Once more, severe questioning of one of my posts by Doomer Old Mike got me thinking. A few days ago I posted an edited version of a contribution that a realtor submitted to Doom’s Ideas bucket. Old Mike thought this realtor had stepped beyond that profession’s / trade’s proper and customary role when he reflected on market timing, then Old Mike went on to discuss in depth his opinions on where the limits of the realtor’s work should be drawn. As before, I’ve done a bit of editing, added some commentary in footnotes and put in a link or two.

Where I think the benefit in Old Mike’s work lies is in opening up the discussion about what the complementary roles should be in the REIC. It may be inevitable that the present housing downturn will give us tighter regulation of and stiffer training requirements for agents, brokers, and assorted other RE players. Doomers might react to Old Mike’s discussion by contributing their own ideas on where realtors should fit into the post-bubble industry.

 

January 28, 2006 comment by Old Mike, edited (links, notes, and emphasis are mine):

The idea that the housing market’s "bottom" is likely to be a long, stretched U shape rather than a V followed by rapid price run ups has been well dealt with by Doomers oc fliptrack, The Judge, and Idaho Spud. What is interesting to me is the "roles" we tend to accept from real estate salesman, here [1] with "Steve" [2] acting as an advisor on investment timing. The confusion is further promoted by some realtors’ often self-promotional labels: agents, brokers, advisors or "consultants". I will call them all "agents".

There may be a few "agents" who are also qualified financial advisors or financial planners, heaven knows those labels are not the equivalent of a highly educated and vigorously licensed "learned profession" like a Certified Public Accountant, Registered Professional Engineer, MD or Juris Doctor. Most agents appear to me to have no real qualifications to provide "investment advice" regarding real estate or anything else. The mere fact that someone would suggest that an average, non-professional investor try to precisely "time" the "bottom" of any market reveals a lack of expertise. Real experts don’t do that because they realize it is difficult and risky to play that game, even for highly informed hedgies with big research staffs, let alone Bill & Mary Homeowner. The number [3] of agents that are currently experiencing financial stress from their own misguided realty "investment" activities is also evidence that getting financial advice from a salesman is problematic.

Agents play a solid role when they impart honest local information regarding housing availability and neighborhood characteristics. They obviously have a role in the "marketing" of a house for sale. As well, they can provide useful services like sorting through their local MLS listings and previewing homes, especially for out-of-town buyers. The best ones focus on what their buyers want and their sellers need.

Agents are not generally qualified appraisers, a suspect group in their own right, but that’s another topic. While many people tend to rely on an agent for a so-called "market analysis" or other valuation advice, it should be noted that most agent-provided forms will require buyer and seller to acknowledge that the agent "does not determine value" (in Arizona, AZ Form A106) and release agents from an "liability or responsibility regarding" any matter "relating to the value or condition of the Premises."(Az RPC 8(o)).[4] While we may listen to our agent tell us the house appears in excellent condition and is in a great, stable, neighborhood, other provisions of that agents’ recommended form contracts will require buyers to acknowledge that the agents as no duty, knowledge or expertise in these subjects.

And don’t even get me started about agents providing advice regarding the legal requirements associated with contracts or financing, in my experience the best say "I don’t know". Over half who answer questions in this area for me are dead wrong, tending towards the "don’t worry, it will work out" or "we all do it" schools of "legal advice". Perhaps that’s how we got so many cash back deals in a tough market, who knows? Again, the agent’s forms will "disclose" that they warned you to "consult with an attorney, inspectors and experts of your choice" (AZ Buyer Attachment RPC). And while the multipage AZ Department of Real Estate Buyer Advisory is quite informative (read it!) it serves to further list all the important things your agent really doesn’t do, despite the fact that many agents express opinions profusely on the very matters listed. And yes, at the end, you sign and acknowledge that you, not you agent, are responsible for "all necessary inquiries and consulting" prior to purchase of any property.

There are a lot of good, third party, impartial studies out there regarding real estate value trends and market predictions. Many, like the Global Insights, Moody’s or PMI studies are frequently referenced on this site. I have never received a copy directly from an agent in AZ, and many have never heard of these reports. Most appear to have no interest, but rather urged me to rely on their "years of experience" and "local knowledge". If your agent, (whether named "Steve" of not), has read these studies and can discuss these studies accurately and intelligently with you, then their advice may be worth listening to, giving due regard to their possible self-interest in any transaction.

In the final analysis, would you let even your favorite used car salesman manage your family’s finances or handle your investment portfolio? If he told you to invest a substantial portion of your net worth in a car he was selling, and do it now, before it went up because the "buyers’ market" was ending, would you be suspicious? Trust, but verify–and recognize the limits of expertise. I sure don’t want my lawyer doing surgery on me, and I don’t take investment advice from a realtor or a blog site.[5]

 

________________________

Notes and References

[1]: The original context for Old Mike’s comment was the January 28th Doom post Looking in the Rear View Mirror – a Realtor Reflects.

[2]: Realtor Steve Presley’s submission to Doom’s Ideas thread, a reflection on RE market timing, formed the basis for the post referenced in [1].

[3]: I have noted scattered anecdotal reports of this, e.g. in discussions at Ben’s (sorry, no references), but am unaware of any statistics. Does NAR or similar publish reports on realtors’ confidence that might apply?

[4]: Anyone have links to these forms or information about them?

[5]: Amen to that last one. Twist and I are intensely interested in various aspects of the REIC, but neither of us has any designation or specific training in giving any sort of professional advice in this field.