CNNMoney recently published an article discussing incentives given to buyer’s agents and where their loyalties lie when commissions vary dramatically selling one house over another. “It’s tough to be objective when the reward for selling one house is much greater than the rest,” says one agent.
This problem is much worse in certain markets and here’s why;
Take a market like Vegas or many of the California markets where prices during the last few years just skyrocketed because of investor speculation and home recycling, or “flipping”. You buy six homes in one neighborhood for $200,000 and remodel them and then sell them three months later for $300,000 each and what happens to the average price of that neighborhood? It goes up 50% in three months! Now, imagine entire cities where this has happened and you see why these markets need prices to correct. So in these markets the prices need to drop or at least the appreciation needs to slow substantially to allow for natural price-growth to catch up. But see, in these markets where it was booming artificially the builders and investors were buying up everything they could to feed the beast and now that their market has slowed they have too much inventory and now they need to sell. So now the investors might offer incentives to sell their extra inventory.
When I was a broker in East Bay (San Francisco) back in 1998-2001 I remember buyers trying to buy new construction and the builders had so much demand they would have to hold lotteries where sometimes 300 people would be trying to “win” one of 60 homes. In the resale market we would list a home on Thursday for $800,000 and put in the MLS that we’ll accept an offer the following Tuesday. And we’d have thirty offers come in and the sellers would end up getting $900,000 for the home. This was because of demand- way more buyers than sellers, and a demand for the area (during the tech-boom). A lot of people were moving into the area. Then the investors came in full force, and why not? Average sales prices of over $800,000 and lots of buyers meant ton$ of money. Eventually the supply grew more than the demand and now it’s correcting.
In northern Utah right now our market is very strong and prices are rising, but not because of investor speculation and flipping, but because of job growth and demand. Sure there are plenty of investors flipping homes and buying to hold-and-sell, but that’s a small percentage of the market. Plus we appreciated about 20% last year, not 50%- and this year we’ll probably appreciate around 10-14%. Strong, but healthy growth.
I remember years ago when the local market was slower and it was more difficult to sell a house, we would occasionally see an incentive for selling a house, but even then it wasn’t around that much. It really comes down to having a good agent that knows what they are doing and that you can trust on your side.
Find a good agent and stick with them, build a relationship so you always have their loyalty. When you have that relationship with a good agent they will watch your back and give you good advice, no matter what the market is doing.
(H/T to BlueCollar Agent)