Should real estate agents get first dibs on new listings?
First-time buyers can lose out on distressed real estate
By Tom Kelly, Wednesday, June 15, 2011.
First-time homebuyers are critical to the housing industry. Once they get in the door, this enables the former first-timer to move up, etc. In a nutshell, first-time buyers help to keep the housing ladder moving.
What has skewed this traditional ladder is the number of distressed homes on the market. There are more homes than buyers. So, I wasn't concerned when I read the latest statistics that some investors had beaten out first-time homebuyers to a purchase. The market needs investors, too.
What made the topic a bit more interesting was a call from an investor friend who conducts rather thorough research in his goal to obtain one rental property each year.
Historically, his key variables have been location, condition of the property, and the ability to rent it out to pay the mortgage -- or the money borrowed/invested to purchase and maintain the home. Recently, he's looked for attractive financing terms, especially situations where the seller (or foreclosing lender) is willing to carry all or part of the financing for a few years.
"I lost the place to another investor," my friend said. "The buyer was a Realtor."
This should not come as any big surprise. In fact, on May 17, statistics from the National Association of Realtors revealed that 22 percent of all existing-home transactions were to investors.
"A good portion of the investors are likely to be Realtor members based on the fact that Realtor population historically has had a notably higher percentage of second-home and investment-home ownership compared to the general population," wrote Jessica Lautz, NAR research economist.
"The most recent data suggest 43 percent of Realtor members had at least one investment property."
NAR has approximately 1.1 million members and is the nation's largest trade organization. However, not all real estate salespersons are members. Some analysts estimate the number of real estate agents in the U.S. is close to 2 million.
The question becomes: Should a person who serves homebuyers and sellers for a living be held to different guidelines if they are competing to purchase a home? For example, should the listing be exposed to the market for a certain amount of time (perhaps 48 hours) before a licensed agent can buy a home that somebody else is ready, willing and able to buy? Especially if that party is a first-time home buyer?
In this market, the seller probably does not care. While multiple offers are starting to surface in some neighborhoods, many sellers simply want out and will take the first solid deal that is presented. Rarely are new listings snapped up in the first few days on the market by an investor in competition with a first-time homebuyer. However, it has happened and will continue to occur as the attractive investor market continues.
"It is the agent's obligation to get the highest possible price for the home," said Alan Tonnon, real estate attorney, author and a charter member of the Washington Real Estate Commission. "That price may even be higher than the listing price. It is typically in the seller's best interest that no restrictions be set on offers so that the seller can consider all offers."
Many real estate brokerages are members of multiple listing services. These "multiples" are large listings of all the properties available for sale in a specific area. When a seller signs a listing agreement to sell a home, the agent accepting the listing typically has until 5 p.m. of the next business day (formerly two business days) to enter the property in the multiple listing service. So, if the property is listed on Friday, the agent has until 5 p.m. Monday to enter it in the MLS.
When homes are moving quickly and certain areas become extremely desirable, it's common for a property to be sold to a client represented by an agent in the listing office within this "next business day" time period. Sales associates share the wants and needs of their potential buyers, despite the separation of information required by new agency laws.
So when an attractive home becomes available, associates in the listing office typically have the first shot at selling it.
What is your opinion? Should agents be able to compete to purchase a home the first day it hits the market? If not, when? Should first-time buyers be given priority over investors? Agents? We will print your answers in a future column.
Tom Kelly's book "Cashing In on a Second Home in Central America: How to Buy, Rent and Profit in the World's Bargain Zone" was written with Mitch Creekmore, senior vice president of Stewart International, and Jeff Hornberger, the National Association of Realtors' international market development manager. The book is available in retail stores, on Amazon.com and on tomkelly.com.
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Submitted by Mark Bergman on June 15, 2011 - 4:34am.
Somehow this reminds me of the old American Express advertisement; "membership has its privileges". Seriously, as Realtors our obligation is to our client. So the seller's agent should care only that they get the best deal for their client. The best deal is unlikely to include altruistic goals such as "please sell my home to a first time home buyer so that I may wait longer to get my $$ while they obtain a mortgage". While I may agree that supporting owner occupied home ownership seems like a fine goal, it's just not in the mix when it comes to serving our clients. The potential access to a listing before the public may also serve those who work for buyer clients. I think that the only potential conflict comes in when one represents a buyer and may also want to invest in a property. A few years ago I showed a property to a buyer client. It was my first time looking at the property. As I took my client through the property, I felt conflicted; I wanted to buy the listing. I was hoping my buyer would decline and I withheld my interest. After my buyer made it clear that he had no interest in the property (and only after), I made an offer. The property became my office.
The idea of treating Realtors like second class citizens and delaying access for personal investment is just unrealistic and unnecessary.
Mark S. Bergman, GRI
Bergman Real Estate
Submitted by Glenn Roberts on June 15, 2011 - 11:53am.
Most of what you complain about is circa 1970. First off, an agent has to have money to be a buyer. That cuts many agents out from the beginning. Secondly, since the early 1990's and the clarity given to agency, we now have listing agents and buyer's agents. If a listing agent is acting ethically and doesn't make mistakes, properties get exposed. The days of taking an offer on the first day are over. Sure there are some unscrupulous agents, and the same holds true in any profession.
If your investor friend is working with an agent, he probably has as equal a shot as anybody. If not, and if he has to study the properties for too long, he just may miss out.
So, please stop running the old "A realtor got it first" flag up the pole. It's nonsense.
Glenn Roberts
Seattle Realtor®
Submitted by R C on June 15, 2011 - 12:31pm.
I don't see the issue. Why would you want to make up silly rules that would delay business. The seller always has a chance to say "NO" to an offer if they are so interested in letting the home sit on the market for longer (don't see why they would but they can). Even in the good all days of the boom, if sellers were so worried about leaving money on the table they would list the home with a "target date" to receive offers (e.g., offers being accepted until X day). They were essentially running an auction.
I do have encountered the FHA homes that won't take investor offers for a few days (to allow homebuyers the opportunity to bid on them). Which I understand since these are homes in rough shape that may appeal to first-time buyers' budgets (but also to investors wanting to flip or rent).
I sum, why would we want to limit when and to whom a property can be sold to when sellers can tailor that to their choosing?
Rob
Investor
Submitted by EXIT Realty on June 17, 2011 - 6:17am.
Question back to you - Should RE agents be penalized because they understand the market and values of properties in the market and know a good deal when they see one?
In this particular space and time, many first-time buyers drag their feet when the time comes to put an offer on a property, afraid to lock into that deal when something better might pop up tomorrow. Even though they hire RE agents to help them because the agents specialize in the RE field, many are so technologically savvy that they surf the net to find way too much partially true information. Sometimes they are hesitant to put in the offer until they can do all the research themselves. In both cases, they may lose out because they took too much time and the seller received an acceptable offer from someone else.
Also, many buyers are making ridiculously low offers because they do not understand that not ALL markets are distressed, no matter what their agents tell them. While the seller is busy flat out rejecting the offer, or not even bothering to respond, another buyer sends an acceptable offer.
Our job as a listing agent is to market the property in order to draw in a ready, willing and able buyer, and negotiate an offer that is acceptable to the seller. We would be lax in our duties to the sellers to advise them not to take an offer that fits their needs no matter who the offer comes from. Furthermore our duty is to the seller, not any buyer and if we find that buyer by networking, we have done no injustice to our seller.
While first time buyers do keep the housing ladder moving, investors are still pumping money into the same housing market and when there starts to be a shortage of homes on the market for first time buyers and it starts turning back to being a seller's market, the investors will start selling those same properties to the first time buyers and keeping that ladder moving much like the first time buyer moving up.
Cindy Holmes, Broker, ABR, SRES, SFR
Tennessee