Real Estate: Could Realty Brokers Have Prevented the Mortgage Meltdown?
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Part of the puzzle of the mortgage meltdown has been the role of real estate brokers. Could real estate brokers have done more to prevent home buyers from making inappropriate purchases or using loans which were inherently too risky?
The question has now been raised by the National Association of Exclusive Buyer Agents. NAEBA surveyed members about their closings during the past three years, then verified those findings with public records. Of the 1,849 closings, there were 15 foreclosures. President John Sullivan said “these survey results show what I have always known, NAEBA members take their fiduciary duties to their clients seriously. Troubled times have revealed that the higher standards provided by the Common Law of Agency provided better results for consumers.”
I first wrote about buyer brokerage in 1982 for the Washingtonian magazine. In 1986, attorney Douglas M. Bregman and I wrote Buyer’s Brokerage: A Practical Guide for Real Estate Buyers, Brokes and Investors. The reason to prefer buyer brokerage is very simple: If sellers can be represented by real estate brokers, then why not buyers? Seen the other way, buyers without representation are likely to be at a great disadvantage, yet even in 2008 according to the National Association of Realtors, only 42 percent of all buyers had written buyer brokerage agreements.
NAEBA says that its survey shows “a foreclosure rate of just 0.8%, compared to the nationwide rate of 1.84% in 2008 (the last year for which there are complete numbers). Clearly, respondents to this survey have found that transactions in which the buyer is adequately represented tend to result in much fewer foreclosures than are found in nationwide averages.”
But are the results really so clear? Are 1,849 closings over three years a big deal in the context of a marketplace with millions of annual transactions? Were the purchased properties in the study located in high foreclosure areas to the same extent as home sales generally? How do the NAEBA results compare with buyers who were represented by non-exclusive buyer brokers; that is, brokers who represent sellers in some transactions and buyers in others? What percentage of the 1,849 closings involved subprime loans and ALT-A financing?
The obvious question raised by the study, of course, is this: Could mortgage loan officers — not just real estate brokers — have prevented the mortgage meltdown if under federal rules they were required to represent the best interests of borrowers?
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