A reader asks, “Hey Chris, during the good old days 2000-06, did you ever steer a prospective buyer away from a property that based on their income, you thought they couldn’t afford even though the bank was willing to lend it? Just curious if you think realtors should take some blame here.”
The answer is no. As a real estate lawyer, I considered at least part of my role to be a quasi-financial advisor and no one, not even mortgage traders! left any closing I conducted without having spent at least an hour reviewing and receiving an explanation of the loan documents: what the total amount borrowed would be, the monthly payment, the possible increase in that payment, if the loan was a variable rate, etc. Even then, I didn’t inquire into my client’s job security, other financial obligations or his mental stability. With the exception of the last, I considered those matters to be between the borrower and his bank.
And in those days the lenders did inquire into such matters. I didn’t realize that, in later years, in other parts of the country, buyers (often “represented” by a bank’s lawyer, not their own) were spending as little as 15 minutes at closings. In Greenwich, at least, that never happened – to this day, agents foolish enough to show up at the start of a closing will cool their heels for a long, long time while attorneys like Tom Ward or Jeremy Kaye review the docs with their clients. The next time you hear a real estate agent criticizing Fairfield County’s use of attorneys in real estate transactions, you might consider whose interest is being served by those lawyers and why real estate agents might resent their presence.
But as an agent, did I ever caution a buyer against purchasing a house because of doubts about his ability to buy it? Nope. If someone comes to my office and says he can afford a $10 million house I assume that he is financially sophisticated enough to know what he can afford and that any lender who’s going to put out that kind of money is going to thoroughly vet the applicant. That may be naive, especially in light of what’s been revealed about lending practices in the past months, but it’s not my role to screen buyers. I certainly don’t want to waste my time looking at huge mansions with someone not qualified to buy a bicycle but digging into a person’s finances isn’t my job. I did, and do, try my best to get my clients the best house for their money and even some of my high-end clients will attest that they spent more time than they wanted to with me checking out $5 million houses that I thought were great buys when they really wanted a $10 million house (I like to think that they eventually discover that some $10 million houses are no better and worth no more than some $5 million homes on the market).
I have, to my memory, never urged a client to stretch beyond their stated comfort level to buy a house. Again, I consider clients to be financially sophisticated, in Greenwich, anyway, and I’m not ever going to advise them to abandon what their common sense tells them to do.
Finally, remember that, as of now, only 3% of existing mortgages are in default – I suspect the percentage in Greenwich is even lower. Like the Spanish Inquisition, no one expected the collapse of Bear Sterns and Lehman Brothers so the folks buying here were well-heeled, well educated people fully capable of making financial decisions without the assistance of what in many cases is a stranger. I suspect that, were I to pry too deeply into the wallet of someone I’d just met the day before, I’d lose a client, pronto. We’re not selling tract houses to illegal immigrants here and I’ve never seen the need to treat my clients as though they were fresh from picking cabbages.
So do we agents share some of the blame? I don’t think so – you, of course, are free to disagree and I’d be glad to receive your thoughts on the subject – I may very well be blinding myself to something obvious so that I can sleep at night.
Further thoughts: (updated)
If real estate agents offered financial advice, would buyers listen? Many would not. Check out some of the comments on this blog and you’ll see many contemptuous entries that basically call this author a moron who should opine on real estate and nothing else. To these people, once one becomes a real estate agent all prior experience and training are wiped out. One guy, a lawyer (a group that, according to polls, ranks just above used car salesmen and below real estate agents in public esteem) first insults my education and knowledge and then cautions me to stick to writing about things I know something about, like granite counters. Do you think such a man would listen if I warned him that he was getting in over his head on a purchase? Whether I would tolerate him as a client is another matter, but for now, I’ll stick to advising people on the relative value of houses, and nothing else. What I post on this blog, however, is my business.