are looking out for their clients.
Real estate, like any market, can get ahead of itself. If you suppose, for a moment, that the long term average price appreciation of housing is 5% (probably on a “real” basis, but I suppose that is subject to debate), then periods of above 5% appreciation will eventually average out with periods of sub-5% appreciation. I think we all know which period we are in now. The problem is when the market is in “10%+ p.a. appreciation land”, it looks like it will go on forever. When it is correcting, it looks like the sky is falling. For a good example of “the sky is falling” see. Some speculators in markets that are illiquid (and housing certainly is) will get burned and forced out — which is a healthy thing in the long term. I like to think that there are fewer speculators in general in NYC than there are, say, in Las Vegas or South Florida, but I don’t know for sure. What matters is how many speculators can’t stand the heat. The strong rental market leans against the falling prices. Rental apartments in NYC are up 15% since the start of the summer. But the cash flow still isn’t good enough to buy & rent out and make some return on your cash. You will need capital gains to bail you out. When the market squeezes out those capital gains expectations (which it is doing a good job of now, but they are not all gone), that is when you know it is time to buy. Will it ever get there? It did in the mid-1990s correction. It could again. The whole “bubble” thing is probably a misnomer. Bubbles burst and are gone. Housing is a basic good and, unlike tulips, have underlying demand. Remember that in 2000, when people got burned in the internet stocks, money started to flow into housing as an alternative place for your cash. This was exacerbated after 9/11. If the cash isn’t going into housing now, where will it go? Probably financial assets….
I feel, at this point any move by the Fed will have no effect on housing. As you mentioned, “Market psychology/mob mentality is a fragile thing.” I think everyone is a little “touched” and now has Housing Anxiety. The Fed should stick to it’s no one role (or is it mandate) and deal with inflation. The sooner we take the medicine, the sooner we’ll get better. And I agree that low mortgage rates fueled the housing boom. And then that old market psychology/mob mentality took over!
The main reason why middle class incomed people are being priced out of the cities is tri-fold: (1) The primary problem is the irrational belief in the goodness of centrally planned zoning; that which dictates the density, dimensional proportion, usage type, etc. allowed. Of course planners are only human, so they cannot fully forsee all the long-ranging effects of their economic devestation and class-polarity housing policies. (2) the white collar workers are the direct victims of the price war, as they cannot bid away the same quality housing as the rich, and they must live in inferior housing, less choice neighborhoods, etc. (3) white collar workers are the ones subsidizing the lower classes, who thru the mechanizations of the city and state, end up bidding away the housing with the middle classes’ money!