Home Buying insights

Understanding Home Buyer Practices:
 
How Organized Real Estate Harms Consumers
by The Wealthy HomeOwner
When organized real estate takes a stance that is detrimental to home buyers, it engages in practices that prioritize the interests of real estate agents over those of the consumers. This behaviour can lead to higher prices, reduced competency, limited choices, or deceptive practices. Understanding these practices can help home buyers make more informed decisions, advocate for themselves and seek out alternative solutions to address the unfairness of the market. In this blog post, we will explore some common practices in organized real estate and their impact on you the home buyer.

Price Gouging:
Price gouging is the practice of charging excessively high prices, particularly in situations where home buyers have limited alternatives. This is most easily seen in markets where regulators have been convinced to give the effective control of the market to organized real estate. For example, in markets where homes being traded are increasing monthly, real estate companies collude to dramatically increase home prices, exploiting the urgent need for housing and limited options available to buyers.
The impact of price gouging on home buyers can be severe, especially for those with limited financial resources. It can lead to significant financial strain and reduced access to affordable housing. In response, many governments have implemented housing solutions they believed would be effective only to find they lacked any effectiveness because of control organized real estate has over the market. Consumers need to be vigilant and report suspected cases of price gouging.
Example: MLS Price Statistics control house price change by keeping access to the data secret and hidden.

Monopolistic Practices
Monopolistic practices involve actions that reduce competition and create a monopoly within the real estate market, often leading to higher commissions and lower quality of service. When a single listing system dominates a market, its owners can set prices without fear of competition, resulting in reduced choices and quality for home buyers. For instance, if one listing system controls the majority of listings in a region, buyers may face high prices, poor service quality, and lack of alternative options.
Monopolistic practices can harm home buyers by stifling competition and innovation. Without competitive pressure, real estate companies have little incentive to improve their services or offer better deals. This can lead to stagnation and complacency, ultimately hurting consumers who are deprived of better and more affordable options. Regulatory bodies, such as antitrust authorities, should play a crucial role in monitoring and preventing monopolistic practices to ensure fair competition and protect home buyer interests but those authorities are often governed by members of organized real estate itself.
Example: In order for a real estate broker to survive and thrive they must join a listing service provider for their trading area. Since there is generally only one listing service operating in any city the real estate brokers must adhere to any and all rules that system demands they follow in order to access the system. 

Bait and Switch
Bait and switch is a deceptive marketing tactic where a real estate company advertises a property at a lower price to attract buyers, only to reveal to a Buyer that shows interest that the Seller is expecting often 10s or 100s of thousand more for the home. For example, a real estate agent might advertise a desirable home at an exceptionally low price. When buyers inquire about the property, they are told that the Seller wants substantially more to sell their home and the Buyer is then faced with an agent pressuring them into considering higher price than the Buyer had originally expected to pay from the listing price.
This practice can mislead home buyers and waste their time and effort. It erodes trust in real estate companies and can lead to a negative buying experience. To protect themselves, home buyers should research properties and prices by getting outside advice while being wary of deals that seem too good to be true. Regulatory agencies consistently have regulations explicitly forbidding false, misleading and deceptive advertising practices like bait and switch, yet the fail to enforce their own laws.
Example: Under Pricing a home has become a common practice across North America as a way to generate multiple offers on a single home creating a false competition between Buyers. 

Hidden Fees
Hidden fees refer to additional charges that are not clearly disclosed to the home buyer upfront. These fees can appear in various forms, such as service fees, processing fees, or surcharges, and are often included in the asking price and are never revealed at any stage of a transaction. For example, a real estate company might advertise that the Seller is paying the commission while the Seller has simply inflated the asking price at the recommendation of  the brokerage to include commissions and taxes and fees. Buyers years later discover this added cost was added to their purchase price when they become Sellers and are encouraged to do the exact same thing, citing an industry norm for justification.
Hidden fees can significantly increase the total cost of a home by including them in a higher mortgage being required to finance the home leaving buyers deceived and frustrated. Transparency in pricing is essential for buyers to make informed decisions. Engaging in hidden fee practices can face backlash and loss of customer trust. Home buyers should carefully review terms and conditions, ask for the Seller Net Sheet and the Buyer Gross Disclosure and then report misleading practices to consumer protection agencies.
Example: Real estate listing services may advertise and promote that no sales tax is added the price of a resale home when it is common that thousands of dollars in sales tax is included in the price the buyer pays and will be remitted to the government by the agents collecting it.

Misleading Advertising
Misleading advertising involves providing false or deceptive information about a property or the market to entice buyers to make a purchase. This can include exaggerating the price appreciation of a home, making false claims about the market through statistical manipulation, or using fine print and footnotes to hide crucial information required to understand what the Buyer is being told. For example, a real estate listing service might describe a change in prices by simply cherry picking the highest quality homes on the market and excluding the majority which are over priced.
Misleading advertising can lead buyers to make purchases based on misinformation, resulting in dissatisfaction and financial loss. It undermines trust in the marketplace and can have serious consequences, particularly when a market is reversing course and Buyers are caught at the turn. Regulatory bodies that fail to regulate the listing service allow the members of the service which they do regulate to cite the listing service's misinformation as a way to avoid prosecution. Buyers can protect themselves by researching the market, seeking alternative advice from others not connected to a listing service, and being skeptical of overly optimistic claims that brokers cannot substantiate on their own.
Example: MLS Average Residential Price does not measure House Price Change in a month but rather it measures what homes were purchased in a month and what purchasers were active.

Restrictive Contracts
Restrictive contracts impose terms that limit home buyer rights or make it difficult for buyers to switch providers or seek redress. These contracts may include early termination fees, automatic renewal clauses, or binding arbitration agreements. For instance, a mortgage lender might lock customers into long-term contracts with hefty penalties for early cancellation.
Restrictive contracts can trap home buyers in unfavorable agreements, limiting their ability to switch to better options or seek legal remedies. This can lead to ongoing dissatisfaction and financial burden. Buyers should carefully read and understand contract terms before signing and seek out providers that offer more flexible and consumer-friendly terms. Regulatory efforts aim to promote fair contract practices and protect consumers from exploitative terms.
Example: It is illegal across North America for a Home Buyer to pay their Agent a bonus for negotiating a lower price on a home. It remains legal across North America for a Home Seller to pay both the Selling Agent and the Buyers Agent a bonus for negotiating a higher price on a home. 

Conclusion
​Understanding the practices of organized real estate that can harm home buyers is essential for making informed decisions. Practices such as price gouging, monopolistic practices, bait and switch, hidden fees, misleading advertising, and restrictive contracts can significantly harm consumers by reducing their choices, increasing their costs, and eroding trust in the industry. Awareness and understanding of these practices are essential for home buyers to advocate for fairer market conditions. By being vigilant, researching thoroughly, and finding alternative advice, buyers can help promote a more transparent and competitive marketplace.

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