The Process not the People
Homebuyer Associates February 2011 E-Note
Homebuyer Associates www.homebuyerassociates.com
414.254.4129 homebuyeba@gmail.com
Michael D. Holloway/Seamus Holloway/Paul Wollersheim
It’s about Process… and Then People
The simple dictum, “follow the money” often tells us a great deal about why political, investment and housing choices are made. This isn’t a cynical view. It is a real life view. Read on for the simplest, most broad tip on how to protect your housing and investment dollars.
After reading Too Big to Fail; The Big Short and All The Devils are Here it is clear to me that one of the underlying reasons we find ourselves in difficult financial times was the political decision to increase homeownership in America which resulted in a policy that lowered underwriting standards. Had we “followed the money” – in this case the ease with which money was released to homebuyers – we would have seen this was a political decision by both parties to engender good will.
The two areas where your money is most at risk is when you spend money (you buy a home) or invest money (equities, bonds). These also are the two areas where confusion reigns supreme on the part of the consumer (that’s you) regarding who does and does not work for you. I’m convinced that’s the way each industry wants it. Odd, isn’t it?
I’ve written about the conflicts of interest in real estate for 25 years. It’s the reason I started Homebuyer Associates. In the past 10 years I’ve tried to learn more about money and investing and I found similar conflicts in the investment industry.
In the late 90’s a study was conducted by the National Association of Realtors which found most consumers did not understand who worked for whom in the real estate transaction. A 2008 study by the SEC found widespread confusion among investors about responsibilities and duties owed to them by salespersons, agents and brokers. Tell me, where do you plan on putting your money that involves larger sums than buying a home or investing?
In real estate if you don’t have a signed contract with an agent, the agent doesn’t work for you. It’s that simple. About 5 years ago the real estate industry co-opted the concept of buyer agency so that any agent can be a buyer agent and claim to work for you but against their company. Yet it’s one of the two largest uses of your money. Odd, isn’t it?
The other important use of your money involves investing. Similar to real estate brokers/agents, securities salespeople generally aren’t obligated to act in your best interests just “suitable” interest. They don’t need to disclose that they make extra money pushing one investment, or that other, less costly alternatives, may provide a better return.
Suppose 2 mutual funds are “suitable” (the salesperson’s test) but one pays the broker/salesperson a fatter fee. You may end up with that one and never know it.
When real estate agents sell an in-house listing they can make more money (and the consumer may never know it). This is the real estate version of the financial sectors “suitable” test.
In the financial field some who used to be called “brokers” are now called “advisors” even though they may not be registered as such or provide that service. (In real estate the equivalent can be dual agency, pre-agency, and even buyer agency.) In real estate we confuse the consumer with more terms.
I lived through the change in state statutes regarding the fiduciary conduct of real estate agents so it is not surprising to me that securities brokers and insurance agents are putting up a fight against a mandate for a tighter fiduciary standard.
My guess is the financial industry will study the issue and come up with watered down rules or rules so confusing they make it difficult for the consumer to understand them. Odd, isn’t it?
Look, I’d prefer you use Homebuyer Associates for your real estate needs but I also know many fine real estate agents who are good at what they do – but do not parse things as finely as I do. The same can be said of those who manage investments. You owe it to yourself to understand how you spend and invest your money, who works for whom and how they are paid. Then, with that information make an informed choice for each.
Thank you for your business. If I can be of assistance to you, your family or friends I would welcome the referral. If you found this information of interest please share it with a friend. Thanks for reading.