So much misinformation about Realtors it’s almost comical

I’m working on a rebuttal, but I wanted to bring attention to this article at Wharton’s blog. That perhaps the top Business School in the Country is putting forth such garbage is shameful and sad.

Choice quotes from the article:

“The (Realtor), 99% of the time, is the agent of the seller, so the broker doesn’t have any duty to the buyer,” said Wharton real estate professor Georgette Chapman Phillips.

At the heart of the matter is the way agents are paid — traditionally through a commission, paid by the seller, of 5% or 6% of the home’s sales price. Nudging buyers toward subprime loans, or keeping mum about the risks, means more sales go through. Also, the low teaser rate on a subprime loan allows the buyer to borrow more, helping to boost sales prices and commissions. “You can’t lie,” Phillips said of the agents. “You cannot intentionally mislead somebody. But you work for the seller.”

“It is my experience that real estate agents have been pushing people to buy more expensive homes than they were initially qualified to buy under 30-year, fixed-rate [loan]s,” said Smith of the National Fair Housing Alliance.

Only a minority of buyers hire a “buyer’s agent” whose primary responsibility is to them. In most cases, an agent, even if he or she has been working with the buyer, is still paid by the seller, usually by splitting the commission with the seller’s agent.

“You work for whoever pays you,” Phillips said, adding: “Should a broker tell a buyer, ‘You realize that you’re in completely over your head here?’ — when the mortgage company has already said to the buyer, ‘Sure, you can have the money.’ Why would the broker ever do that?”

“Realtors care about only one thing — making the sale,” added Kenneth Thomas, a lecturer on finance at Wharton, adding that if the buyer needs a subprime loan for the deal to go through, the agent is likely to keep silent about the hazards.

It’s almost as if they are taking every stereotype from fifteen or twenty years ago and applying them to today’s market. About 90% of all Buyers (and 100% of the ones I work with) in the Charlottesville market use Buyer’s Agents. In the past six years, I have yet to work with an unrepresented buyer when I have been representing the seller.

For more on Exclusive Buyer Representation, read this story from earlier this year. (this one too, as well as this one – Top 5 Questions Home buyers ask). If time allows, a full post will come later today, or tomorrow at the latest.

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9 Comments

  1. David G from Zillow.com October 18, 2007 at 13:55

    Yowzer. This person has obviously never bought a home.

    Sad is an understatement. Shameful implies malicious intent and that’s where I think you’re wrong. This person’s primary ‘crime’ is ignorance but you should ask yourself whether that’s their fault before you respond. Clearly real estate consumers need much more information – rather than go to war with them, agents should be using these discussions to demonstrate their knowledge of the complexities of RE transactions.

  2. Brian Brady October 18, 2007 at 14:02

    Wharton is an excellent place to breed the next Donald Trump; they know very little about consumer financial services.

    Professor Emeritus, Jack Guttentag, offers advice that is 15 years outdated, also.

    Don’t listen to the financial advice offered by their faculty; you won’t be able to send your kids there.

  3. Jim Duncan October 18, 2007 at 14:08

    I’ll stick by shameful. Those quoted are professors at one of the most respected institutions in the Country. As such, they should be aware of little things like Buyer Agency and caveat emptor.

    “You work for whoever pays you” is a frighteningly misleading statement. As a buyer’s agent, I work for my buyer client, not the seller – that is a clear and simple distinction.

    Blanket misstatements need to be corrected. “Realtors care about only one thing – making the sale” is, to me, bordering on if not crossing the line of slander. I care about my clients’ best interests, and if that means telling them not to purchase now and to rent, that is what I tell them. For example.

  4. Charleston real estate blog October 18, 2007 at 15:30

    Jim, for a prestigious business school to not recognize that buyer agency exists as a real estate practice is not just shameful but borders on pre school sandbox education but that would be an insult to those who would enjoy playing in the sand. Perhaps the professor has his head in the sand. Thanks for pointing this misinformation out and I agree with David G about our role in educating the real estate consumer. Howard

  5. Rebecca Levinson October 18, 2007 at 16:34

    It is a shame that in such a prestigious business school, the choices now afforded to homebuyers are not a subject of discussion. I would venture to say that many homebuyers do not know about buyer’s agency. A little education is probably in order, how can this be achieved. Blogging, what a great tool.

    Rebecca D. Levinson- Connect2Agent

  6. Dave Phillips October 18, 2007 at 18:00

    I was around the biz when buyer agency first came on the scene in the early 90’s. I think I had a flashback when I read the professor’s quote. I’ll assume this is a recnt comment from professor Phillips (no relations, thank god).

  7. Arlington Virginia Condos -- Jay October 18, 2007 at 20:46

    So that’s how erudite the professors are at an elitist business school? He doesn’t sound as if he’s sharp enough to have succeeded at any entrepreneurial endeavors or to have even climbed a ladder in the business world where performance matters. He’s probably just a tenured pedant who lives in the world of theories, or shall I say, conspiracy theories….He wouldn’t have been accepted at a real business school such as Thunderbird International School of Business Management.

    For the record, I tell buyers to walk away from deals on a regular basis if I’m don’t think the price is right. What’s sad is if they don’t take my advice and a similar unit becomes available a month later for $30,000 lower….At least that’s what happened last month.

    Excellent REALTORS have no need of pushing any deals through that are not in the interest of their clients because they have a pipeline of cashflow with properties under contract. Therefore whether the client buys now or 3 months from now is of little consequence….

  8. Thomas Johnson October 18, 2007 at 22:56

    I read that from Wharton and lost it. I posted this to the Wharton School of Business Blog and Bloodhound:

    Methinks the lady doth protest too much. Perhaps because the Wall Street geniuses that created the CDO’s and other secondary market instruments disproportionately hold Wharton MBA’s? Maybe a little ethical integrity and honesty from those Wharton MBA’s might have avoided some of this.

    Did any of those brilliant Wharton MBA’s warn the pension fund trustees (fiduciaries) that you really can’t turn interest only tranches of subprime second liens with 10 points of underwriting commissions and fees into an investment grade instrument? I didn’t think so.

    The billion dollar bonus babies on Wall St. are going to have a much tougher time endowing U of
    P Wharton School of Business, now that this latest MBA Wall Street scheme has unwound. They will be off to create their next scheme.

    I am embarrassed that Ms. Phillips holds the same position at Wharton that my grandfather, Thomas A. Budd held. He is spinning in his grave…

  9. Jim Duncan October 19, 2007 at 07:11

    Thanks everybody for the comments. I was kind of hoping that somebody would argue on behalf of the professors, as I am always happy to be proven wrong.

    Just how insulated are these people – the professors and students – from the real world?