Real estate professionals who are watching housing bidding wars in places like California and Massachusetts are beginning to question whether real estate listing agents have too much power in the sales process.
They fear that in some cases listing agents are involved in a type of insider trading, where they decide the winning bidders without having to provide information on every bid offered.
Bill Wendel, a consumer advocate that founded Real Estate Café, an Internet site for do-it-yourself homebuyers, fears that in Massachusetts, listing agents are using phantom bidders — or bidding information that is never disclosed publicly to all parties — to push up the sale price. Whether it's occurring or not, he wants more transparency.
"If you are a buyer's agent, this is what you are paid to do. You are paid to help people make informed decisions. And if you are involved in a decision that is made in the blind, you cannot do your job adequately," Wendel explained.
And he's not the only one concerned.
Scott Stockdale launched Clear Offer in Southern California. The new online technology firm aims to bring clarity to the real estate transaction process by giving all of the parties involved time-stamped information on bids.
"The main driver (for launching the product) was the frustration coming from the buyer side of the market where they submit multiple offers and never hear anything back," Stockdale said. "The whole concept is to create fairness to buyers and maximize seller proceeds."
Stockdale said California agents are more frustrated with many properties selling for amounts lower than competing bids. This type of situation fosters fears that listing agents are involved in an insider's game.
"Listings agents are controlling the offer, and they are the least interested in the transaction," Stockdale said. "The back-end of our system allows asset managers to review offers on REOs." The product also is designed to help with short sales, according to Stockdale.
Listing agents legally need a seller's permission to reveal other's bidding information. But the Clear Offer system gives those wanting to promote full clarity, the option to make offers private or public, Stockdale said.
While technology can address some of these concerns, both Stockdale and Wendel believe something should be done legislatively to make the transaction more apparent to all parties.
OfferSubmission, owned by Woodward Asset Capital of Southfield, Mich., also provides an online real estate offer management system for banks, mortgage servicers and asset managers who are selling REOs.
It ensures that every offer for a distressed asset is received, since binding offers are submitted online by the buyer's agent. Engaging the buyers’ agents in the offer process is the only way to avoid fraud in selling REOs, contends Ron Jasgur, president of Woodward.
Under the process used now by most large lenders, the listing agent still holds the cards.