Last month, a survey of the national appraisal industry conducted by October Research Corp. reported that 90 percent of appraisers feel pressure to inflate the value of homes to meet expectations — be it a purchase price or an estimated value for a refinance.

Of course, this isn’t the first time evidence of appraiser pressure has been aired. Just four years ago, during the boom, a similar study found that a full 55 percent of appraisers had had lenders, brokers or owners attempt to inflate their values. In 2005, Jonathan Miller, appraiser and bubble blogger, launched Soapbox to "vent" about the "pressure myself, my firm and my profession was under to make the number ‘or else.’"

"It seemed that no one really cared about ethics or the risk placed on [the] banking system," he wrote recently. "Appraisers were fast becoming the enablers to fraud and a whole lot of ‘gray areas’ that I wanted no part of."

In a boom market, meeting the expected price was not as hard to do. Everyone was making lots of money and less anxious about each individual deal going through. But now that sales volumes are down, re-fi fever has cooled and some markets have softened, mortgage brokers and even lenders try to set their target value in advance of hiring their appraiser. This leaves the appraiser caught between a house and a hard place.

"Internet-based mortgage companies call all the time," says Curt Thor of Real Estate Appraisals Association of Northern California and a Marin appraiser with North Bay Real Estate Appraisals for over 20 years. "They’re fishing for appraisers. They tell me what the number is and ask me if I can match it."

Thor says he typically won’t even look at such offers because if he can’t match the number once he visits that house, he knows he’ll find himself battling with mortgage brokers over being paid for his time. Once when this happened, he filed a complaint about the broker with the Department of Real Estate and copied the broker’s boss. "I got a check very quickly," he told me.

 
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The Consumer Federation of America (CFA) released a scathing report on how many traditional real estate brokers, and their associations, it believes stifles competition, what reforms are needed to protect home buyers and sellers, and how these consumers can protect themselves.

“Many traditional real estate brokerage firms, and their organizations, function as a cartel that tries to set prices and restrict service options,” said Stephen Brobeck, CFA’s executive director. “But consumers can take steps to lower 6-7% commissions without jeopardizing the sale or purchase of a home,” he added.

According to the report, the desire of traditional brokers to maintain 6-7% commissions and the opportunity for a “double-dip” – one broker collecting the entire commission – lies behind almost all of their anti-competitive actions. In nearly all areas of the country, traditional brokers have tried to charge commissions of either 6% or 7%, although many sellers of higher priced homes have been able to negotiate reductions of one percentage point or even more, the report says.

“The preoccupation of many traditional brokers with maintaining their compensation largely explains not only their opposition to discount and fee-only brokers but also their defense of seller-paid commissions, advocacy of anti-rebate and minimum service laws, and efforts to maintain control of multiple listing services,” said Brobeck.

The report is based on information from dozens of real estate professionals and from hundreds of articles in journals, real estate publications, and the general press, CFA states.

How Consumers Are Harmed

The report explains three ways in which consumers are disadvantaged by traditional real estate brokerage practices. According to the report:

• Traditional brokers try to charge high, uniform prices regardless of the training and experience of the broker, the specific services offered, the number of brokers involved, and the function of the broker – as fiduciary agent or facilitator. “The $24,000 most brokers try to charge for the sale of a $400,000 home would purchase many new car models or expensive medical procedures,” noted Brobeck.

• Traditional brokers who work with both seller and buyer in a home sale almost always function as facilitators even though consumers, especially sellers, have been led to believe the brokers are functioning as fiduciary agents.

• To increase chances of a “double-dip,” many traditional brokers promote their own listings to sellers and, if these are not attractive, the listings of their firm.

How Traditional Brokers Stifle Competition

There are five factors that allow traditional brokers to restrict price and service competition, according to the report:

• Seller-Paid Commissions: Sellers and seller brokers are reluctant to lower commission splits to brokers working with buyers for fear that properties will not be shown. If sellers and buyers each negotiated compensation separately with brokers, brokerage services and prices would quickly become unbundled.

• Discrimination Against Nontraditional Brokers: The anti-rebate and minimum service laws, which traditional brokers have persuaded many state legislatures to pass, are designed to restrict service and pricing options. So are more subtle forms of discrimination by traditional brokers who do not show listings of discount or fee-only brokers or who make access to property listings difficult for exclusive buyer brokers or
rebaters.

• Listing Services: The domination of unregulated multiple listing services by traditional brokers allows them to restrict full access to broker clients, to hide commission splits from consumers, and to restrict nontraditional brokers from access or full information.

• Lack of Consumer Knowledge: First-time home buyers typically know very little about brokerage services and their pricing. Those selling one home and buying another tend to be preoccupied with matching these sales. As a result, many consumers do not shop and negotiate for brokerage services as carefully as they would purchase a car or other expensive products.

• Regulatory Capture: Practicing real estate brokers make up a large majority of all state real estate commissioners who are supposed to regulate the industry. Not surprisingly, they take few or no steps to foster price competition, protect nontraditional brokers from discrimination, educate consumers about how the marketplace works, or enforce required disclosures.

How Consumers Can Protect Themselves

The report also urges home sellers and buyers to protect themselves by supporting needed reforms and by negotiating more forcefully with brokers.

The authors state that key reforms start with conscientious, independent regulation by those who are not practicing brokers. These regulators must require effective consumer disclosures and protect nontraditional brokers against discrimination.

Consumers themselves can also take steps to protect themselves. According to the report:

• All consumers should ask for oral and written disclosures of whom their broker represents, if anyone. Brokers functioning as “facilitators,” “transactional brokers,” or “dual agents” can not represent the financial interests of clients.

• Sellers should ask brokers who are fiduciary agents to reduce the standard 6-7% commission by one percentage point and brokers who are facilitators to knock off at least two percentage points since they are usually “double-dipping.” Buyers should ask brokers if they are willing to rebate one percentage point of the commission back to them.

• Consumers should ask about potential broker conflicts of interest, such as pushing their own listings or those of their firm.

“Real estate brokers know their industry is changing and are increasingly willing to negotiate both price and service,” said CFA’s Brobeck. “Most importantly, consumers should insist that double-dipping brokers receive no more than 4% commissions,” he added.

CFA is a non-profit association of approximately 300 consumer groups that has worked, since 1968, to advance the consumer interest through research, education, and advocacy.

To read the full report from the CFA,click here.

NAR STATEMENT ON CFA REPORT

The National Association of Realtors released the following statement Monday in response to the CFA’s report:

America’s real estate industry is one of the most competitive business environments in the world, characterized by low barriers to entry, intense personal client service and a results-based compensation structure.

Real estate consumers can choose from nearly 80,000 real estate brokerages and more than 2 million real estate licensees, more than 1.3 million of whom are Realtors. Competition is fierce. In fact, discount brokerages and many innovative business models are doing very well today and the average real estate commission, as computed by Real Trends, has fallen from 5.5% in 1998 to 5.1% in 2003.

The real estate industry has been effectively harnessing the Internet for years, to the benefit of sellers and buyers alike. About three out of four buyers today use the Internet to search for homes, and those using the Internet are more likely to work with a professional than those who do not.

No other industry in the world has virtually its entire inventory online at one site, but you can find more than 2.2 million homes for sale at Realtor.com.

Bill Coppedge.com

"Are you my mommy?"

I just watched a spooky science fiction show where this odd, ghostly child keeps going up to different adults and asking them that, over and over. "Are you my mommy?"

And it’s creepy because the kid is creepy, and it’s creepy because of the insistence of the request, and it’s creepy because of the repetition. Yet I feel like that’s exactly what I’m doing with message boards.

Only instead of "Are you my mommy?" it’s "Are you my audience?"

I have a listing (actually, if you count the power of my firm, many listings) so now I face the marketing step of trying to figure out where my customers are. And gosh, where are they?

The Internet seems like a logical place to start. We know from the National Association of Realtors that home buyers use the Net, and we know from our own experience that the Web is full of information and fun. I personally have reaped the rewards of the medium’s power to connect people to each other – I met my husband on a dating site.

But man, are those chat boards cold.

I post on Craigslist around once a day – that I do for "free," as it were. I feel like I have knowledge that many posters don’t have, and to me, sharing it is the equivalent of pro bono lawyering.

But that’s all I can do – any attempts at conversion are met with cold, cold snubs.

The guy moving to Long Beach who doesn’t have a broker? He loved my tip about asking the seller to produce heating bills, but disappeared when I offered a referral to the agent who sold me my house there (I’m not even promoting myself, for Pete’s sake!)

I told a Texan who asked about 3- to 4-bedroom rentals in NYC about price ranges, offered him a Web site where he could go directly to a luxury developer (and not pay me), and also explained to him what brokers did to justify our commission. I headlined my post "From an Agent."

I got this in reply, from a new poster, under the headline "Total Crap (Broker Crapola)":

"[Y]ou sell the aura of "ideal and perfect". And this person wants a 3-4 bedroom in Manhattan. I don’t care who they are, the ‘perfect unit’ for 3 bedrooms in Manhattan at minimum is going to cost $8K/Mo."

The original poster thanked this guy for warning him about my incredibly deceptive "Broker BS." And the punch line is . . . I had given a price range of up to $9,000/mo.

The vituperation I’ve found on Web message boards is just incredible.

I have a couple of clients relocating to New York with their toddler; I don’t know anything about toddlers, so I spent a couple of days on urbanbaby.com.

This is a great site for moms to get advice from other moms about schools and breast feeding. Yet when it comes to real estate, I keep seeing one thread: "I’m a buyer and I just saw the perfect house, but I hate the agent who found it for me. Do I have to pay her?"

It would never occur to me, if I broke my wrist and the doctor was brusque, that I would withhold payment after he set it.

Now I understand that not everybody feels this way. But there’s something about an Internet post that unleashes the id: I HATE YOU HAH HAH HAH.

That said, is there a place on the Web to meet good customers? I have a very strong media background, so I just wrote a local newspaper piece with lots of helpful advice for buyers and sellers. If people are helped by it, great. If they e-mail me and I meet them, better.

But it’s unlikely that anyone will take the trouble to e-mail me and point out that I’m a scourge on the skin of humanity.

The most interesting subset of this problem is how to meet rich clients. My firm has some rentals so high-end that they will be taken only by Wall Streeters – you figure someone has to be pulling down $400,000 a year to throw down $10,000 a month in rent. There are certainly print outlets for reaching those people. Those luxury properties can be marketed to other brokers who are known for that kind of clientele. And there are personal relationships that can be worked – suddenly I’m rediscovering my Harvard classmates.

But electronically? I can’t find anything. The great real estate blogs and communities here are populated by industry people, not the millionaire consultants of my dreams. The New York media with good print demographics have electronic communities with very little traffic — or no traffic whatsoever. The publisher who creates a Web product that somehow really only lets rich people onto its message boards will make a fortune from me in advertising alone.

Unless his product is totally full of crap.

Inman News