Did You Pay for the Right to Walk-Away?
Fascinating mention buried in Richard Thaler’s Sunday NYT column last week.
He notes that in the non-recourse states, there is an extra $800/$100,000 purchase price built into closing costs for homes. That is the additional costs that lenders incur to make loans in those states, as they implicitly have higher default rates than recourse states.
“The morality argument is especially weak in a state like California or Arizona, where mortgages are so-called nonrecourse loans. That means the mortgage is secured by the home itself; in a default, the lender has no claim on a borrower’s other possessions. Nonrecourse mortgages may be viewed as financial transactions in which the borrower has the explicit option of giving the lender the keys to the house and walking away. Under these circumstances, deciding whether to default might be no more controversial than deciding whether to claim insurance after your house burns down.
In fact, borrowers in nonrecourse states pay extra for the right to default without recourse. In a report prepared for the Department of Housing and Urban Development, Susan Woodward, an economist, estimated that home buyers in such states paid an extra $800 in closing costs for each $100,000 they borrowed. These fees are not made explicit to the borrower, but if they were, more people might be willing to default, figuring that they had paid for the right to do so.”
Note that this isn’t explicit mortgage insurance, but since it makes the effective cost of doing business higher, it simply gets worked into the fee structure . . .
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Source:
Underwater, but Will They Leave the Pool?
RICHARD H. THALER
NYT, January 23, 2010
http://www.nytimes.com/2010/01/24/business/economy/24view.html
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February 1st, 2010 at 2:14 pm
So I wonder if the CDO’s will go through the goose faster because they have fewer options.
February 1st, 2010 at 2:22 pm
This should put an end to the ‘morality’ issue.
The banks charge a fee for the right to walk away, and they keep it a secret from the borrowers. Nice.
February 1st, 2010 at 2:24 pm
I’ve always wondered about the geographic concentrations in CDO’s and whether issues like these would cause a shake out in the secondary market. Which in turn banks would want to avoid because of the mark to market problems it would cause.
Figuring this out wasn’t worth the time because I’m not buying traunches, but it leapt to the front of my mind as a way to game the PPIP when it was announced. Thank God that shit burger never got off the ground.
Anyone in the industry know?
February 1st, 2010 at 2:25 pm
Mark,
I think any informed person knows a nonrecourse costs more.
February 1st, 2010 at 2:27 pm
and the joke here is that they didn’t charge enough. Homeowners win this one.
February 1st, 2010 at 2:34 pm
I think the online auctions of foreclosures by Florida counties will cause a bank run. Not the kind of bank run you normally think of but banks running to unload their foreclosure as the volume of governmental foreclosures ramps up and swamps the limited RE vulture market. Not only will the banks get creamed in a falling market but they’ll finally have to take some realistic marks to market.
The FL bankers assoc also wants to end judicial foreclosures – which could actually backhire on them, they’ll be doing deeply underwater homeowers a favor in the long run
February 1st, 2010 at 2:54 pm
So on your average $300k CA home that’s $2,400. Given the impending slow marathon of walkers it might make sense to assume that the $2,400 fee is too low and that home prices will fall in an amount equal to the rise above $2,400.
February 1st, 2010 at 3:29 pm
Paying 80 cents for every $100 of borrowed money is still a good deal for the borrower. A little too good, given that, with all the bailouts that the politicians insist on giving, the costs of default are effectively nationalized.
February 1st, 2010 at 3:55 pm
I don’t get it. The bank had every opportunity to do due diligence on the loan it was writing–in terms of the borrower and of the property they were buying. This is a loan whose terms the bank freaking wrote. All banks do all day long is write loans! It’s their job!
In contrast, the person who signed the loan probably doesn’t understand all its terms. Heck, I have a 30 year mortgage, and I have no idea what happens if I stop paying in 20 years–does the bank get to foreclose on my house, sell it, and keep all the money, or do they just get to keep the remainder of the money I owe them? Seriously, no idea.
But you’re seriously telling me that Joe Schmoe has a moral obligation to financially injure himself because these guys voluntarily wrote a contract that makes them big losers? Joe should, what, stop saving for his kids’ college education? He shouldn’t take a nice vacation with his family? He shouldn’t blow a big wad on shoes?
Why, exactly? Because it’s his moral duty to save the professionals from themselves? Seriously?
February 1st, 2010 at 4:31 pm
Yes…the idea that there is any morality involved here is utter childishness. What really happened in Cali and elsewhere is that home purchasers bought a real estate option contract that required them to pay a certain amount each month to have possession and use of the real estate, and 100% of any return that accrues due to appreciation, OR, in the case of declining value, quit paying and forfeit the right to possession and use. The lenders full well knew the law in non-recourse states, and I imagine, so too did most of the borrowers.
Walking away is not only not immoral, but to refusing to do so on the basis of some queered-up moral compass might itself be immoral, if it impairs the ability of your family to survive.
February 1st, 2010 at 4:47 pm
Just returned from a quick trip to Florida. Many of the abandoned developments could pass as sets for a remake of Blade Runner. Walking away may be immoral but the exodus began a long time ago and the implications for the RE industry are toxic, not to mention the blight on what was once upon a time a lovely semi-tropical environment.
February 1st, 2010 at 5:09 pm
Having owned the same home for 7 years (to the day, actually) and being on my third mortgage for it (to get lower rates, not to use it as an ATM machine). I consider myself pretty informed about mortgages, but I had no idea that they were more expensive in AZ do to them being non-recourse (a term I’ve seen in passing before, but wasn’t very familiar with prior to reading this post). I’m not an accountant. I’ve never taken the time to interpret all the legalese contained in the half ream of paper they call my lending document, especially the stuff related to defaults. I just assumed I’m F-d with the worst case scenario if I was to default on my mortgage. I never really looked into the perks I was being provided (at a hidden cost). So, I think Mark’s right; it’s not fair to assume that people really know what they’re getting. One could fairly argue that defaults, and therefore also the fee, would be higher if the banks explicitly told their borrowers they could walk away. So I’m not sure it’s quite a conspiracy, either. It’s just the imperfect nature of complex transactions. That said, a certain level of disclosure should be expected for the major items. I would consider ~$800/$100K financed a major item that I should have been told about every time I took out a mortgage. Perhaps the bank had no obligation the two times I refinanced, but this is the first I’ve heard about it, even though I hired a broker to help me with the first loan. I paid a broker out of my own pocket to represent my interests and to give me the information I needed to make an “informed decision,” and he failed to do so.
There’s been way too much emphasis on what the buyer “should have known.” If I should have known this, then why didn’t the guy I paid money to tell me about it actually tell me about it? Often times there are more “professionals” hired in the process of buying a house than there are “professionals” involved in the design of it! The lack of accountability should fall much harder on the lenders, apraisers, etc. than on the buyer. If a house burns down due a to faulty wiring design, you blame the architect; you don’t blame it on the buyer for not knowing the wiring was sub-par! The reality is that not everyone is an accountant and an architect/electrician, (and a plumber, gas pipe fitter, communications cabler, contractor, civil engineer, landscape architect, etc.), that’s why people directly or indirectly hire professionals when they build or buy a house.
Why do finance people get a free pass when they screw over home buyers, but the engineers, architects and contractors get sued if they do the same? It’s not very “professional” to just be able to pass the blame on to your client! I have no tears for the “professionals” who can’t do their own job and then pass the blame. What a pathetic bunch! The thing that pisses me off is that so many sympathize with them on the basis of so-called “personal accountability.”
February 1st, 2010 at 5:41 pm
What is moral in the mortgage debacle is becoming increasingly ambiguious. I’ll give you my current situation as a point in case…
Three years ago I went through a divorce on the wrong side of the housing bubble. My ex left, and with it any income she was contributing to the household debts. It was becoming obvious that my income at the time was not enough to handle the backlog of debt. To add insult to injury my mortgage company (a leading instgator in the mortgage crisis to follow) was boosting thier bottom line with some obsene late penalties which were exasberating the problem.
Seeing that I was coming close to that forecolsure point, the mortgage company came though with an offer to refinace my mortgage and existing credit into a loan with managable *payments*, of course boosting my balance much higher, but at least I would keep out of forclosure range. The house was apraised for a value that I also thought was ridiculously high and they encouraged me to borrow more, but I knew what I could afford and I kept the balance as low as was possible, well under the apraised value.
Now advance to current day. Life for me has inproved. I have a job that pays a lot more, and am engaged and looking to marry, but this is where the economy starts to haunt me. My house value decreased well over half, now way below what I owed on it. The ability to sell anything not at fire sale prices is gone for the forseable future. (There is a house not 2 miles away from me that sold for $24K, the price of a car) The problem for us is that my house is in a neighboorhood that I want to badly move away from (a safety issue), and her house is too small for our kids. I find that there is no way for me to sell the house for anything close to what I owe. I’m current on my mortgage payments and in no risk of default, so no mortgage modification possible. I was considering renting, but researching it I know I could only rent it for about 75% of my mortgage payment.
Talking to some banks about our options I found that if I did rent unless I had 30% equity in the rental, a mortgage on a diferent house would not be possible, even if I had income from the rental. In short combining our households is becoming a real problem that we don’t have a solution for. As my fiance put it, “I always thought it would be nice to have a second home, but I didn’t think it would be in Mesa.”
So what is moral here? Is the bank, who pushed risky loans without concerns for the homeowner’s ability to pay in the long run, holding the moral high ground. Is it the homeowner for not understanding the long term risk involved at fault? Is it morally rightous for the homeowner in a severly underwater market to just suck it up for an unforseable amount of time so that the bank can continue to profit from it’s prior agressive actions? What is best for the community at large? Obviously much of my income does not go back into the community, rather it goes to servicing the bank loan.
There is no easy or clearcut answer, if there is an answer at all. One thing for certain, there is no black and white. Maybe only time will resolve this.
February 1st, 2010 at 5:44 pm
Why shouldn’t the banks try to use the lowest common denominator to protect their “assets”? After all, these loans represent their assets, and what they use to value their company. I side with the banks in their efforts to fight off foreclosures and to make us all feel like lesser humans if we default.
Where I don’t side with banks is in the areas that have been discussed here: why did they not disclose to borrowers what truly happens, and make sure that borrowers understand the weight of what they are signing? I know the answer: it’s called sales. I good salesperson was once training me and told me that lying was immoral, but saying too much to a buyer was also bad. Don’t give TOO much information, he said. Banks and lenders and lawyers and mortgage brokers all stood to get paid, and they wanted that $$$ more than they cared about what happened to the buyer later. They don’t have a moral obligation either.
So, as long as home prices keep going up, and everyone can keep paying the note, and everyone keeps their job, nobody complains. It’s all good. But once one cog in the wheel broke, the whole thing was made weaker, and more stuff broke. Now, the banks are at their last resort: guilt the homeowner into staying and paying, even if it’s to the detriment of the homeowner.
What has this country come to………………………………..
February 1st, 2010 at 5:47 pm
Brenden
“I never really looked into the perks I was being provided (at a hidden cost).”
The bank didn’t provide this perk. It’s state law and the price difference would be in the rate not the costs of the loan.
Also,
“There’s been way too much emphasis on what the buyer “should have known.” If I should have known this, then why didn’t the guy I paid money to tell me about it actually tell me about it? Often times there are more “professionals” hired in the process of buying a house than there are “professionals” involved in the design of it! The lack of accountability should fall much harder on the lenders, apraisers, etc. than on the buyer. ”
I’m not directing this at you personally I just want to educate in general.
Yes you should educate yourself on contracts that are many multiples of your annual income. If you don’t know it, learn it, with the internet at you disposal no excuse on this one in the last 10 years .
“Then why didn’t the guy I paid money to tell me about it actually tell me about it?”
How did you find these “guys”, realtors, appraisers, and lenders? Friends that don’t know any more than you or professionals real estate developers, builders ec….
Simple rule of thumb start by finding a realtor that is a real estate investor. That knocks out well over 90% of realtors, maybe 99%. Ask every realtor you meet why they don’t in invest in real estate, it’s great fun. Then just remember it’s because they can’t buy at the right price, but with your money the price doesn’t matter. Money is made in real estate when you buy not when you sell.
I’ve set up friends with my guy and at one point he’ll be standing in a house with you and he’ll seriously say “If you’re not going to put in an offer on this house I am.” And then explain why, 4 out of 5 times the clients make an offer the 5th he does.
After seeing 20 houses you love he’ll trash them all, on price usually, and doesn’t even bat an eye at showing someone over a hundred houses. No matter if it’s a 50k or 500k purchase. Hell he’s shopping too.
Conflict of interest in real estate is well known, along with lying, look at any NAR press release.
Again this isn’t a dig at you just trying to inform.
February 1st, 2010 at 5:50 pm
To The Window Washer:
True, but most home-buyers, and sadly their real-estate brokers, are too unsophisticated to be aware. And I suspect the term ‘non-recourse’ never enters the conversation.
The lawyer should be explaining things, but I have no clue whether that happens.
Nevertheless, walking away should not be a moral dilemma for anyone.
February 1st, 2010 at 6:11 pm
Mark,
“Nevertheless, walking away should not be a moral dilemma for anyone.”
I agree completely.
I just feels that people are just screaming right now instead of learning, hope that isn’t the case.
February 1st, 2010 at 7:22 pm
@ Window Washer,
The bank did so provide the perk. If the bank didn’t provide it, who did? I paid for it, and the bank would be the one making good on it if the loan defaulted. The state only required that the perk be provided. The state certainly didn’t provide it. The state also required dozens of other items, many of which were disclosed, be provided. The bank was responsible for providing all of these things – appraisals, titles, HOA documents, floodplain certs, etc. – and they told me how much I paid for each one, even though some were only a few dollars. Simply put, the bank failed to disclose information on their fee structure. Like I said, whether or not they should have done more than bury it in the paperwork is arguable. But the fact that I, as a consumer, should have been aware of the nuance of state law regulating banking comes across as quite arrogant. That was my point. If people could reasonably be expected to know all of the ins-and-outs of the mortgage process, there wouldn’t be an entire industry and whole governmental departments set up around it. I bought a house because I simply wanted a place to live, not because I wanted a place to live with a no-recourse loan. This didn’t affect my buying decision.
I hired a mortgage broker when I initially bought because I was unfamiliar with the nuance of the process. I made it clear that I was a first time buyer and wanted all information disclosed. This person is licensed in the state to provide services to assist with obtaining a loan from a third party lender. They were paid with a half point tacked onto the loan (and hopefully not any other kickbacks from the end lender). Their job was not to sell me a mortgage, I already knew I wanted one and for how much. They were just there to facilitate the process by providing options, negotiating the lowest rates and deciphering the difference in terms between the different lenders. Plain and simple, they either failed to do their job, or felt that this detail was so unimportant that they neglected to discuss it (since all loans would be the same in this respect, per state law). The bottom line is, if you expect every buyer to be aware of this, you’re kidding yourself. If a broker doesn’t see it as important, why would the average buyer? Sure every buyer should understand how the payments work, but every buyer does not need to know how the London Interbank Offered Rate is determined in order to calculate their loan’s interest rate. There are only so many details that can reasonably be expected to be understood by the buyer. If everyone needed their CPA to buy a house, there would be a lot more rentals.
This is akin to knowing what easements are on your property; it’s not important until someone shows up with a backhoe to install a gas line across your front yard. So it definitely should have been disclosed prior to you buying the house, even though chances are that it will never affect you! Any RE agent not disclosing that would not be doing their job! I would never miss such a thing when buying a house, because I’m an engineer who deals with these things on a day-to-day basis. But I’m also reasonable enough to expect that the average buyer who isn’t in my profession isn’t going to be looking for these things, so it should be a required disclosure.
My point is that the law are extremely flawed such that these so-called professionals are getting away with extremely unprofessional conduct. Your example just further makes my point. If a real estate agent makes the argument that “if you don’t buy this house I will,” they should lose their real estate license on the spot. That is clearly unprofessional conduct, and a violation of their license. A competing buyer should never represent another buyer, period! This is exactly my point. There were a whole host of “professionals” involved in these transactions, all licensed by the state, that all reneged on their duties. There have been virtually no screams for accountability from these people, but a desire to string up the buyers. This kind of crap would never fly in most professions.
I understand your sentiment of “buyer beware,” but a certain level of professional conduct should be demanded from these professions, especially considering that there are licensing requirements (unlike used car sales). If someone needs to be “made an example of,” I feel it should be the mortgage brokers and RE agents, not the buyers.
@Mark,
Unlike some other states, no lawyers need to be involved in mortgage transactions in AZ; I’m not sure about CA (the two states mentioned in the article).
February 1st, 2010 at 7:41 pm
@MarketWatch…..A GOOD READ!
———
Sorry always seems the hardest thing to say.
But isn’t a big apology exactly what we owe Wall Street today?
We’ve foolishly given the financial industry a trillion dollars in support of its balance sheets and markets. We did so even though the big banks and brokerages clearly didn’t need or want our help. Things were just fine in September 2008, but then we had to go and stick our noses into the world of high finance.
Now, we’re making matters worse by trying to tell them how much to pay their people, how much risk they can take and what businesses are kosher. Suddenly, we feel we’re better bankers than the bankers. We know to whom they should be lending. We have strong opinions about what they do with our money.
We’re sorry about that.
We’re sorry that we want strong control of our money supply. We regret that we want to have government protection of our deposits, our checking accounts, mortgages and credit cards. Maybe it’s our simpleton ways. We get nervous when we lose our jobs and have to sell our homes at a discount to eat.
More At your Link of a great “Tongue in Cheek” read of Wall Street! :)
February 1st, 2010 at 8:23 pm
Brendan Says:
The bank/broker has NO obligation to you as a buyer except compliance with the law. You’ve created for yourself a fantasy “obligation” rooted only in your own ignorance.
The banker/broker didn’t fail at anything – They are not required to get you the lowest rate or act in your best interest.
Ok dude, here’s your disclosure – Loan brokers are salespeople, they make money by taking it out of your pocket – just like your company makes money by taking it out of your client’s pocket.
nothing illegal in my state with that statement. It’s a stupid statement for an agent to make if it isn’t true, but it isn’t in any way illegal or a “violation” of a real estate salesperson’s license.
Actually, in many states, car salespersons ARE licensed. The license is there to prevent illegal behavior, not profitable behavior.
The fundamental problem with all of your arguments it that you ASSUME that everyone with a license must somehow act as your advocate. In many, but not all, states, real estate agents are presumed to be advocates, and are expected to bargain on behalf of one party or another. I’m not aware of ANY state that requires agency for mortgage brokers. That means they make whatever profit they can build into the deal, the same as any other sales-person.
You mentioned AZ in your post – for your own benefit you really ought to look into AZ real-estate licensing classes for yourself before you buy or sell in the future. A few hundred bucks and a few night classes will open your eyes and save you some serious cash in any future deals.
February 1st, 2010 at 9:16 pm
This implies possibly that walking away from your house (loan) in non-recourse states might be good for your credit rating. Let’s make this a little more pointed. Could credit rating agencies be legally compelled to evaluate positively walking away from a non-recourse home loan? Seems to me that a pretty good case could be made along these lines. Implicitly in closing the recipient of the loan buys a put giving him the right to return the home for the current value of loan. If that’s not the current value of the house whose fault is that. It is the lender’s. The recipient of the loan satisfies all his legal obligations when he exercises his put option.
February 1st, 2010 at 9:27 pm
Brendan,
The points we’ve given you were to inform now I’m being critical because you aren’t listening. If you want to bitch go somewhere else the advice you’re getting here is great and you’re just whining.
“My point is that the law are extremely flawed such that these so-called professionals are getting away with extremely unprofessional conduct. Your example just further makes my point. If a real estate agent makes the argument that “if you don’t buy this house I will,” they should lose their real estate license on the spot. That is clearly unprofessional conduct, and a violation of their license. A competing buyer should never represent another buyer, period!”
YOU FUCKING IDIOT PAY ATTENTION.
He is forgoing a profit on a mis-priced house in the interest of his client. A sleazy agent will point out every problem and get them out of the house so they can buy it paint it and flip it. A house 3 blocks from me was mis-priced last month, someone bought it put it back on the market the day after closing for $90k more than they paid, this would have been your $90k if you used one of my agents. If someone uses your agent it’s the agents brother in-laws $90k ,they’ll get you out of that house as fast as they can, and have an offer in by midnight.
And
“I hired a mortgage broker when I initially bought because I was unfamiliar with the nuance of the process. I made it clear that I was a first time buyer and wanted all information disclosed. This person is licensed in the state to provide services to assist with obtaining a loan from a third party lender. They were paid with a half point tacked onto the loan (and hopefully not any other kickbacks from the end lender). Their job was not to sell me a mortgage, I already knew I wanted one and for how much.”
So:
How many brokers did you interview? How many quotes did you get? What percent of what you qualified for did you take out? Give us the number? Qualified for 200k loan got a loan for 125k?
Takbak04,
“You mentioned AZ in your post – for your own benefit you really ought to look into AZ real-estate licensing classes for yourself before you buy or sell in the future. A few hundred bucks and a few night classes will open your eyes and save you some serious cash in any future deals.”
Great suggestion Tak, also I looked into becoming a mortgage broker in CO so I could write my own on my properties, the class was less that $500 and could be done online Great idea for a first time home buyer.
February 2nd, 2010 at 8:21 am
I always found it highly dubious how bankers would talk about “moral responsibility” when it came to “the little people” paying their debts… but then all talk of “morality” fled the room when we started discussion of banker compensation. And if we consider the behavior of bankers leading up to this crisis (ie, playing hot potato with loans that were dubious from the moment the bottom lines were signed), there is nothing but immorality on display by the bankers. They had no consideration for the buyers of securitized mortgages that they knew, a priori, were going to blow up. Goldman’s two-sided play is a prime example of carrying this to the extreme.
Since bankers wish to exhibit neither morality nor modesty in their compensation or business behavior, borrowers should excise any consideration of morality where their obligations to repay are concerned. Instead, borrowers should be ruthlessly practical, measuring all costs and benefits in dollars and cents and nothing else.
February 2nd, 2010 at 1:16 pm
@ Zippy & WW,
I obviously struck a nerve with you guys, because you’re both seeing so much red that you didn’t comprehend what I’m saying.
Basically, you’ve both come to the conclusion that I, and presumably every other potential homeowner, need to take real estate classes in order to ever buy a house. You’ve made my point far better than I ever could have!
So everyone buying a house should be expected to spend hundreds of dollars and hours of their life taking a real estate class BEFORE hiring a real estate agent and purchasing a home through them? What’s the point in hiring an agent then? By that logic, we should start requiring everyone take an organic chemistry class before they purchase a prescription. After-all, financial ruin is nothing compared to death from drug interactions! No! We have doctors and pharmacists who are held accountable if they prescribe and administer two drugs that interact adversely. Why aren’t agents and appraisers held accountable when they fail to warn their clients of the risks?
Zippy, I made the statement, “whether or not they should have done more than bury it in the paperwork is arguable.” I’m arguing that ethically they should have, but legally didn’t have to. So I’m saying there is no legal obligation. This isn’t about me; I was just using my own experience as an anecdotal example.
Zippy, you’re also wrong on many accounts. ARS SS 32-2153 lists “acting for more than one party in a transaction” as grounds for suspension or revocation of a license. Violating a statute is the definition of “illegal” behavior; whether is profitable or not. I’m guessing there’s a similar law in every state. Not to mention this is a violation of a whole list of other specifics contained within the law, including acting in the client’s interest, which is written into the law. You’re also wrong about the brokers. Mortgage brokers in Arizona are licensed through the Arizona Department of Financial Institutions. You’re entitled to your own opinions, but not your own facts.
So are these practices considered acceptable in the industry even though strictly speaking they’re illegal? Yes. Should this law be enforced? I certainly think so; that’s my point. Greed is obviously rampant in the industry and should be reigned in.
WW, I interviewed two brokers who each provided multiple offers, plus I applied at a couple of banks directly. The process took a lot of my time. Both brokers and both banks qualified me for just short of $200K and I went with two loans, a mortgage for ~$140K and a HELOC for ~$25K and 5% down (back when 0% down was acceptable). I avoided PMI with that setup. Neither broker stated that I failed to qualify for any loans, though I may have. I qualified for at least a half dozen offers. Even though considering a lack of broker fees, I could have got roughly the same level of offer with one of the banks, I went with one of the brokers’ offers since I felt like I had an advocate on my side, where I wasn’t sure of what surprises I might have had dealing directly with the bank. In hindsight, I probably would have been better served by the bank. With both of my re-financings, I’ve gone directly with a bank after researching several offers.
Of course, you’re still missing my point if you’re asking about the specifics of my experience. My point is, there was an assumption made above that every buyer should have the depth and breadth of knowledge of a professional in the industry. I’m calling BS on that. I spent a lot of time speaking to a lot of people and was never made aware of many things contained within the loans. You hire professionals to provide you with advice and put the legal terms into layman’s terms for you. This expectation that every buyer is an expert on the legal ins-and-outs is unrealistic.
WW, I know you want to protect your friend, but if an agent says this house is a great buy to flip, and their client is looking for a place to live in, they aren’t offering the services being paid for. A good flip can be a terrible long term investment. This is the problem with the industry; most agents were/are so set out on making a buck (which by itself is fine) that they aren’t considering the needs of their clients (which is not fine). What’s profitable to resell in 6-months may lose money for a family expecting to stay for 6 years and then move up. Even if you’re friend is doing a great job for his clients, my point is that a large portion of the industry isn’t. He should also know better than to make statements like that.
Why does the industry get to play so fast and loose with other people’s money to the point that many agents are doing nothing but skimming money and offering no real services. This doesn’t fly for doctors, lawyers, engineers, contractors or a whole list of other professions.
My point is simple, a lot of buyers paid a lot of money and all they got was a lot of bad advice. Am I unhappy with my transaction? I think the RE agent did an excellent job, but the broker should have been a lot more transparent. Lesson learned. In the years since, I’ve now figured out the ins and outs of mortgages enough that I haven’t, and probably never will, use a broker again. My point is that everyone want’s to blame buyers when the root cause of the problem is an industry rampant with self-serving corruption.
Just because a lot of people on this blog are very financially savvy, you shouldn’t assume that everyone who has to deal with money is. This is no different than if people in the medical profession assumed that everyone understands a great deal about health care because everyone has a body. People can, in most cases, rely on their doctors’ advice. If a doctor gives bad advice, there is recourse. A lot of the problems we are seeing could have been avoided if the same ethics that are required by the medical field (which itself could be better), or many other professional fields, were required in the real estate industry.
February 13th, 2010 at 5:54 am
[...] it gets from selling the house. It is called a non-recourse mortgage, and has been the subject of fierce debate as to whether those rules should be changed. But here in Australia, if you walk away, you still owe [...]