Many moons ago, I was moderating a panel on mortgages before a consumer audience at an event I held with the Los Angeles Times.
Two mortgage brokers sat on the panel. I asked each of them, “How do you get paid?”
After they spit out some gobbledygook, I turned to the audience and said, “If you understand how they get paid, raise your hand.”
Almost no one did.
To bring the point home, I repeated the question and listened to another version of blah, blah, blah. I turned to the audience again, and they looked even more befuddled.
After untold attempts by advocates, regulators and others to bring ease and transparency to the buying, selling and financing of homes, the process remains a black box — opaque and confusing to most of us.
It creates a bad consumer experience, and it’s formative in the industry’s sometimes stained reputation.
Which turns me to the lawsuits against the National Association of Realtors (NAR) and other big real estate firms. Against a backdrop of inaction, it could be one of the best things to happen to the industry.
No more rhetoric about the importance of being consumer-friendly: This lawsuit will force action, no matter what the verdict or settlement. It’s a 10,000-volt jolt.
Reform rises from a big fail
The federal government has tried to tackle these problems but has not cracked the lock on old ways. Department of Justice actions, Federal Trade Commission investigations, the Dodd Frank Act and the Consumer Financial Protection Bureau — all promised to contribute to transparency. But progress is incremental.
Regardless of the outcome of the mega lawsuits, the sunshine from these legal assaults will force the industry to make some changes.
Progressive industry leaders are already using this moment to break from the past, lifting the veil of secrecy. Effective in two weeks, the Northwest MLS will allow the public display of buyer broker commissions. Cheers.
Tech broker Redfin followed suit, announcing it would display commission rates on all listings on its site from the areas covered by the Northwest MLS. CEO Glenn Kelman is fast becoming the industry’s superhero.
More will follow his path, too many good folks inside the industry are ready and poised to act out. They want to reform the process. In the meantime, good Realtors will make the best of an arcane system that they are forced to work in.
But it is time for the influencers to roll up their sleeves and fix the rest of the system.
The list is long
When you are buying a house, you are overwhelmed with too many legal agreements and an untold number of arcane business practices. You are expected to digest and understand these duties, obligations and contingent liabilities overnight. I cannot tell you how many times agents, lenders, lawyers and others have glossed over details in our rush to close.
Sometimes, as a consumer, I feel like I am in the backseat of a speeding dune buggy without seat belts driving up and over hills through the hot desert.
The loan process is another quagmire. Most homebuyers are muddled about the terms of their loans, the risks and who gets paid for what.
I cringe when I hear someone say, “It is all in the settlement statement.” That is like asking your future spouse to read and sign a prenuptial agreement on the way to your wedding.
It also reminds me of Google and Facebook privacy policies, deliberately obfuscating, very invasive and often misunderstood.
Determining the value of your home is another mystery.
Appraisers somehow know the value of my home before appraising it, wink, wink? How does that nonsense help me assess the true market value? It is a farce.
Let’s dump appraisals altogether. Consumers should not have to put up with or pay for stuff, just so lenders can sleep better at night because they checked off all of their bureaucratic boxes.
WTF with real estate jargon
Take the term “agency,” fundamental to the real estate agent relationship but a term that is squarely insider baseball.
Does the agent have a responsibility to explain problems with the house? Or do state laws too often let agents off the hook with limited liability? Worse, do they get training not to proffer advice or give obvious observations from their many years of experience? Imagine your doctor, saying, “I cannot give you insight into what I know or see.”
So you get a referral to a specialist like a home inspector.
How many consumers know the inspector’s liability in many cases is limited to the cost of the inspection. So if Mr. Toolbelt missed a foundation issue that costs $30,000 to fix, the buyer gets their $495 refunded. Wow.
Yes, in the end, most homebuyers get the house that they wanted on more or less the terms that they expected. But the process can be painful, mysterious and scary.
You might ask: Is this any different than any other business contract or process in any other industry?
Maybe not, I do not know. I do believe we should expect more from real estate industry leaders who disingenuously chant, “It’s all about the consumer!”
The lawsuit is an opportunity to make those changes.
Editor’s note: The headline for this story has been updated.