Economists Can Say The Darnedest Things About Realtors
Posted by Jonathan J. Miller -Wednesday, August 17, 2011, 5:55 PM
5 Comments
I was reading a good blog post over at Time: Busted Recovery: How Much is Housing to Blame? when I came across an out-of-character quote from Chris Thornberg of Beacon Economics, someone whom I normally find offers sage advice:
Still, Chris Thornberg of Beacon Economics says there is a little hyperbole when people say the economy can’t recover without the housing market. That’s because much of what we normally think of the housing market doesn’t produce a lot of economic value. “Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
His use of the word “fraud” set me off.
However I agree with what he is saying about housing and the economy – I do believe there is way too much hyperbole that housing must recover before the economy recovers. I think that the economy will likely recover before housing will and that housing will be a drag on overall economic recover. And we all know that all jobs created by the housing market during the boom quickly evaporated during the bust.
But this part…
“Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
Really? Fraud?
While I’ve been very vocal about the misleading comments about the credit crunch and housing observations coming out of NAR since the days of David Lereah and now with Lawrence Yun, it’s ridiculous to call it fraud. It’s called selling and spin. Big difference although they are also distasteful.
It is the job of Realtors to sell homes for sellers and help find homes for buyers. They are in the business of sales. Realtors are represented by The National Association of Realtors who are a trade group and the function of a trade group is to help their members be more successful and represent their interests.
I’ll bet every single trade group has similar pitches specific to their client’s needs. Attend plumbing convention and you’ll be told that PVC pipes enable our country to grow. Attend a snack food convention and there will be no discussion about eating too many candy bars. Attend a dental convention and you’ll hear all the spin about brushing and how bad candy is for teeth (but good for business).
I think the part many miss with the dissemination real estate information, is that a trade group as a source should not be presented in the media as an authoritative source on a topic. Yes they can attest to a condition that helps their members but we should never see them as a neutral go-to resource. Think Mortgage Bankers Association, American Banking Association, National Association of Homebuilders, etc. Massive spin for their members. It’s not fraud.
The blogosphere was particularly good at outing NAR’s former chief economist Lereah and current chief economist Yun’s usually absurd press releases and proclamations.
Up until recently, I don’t think the public realized that there was any difference in credibility in the analysis of the real estate market from NAR. That realization has propped up alternatives like Case Shiller and CoreLogic (although Case Shiller has many of its own serious flaws).
So despite the easy target, let’s raise the bar on the discourse. Realtor-bashing isn’t in style anymore. Realtors are simply doing their jobs and there isn’t some sort of conspiracy – they are too busy driving clients around looking at homes.
In fact, of all people that touched the home buying process, from rating agencies, investment banks, consumers, mortgage brokers, commercial banks and appraisers during the bubble, Realtors had little to do with the run up. They were order-takers in a nation gone insane.
At some point incompetence as well as “selling and spin” become fraud.
Take as an example a used car salesman who tells a customer that cars never go down in value, and that a particular car is in perfect running condition despite black belching smoke coming out of the tail pipe. The customer buys the car and then it breaks down half a mile down the road. Was the salesman fraudulent, or “merely selling and spinning?” The car was in perfect running condition at the exact moment it was sold- it ran didn’t it? To really reflect the housing market, who could have foreseen that the car would break down a mere half a mile from the dealership?
Luckily most of the time real estate agents represent the seller, which at least means they are working in the interests of their clients.
Most real estate agents I have worked with are fraudulently incompetent. I am eagerly awaiting the day we can automate them out of the industry.
Of course there are bad apples in any profession, but it is lazy and misleading to stereotype using extreme terminology and apply it to everyone – it does make for good press however. You’re anonymous so I don’t know what you do but I can pick any profession and make the same analogy you just did. I’ve never had a bad experience with a Realtor when buying or renting a residence but that doesn’t mean I go around and say it doesn’t ever happen and it’s they are all fraudulent. I understand it is a selling process and recognize what their role is in the process and I take responsibility for the decisions I make. Let’s not all be victims, it’s tiresome. Fraud is a proactive action that I took issue with. You can’t be fraudulently incompetent but you can be either one. I think you mean willfully negligent. There’s a big difference.
And yes I’ve never had a good experience with a car salesman and the process is ridiculous but perhaps the market will take care of it as you suggest in the future. However I am skeptical since we all blame politicians for part of our economic woes yet we vote the same type in time after time because the majority don’t follow the issues.
@Kevin: I’m a real estate professional. Your example of a used car salesman selling a faulty product is completely irrelevant with what happened in the housing market, because the houses that were sold were not faulty, or did not collapse. It was the industry that collapsed due to irresponsible lending, borrowing, and lack of sound policies in general. Going by your example of used car salesperson, could you blame the salesperson, if the day after he sells the car, gas prices surged due to wrong government policies and many other external factors, which caused the auto industry to collapse and everybody to stop buying cars? I doubt that. You can blame a broker for not disclosing crucial information on the property that s/he was aware of, or for not providing accurate information on the current market, including CMAs, etc… but you cannot blame the broker for not foreseeing a market collapse that many economists failed to predict.
Not cheerleading here but well said Yesim. Simplistic answers to complex questions are the bane of country’s existence these days.
Agree with Yessim. Real Estate Professionals are merely doing their job and their business is to sell. In sales there’ll always be some spinning but a far cry from the term FRAUD. Great post by the way.