The sales tactics of the National Association of Realtors should be examined and potentially come under the same restrictions as securities brokers through the Securities and Exchange Commission. Realtors routinely lie about the investment potential of residential real estate. People believe these lies and enter into transactions that often harm them financially.
After the stock market crash which helped precipitate the Great Depression, Congress created the Securities and Exchange Commission to regulate the sales activities of securities brokers. There are strict regulations in place governing the representations made concerning the future performance of investment opportunities. These protections were put in place to protect the general public from the false promises made by stockbrokers in the 1920s which many naive investors believed. The same analogy holds true for Realtors.
The National Association of Realtors has launched numerous advertising campaigns suggesting erroneously that residential real estate is a great investment and appreciation will make home buyers wealthy. The mantra of all realtors is that house prices always go up. There are currently no limits to the distortions and outright lies realtors can tell prospective buyers with regards to the investment potential of residential real estate. They will use lines like:
* It is a good time to buy!
* Hurry. This one won’t last.
* Don’t throw away your money on rent.
* If you are serious, you had better buy now or you might be priced out of the market.
* They are not making land anymore.
* Things have been a bit slower than last year, but the last two weeks we have seen a lot more traffic.
* Rates are at all time lows and buyers have more choice than ever!
* Rates are creeping up, so you better get in now.
* If you wait until the bottom, you will miss out on getting a property that you really like.
* This property is priced at below market value.
* Incentives this good won’t be available after…
* I will show my client the offer, but I just want to let you know that we have another offer for more coming in this afternoon.
In a buyer’s market these ploys are all lies (the truthfulness of these statements is questionable in all market conditions). Generally, the buyer is the only prospective buyer, and they can take as long as they want to buy the house. The buyer’s task in negotiating is to create a sense of urgency and panic in the seller.
Buyers are already prone to believe the fallacies of unlimited riches in real estate, and these fallacious beliefs lead to housing bubbles. Realtors should be prevented from making representations concerning the investment potential of real estate. Since the regulatory framework for this kind of regulation and oversight is already in place under the auspices of the Securities and Exchange Commission, Congress would merely need to make Realtors subject to these regulations in order to solve the problem.
Regulating the Realtors would go a long way toward preventing future housing bubbles. Such regulation is an important component of an overall reform package to prevent a recurrence of the housing bubble.
Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?
Learn more and get FREE eBooks at: http://www.thegreathousingbubble.com/
Read the author’s daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/
[tags]housing, real estate, buying real estate, housing bubble, real estate bubble, house for sale[/tags]
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