* * * Hard Core Real Estate Content * * *
AS REALTOR®, WE MUST ALWAYS BE MINDFUL OF OUR ADVICE TO HOME BUYERS AND SELLERS. Our advice may make or break the financial health of our buyer or seller clients.
In the past week, we have benefitted from a wealth of information about the present condition of the real estate market from ActiveRain members, real estate agents and brokers as well as representatives from the financial industry. Bryant Tutas prepared a helpful compendium of the articles.
THE MARKET IS STILL DEPRESSED AND FORECLOSURES ARE INCREASING. National news this a.m. shows that we are a long way from a balanced real estate market. It appears to this real estate market watcher that real estate industry people are of the opinion that:
- 1. Government intervention is desireable to give relief to home owners who are faced with defaulting on their adjusting mortgage instruments as the interest rates reset.
- 2. The market will correct itself in time as foreclosures and short sales drive prices down to a range whereby home buyers will again be active.
- 3. Government intervention may give partial relief to some defaulting borrowers, but it will not cure the institutional problems within the mortgage industry that continues to sell risky loans to consumers.
- 4. Home prices in many areas continue to slide as inventory increases and home buyers sit on the sidelines waiting for the bottom. Even in areas where prices are increasing slightly, volume is depressingly low compared to numbers of homes sold in most markets.
WHAT ARE REAL ESTATE PRACTITIONERS TO DO DURING THIS MARKET CORRECTION? The advice coming from the National Association of Realtors is that "Buying a home is a great way to build long term wealth". The poster, while touting that this is a good time to buy, could be risky advice to give buyers today. Given what we know and should understand about the real estate market in some areas, advising home buyers about whether or not to buy or what to buy puts an agent as risk should that buyer later suffer a future significant loss.
The long term investment benefit of owning real estate is historically accurate. However, the same advice is given to investors in the stock market, investors in antique cars, investors in art, investors in Barbie Dolls. Investing in just about any collectible or security will, in time, produce a gain. Whether or not that gain is more or less than the cost of living advances, takes years to realize. 
BEWARE THE UPSIDE DOWN HOME SELLER. THEY MAY WANT TO BLAME THE AGENT.
REAL ESTATE PURCHASED FOR A PERSONAL HOME IS not an ordinary investment instrument or a share of stock or piece of art or an expensive Persian rug. Real estate also represents the home of the investor owner. Real estate purchases are also usually financed. Therein lies one of the risks. Home owners who financed real estate purchases over the past 2-3 years, may now find the value of their home has declined 5%, 10%, 20% or more. If the home buyers invested 5%, 10%, 20% or more in their home as a down payment and find that they must move due to job relocation or other reasons, they could easily owe more than the market value of the property they must sell. If the owner cannot pay for the cost of sale and pay off the mortgage loan(s), they could be in foreclosure rather quickly. REALTORS®, always advise home sellers to use the services of a REALTOR® when buying and selling real estate. However, the use of a REALTOR® comes at a cost to the consumer. If a consumer purchased a home two years ago and needs to sell today, they may not, in fact, probably have not, realized a sufficient gain in property value to pay the cost of sale. REALTORS®, therefore, MUST be very cautious in giving market advice to consumers and not tout the investment potential of real estate.
FINANCIAL MODELS FOR REAL ESTATE THAT PROJECT THE GAINS IN VALUE OVER LONG PERIODS OF TIME are not helpful to a home buyer who cannot hold that property for many years. The days of quick appreciation are over for the foreseeable future. Touting long term investment potential is risky in the extreme, to the buyer and to the agent. Of course, the tax advantage of home ownership cannot be overlooked. When simple liqudity is considered, the owner still has to make the payments to stay solvent.
ARE WE STILL SELLING HOMES?? OF COURSE WE ARE. However, when buyers ask for our advice, the smart thing to do is give them information, not opinion. If we find good buys for our buyers, they may just say:
- I plan to own this home for many years
- I'm benefitting from the tax advantage, our home
- We need a larger home.
- I want a new home.
- I don't care what the experts say, I'm buying anyway.
- I love this house and I WANT IT.
They look at the facts and make their own decision. But, the facts I give them are from hard data and it isn't good news about the market today because there isn't much. But, my folks are buying anyway. I'm working hard to find good buys for them.
That doesn't mean you have to advise folks "Don't buy now". That's not our job. Folks still buy, albeit is very small numbers, but they buy with the understanding that one sector of the market is a better buy than others and that they need to plan to hold their real estate several years minimum. That way, they won't panic if they see prices further declining. They can sit back and smile and say, "well, our Realtor advised us that this could happen. We're fine because we're going to be here a long time." "We got in at a good price and we love our home."
BE CAREFUL ABOUT THE ADVICE YOU GIVE. IT COULD COME BACK IN THE FORM OF A COMPLAINT.
Under what circumstances are agents giving risky advice to buyers and sellers?
- Agents representing sellers who mislead prospective seller/clients about value.
- Agents representing buyers who mislead prospective buyers about value of a property.
REALTOR® CODE OF ETHICS
Standard of Practice 1-3
- REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.
Standard of Practice 1-4
- REALTORS®, when seeking to become a buyer/tenant representative, shall not mislead buyers or tenants as to savings or other benefits that might be realized through use of the REALTOR®'s services. (Amended 1/93)
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