In the last year as the housing crisis has deepened I have heard a lot of blame go around to mortgage brokers, subprime lenders, and even real estate investors for driving the prices up to unsustainable heights. But I've yet to hear anyone put the blame where it is deserved- on the real estate agents who duped buyers into paying far more for properties than they could realistically afford selling them on the dual mantras of fear and greed. How many times in the years past did we hear "common knowledge" spouting from the mouths of these so-called experts such as: "Real estate always goes up in value, it has grown an average of 5% a year." "You can afford to buy this house now with an adjustable rate mortgage, then when the payments go up in a few years you'll be making more money at your job so it won't matter." "If you don't buy a house now with the way prices keep going up you'll never be able to afford one." "Look at what this house sold for two years ago compared to now; imagine what it will be worth in two years." These lies are what created the bubble that has devastated the Nation's economy.
You might ask, who am I to criticize real estate agents? I am a real estate tax expert who has seen many of my clients duped into money losing deals by agents wanting to turn a quick buck. I also am a real estate investor who has had many offers that I placed on property in the best interest of both myself and the seller shot down by agents who thought they could make more money. Later I would see those same houses fall into foreclosure and sit vacant for years, overrun by vagrants with windows broken out or even burned to the ground. It breaks my heart to see properties that I would have loved and cared for get destroyed at the expense of the community and everyone around. Rather than sitting useless those houses could have tenants living there that appreciate having a roof over their head and experiencing a better quality of life. But instead the real estate investors like me are blamed for these problems because of our supposed greed, and the greedy real estate agents are allowed to run free and collect their share of every foreclosure sale.
Although often likened to professionals such as attorneys and accountants, real estate agents deserve a less trustworthy reputation more in line with the other sales occupations. Real estate agents generally work on a commission basis. As salespeople they are taught that sales is a numbers game. If you put twenty houses up for sale at market price, the likelihood is that one will sell. That one commission will compensate for the nineteen that did not sell. While this may be an efficient model for salespeople to live by, this is not a model that is in the best interest of the agent's clients. These "experts" should be held accountable for their irresponsible actions, or at least not held in such high esteem.
If, in my tax practice, I had twenty clients who wanted me to file their returns, and I only filed one, even if I did not charge the other nineteen clients for services, I would still be held responsible for the client's late fees and penalties due to my negligence. There is no similar system of accountability for real estate agents. The absence of significant risk for the agent when houses do not sell, in addition to the significant financial gain when they do sell, rewards agents for their feckless behavior.
Not all real estate agents are so unequivocally unethical and greedy as I make them out to be in here. Unfortunately though, the vast majority I have had the -uh- pleasure to deal with have proven to be only looking out for their own best interest. Anyone who has ever read a Real Estate Agent's purchase contract should know what I mean. Look back through the paperwork of the last house you bought and count the number of things you had to sign that were to relieve the agent of liability versus the number of items that apply to the sale. You will likely be surprised to find that most of a standard purchase contract is written solely to protect the agent from litigation, and very little actually protects the buyer or seller of the property.
Even now the real estate agents of America are continuing to sink the real estate markets into greater depths of despairs than it ever could manage unattended. Recently my husband and I attempted to buy a house for us to live in and we offered the sellers what was more than fair- essentially to take over their payments on the loan which was slightly higher than what the property was currently worth, yet still a good deal for us without points or much in the way of closing costs and a low interest rate. The sellers accepted our offer verbally, but when we sent them a contract they said they had talked to a real estate agent "friend" who said they could get more money selling the house outright. The agent posted the house on the Multiple Listing Service at a slightly higher cost than we had offered- basically the price we were going to pay plus a commission and contacted us behind the seller's back to buy it through her. We declined and the house sat on the market for three months without any action, meanwhile the sellers were unable to keep up their payments and went into default.
We offered our original offer again, even adding to it that we would bring the loan up current. Again a real estate agent talked them out of it before we could get a contract, telling them to let it go into default and they would be able to sell it as a short sale. They put it up for less than we were willing to pay, someone put an offer on the house, but the bank didn't accept their offer in time and the house went into foreclosure. And now it sits vacant, waiting again for the bank to decide what to do with it.
The sellers now not only have a foreclosure on their credit report, but come next year they will get hit with a form 1099-c Cancellation of Debt in income for the amount that the bank lost on the foreclosure. Because it was not a primary residence they will be saddled with paying tax on this phantom income because as far as the tax laws have changed for the mortgage mess they have done little to help investors. The income on a 1099-c can not be written off directly against a long term capital loss- all they will be able to take is $3000 a year of that capital loss against future income unless they have more capital gains for it to offset. Meanwhile they will be saddled with a huge tax burden for the added income from the 1099-c, possibly forcing them to sell off other assets or go deeper into debt to pay the tax bill.
The worst part of this story, and stories like it across the country, is not just the incurred tax liability, but rather the blight on our communities created by the self-serving advice these "trusted experts" are giving to desperate owners. Homes across the nation sit vacant, often becoming a breeding ground for squatters and drug addicts. The stagnant swimming pools of these empty homes become breeding grounds in a more earthly sense, leading to hordes of disease carrying mosquitoes. Saddest though, is the many people in the community who have worked hard to purchase their homes and earnestly are trying to make ends meet as their neighborhoods go to hell.
What are your options if you want to sell your home but don't want to work with a real estate agent? The way the downturn in the economy has hit the housing market, this is a great time to sell your home by yourself and use a real estate attorney or escrow agent to facilitate the transaction. Real estate agents do surprisingly little after an offer is accepted on a house, most of the work falls on the escrow agency's shoulders, so why not skip the middleman? From experience I can say that having a good escrow agent makes more of a difference on actually getting a sale to go through than having a good real estate agent.
For directly finding homebuyers, I have had the best luck posting classified ads on free Internet sites and running ads in the local free newspaper, these sources seem to serve the greatest number of individual buyers. There are many companies available who will, for a fee, allow you to list your home on the Multiple Listing Service. In addition to the cost to list the property you might have to pay the buyer's agent a commission if you go that route, but you still will save thousands over working with a seller's broker. Who knows, by saving the real estate agent's commission you might be able to buy or sell your house for a significantly lower price, making a seemingly impossible sale go through.
Crystal Stern, EA has been a tax professional for the last six years and is an Enrolled Agent- meaning that she is enrolled to practice before the IRS in all 50 states. In addition to the tax preparation and advising activities that Crystal does, she is involved in film making projects, flies helicopters, drag races cars and races motorcycles, not in the least what you would imagine a tax accountant to be.
Crystal got into this line of work through her ownership of investment real estate, and needing answers to complex tax questions about real estate sales issues. She has spent the majority of her tax career preparing returns for high net worth individuals and small businesses. Last year she started her own firm, Crystal Clear Financial, so she could focus on the types of tax work she really enjoys doing.
Crystal Stern specializes in problem solving- multiple years of unpaid taxes that need to be filed so a person can remove the overwhelming stress of the government breathing down their neck, business entity formation and sales, real estate investment and entertainment industry issues. She enjoys helping people get out from under the weight of their financial burdens.
For more information visit Crystal on the web at crystalcleartax.com crystalcleartax.com/
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