Used car salesmen, insurance salesmen, financial advisers, lawyers, and…realtors. Why don’t we trust them? For me, it has to do with statements contained in articles like this; “‘Home sales in August were down slightly compared to last year, but with home prices continuing to go down and mortgage interest rates remaining at record lows, there has never been a better time to buy a home,’ said Ryan Kirkham, president of the Salt Lake Board of REALTORS.”
Clearly, there are times when it is better and when it is worse to buy a home. If I bought a home in Florida today, I might pay $50K for what would have cost me $200K three years ago. And yet I would guess that three years ago there were a good many realtors saying “there has never been a better time to buy a home.” After all, the market was on its way up with no end in sight–at least for those with nearsighted vision. My wife and I almost bought a townhouse in our neighborhood two years ago for $235K. The same townhouses are now being advertised for under $200K. If we had been talked into buying one of these townhouses two years ago by a realtor who had said “there has never been a better time to buy a home” I’d be plenty ticked today.
What’s ironic is that Ryan’s statement is self-contradictory. Part of his reasoning for why it’s such a great time to buy is that “home prices [are] continuing to go down…” To me, that sounds like a great reason to wait a little while to see if I can get a better deal six or twelve months from now.
On top of Ryan’s own statement, there’s a lot of negative economic news. There is no concrete sign that we’ve hit bottom when it comes to unemployment, and if people are still losing jobs that means more foreclosures, and that means lower home prices. If Obama gets his way on health care reform, cap and trade, card check, and further regulation of industry, then the unemployment situation is going to get even worse, leading to further deterioration of home prices. Given these circumstances, doesn’t it make sense to wait a little while to see what’s going to happen?
Of course there’s always the risk of a lost opportunity. Maybe none of Obama’s legislation will go through and the economy will start to turn around. Maybe I should buy right now because the Fed will keep printing money and buying our own national debt which will cause massive inflation, making it easier for me to pay off the house (assuming I still have a source of income and can adjust it to keep up with inflation). But at the moment I’d say the risk is greater for those buying vs. those who plan to wait and see.
So why don’t realtors ever tell us to wait and see? Why don’t realtors talk with us about the greater economic picture, and help us work through the pros and cons of buying now vs. waiting? I suspect it’s because, for realtors, there truly is no better time for you or me to buy a home than right now.
This conflict of interest is created by the nature of home-buying. Most of don’t buy houses on a regular basis like we buy sandwiches. If I buy a sandwich and don’t like it, I won’t go to the same place the next day or the next week, whereas I might have had the sandwich been good. But even if I have a good home-buying experience, I’m not going to buy another house next week, next month, or next year. It might be 5-10 years before I buy another house, and by this time, I’m probably not going to use the same realtor, even if I loved him or her. In other words, the realtor’s performance does not have a strong influence on whether I use them again. This turns every relationship between a realtor and a home buyer into a short-term, one-time relationship, which creates an incentive for the realtor to maximize their own gain, whatever the outcome for the home buyer. Of course there are other incentives at play, such as the integrity of the realtor in desiring to “do right” by his customers, the chance the home buyers will refer their friends to the realtor, etc.. But all other incentives of non-monetary or potential gain struggle to compete with the immediate incentive of a $10,000 commission.
Is there any way around this? Sure, your realtor could guarantee the value of the property. But who would take that kind of risk? I wouldn’t if I were a realtor. In my opinion, it’s a situation where the conflict of interest and unaligned incentives cannot be fixed, and the only solution for home buyers is to adopt a “buyer beware” attitude, get educated, and trust no one to make decisions for them, especially realtors who claim “there has never been a better time to buy a home” no matter what time it is.