When we experience a “seller’s market”, meaning that there are more buyers looking than there are properties available for them to buy, the competition often leads to frustration. This is especially true when getting to see inside becomes an issue. It is not unusual for a buyer to have to bid on several houses before getting an offer accepted. At least they got to see inside and make an offer, right?
A new policy created by NAR, the National Association of REALTORS, and implemented by Bright MLS has added to the drama. As a result, some are making offers to buy Real Estate “sight unseen”. What does this mean and what are the implications?
We have experienced “seller’s markets” before and we will again. Generally speaking, a combination of low mortgage interest rates and low inventory causes houses to sell quickly, making many buyers and sellers act differently than they might in a more balanced market. Asking prices may be the “floor” rather than the “ceiling” when it comes to making an offer and a buyer, assuming they have an opportunity to see inside a house and make an offer, may not get a second chance so it may be wise to offer their “highest and best” from the beginning. However, the regulations covering appraisals are stricter than in the past so offering above the asking price is not always the best answer. What to do?
Many buyers, frustrated by competition, bidding wars and houses they cannot get in to see, are trying to be creative. They have several options in addition to the amount of their offer such as: offering a high deposit, being flexible with a settlement date and waiving inspections. Some may give up or delay buying. Many sellers are overwhelmed by multiple showings, multiple offers and, as unusual as this may sound, not knowing whether their highest offer will appraise and, if they get an acceptable offer, whether they will even be able to find their “next” home. One of the ironies of this type of market is how a seller who has a lot of leverage when selling will react when they are buying without having the same leverage. The shoe may literally be on the other foot.
Enter the new NAR policy called the “Clear Cooperation Listing Policy”. It has caused confusion and frustration although most REALTORS understand why it was necessary. Frankly, it is impossible to deny its purpose. It requires brokers to upload property information to the MLS within 1 business day, excluding weekends and national or state holidays, of any public advertising which includes a “For Sale” sign and social media. Violating the policy may result in a substantial fine. Absent public advertising, we are required to upload the information to the MLS within 3 business days.
Some think the new policy a direct assault on a long-standing business model known as the company or office “exclusive listing” where listings were taken and “publicly advertised” but kept off the MLS because the listing broker would not offer to compensate buyer agents working for other “brands”. Real Estate prides itself in having many different business models as long as we operate within our various rules and regulations. However, some of this creativity may appear to conflict with our core principles. I discuss “exclusive listings” in an article entitled “Coming Soon” and will mention that, while still a legitimate business model, they are no longer able to be “publicly advertised”.
The MLS platform is a member-only web site for sharing property information among members to “cooperate” with them for our mutual benefit. We are “match makers”, meaning that we help bring buyers and sellers together. A major aspect of this is that we sell each other’s property listings. The creation of the MLS platform made our jobs easier by increasing the effectiveness and efficiency of how we marketed and learned about property listings. Before the MLS, agents and companies were on their own.
The goal is to expose Real Estate to the broadest possible market which should theoretically “protect and promote” the interests of both sellers and buyers as required by Article 1 of the REALTOR Code of Ethics. Presumably, this should allow sellers to achieve the highest possible selling price and the best terms in the shortest period of time by ensuring that as many buyers and agents as possible would be able to access property information, schedule showings and, if a buyer liked what they saw, make an offer. It essentially levels the playing field by making information and properties accessible to all.
Unfortunately, we still live in a society where some people or groups are excluded from opportunities to see and buy Real Estate. Undercover investigations and complaints from the public still show this to be true even if not as obvious or pervasive as before. It is unacceptable when anyone is prevented from being able to buy housing and live where they want to live when affordability is not an issue.
The reaction to any major policy change such as this one can be interesting and it remains to be seen how this one plays out. Will any listing agent blatantly disregard the policy despite the MLS stating their intention to impose a severe fine for violations? The public, including agents representing prospective buyers, also has options for responding.
What can a buyer or agent do when they cannot get the information they need about a property listed as “Coming Soon”? The “Coming Soon” status means no showings are allowed to anyone but the MLS should provide information, shouldn’t it? The concern is that some agents and their buyers, including the listing agent’s own buyer-clients, are being allowed to view these properties and make offers before they are made available to the public. Instead of converting to an “Active” status many of these go right to “under contract”. What are an agent and buyer supposed to do? They will know the “projected” date when the listing status will change to active, allowing showings, and may even know when offers will be presented. However, those dates can change without notice so should they wait and hope or take some other form of action? Waiting may result in failure. Some are making offers on houses without the buyer or their agent actually seeing inside. This raises two concerns.
First, we have a fiduciary duty to represent our buyer-clients but what is our risk in preparing an offer on a home that neither of us has seen? Suppose neither has actually visited the location to see the exterior or the neighborhood? While I am certainly not a contractor or an inspector, I have seen a number of things both inside and outside houses that made me question the pricing or condition of a home and, when asked, I have offered my opinion on whether to pursue a house, how to negotiate the price and what to inspect. Obviously an agent needs to make sure they are not exceeding their level of competence.
What options does a buyer have if they come to realize that a house is not as nice as they had hoped or expected based on the exterior or the MLS presentation including pictures and public remarks? Suppose the listing has poor quality or no pictures and little or nothing in the way of a description? Most agents will tell you that an inspection contingency provides a “way out” and, while it does, it has a cost to the buyer and it takes time. Would they make an offer “sight unseen” without inspections? I could go on.
Second, as a listing agent, as attractive as it may sound to sell a client’s house without their having the inconvenience of showings, suppose a buyer uses a home inspection to terminate a sale when there is really nothing wrong or a seller would make any repairs they might request? Perhaps they offered a low deposit and are willing to forfeit it to terminate a contract? A failed sale stigmatizes a house, perhaps even worse than a lengthy time on the market. If a house comes back on the market quickly after going under contract it generally means that something happened during the inspection contingency time frame. That could negatively impact future interest as well as the eventual selling price. Some listing agents do not report that a house is “under contract” to avoid all of this.
I have heard both sides and wish I had an answer. There is no perfect solution and buyers and sellers, including their agents, will always have a different perspective. If a buyer wants to make an offer without seeing inside, is this really the best option? Where is the liability? I am not sure.
Realistically, if I were a seller I would be reluctant to accept any offer without a showing especially if it contained a frivolous or easy way out unless there were a substantial, perhaps even a non-refundable, deposit. If I were a buyer I would be reluctant to buy “sight unseen”. At the very least I would want to walk the exterior to identify potential concerns and include them in my offer. Otherwise, a seller might say a house was being sold “as-is”, another contentious term, and was priced accordingly or that any concerns should have been factored into the buyer’s offer. The cost to inspect and potential time lost could prevent a buyer from seeing the best house. Does it make sense to reduce buying Real Estate to essentially being like a “blind date” where neither side has any real obligation?
While “seller’s markets” will occur over and over again, the new “Clear Cooperation Listing Policy” has added a new twist to an old theme and time will tell how we all adapt to it. The first fine for violating the new policy will have a major impact going forward. A “buyer’s market” will change much of the drama. Either way, there will always be another twist.
There is no time for inexperience, empty promises or false expectations!
HIRE WISELY: We are not all the same!
Andrew Wetzel's Musings 