The highs and lows of parenting and real estate.

Real Estate Agent ≠ Financial Advisor

Words I Had to Look Up While Writing This Post: 4

Times I Was Correct In My Usage: 4 (Because I’m AWESOME)

How Often I Get Rantish Like This: Not Very, I Promise

So… I’ve got a little bit of a bone to pick. I’m going to try not to rant here, because really, who thinks that’s funny, interesting or entertaining? No one, except the crazies. Maybe the guy who Googled ‘elizabeth 7 days face farts’ a couple of days ago to get to my site would enjoy a good rant, but that’s probably it.

Anyway, over the last couple of weeks, I’ve had several encounters with various forms of media discussing or requesting more info from the general public on the topic of real estate agents encouraging or persuading buyers to purchase homes that were ‘more than you could afford’. In each of these instances, there was opportunity for open comments about this concept and the airways were absolutely flooded with responses from people who had an agent who tried to talk them into buying higher than they wanted to, or whose neighbor totally bought an $850,000 house, even though he knew he could only afford a $200,000 house because his agent said he could do it and totally deserved it, but then the house was foreclosed on. All of these instances were discussing the housing boom back in the 2005-2006 era of maxed out credit in comparison to the exodus of debt that’s currently taking place.

I get that it helps soothe the conscience of the public to have a scapegoat. People can’t live their lives constantly self-flagellating about their own poor financial decisions. Thus, a villain is in order. Real estate agents made a killing during the boom. Property changed hands with lightening speed and each transaction greased the palm of an agent, if not two or three. We were printing our own money. We were growing it on money trees in the back yard. So clearly, if we were the ones with the most to gain, it must ultimately be our fault that it all collapsed, right? Find those witches and burn them at the stake!!

I’ve got to take umbrage with all of this. Like a lot of umbrage. Extreme umbrage; I’m just saying. (Sometimes when I’m writing, a word appears in my head within a sentence, but I’m not sure that it means how I want to use it at all. I doubt myself and my language skilz. So I it. 9 times out of 10 I’ve got it right and then I’m so proud of myself I need to use it a few times. Just to prove how awesome I am.)

To begin with, home sellers were just as greedy as their agents. Yes, we were thrilled with our jacked up commissions, but did you turn down the $100K you made on your house from when you bought it in 2002 till when you sold it in 2005? Because that’s more than I made in 2005 and 2006 together in commissions; I’m just saying. And now that you put it down on your house you bought in 2005, which is worth 60% of what you bought it for, you’re angry and disappointed that you ‘lost’ that inflated equity. That’s clearly also my fault.

And secondly, (and most angrily and with lots of upsetness in my feelings [when I get really upset I lose the ability to communicate succinctly]) I really a lot need everyone to understand this one thing: YOUR REAL ESTATE AGENT HAS NO IDEA WHAT YOU CAN AND CANNOT ‘AFFORD’. I’m sorry. That was screamy and poorly written. I couldn’t help it.

I seriously cannot deal with the concept out in the public that a real estate agent has any clue whatsoever what his client can afford.

As your real estate agent, here’s what I know:

▪ What you tell me your price range is

▪ What the lender says you qualify for

Here’s what I don’t know:

▪ How much you make

▪ What your debts are

▪ How high your tolerance for debt-risk is

▪ Whether you’ve been squirreling away cash for 7 years or living month-to-month

▪ Who you owe child-support to

▪ That your job is less secure ever since you accidentally sent that email meant for your girlfriend about your boss’s propensity for nose-picking to the entire company

▪ What rich grandma died and left you $2.6 mil

▪ About your secret, jewel-encrusted silly bandz habit

▪ Everything else about your financial status I would need to make a qualified judgment about what you can and cannot ‘afford’

My point is that, yes, I had clients who bought in 2005, 2006 and 2007 who couldn’t keep their homes. This fact makes me sad. It doesn’t make me sad, however, because I feel responsible for this occurrence. Many of these people were my friends, and in some cases, even my family. Don’t you think that if I had some magic 8 ball knowledge about the collapse of the national housing market I would have warned the people I love about the upcoming disaster, instead of watching them walk into it totally unprotected while gathering my comparatively paltry commission checks? Plus most of these people encountered some additional life/work issue that further depressed their situation. I feel bad for those clients, but I feel bad because they, like the rest of our country, are affected by a recession. And it sucks. Not because I could have stopped it from happening.

So next time you hear someone blaming the real estate professionals for the bubble pop out here, remember this: four out of five of my closest friends who are real estate agents have lost their homes to foreclosure in the last two years (which seems like a much more interesting angle for a story on the housing crisis, doesn’t it, NPR?). Does that sound like we had a clue it was going to happen?

(That was kind of ranty. Sorry. Yesterday my three year old ran around the house without a stitch of clothing giggling like a madman while I tried to negotiate the $18,000 deficit between the purchase price and appraisal of one of my buyer’s houses. If only I had my own reality show; it would somehow manage to be equal parts pornographic and tediously boring at the same time. Is that better?)

24 Responses to Real Estate Agent ≠ Financial Advisor

  1. That was really good. My questions that (perhaps) prompted this post were meant to be inquisitive, not accusatory. As someone who has never even tried to buy a house, I’m in no way remotely qualified to assign a scapegoat in all this mess.

    In the end, the blame rests squarely on the shoulders of the people who bought the houses. Sure, had hindsight acquired a time travel machine, lenders and real estate agents may have been able to lessen some of the damage, but would anyone had listened even if they had?

    I’d guess not, and the best anyone can do at this point is learn from what happened. If you’re a real estate agent still in business, you obviously have, because if you hadn’t, you’d either be in another profession or retired somewhere with a drink in your hand.

    Good work!

  2. I would love to watch a reality show with Jo’s bottom half blurred out 90% of the time. You could pitch it as half Cops/half Big Brother.

  3. Thanks, Tyler. And honestly, I knew you were just asking, not accusing, and that maybe bothered me even more, just in a general way. It hadn’t really occurred to me until then that there might be people out there who really thought we sold people houses knowing full well they would eventually default on them. Plus I was already all worked up by the morons commenting on NPR’s facebook page.

    Thanks for reading!

  4. I couldn’t agree more! Everyone thought the prosperity would never end! And of course, we all know it crashed.

    I actually like the tighter times now because we all have to live a bit more simply. I really enjoy that some folks can upgrade their lifestyle for less.

  5. Charlie, I kind of agree. Although it would be nice not to stress about money so much, I’m pretty proud of the thriftiness I’ve cultivated since the economy went down the tubes.

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  8. Nice article amd there are plenty of people to blame for the collapse of the housing market. Most surely the federal government for their support of zero down loans for people who clearly could not afford that home. If you have no stake in the game it not a hard decision to bet all you can get your hands on. Try playing the roulette wheel in Vagas with someone elses money. It is easy to do.

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  10. Elizabeth, Food for thought with plenty of blame to go around for our last real estate party. Fortunately for me I was managing and not selling during the bubble – but certainly bought my dream home at the top of the market, and later sold it for a big loss.

    The real blame lies at the feet of Government for letting lending guidelines become so lenient and encouraging more folks to be home owners.

    Being a real estate agent I continue to be optimistic about home ownership grounded in a long term investment and not quick way to make a buck.

    Good article, I now have you in my RSS feed.

  11. With some of your clients-friends-family having taken a hit by buying above their means, do you now dig a little deeper when speaking to prospective buyers about their financial situations? Maybe now realtors put those thoughts in their clients heads during the first phase of their sales process…

  12. Yes it is the responsibility of the agents (and the buyers, sellers, appraisers, lenders, policy makers, etc). If you were involved you have responsibility.

    I purchased a house on the up-swing of the boom and the purchase price was based on the payment I could afford on a 30-year. My agent suggested something shocking, that I purchase more house because “you don’t have to show proof of income – you can just say what you make…” nudge nudge. I got pissed because I knew better. What about her other clients?

    Please try to tell me that she’s not responsible

  13. Todd – No, I haven’t changed how I do business. I feel strongly that in order to make any kind of a judgment about what people ‘can afford’ I would need all of the information about their situation. People structure their finances radically differently from each other. There’s just no way for me to know. And honestly, I can’t take on that burden. I already worry constantly about whether a house is ‘right’ for my client’s needs in as far as what they tell me they want (size, location, layout, etc.). And then there’s my own always precarious financial situation. If I had to also be the one to decide if my clients are spending too much I would implode from the stress, I assure you. Not to mention the casualties of my own business I would suffer if I questioned each of my clients about their income and debts, and then went on to suggest they couldn’t afford what they thought they could.

    Most of the people I worked with and know who lost homes due to foreclosure did so because their income or living situations changed and they couldn’t sell the house for what they bought it for, not because they just couldn’t afford the payment. I maintain that none of it was anything I could foresee.

    And luckily, the lending industry has changed their own guidelines so radically people are no longer able to obtain financing for above what they could possibly attempt to pay. Which is really what needed to happen. Real estate agents may not have all the info to make this kind of determination, but the lenders have most of it.

  14. Mr. Renting – I’m sorry you encountered such a ridiculously unprofessional real estate professional. What she suggested to you was Lender Fraud. It’s a crime. Like a big bad one. So no, I’m absolutely not defending her or anyone like her.

  15. Wow, you really write well!

  16. The technical name for the people who blame other people for their messes is “moron”

    Just because I’m fat doesn’t give me the right to blame mcdonalds right? If you can sign a loan then you should read the paperwork.

    Most of the people I have seen foreclosed on put 0 money Down, took out cash from an equity line and have been living for free for months.
    Boo hoo doopity doo do.
    Good post and it annoys me to know end (the older I get the grumpier and fatter I get).

    Yeah I buy the houses that people stopped paying for so thanks.

    Disclaimer : people with real excuses like medical, fraud, etc. I feel bad for and should get some kind of help. Everyone else should stay renters.

  17. YO CURTIS… don’t know if your drivel of a rant was aimed at me but i’ll just assume that it was.

    if you care to read you’ll notice that i mentioned knowing better and not following illegal, greedy, and otherwise disgusting action by my ‘agent’.

    i’ll say it again – the AGENT is 100% responsible for actions like this. i knew better and didn’t follow but what about others who didn’t know better and followed the direction of their trusted real estate ADVISOR? taking the advice of a real estate professional is somehow the fault of the buyer???

    if i’m paying someone the unbelievably high rate of 3% for their advice you bet i’m going to want to trust them. otherwise, what are they worth?

    nope, sorry the agent has their hands in the deal, stands to make a huge percentage of the transaction and is, therefore, responsible.

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  19. Elizabeth,

    This is a gray area. In my opinion, it’s up to the bank or whoever is financing the deal to do their due diligence on the buyer.

    The real estate agents job is to connect buyers and sellers based on the information they have. It’s a marketing job. Whoever is getting the loan and whoever is issuing the loan is responsible for the quality of the buyer and the appraisal value.

  20. So true! The public has been using Realtors as scapegoats ever since the market crashed. I don’t remember holding a gun to anyone’s head to make them buy a home.

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  22. This is also a great lesson for real property agents. Do not undermine the worth of potential buyers.

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