Bad real estate advice from TV agents. . .
But the worst advice I've seen in awhile comes from Los Angeles-based Keller Williams agents Grace Michelman and Alex Tieu, who called themselves "The Divas of Real Estate" at the time this show was aired. From the episode description:
Their new client, a Los Angeles actor named Tai, is very interested in loft living in downtown Los Angeles. And with the recent growth of the Los Angeles downtown area, there are many impressive lofts to see.
Tai is in for a little shock, however when he hears the prices and fees, but he's determined to find one he loves. Grace has to use her best sales skills to close the deal...and yet there may still be a wrinkle in Tai's plans.
Watching the agents interact with their prospective buyer -- who is a client, and to whom they owe a fiduciary responsibility -- is troubling. For starters, they urge him to apply for an interest-only loan because it's a "good program for a lot of couples who are looking for one of the lowest payments. The biggest gamble is. . . the rates going up because it is adjustable. . . If you know you're gonna stay in that house for at least 20 years, I would recommend a fixed-rate loan. Since they are not looking to stay in the home more than five to seven years, we recommended the interest-only loan because it makes it more affordable to get into a more expensive loan."
Right: They recommend it because it makes their jobs easier and potentially more lucrative: Bigger houses equal bigger commissions.
Toward the end of the show, our hero Tai is having second thoughts about buying because he's worried that prices will come down. Ms. Tieu pulls out a calculator and explains to him that if prices come down $100,000, but he waits to buy and interest rates move from 6.5% to 8%, his monthly payments will still be the same. That sort of makes sense, except that his monthly payments will be the same but he won't be $100,000 in the hole. If she's trying to argue that he should buy now because of low interest rates, that's in direct conflict with her earlier suggestion that he take out an interest-only loan. He'd need to stay in the house for a long time for lower monthly payments to make up for having overpaid by six figures. The notion that he should buy a house that's about to tank in value just isn't very good -- and is a sign of a desperate salesperson trying to close a deal. These agents' advice seems to boil down to whatever will make a sale, and their handiness with a calculator and amortization table leaves Tai unable to defend himself.
Then there's another fallacy in her argument: If he buys now and interest rates rise -- the scenario she used to convince him to buy now -- he'll have a serious problem on his hands because she convinced him to take an adjustable-rate, interest-only mortgage.
What did Tai end up doing? Watch the full episode of Real Estate Confidential on Hulu. And even if you decide not to watch it, remember: Even the best real estate agents are salespeople, and you need to do your own research and have a solid understanding of financing to avoid being taken to the cleaners.