Why we don't trust Realtors
An interesting article in the NY Times regarding the "expert service problem"
I had intuitively understood this, but it's nice to have someone make it explicit.
I suppose this can be filed under "duh".
I had intuitively understood this, but it's nice to have someone make it explicit.
Economists sometimes refer to this situation as an "expert service problem," because the same expert who is diagnosing the flaw is the one who will be paid to fix it. In most of these cases, consumers aren't sophisticated enough to make an independent judgment. That's why they went to the expert.
The problem, of course, extends well beyond the car business. Anytime you call a plumber or roofer to your home or anytime you visit a doctor or dentist, you're at risk of having an expert service problem.
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Yet by studying a fairly narrow question, Mr. Schneider discovered a larger truth: the expert service problem really does appear to be a serious one. It isn't that reputation is irrelevant. "Very few businesses will stay in business ripping off their customers," Tony Molla, a spokesman for the National Institute for Automotive Service Excellence, argued after I sent him the study.
But when a situation is too complex for an amateur to grasp — and when it involves shades of gray — you probably shouldn't expect to get a purely objective diagnosis from someone who has a financial incentive to give you something else.
I suppose this can be filed under "duh".
Comments
That's one of the reasons why some people who we look to as "experts" owe fiduciary duties to their client.
So, for example, an average random consumer does not know the same things a doctor knows about how bodies work, nor would that consumer ever be able to go out and learn everything a doctor knows in order to make an informed decision on medical procedures. Because of this knowledge/power imbalance, the law recognizes that it is in the best interest of the doctor and the patient for the doctor to owe a higher duty of loyalty to the patient.
Other professionals that owe fiduciary duties are, for example, lawyers, nurses, CPAs, engineers, Realtors and so forth. Yes, I said Realtors:
Real estate agents owe agency duties prescribed by state law. This varies from state to state. If that same agent is a member of the Nat'l Assoc of Realtors, their fiduciary duties are spelled out in their Realtor Code of Ethics.
But a code is only good if enforced. I hear mixed reviews from state to state about how each county association enforces the NAR code.
Mortgage lending is a different story: we have people who want the public to think they are experts (I'm a Certified Mortgage Planner!, I'm a Certified Mortgage Loan Consultant!) and maybe they do know quite a lot about mortgage lending....but they do not owe fiduciary duties. Sure, some mortgage people can voluntarily decide to act in that capacity, but unless there is a neutral third party overseeing professional conduct, it's all subjective.
And subjectivism leads to moral chaos, which is one of the many reasons why the retail mortgage brokerage industry is melting down. Consumers had the wrong idea that mortgage brokers were looking after the consumer's best interest when the opposite was true: the relationship is a retail relationship where anything goes.
Mortgage lending is way more complex now than it was 40 years ago. Some would say it's just as complex as trying to decide on which knee surgery is better.
Barney Frank's HR3915 will pass. This is only the first of many new laws coming our way.
jillayne -
I find it hard to believe that all recent buyers were naive enough to think that Realtors / mortgage brokers always look after the consumer's best interest. I believe many recent buyers knew exactly what they were doing. They hopped onto the specuvestor equity esculator on the way to sure-fire easy riches. What's there to lose when you put zero down?
Most people, however, enjoy their credit and their home and really don't want to lose either of them.
There was certainly too much acceptance of an originator's spiel, because they were telling the borrower exactly what they wanted to hear (you CAN afford that nicer house and get a tidy sum back!), but that's different than what you are suggesting.
If originators had a fiduciary responsibility, accompanied by enforcement, to tell prospective borrowers the hard truth than a lot of the hinky shit that went on wouldn't have.
Your'e probably right about the specuvestors being in the minority. On a related topic -
Apparently Mr. Paulson doesn't support that perspective (sorry for the redundant posts)..........
Henry Paulson
.....The House bill Miller introduced is backed by Representative Barney Frank, the Massachusetts Democrat who is chairman of the Financial Services Committee. One provision would make firms that package and sell subprime mortgages liable for damages if loans violate certain minimum standards, including ensuring a borrower's reasonable ability to repay.
Paulson criticized the liability idea in an Oct. 16 speech at Georgetown University in Washington.....
.....The House measure would "potentially paralyze securitization,'' which, Paulson said, has been "extremely valuable in extending the availability of credit to millions of homeowners nationwide and lowering the cost of financing.''... .
..
Anything he says is pretty much worthless.
It will be interesting to see if WAMU tried to shift any fiduciary responsibility to the appraisers, who are not legally required to have it. Ultimately, the people who bundled and sold the CDO's should be where the buck stops, if there are any bucks left, IMO.
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In terms of speculative investors, yes there were some of them. Then we had an entire slew of newbie investors who went to the get-rich-quick seminars who knew literally nothing and let their mortgage broker talk them into the serial 100% owner occupied pay option interest only adjustable rate mortgages like Casey Serin.