We all know banks poor lending strategies helped burst the housing bubble. But I think there might be some more blame to be passed around. Obviously Im a guy who’s interested in real estate, so much of my TV consumption is shows like “Flip That House” or “House Hunters” etc. One thing I’ve noticed on almost EVERY show where a realtor helps a couple find a house, the numbers work out something like this.
Cash down payment: $40,000
Pre-Approved for Loan: $200,000
Maximum Home Price: $240,000
The couple takes this information to a realtor, along with their wish list of a perfect house. The agent then shows them between 3 and 7 properties, all above their maximum price. I’ve seen discussions like “Can you borrow some from your parents to increase your down payment and purchase this house?”
My question, finally, is “Is this a common practice for most agents?” If so, asking a couple to boost their purchase price, on top of the price the bank said they can afford (which people are starting to learn is a lie) helped force alot of people into houses they can’t afford. Any comments from those vastly more knowledgeable than myself?
Realtors are sellsmen. They have one duty and that is to make you buy as much house as they can that will close.
The problem is that people don’t plan. This is how people work. People make stupid decisions. They decide they want another house so they then go out and find a house fall in love with it and make an offer. They then have a house that they are paying on and are going into a new mortgage in a month. They are then desperate to sell their house. What they should so is put their house on the market and once they sell their house then find the house to fall in love with. No Realtor ever tells them to sell their house first because his job is to sell anybody anything that they can buy.
I guess what I am saying is that Realtors don’t drive anything. People don’t act in a manner that makes since. I do owner finance of houses. They give me $10,000 of their hard earned money and then I throw them out and sell the house over and over again. I know when I take their money that they are not going to be able to complete the deal. I can’t make them pay their bills and Realtors can’t make people buy a reasonably priced house. It is the people’s fault.
Of all the different parties involved in the real estate market that may have had an impact on the recent market collapse, I would have to say that real estate agents hold the least responsibility. They bring buyers and sellers together and help them negotiate a transaction.
The do not approve people for loans, go over any financial qualification nor do they inflate the value of a home (since appraisals bring all values to market levels). If a real estate agent did not show their buyers above and below their target purchase price, they would then be accused of withholding information.
In this society, it is the responsibility of each consumer to do their due diligence and make sure that they can afford whatever they are buying.
While were blaming realtors we ought to be blaming investors to, the market driven dynamics of one sale after another driven by the investors desire for money!
GR
Every real estate agent is different. There are some agents who wouldn’t want to sell you certain house not because it’s “not expensive enough” for their commission, but simply because the house doesn’t worth it. Simply, if you cant find a good house in your price range, just keep looking. I’ve met agents who spent month and month to find perfect house for their buyers. And after going through dozens of houses, they finally did. So it’s also depends on the realtors. Some just do it simply for money, some - because they are truly love to help people to find the house of their dreams.
No matter what sort of “deal” an agent can pull together, as long as there is financing involved, the final approval comes down to the lender. In my opinion, the burden of the foreclosure crisis lays with the lenders. In a hurry to capitalize on a strong market, they wrote loans for non-qualifying borrowers. They created 100% financing, interest only loans and ridiculous ARMS - all with a short-sighted, make money now attitude. When borrowers finally realized they could not meet the loan terms, they defaulted and here we are.
Are there agents and mortgage brokers that are more concerned about commissions than the best interests of their client? Yes, of course. Having said that, the blame lies primarily with Wall Street and Washington. Without manipulation of the credit markets by the Federal Reserve and the politicians, via low interest rates and lax to non-existent borrower qualifications, the bubble could not have happened.