Real Estate and “Insider Trading”?

There was an interesting letter to the editor yesterday in the local Florida newspaper where I am spending the holidays.  I can’t resist offering a few comments.

The gist of the letter was that real estate agents take advantage of inside knowledge of properties on the market, showing activity, offers made and rejected, etc. so that we can take the good deals for ourselves and flip them at exorbitant, above-market prices to unknowing buyers.  (Or even flip them two or three times among ourselves, driving prices even higher, before taking advantage of an unlicensed “real buyer.”)

The letter-writer is under the mistaken impression that real estate agents — not markets — establish property values.  The reality is that market value is nothing more or less than what a willing buyer and a willing seller agree to.  Whenever there is more than one property for sale, buyers have choices.  Even truly unique properties are in competition with other residential and/or investment alternatives.  Real estate agents are in the business of recommending prices, but ultimately market value is established by the market itself. 

It is certainly true that home prices in most local Florida markets fell farther during the past couple of years than they did in Austin, Texas.  As a result, when the recovery begain, Florida values were able to climb farther and faster, even though they remain dramatically lower than before the mortgage meltdown and the recession.

I have no way of knowing what was behind the letter-writer’s disgust.  If he encountered an unscrupulous agent who took advantage of him, there are certainly steps to take.  If you find the need, or just have questions:   contact the agent’s sponsoring broker if that designation is applicable in your state and/or report the practitioner to the local Board Of Realtors and/or the state Real Estate Commission.  The National Association of Realtors is also active in enforcing compliance with the very strict Code Of Ethics that all members agree to.  Those are the lowest cost and fastest ways to have discipline applied and hopefully remove a non-professional from this industry.  Of course, pursuing legal remedies — civil or criminal — is an alternative, but that can be costly and the outcome is uncertain.

Instead, what may have happened to the letter-writer was that he, like many people I have talked to over the past two years, was determined to buy at the “bottom of the market.”  Unfortunately, the only way to recognize a “bottom” is in the rearview mirror.  When values bottomed in Florida, demand took up the slack quickly because values had fallen so far, and he may well have seen prices move upward quickly.  He may have been caught looking instead of buying as prices moved beyond whatever he considered “reasonable.”

Finally, the letter implied a similarity between real estate professionals investing in properties for themselves and stock brokers trading on “inside information.”  The truth is that there is really very little “proprietary” market information in this business.  If the letter-writer wants access to the same information we work with every day, all he needs to do is invest his own time and money in the education and testing required to get his own real estate license, pay a sponsoring broker hold his license, pay to join his local MLS, and spend additionally each year for licensing, MLS dues, sponsorship,  and continuing education.  With some education and experience in doing proper market analysis, he should be able to do what real estate professionals do every day — determine property values as established by market forces.

Of course, unless he plans to do a lot of this carrying a real estate license is probably not a good use of his time and money.  Instead, he should find a reliable real estate professional through referrals from his friends and family.  Years of experience, annual production, and advanced education and certifications are great ways to measure professionalism in our business, but personal referrals are always the best.  They account for about 90% of my business, and that’s not an accident!