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Page history last edited by RealEstateCafe 7 years, 5 months ago

Bill Wendel:  I want to, first of all, thank you all for coming here this afternoon to hear our presentation and, as I was descending the staircase talking to Mr. Nader, he was asking, “Who’s in the audience?”  So, why don’t we go ahead and turn that question to you.  How many home buyers do we have in the audience?  How many of you are first-time home buyers?  Great.  Thank you all for coming.  Real estate professionals?  And how many of you are traditional selling agents?  Buyer’s agents?  Great -- pretty mixed balance.  Why are the rest of you here?  (Laughter, audience member comment)  Thank you.  Cannot top that one; I’m not even going to try.  


    Well, we billed this as a revolution and I’m glad to see you’re all in the room and I’m delighted about the energy level surrounding this.  We’ve convened speakers from around the country -- people with cutting-edge consumer-friendly products that either inform, protect, or empower not only the home buyer but the home seller and the homeowner.  Our message is part of a national movement; we’re surrounded by good company.  Recently, the Wall Street Journal’s Smart Money magazine just did a very controversial piece which the National Association of Realtors is upset about.  It was on “Good Morning America,” and one of the main pieces of it was an article called, “Ten Things Your Broker Won’t Tell You.”  So, we’ve invited a speaker who will tell you at least ten  -- ten times ten -- things your broker won’t tell you.  We went out to find not only the smartest consumer advocate in the country, but probably the funniest consumer advocate in the country.  With that introduction, I’d like to turn the podium over to Ralph Nader.


Ralph Nader:  Thank you very much, Bill.  Am I supposed to start with a joke, now?  They’ve already laughed, so I don’t have to.


    Well, I’ve often said that people have accused me of being too critical of the insurance industry, insurance companies, and I deny it because I think they’re among the most religious corporations in our country.  I say that because they view so many events in our life as acts of God. 


    Now, this is a very interesting session.  I think it’ll be viewed historically as a pretty good watershed of energy that’s sort of going to flow across the United States and make the first fundamental attempt in perhaps a century to make very clear the distinction between who represents buyers and consumers, on the one hand, and who represents the sellers of homes. 


    It so happens that most of the component parts of real estate industry have congregated around seller services; that’s where the dynamic has been.  And, with the banks, the insurance companies, the attorneys, the appraisers, the real estate brokers, there’s developed what some have called, not too drastically, a cartel.  It’s not a cartel in the sense that the oil industry was a cartell years ago, with the nine big oil companies; it’s a cartel in the sense that, through the multiple listing service, and through mutual self-interest and scratching each other’s back, the actual competitive choice of the home buyer has been quite diminished.  Years ago, there were investigations from time to time at the state level and, later, at the Federal Trade Commission, culminating in the Federal Trade Commission’s report of 1983 which showed that, at the local level, there’s a lot of exploitation of ignorance, a lot of exploitation of the fact that our educational system never trained us to be astute, clever, knowledgeable, determined consumers.  You’ll notice that, in our schools, whenever there are courses dealing with business, it’s dealing with the selling side of business -- it’s business management, it’s accounting, it’s bookkeeping, etc..  We’re trained to go to the economy as having some skills to become sellers or part of the selling machinery, not to go into the economy and have some buying skills, and the impact of this on the quality of the economy is absolutely staggering.  If people knew a little about cars, about what kind of cars they should be given in terms of safety, fuel efficiency, bumper protection, warranties -- if they knew about that years ago, we wouldn’t have had to wait so long for seat belts and air bags and the things that are now coming on -- anti-lock braking systems, and so on.  I don’t want to, in any way, underestimate the decisive shaping effect of what is sold, how it’s manufactured, how it’s merchandised, how we promote it, how it’s priced in our economy when consumers are not organized, they’re not informed, they don’t have meaningful competitive choices, they don’t have remedies, when they have complaints, to pursue. 


    In fact, one can say that most of our economists have really had it all wrong.  They think that the determinants of economic growth are largely capital and technical innovations; but, in the long run, we can get lousy products from technical innovations that pollute the air and kill and injure people, or we can get very good products, and that is a function of how astute we are as shoppers -- individually, when we go into a marketplace, and collectively, in terms of our economic and political muscle.


    One of the barriers that obstructs us from doing this is technical jargon and complexity, and that’s true for our dealings with doctors, lawyers, accountants, architects, and the real estate industry --  technical jargon and the kind of complexity that keeps growing, year after year after year.  Just look at mortgages, now, for example, compared to fifty years ago; look at the different kinds of mortgages.  Who in the world can figure them out?  That complexity itself makes consumers throw their hands up in the air and say, “Well, I don’t have time or I don’t have the knowledge to bone up on this.  I need someone to represent me.”  So, you’re going into the market to buy a car, to buy homes, and you’re looking for representation, and along comes your friendly real estate agent.  And most home buyers think that that real estate agent, who shows you different homes, represents you.  In fact, the Federal Trade Commission’s conclusion was, 70% of home buyers think that the real estate agent that they are using represents the buyer. 


    Well, over the years, the real estate agents--the brokers--represented the seller, until the buyer/broker movement got underway, with a few exceptions now and then that were contrary to the general practice.  Now, an agent means that the person is serving a principle; as a home buyer, you are the principle.  The broker is your agent.  That means that there’s a fiduciary relationship between your agent and the principle, which is you, and that means undivided allegiance.  And yet, this has all been blurred, over the decades, by basically seller agencies who masquerade as representing both sides and, until recently, don’t even bother mentioning that they represent the seller as well as you, the buyer.  It’s called “undisclosed dual agency.”  It still goes on, in practice, around the country, but it’s not supposed to.


    Now, when you go into the market, you want the best quality house for the best price.  You want the best interest rates, the best type of financing mechanism, you want honest services like attorneys and title insurance companies, etc., and, to get that, you’ve got to have someone representing you who only represents you.  And that is where the revolution in real estate is going to start, but it won’t end there.  With the division of brokers being sellers’  brokers or buyers’ brokers, you now have a vested interest forming behind you with your undivided, with their undivided allegiance -- within limits, of course.  Now, the law enforcement agencies have not been in the vanguard here, by and large.  This is a movement that is hard for all of us quite to understand; in other words, why didn’t this start thirty or forty years ago?  Was it due to just a few idiosyncratic people who suddenly cropped up ten, twelve years ago, or is it due to a greater perception by consumers that they can get a better deal and they’re being ripped off?  Or is it due to a more aroused media?  I’ll tell you one thing it isn’t due to: the Reagan/Bush administration.  They did not spend much of their energy, under the real estate accountability laws (one called RESPA),  enforcing these laws, which were designed to protect people in the housing market. 


    Now, in Washington, there’s a building that houses the National Association of Realtors and it’s a building that projects a lot of power in Washington and around the country.  It’s a building that’s associated with political action committee money at the state and federal level; it’s a building that sends out its witnesses to testify for Congress, its lobbyists to lobby HUD and the White House, etc., and it is a building that, overwhelmingly, represents sellers’ interests, sellers’ interests.  I’m not just talking about the broker; I’m talking about the whole conglomerate of companies and firms who make money when real estate changes hands:  from the banks to the insurance companies to the lawyers, etc..  Now, the change here is very simple:  that whether it’s disclosed or undisclosed, brokers try to represent both buyer and seller, under one roof, by having one broker at a desk say, “This buyer represents buyers,” and then, across the corridor, another broker under the same roof, same real estate agency, saying, “This broker represents seller,” that that type of arrangement simply is not workable.  And it’s not workable for more than the obvious reasons-- that buyers are interested in the kind of deal that’s adversarial to sellers, let’s face it.  Sellers want to get the highest price, to put it simply, and buyers want to get the lowest price.  But it’s not workable for all the other costs that impinge on home buyers in our economy, when they go into the marketplace.  It is true you can have your own attorney working with a broker, etc., but a lot of people don’t go to that extent, and if they do, one wonders whether that is a free choice of attorney, at times, or they just can’t afford it. 


    Now, for years, the practices from the selling side of the real estate industry were pretty fixed:  you had the 6% (nobody wrote that into law) commission, and you had other ways that buyers were processed.  When I was in Connecticut, years ago, a home buyer would go into the marketplace, and the home buyer would be told what attorney was going to represent the transaction, what bank was going to be representing the transaction, and, if the home buyer wasn’t strong enough, that’s the way it was.  And everybody got a piece of that home buyer’s budget. 


    Things now, obviously, are changing, and the question is, are they just going to break the industry so that some brokers move across the aisle and represent exclusively home buyers and that will be the end of it, or is it going to go further?  Now, I submit if it doesn’t go further into consumer protection in a broader way, it may, after a number of years, begin to readjust to an equilibrium where buyer and seller brokers accommodate each other.  Some of the more energetic buyer brokers in this audience will say, “Never, this is never going to happen.  We’re going to form our own national organization, we’re going to federate the state organization, we’re going to get good disclosure codes out of the real estate commissions or the consumer protection agencies at the state level , requiring not just disclosure by brokers but delineation of the various fiduciary responsibilities, area by area, plus a warning in the disclosure as to what you’re likely to be represented by if you allow dual agency to represent you when you buy a home.”  And these are supposed to be safeguards, but, you know, we’ve all seen intervals in industries when there are reform movements and then, about ten, twenty years later, it’s like, where did it go?  Where in the world did it go?  It all fell back to business, as usual.  And the way for brokers who represent buyers to really institutionalize their role so that there’s real competition, and very vigorous bargaining, and searching out for the best choices for the home buyer -- the way to institutionalize that is to look at the buyer broker as a seed, as a core for an elaboration of consumer protection activities around the status of owning a home or owning a condo, in the community and in the neighborhood.


    First and foremost, there should be a way where, whether through the property tax mechanism or whatever, there is a check-off where people can join a homeowners’ association.  It could be city wide or, in the rural areas, it could be county wide.  This is what we call the consumer check-off issue.  We tried this successfully, by getting legislation through, in the late 70’s and early 80’s in Wisconsin and Illinois, for residential utility rate payers.  And these laws required the utilities, when they send you the monthly bill, which they do with unerring regularity, you don’t have to worry about that, that something like this is inserted in the monthly bill, say, four times a year, and it’s basically a letter that you can seal, but it opens up and it says, “Dear rate payers,” and it tells you why it’s a good idea for you to join this statewide rate payers’ group.  You fill out the coupon, and you send in five dollars, or more if you wish, and you get a vote to elect the council directors, and they hire the staff of accountants, lawyers, investigators, engineers -- whatever is needed -- to deal with utility rate increase before the utility commission and the courts, legislature.  In other words, there’s somebody fighting for you, not just to keep rates down, but to deal with pollution issues, deal with radioactive waste, deal with telecommunications, utility services for the future and so on. 


    Illinois has this group, and, while it can’t anymore put this in the utility company’s envelope, due to one of the most bizarre Supreme Court decisions, 5-3 decisions ever made, which said that states could not require this insert in the utility company’s envelope because it violates the utility monopoly company’s First Amendment rights to remain silent.  That, we hope, will be overturned, because the dissenter in that case was Rhenquist, who is now the Chief Justice, and the Justice who did the major opinion, Lewis Powell, is now retired.  But, at any rate, what they did in Illinois, they said, “Okay, you don’t do it in the utility envelope, do it in the state mailing.”  And so, now, this is in the state motor vehicle registration envelope and other envelopes.  This group, the Citizen Utility Board, in Illinois, has saved three billion dollars -- billion -- since 1983, in terms of its challenges and testimony and lobbying for utility rate payers, among other things that it’s done.  So, it works.  Its budget is only about a million and a quarter dollars a year. 


    Now, this same principle could apply to banks, through your bank statement, and it could apply to real estate, through the property tax envelope or any other kind of envelope that comes from either government -- City Hall -- or sellers.  The requirement could be very clearly delineated; it doesn’t have to be polemical, wild statements attacking the sellers and so on.  It could just be pretty routine:  that companies that are licensed and are regulated and often subsidized, like banks are, have to reciprocate by allowing their envelope, their statement, their bill to include this kind of insert.  Now, when that occurs, you have the first substructure to a consumer sovereign development on the real estate side for buyers.  That will begin to pay attention to other things in terms of homeowners, of course, and that is:  questions dealing with repair firms, remodeling companies; the problems dealing with home hazards of radon and asbestos and chlordane and on and on; indoor air pollution; the problems dealing with home equity loan abuses; the problems in the neighborhoods with street crime or inadequate road repair or any other problem that arises in neighborhoods. 


    And that’s where there needs to be reconsidered a reorganization of our neighborhood society, which is very fractured, and a lot of people don’t know who lives next door to them, and everything is directed towards the place of employment, including your health insurance and benefits, etc., and the neighborhood becomes very barren in that manner.  It doesn’t have a cohesive tie to it, and that has devastating consequences for our civic democracy, both local and national.  That’s one reason why City Hall gets away with what it does, so often -- because the neighborhoods are not organized.  Now, there are some neighborhood associations around in the various cities, and you may be members of them.  But what I’m talking about are a much more functional and fully-staffed homeowner associations that, basically, are modelled after the AAA (but I hope they do a better job), modelled after AAA, where they pay forty to fifty dollars in dues, a year, and, in return, they get a whole series of services, connecting not only with the transfer of real estate, but with the maintenance of it, as well -- home repair, etc..  And these homeowner associations will, obviously, begin focusing on city services, municipal policy, City Hall, etc..  When you have that kind of infrastructure, you have a real permanence (?) to a single-minded fiduciary responsibility by buyer brokers.  They become part of an overall consumer movement that not only expands their business, but expands their pride as citizens in a democracy that is in serious trouble, in the U.S.A., because it is not sufficiently organized where people live, in contrast to where people work.


    Now, if someone said to you, “What’s your latest opinion on the RESPA regulation?”  how many people -- you know, outside the real estate area -- would know what anybody was talking about?  And here’s an example of what happens when we don’t have functional, consumer-controlled organizations with skilled staff representing people.  When the RESPA law was passed in Congress, 1983 -- I guess it was around there -- one of its purposes was to prevent the practice of paying kickbacks and referral fees in order to steer prospective home buyers to particular sellers of settlement services, settlement service.  In other words, lawyers, banks, insurance companies, etc..  The term “settlement services” is not a very popular term, these days -- don’t think you’d hear it much on T.V.; what it includes are the services that touch you when you buy a home: again, real estate agent, mortgage lenders, title company, and settlement attorneys.  Title companies are a rare breed all by themselves; they keep trying to assure you that King George doesn’t have title to your land.  In terms of the premium that they get and what they pay out, it is probably the most lucrative insurance in the United States, today; I think they pay out, my memory is that they pay out less than 15¢ on the dollar, __?__.  They’re so creative that they were caught, once, selling title insurance to homes on military reservations of the U.S. Department of Defense.  They sure have a sense of antiquity.  I don’t think they’re representing any Indian tribes, by the way. 


    At any rate, for four years, HUD was developing this regulation:  how do you stop these retrospective commissions, referrals, or kickbacks?  An then, suddenly, they made a 180 degree turn away from consumer sensitivity, and on November 2, 1992, just before the election, they issued a regulation which allowed a lot of this to carry on, especially if you’re a big fellow on the block and you had the right arrangement for it.  As a matter of fact, the phrase is, “controlled business relationship.”  Once again, there isn’t anybody looking out for the consumer, here, unless it’s going to be the buyer broker, pending the organization of these homeowner associations. 


    Now, here today, there’s a gentleman from Toronto who has the most successful homeowners’ association or home buyers’ group in North America.  There are 40,000 members; they own homes in Toronto; they pay $40 a year, and they get a bewildering variety of services from discount fuel oil to monitoring repair firms -- carpentry, electric, plumbing, etc. -- to handling your consumer complaints through your office.  And now, they’re going into many other areas, including how to buy new cars at a discount from the sticker price, and they’re in the mortgage area.  Now, there are 500,000 homes in Toronto, and this outfit has been at it for over thirty years, they have 40.000 homes, and there’s virtually no competition.  Why aren’t there more homes?  I asked him that earlier today, and he said, “Because a lot of people can’t believe that it’s such a good deal.  “  He said someone advised him to charge $200 instead of $40 a year. 


    What this illustrates is that we really don’t grow up to learn how to be consumer-perceptive.  We grow up to learn how to believe seller promotions and advertisement, so we look at things through seller eyes, time and time again.  So people walk into supermarkets and buy junk food; they’re reverberating off thousands of ads on T.V. and elsewhere.  And when they go and they buy cars and don’t ask the right questions, they’re just reverberating off these very flashy car advertisements on T.V. that emphasize speed and glamour and a few clever slogans.  And what is being attempted here with buyer agencies or buyer brokers is to develop a culture of looking at the real estate industry from an acute awareness of consumer benefits and consumer requirements for protective purchases.  Who is there to help you do this?  The new Administration?  They’re going to have probably a more vigorous Federal Trade Commission, a more active housing, urban development cabinet.  Don’t place too much reliance on that.  They won’t go out of their way to obstruct you, but I’m not that hopeful that there’s going to be a more affirmative push in the direction of enforcing these laws. 


    Second would be the state agencies.  They vary.  The Secretary of State of New York doesn’t even sound like a bureaucrat; she sounds like a consumer advocate.  She even comes to meetings like this, on  Saturday.  She is besieged, however, by the seller-side realtors lobbies, who don’t like what she’s doing.  And when the battle comes in Albany, in a few weeks, who’s going to support her?  Where’s the neighborhood infrastructure to support her?  This is another way of saying that government officials are only as strong as we are, to back them up in doing the right thing; and if we’re not organized, they’re either going to be neutralized or they’re going to be removed from office by the organized lobby. 


    Well, how about the courts?  The courts perform some very good breakthrough decisions from time to time.  The problem is that while they may tell you, in the decision, that the law has liberated you to do this  and that, or to be protected from this and that, they don’t have much of a quantitative effect.  They can make me say  this rule is on your side now or this real estate practice is no longer possible, but having it delivered to you, millions of home buyers, is another question altogether.  We have a lot of good court decisions in the case book but they’re not on the back of a delivery system. 


    Well, what about the home inspection people? There are about 10,000 of them around the country; they’ve shown that they’re needed, but they’re very small and they’re very weak, although they have some very nice ideas and if you want to make sure your house doesn’t have asbestos or chloridane (?) years ago, it’s good to have these people inspect your home.  Home owners’ disclosure is not increasing in terms of detail but again the delivery system there before the disaster happens, before the awareness  occurs that you’ve been had, is not very efficient. 


    So what is left? What is left is what you’re seeing emerge here and elsewhere and that is a very aggressive and dynamic buyer broker movement.  The energy level that they reflect is really quite impressive, and a lot of them come out of the old type of real estate practice.  They know what the problems are--they can document the problems.  Nobody is going to say you don’t know about these issues because you haven’t experienced them, and that is the number one asset of the buyer brokers, that they can speak authoritatively about the abuses.  They write more than their share of letters  that go five,  six pages.  I know because I’ve received a lot of them.  Almost every other buyer broker seems to be writing a pamphlet or a book and that energy may not last for many years, if it doesn’t pick up a broader consumer movement base.


Now, one of the problems here as I see it is not just what the states are going to come up with in terms of detailed disclosure and I think Massachusetts probably will end up with the best, temporarily, with the best disclosure. New York has pretty good disclosure, but  I don’t know if any of you have read Mr. Rolling’s letters, etc. from Texas, anybody know him? Well, he really has it down, I think very very well, all the way to the constituent members of the real estate board at the state level.  At any rate, once these disclosure statements are developed, the problem is the better they are, the longer they tend to be, unless they can be compressed, and the longer they are, the more confusing they tend to be to the consumer, but once that’s over with, what is going to happen actually in the real estate market itself? Are people going to get a better deal as buyers across the board?  Who’s going to chronicle this?  What buyers have access to a computerized information system where they can plug in on their own to get the general lay of the land and see what’s available.  If there are computerized information systems, are they going to come to the attention of the prospective home owners? 


Remember, there are only 24 hours in the day still, just the same as it was in the year 1,000 A.D., and so many things are coming in on people.  Just look at the proliferation of television channels, for example.  So many things are coming in on people, that the question, once you have a product that needs to be delivered, is how can it be delivered at the point of sale in the clearest fashion and in an authoritative manner that earns the respect of the consumer?  What are going to be the intermediary institutions in other words.  Are prospective home owners simply going to find the buyer broker all by themselves? Will they know that it’s an exclusive buyer broker?  Will there be seminars for prospective home owners to beef up on all these opportunities?  Will we get some of this information in our school systems under the headline of consumer education and training and so forth?


Gil Califano (?) had an article in the newspaper the other day, former Secretary of Health Education and Welfare under Jimmy Carter, and it was in the form of a letter warning the Clinton Administration about the history of health care reform, health insurance reform, and how they had all these unintended consequences and they’d better be careful when they put their plan out in a few weeks, to try to avoid them.  In short, you can get  a genuine reform, but if it doesn’t shift power away from the haves to the have-nots, the haves will destroy the reform, even though it’s still on the books and it’s still theoretically there--they will co-opt it, seize it, fuzz it, deny it, daunt it, whatever, they will find a way to do it.  I’ve had physicians tell me: no matter what price controls are going to be put on physicians’ fees, that they will always be able to find a way around it, by creating their own business, getting fees that way, if they can’t get as much fee for a gall bladder operation by unbundling their services, etc.  Unbundling services is  the three-page computer print-out hospital bill where they charge you $8 for a bic razor.  All these represent the history, sometimes tragic, of reform in any society. 


    That’s why I think that any human right  is more likely to last when there is an economic vested interest behind it, and labor had to understand that.  They used to beg management, “Reduce our 70 hour week, don’t hire children under 10 in the mines, etc.” And it was only when they became an organized vested interest that they got rid of so many of these tragic workplace situations.  But of course, then they developed some of their own problems internally in terms of union corruption, but the rise of the vested interest behind home owners’ rights and competitive opportunities raises the question of to what extent is it going to be an arms length relationship with the seller brokers.  And one of the knottiest questions that seems to divide even some of the buyer brokers--certainly consumer activists are divided on this--is whether the buyer broker should split the fee with the seller broker.  One view is, well,  for the time being, that’s the way it is, and you have to go with the way it is--it’s just practical, realistic. And some time down in the future there will be flat fees, there will be other arrangements.  Of course, the buyer is going to pay the seller’s commission one way or the other, cranked into the sales price.  I’ve rarely seen a seller be so charitable as to separate it out, but it does, I think, make a difference in terms of the arms length relationship. 


    Lawyers have this problem too.  When they file class action against a corporation, let’s say for a refund of a lot of money, there are two ways they can get their fee.  They can get a verdict or settlement, say 50 million dollars for the class, and then they take their fee out of that class proceed, X% of 50 million dollars.  Another way they get their fee is to negotiate with the lawyers for the corporation across the table and say, “I’ll tell you what, Lawyers for the Corporation, we lawyers who represent the consumers, who we think have been defrauded and are entitled to a refund,  we’ll agree to a $30 million dollar refund and a $15 million dollar fee.” Well, you can see right away, the lawyers for the consumers develop a conflict of interest with their clients, because the lawyers for the corporations are going to say, “Hey if we up the fee that we agreed to pay these lawyers for the consumer, we won’t have to pay so much for the refund.”  They’ll say, “Lawyers for the consumers, do we have a deal for you, we think you’ve worked really hard, and we’re going to agree to the following stipulated fee, but when it comes to the settlement, you know we deny liability.  We think that this amount is okay.”  What does the lawyer for the consumer say” “Hey, I’ve got this fee in hand, why should I fight my own fee by standing up for my consumers and besides I can always lose in court can’t I?”.  A bird in the hand is worth two in the bush.  It’s clear that the undivided loyalty of an attorney to a client is accomplished by the fee coming out of the proceeds, subject to a pre-negotiated agreement between the clients’ and the lawyers’ (written agreement ?)


    I have seen lawyers throw class action cases in order to get their fee.  The most recent one being the airline case. You remember the frequent flyer settlement where the airlines agreed to give people frequent flyer miles who could substantiate that they flew on the airline between 1988 and 1992 pursuant to settlement of an anti-trust suit, and the lawyers got cash for their fee.  They didn’t get frequent flyer miles.  And of course other lawyers attacked the settlement saying this is terrible, it’s a very bad settlement, the lawyers made out very well, but not the airline passengers.  And it was modified recently.  The lawyers got their fee reduced from 24 to 14 million and the amount of frequent flyer mileage was expanded beyond the original settlement.  So I think this is a very serious issue that needs to be discussed in terms of buyer brokers’ compensation--what the best mode is.  Eventually, it will probably be developed into a code of ethics, I’m sure, but I think the institutionalized powers in the real estate cartel, once they see the writing on the wall, and they cannot threaten, intimidate, ostracize, or litigate against buyer broker efforts, they will try to say, okay, now we’re all in it together, let’s get under the same umbrella and be very friendly, and less adversarial, and less confrontational, and that can be a rather serious temptation. 


    Now the representative from the FDC is here who wrote the FDC classic study on the real estate industry in 1983.  And I asked him this morning, I said, what do you think has rendered the report obsolete since 1983.  And he said, not much.  He said the basic  (?tape 1, side B,3) structure is still there, that the principal new development obviously was the buyer brokerage movement.  Well, I think that tells us all how much work there is yet to do in this area.  Finally, I’d like to note the importance of consumer training prior to a purchase.  The best return on your time in your occupational life, will be when you spend a little time learning how best to go about finding the representation to buy a house or how best to buy a house if you want to try to do it yourself.  The same is true for insurance, or anything else. 


    We wrote a book called “Winning the Insurance Game,” a little while back, and we estimated that the average family could spend 10 hours reading this book and save at least $500 a year on their overall insurance.  They spend around $3800 a year on insurance--home owners, auto, health, life, disability, etc.  That was a conservative estimate given to us by Robert Hunter who is formally the federal insurance administrator.  Now, ten hours, $500, $50 an hour, repeated every year.  If we start thinking about spending consumer learning time and dividing it by what we save, most people will  make more money that way than they’re making in their job, by quite an amount.  People can cut their food budget by one-third, and increase their nutritional value, with just a few hours of study about what to buy and what not to buy, and that’s $1500 a year right there for the average family, one third of the food budget.  So I think that is the way we have to change our civic culture, from  the seller sovereign society to a buyer sovereign society--that’s in accord with classical economic doctrine that says consumer sovereignty rules the economy, but that’s just in theory.  The sellers have not been very eager to indulge that in practice, and I think that kind of approach is very very useful when you go into the market.  Sit down with any number of the booklets, pamphlets, and now videos, advice, articles, and so forth--there are tons of them and a lot of them are very good, some of them produced by government agencies as well--and learn about these kinds of economic options.  It’s really strange isn’t it, if you don’t know how to dance in this country and you want to learn how to dance, you can go down to Arthur Murray Dance Studios, but if you don’t know how to negotiate a certain part of our marketplace, home buying, or whatever, only now are there beginning to be opportunities where you can learn how to do that.  I’ll tell you one thing, they are not as prominently known or as widely distributed as Arthur Murray Dance Studios.  That  just illustrates the seller dominated economy in our time. 


    I just want to end on this note: those of you who are building the buyer broker movement, now they’re thinking of state agencies, state associations that have been federated, national groups.  Next time you meet, try to draw the pathway into the future in terms of a consumer organizational base, along the lines that I’ve suggested and others  have suggested, because in the final analysis the success of an economy is not just getting the consumer a better deal.  The success of an economy is in getting consumers to live in a more just society, and that is a bigger challenge than just getting the consumer a better deal.  When Henry Ford announced that he was going to pay his workers $5 a day, all the other auto companies said, “Henry you’re crazy, you’re going to go bankrupt because you can’t afford to pay your workers $5 a day, “ and Henry Ford responded:”I don’t want to pay my workers $5 a day just because I think they need it, I want to pay my workers $5 a day so they can afford to buy my cars.” See, he had a little bigger vision didn’t he, and anything that you can do as buyer brokers to facilitate the networking of neighborhoods, the collaboration of communities,  and there are a lot of other ideas that can be discussed at some other time that can facilitate that, will put you on the front lines of rebuilding a democratic society--of developing the kind of mutual neighborliness and self-help and grass root democracy that will spell whether we’re going to go forwards or backwards in the next 50 years, and I think that the more of a horizon you have of that nature, the more successful you’ll be in your practical objectives, and the more likely you will attract the finest young people in the country into your movement.  And that is really the ultimate success of the quality of any movement, is whether it can attract the idealism as well as the practical interests of the coming generation.  Power is too centralized in our society, there’s too much money and too much power in too few hands.  Buyers brokers, even limitedly defined, aims to decentralize that power, aims to shift that power from the haves to the have nots, but that shift itself can be the precursor for a neighborhood and community revolution that begins binding people together, banding people together, for a better life, economically, socially, politically, and for the environment that their children grow up in.  Thank you.


    Thank you, can I have comments or questions now?  By the way, I received a poem the other day from a fellow from Prudential Realty.  Is he here?  And he was representing the sellers, and he decided to put it in poetic fashion.  I thought if he was here, he could recite a few stanzas.                                                  


Q1: I am a real estate counselor, a practicing buyer broker, and very briefly ....going to develop comprehensive consumer services with respect to home ownership as a concept.  One of the things that my....work with home owners has focused on....what I’m seeing is that we are undergoing the most ruthless redistribution of wealth in history, based on how home mortgage financing is structured and one of the things that has become apparent to me....I would challenge you to focus on the re-writing, wholesale, of mortgage law in this country.


N: Yes.


Q2: People are being denied their constitutional rights to their property ownership because the system does not allow them due process.  The mortgage contract is unilateral in terms of....if you don’t pay, the lender can take your home.  But I’m finding....lenders are foreclosing out people when they should be writing checks.


N: That’s a very good point, as a matter of fact.  The essence of your point is that the mortgage contract is very one-sided; it’s written to benefit the companies that thrive off it, and the consumer doesn’t have any input in writing these standard contracts.  Now about 20 years ago, we had a remarkable auditorium session in Washington, with representatives from the Farmers Home Administration and Fannie Mae and others to look at the standard contracts and to say, “Do you government agencies, do you who are guaranteeing these mortgages, etc., really condone these kinds of one-sided anti-consumer contracts?”  And we went through, area after area, to try to get the government agencies to say to the private industries that if they’re going to deal with them, they’re going to have to modify their standard contract.  What does that tell us? One, the government has a good lever here to bargain changes in these contracts and make them less one-sided, make them less what the lawyers call contracts of (adhesion ?) because after all look how many millions of people are buying homes and you’ve got all these federal agencies--secondary markets, insurance back-ups, etc., and they never say, well, why should we deal with businesses that have such one-sided and unjust provisions in their contract?  Now, here’s an opportunity for buyer brokers because they are representing the home owners and the home owner as you say has been victimized.  So, this is just another off-shoot of the kinds of activity that can put buyer brokers on the map.  This one will really have tremors, I can guarantee you, throughout the industry.  Now back when legal services were established under the Johnson Administration and lawyers for the poor were funded by the federal government in Boston and elsewhere around the country, one of the first things they went after was the one-sided lease, landlord’s lease, where the landlord lease had provisions, which in effect convicted the tenant (a benicio?)  Basically, having a provision that says that the tenant signed, saying “I, the tenant agree that I am guilty in case the landlord says I am.”  And these provisions were litigated one by one and many of them fell and were deemed contrary to public policy, and so the landlord lease now, while it’s still one-sided, is nowhere near what it was 25 years ago, but the mortgage contract is a nightmare of one-sidedness; it’s become more complex, so it’s a complex nightmare, and that really needs to be put on the front burner, very good that you raised it.  You might want to, as a matter of fact, have someone draft--I have an idea for you--right up here on the river Charles is Harvard Law School.  They have a Harvard Law student legislative drafting club and they draft legislation that reputable groups ask them to draft, so if a non-profit children’s protection group wants them to draft a child-care ordinance, they will do it, and it takes them about 8, 9 months.  They have a (lead?) time, and they do a brilliant job.  We know, because they drafted the Wisconsin law that was finally passed for the utility rate payer, under our guidance.  So I would suggest that you send a delegation to them and ask them to draft a model mortgage contract that’s fair to both sides, and get it under way there.  You will not only draft the model contract, you will annotate it, explain it, and footnote it, and that’s exactly what you need to give to a legislator.


Q2: Robert Authier (Executive Director, Mass. Association of Realtors)  my experience with the members of the association is that the realtor organization is in fact not....cartel as you described, but in fact a small business, lucrative small business, and people corrupt it....success is dependent on satisfying the needs of both buyers and sellers, providing them services, and that the organization is not exclusive at all, in fact, inclusive--it includes buyers agents, sellers agents....we believe in choice of the buyer and of the seller.  We also have, if you didn’t know this, as part of our mission, protecting private property rights.  One of the things in your conference you mentioned was Secretary Schaffer’s taking time out to be here on a Saturday....real estate brokers are available to people all weekend, often times on weekends, evenings.  They spend a lot of time in their small business doing a lot of work for buyers and sellers.  My question to you is why the (scare tactics?)...


N: One is that a lot of these people are simply prisoners of this cartel system; (Applause) if they want to do their business, they have to obey the rules.  You know what the rules are very well, you know what the power of the multiple listing service is, and you know the retribution tradition in this industry.  Look what the buyer brokers have had to go through, look what the discount brokers had to go through.  I mean, the harassment, the intimidation, the frivolous law suits against them could fill a sizeable book.  Now, of course, they’re becoming stronger so they’re not subject to that kind of harassment.  I would agree with you on one point, there’s no other industry in the country quite like the realtor industry.  It is not, as I say, a traditional type of cartel, run by some skyscraper office in New York City, led by ten large corporations, but it is a very, very well-organized process; it keeps people from straying off the reservation, and the proof of that is look how long it took for this buyers brokerage to finally emerge as a self-determined force.  The second is that there is a philosophic difference.  I don’t think a broker can represent two masters, and I don’t think that one of these large brokerage firms like Century 21 or the others can simply say: Jane Doe is a buyer’s broker and John Smith is a seller’s broker, and we have a nice walk between their desks there.  I don’t think that works very well.  So I hope that in your enlightened statement you will also come out for exclusive agency relationships.  (Applause)


Q2: ....I don’t see where there’s any cartel....


N: What’s your position on dual agency?


Q2: Dual agency, we believe....that is something that is a viable option, again, believing in choices.  We believe that the buyer should have the option to choose that....if the buyer wishes to do so, if the buyer does not wish to do so, then they won’t.


N: Will you at least change the name to facilitate it? (Applause).  You know, agency has a legal history to it, there is a rather strict definition of agency, which dual agency transforms into an oxymoron.


Q3: ......?


N: Common sense has escaped the banks however.


Q4: .....?


N: Well there are 2 steps. One, if you’re going to buy a house, spend a few hours understanding what you need to maximize your advantage. Then put it before a buyer broker, get the buyer broker to agree to points 1, 2, 3, 4, and then put it in writing and have the buyer broker sign it.  That way you can tailor what you want beyond what the state requires by way of disclosure, which inescapably is not going to be specific enough for you.  So, in fact, one of the books that I’d like to see someone put together are consumer maximizing contracts, so that if you want to hire a repair garage or an insurance agent or a broker or a lawyer, you’ve got them right there, the best ones, so you can look at them, tailor them a bit to your needs and get them, the seller, to sign.  We once put out a book, what to do with your bad car, an action manual for lemon owners, and at the end we had a car purchase agreement, where you go down to buy a car and you say, “I like this car, it’s a four door sedan, nice color, it’s got good brakes, I’m going to buy it and, just a minute.” You tear it out of the book and say, “Here is the agreement, sign on the bottom line.  Some people actually went and did this and they wrote us.  On fellow went down to the dealership and did this, and the dealer called the police (Laughter).  It just shows you how totally upside down--a contract is supposed to be the meeting of the minds, you know the mind of the seller...but 99% of all contracts are slammed down on your table; it’s all printed, like the mortgage contract, take it or leave it.




N: Just spend one Saturday reading some of the good books that are out--how to buy a house, how to do this, that.  Consumer Reports has one that’s pretty reputable, sharp.  And you’ll be able to make a list of what you want in an agreement with a buyer broker in addition to what the buyer broker gives you--their materials and fiduciary this and that.  You know, you’re going to buy a house, what’s one day?  The average person in this country spends 25 hours a week watching TV, week after week, so you can’t believe how astute you become by just giving yourself a chance to read it because #1, you’ve got tremendous interest in what you’re reading, #2, you know what you want, or you know how to ask for what you want, so there’s a maximum self-interest.  No one’s asking you to read a seed catalogue.


Bill Wendell: I just wanted to get part of an answer to that question. That’s one of the resources the Home Buyers Club hopes to develop.  We’ve collected a number of buyer broker contracts and we’ll be working on a model contract, which you can use.  We only have a few minutes left for questions, so I’d like to focus on consumer questions rather than continuing this agency dialogue.  So, you look like a home buyer, sir.


Q4: ....better deal for the buyer?


N: Yes.  What you pay for renting money is sometimes a very unpleasant surprise for the buyer.  And again you’ve got to know the sources.  I suppose Bill you have materials on that as well in terms of what to look for.  One way to help you in how you select your financing source.  It’s like anything else, how you select the doctor or lawyer or broker, if you do the right job, if you know how to select them, how to go about choosing them, where to get information to evaluate them,  you’ll save yourself a lot of headaches down the line.  That’s the first step.  The second step is you’ve just got to learn how to clarify the fraud and the genuine ticket, so you know exactly what you’re paying and when.  The third is, if you don’t like what you’re paying and when, always say to yourself, I’m going to negotiate my own special deal, don’t have the seller say here it is, that’s the way it is, take it or leave it, we don’t bargain.  There is a resurgence of bargaining now in our society that’s beginning.  It hasn’t yet hit the supermarkets, except on Saturday night when the bananas are getting a little brown, but we have been for the last 60 70 years, we have been shorned of any expectation that we can bargain and negotiate.


Bill Wendel: There’s a handful of resources you may have noticed; there are about 20 exhibitors outside, the Federal Trade Commission has a pamphlet on that.  There’s a new buyers’ guide that’s out at the front table, and then (Sevitz?) and Brown was one of the panelists earlier, they have a computerized system that can help you answer that and then our speaker at 4:15 is also going to handle that and I’m going to ask you to wait for....


R: By the way, let me give you a rule of thumb for anything you buy.  When you don’t know how to buy or how to negotiate the trap doors, just write to the Federal Trade Commission and say give me any pamphlet you have on this subject. Home Equity Law?  Give me anything you have on Home Equity Law.  Optometrists?  Give me anything you have on optometrists.  And sometimes your Attorney General Consumer Protection Agency will have similar pamphlets; they’re usually pretty well done, they’re very clearly written, they’ll get you to first base at least  Automatically say to “where do I go?” the answer is go to where your taxes are already paying people to help you.


Bill Wendell: Another question? first time home buyer?


Q5: .....?


N: (laughs) Depends on the broker you have doesn’t it?  What do you say on that Bill?


Wendell: I wasn’t listening closely to the question.  Should you use the same broker to buy and sell?


N: She has a house to sell and she wants to buy a house.


Wendell: I would use two different brokers.  Another consumer question?


Q6:...discrimination...lending companies with respect to allowing raising capitol in particularly inner city...I would like you to address how can we as community groups and community organizations attempt to deal with....how can we deal with the local banks, local lenders and how do the realty professionals and realty brokers tie into that....even the well-meaning realty professionals feel constrained by the rules...


N: Well, the bank and insurance redliners of metropolitan America, I would say your holiday is over with, because what’s coming, is coming in three pronged attack.  One is due to computer software that’s being developed you are going to see in the next year the most detailed mapping of redlining city by city, block by block connected to the banks that are doing the redlining in the history of the world.  You’re going to see it very specific.  In fact, I can guarantee you this because we’re working on that directly, and what we’re going to be able to show is that there are violations of federal law subject to prosecution by X bank redlining Y area over what period of time and in what scope.  The second is is that the newspapers are beginning to say “Hey these maps are terrific, they’re in color, and we can provide our readers with this kind of service, region by region, precinct by precinct,” and they are going to print them.  As a matter of fact, some of them have already begun to do that in a relatively crude way, but you’re never going to believe how specific this data is now being mapped city by city.  So the next step is prosecution.  Well, fortunately we now have a government in Washington that at least cannot be fully described as a government that takes all the federal cops off the bank and insurance company redlining beat.  So we have a tougher Justice Department.  What we want to see is a special task force prosecuting systemic redlining, because as you indicated once the banks redline, insurance companies redline and down goes the neighborhood.  Now the third thing is  a kind of private rights of action.  Community groups have been dealing with this....data.  But it’s never been organized; it’s been difficult to get and difficult.  You hassle it, for your (information requests?) and so on.  They are going to get in on the act, because they’re going to be having much more powerful tools in their hands, so it’s not just going to be the official prosecutors, it’s going to be the neighborhood groups are going to have the tools that are bank specific, banks-in-neighborhood specifics, with the kind of evidence that the prosecutor needs to go forward.  I think the 90’s should be known as the decade when the nefarious practice of redlining, which is a self-fulfilling prophecy of destruction in the neighborhood, comes to a substantial end.  Now the development of community banks, which is Clinton’s priority--he wants to develop a hundred banks like Southshore banks in Chicago--will also help to ameliorate that, because you’ll have banks like Southshore banks or profit making banks, and they say, we’re making profit out of loaning money to people in homes and neighborhoods that the other banks have redlined and refused to deal with.  So that’s a nice yardstick.  It’s no longer, well you know, “You want us to lose money, we’re not in the business to lose money and lend money to home buyers or remodelers in these neighborhoods.”  So prosecution, the tools in the hands of neighborhood groups that are very very refined, and the development of community banks, Southshore style, I think are going to make a difference.




N: Exactly--that’s going to all be available.  All the data that our systems are going to be producing.  This is really a marvelous, when you see this operating, the specificity of these maps, are going to be devastating.  It’s one of the early signs of what happens when the computers are used for people, when they’re used for consumers (Applause).


Bill W: We were waiting for the word “devastating” so I could introduce Bruce (Marx?)  Bruce Marx has a reputation in the banking community that’s truly devastating--Bruce if you just want to say 25 words or less and I’ll keep you to it, on your role nationally with this issue.


Bruce Marx:  Just one point that I think is very important to reinforce.  When you look at redlining--we all know what that is--there’s an underbelly of redlining.  It doesn’t mean that there’s no credit going into a community, it means that there’s lots of credit going into a community--happens to be at predatory rates--and major financial institutions are involved in that.  The point to emphasize, and I think what really Ralph Nader had said, time and time again is this happens because the communities are not organized and it’s to the benefit of the real estate brokers that we have the community groups in there, the home owner associations, so they can provide you with the mechanism to get more and more people to stabilize the neighborhood by re-buying homes.  They can help do your work.  You need those groups.  You should be out there reinforcing home owners to get together so there can be more home owners.  And again the poin-- when there’s no credit going in,that hurts everybody because what happens is that the long-term home owners are forced out.  So, it’s exciting to hear...to organize to get everybody together.  And on the mapping: we showed in the same areas where the banks don’t lend, you see refinance, you see the major institutions major finance companies only lending in those areas.  30, 40%, up to 10 and 20....(? tape #2, side A, 4) The fact of the matter is, 76% of those people who got second mortgages bought their home through fraud.  It’s devastating.  That’s what’s going on in all of our communities around the country.  Thanks Bill.


Bill W: Bruce will be back up again at one of our later panels entitled protecting the consumer.


N: All this by the way is the move to democratize credit.  There’s plenty of capitol in this country.  A trillion dollars went into empire building mergers and acquisitions in the 80’s--didn’t create any new wealth or any new jobs. It’s democratizing credit.  The farmers saved themselves in the early twentieth century by getting these farmer co-op banks and farm credit associations.  Otherwise they’d have been wiped out a long time ago.  Now, the cities have got to start demanding the democratization of credit.


Bill W: Let’s take one or two more consumer questions, then we’ll move on to our next panel.


Q7: ...are there different fees or just one set fee?


N: I don’t think any of them will say there’s one set fee.  Some of them split the commission with the seller’s broker, some work on flat fee, some of them do both, some of them have a commission fee themselves, and it’s all still in a state of flux, which means that you ought to negotiate with them for the best type of arrangement for you.


Bill W: Our next moderator Barry Miller I think would like a pass at that question too.  I’m going to wrap up this session unless a consumer has a burning question.  You’ve got one there.


Q8:    I’m in the market to buy....


N: Well, it reminds me, about six years ago a bunch of economists got together and said interest rates are going to be going up because our deficit is going up and the Japanese are buying more and more of our bonds and with deficit spending you’ve got to have higher interest rates because we’ve got to borrow more and to borrow more we have to pay higher rates as a government to track more money.  Of course, they were wrong.  So, if you find someone who can predict interest rates, let me know right away.


Bill W: We’d like to know too.


N: If you’re looking in the next six months, eight months, here I am, I’m not going to predict as those economists did, but it looks like for the rest of the year it’s not going to fluctuate that much at all, just within the range of what has been going on in the last six months.  Right now the long term treasuries are up to 7%, and just to take that as a benchmark, it’s not going to fluctuate much more than 6.8, 7.1 between the next 6, 8 months.  You can take that with a grain of salt, but you asked.


Bill W: I think a lot of traditionalists out there are taking this whole presentation with a grain of salt.  So, for those who are not part of the revolution, we thank you for listening, and for those of you who are, let’s thank Ralph.



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