Layla and I spent six hours in a home-buying seminar for first-time buyers today, and since Mouser posted about open houses, I figured I'd use this opportunity to share a bit of what I learned.
The rationale for real estate agents to hold open houses makes sense, at first glance. Home buyers are typically most interested in only two aspects of a home (its price, and its location) and make up their minds about whether they're interested in a particular home when they first see the lot and the house's exterior. Open houses are a way for listing agents to get prospective buyers inside a home so they have a better opportunity to make a sale that otherwise wouldn't happen—and before you say the same thing happens when a selling agent (actually the buyer's agent—I know, it's confusing) shows a house, remember that open house goers often don't have the price information because the listing agent almost always moves those handy little flyers from the outside of the house to the inside.
Anyway, all of this made loads of sense thirty years ago when somewhere between 10% and 15% of the buyers who attended an open house would actually place an offer on the home.
But that's not true anymore. Current estimates place that number at between 0% and 2%—and this is widely known inside the real estate industry, even though it isn't too obvious from the outside. Additionally, the introduction of the computerized MLS has moved the time at which the house receives the most attention from buyers: it's gone from around two weeks after its original listing date to the first 48 hours after its listing date. Open houses take a lot of time to organize and execute, and agents won't invest that energy if it isn't necessary—and there simply isn't enough time to judge whether it's necessary in those first two days of being listed.
So why do agents still hold open houses? Well, those 2% of buyers do provide some incentive, but the primary motivating factor is evident in what you'll nearly universally find in all open houses: a binder full of similarly priced homes in the area listed by the same agent or agency. Agencies are more than willing to inconvenience themselves and the house's owner by arranging an open house—because it's essentially free advertising for the agent.
On the face of it, advertising like this doesn't seem too harmful—after all, agents plaster their faces and cell phone numbers all over signs in front of every house they've listed. But the practice of listing agents directly soliciting buyers has been the primary ethical issue in the real estate industry for the last twenty or thirty years. Realtors representing both sides of a transaction (called dual-agency) were fairly common before the introduction of MLS and the boom of agency advertising on for-sale signs, but abuse was so rampant during the 1980s and 1990s that opinion of the real estate sales industry dropped significantly, and even prompted a change in Washington state law that came just short of outlawing the practice. The wording now reads approximately that there exists a presumption that the buyer and seller are independently represented, and buyers should always use a different agent than the seller1.
I've heard now from multiple realtors that a basic test for ethical real estate agents is to ask what their response is if contacted directly by an unrepresented buyer who expressed interest in one of their listings. If the agent doesn't immediately say that they would refer the buyer to another agency, it's time to run.
I can't corroborate this from other sources, but I also heard today that for all the reasons listed above, most experienced realtors don't even bother with open houses. It's much easier to properly price and prepare a home to sell in those first 48 hours of exposure. But, in an industry with a 3-year turnover rate of over 80% (also unsupported), there is no shortage of inexperienced agents to keep running open houses to attempt to raise their sales numbers.
So to wrap this up—are open houses bad from a buyer's perspective? Not necessarily, as long as you remember to keep the listing agent's motivation in mind. It's a great way to get firsthand exposure to the interior of a class of home in which you're interested—and that's often the only option if you haven't yet connected with an agent to represent you as a buyer. Do be careful, however: at any given time, the local Puget Sound realtor's newsletter lists a handful of recent thefts and assaults at open houses, and an agent was even killed at an open house he was hosting here a few years back.
1 Even though it may seem convenient to have the same agent handle both sides of the sale, remember that unless you're an expert on the real estate industry, you'll be relying on your agent to educate you. And since they're educating you on the specifics of what to do and say, you also need to rely on them for full confideniality of your position and full disclosure of what they learn of the other side. If you've got one agent doing both, there's no way you can get confidentiality and disclosure.
The problem with my house-buying experience is that Los Alamos is such a bizarre market that none of the advice I can find online seems relevant.
Most big-city markets seem to be able to move any given house that goes onto the market within a few weeks at maximum. Here, there are houses that have been on the market for over a year. My agent said that I could expect a new house to show up on the market every few weeks or so, rather than several a day in a big city.
The open house was a total wash, though. I was there for the entire hour and a half talking to the agent about other places. One other guy came through, but only because he was thinking of selling his place for the same price and wanted to see if this place was of comperable quality.
I do want to point out that there is value in attending open houses. This will help you learn the market, both by seeing the house and that handy flier. You just want to be careful about agents who use open houses.
I also want to point out that until the '90s, there were not laws implace to even allow the buyer an agent by default.
I would argue that the interior floor plan is at least equally important in the homebuying equation (if not, on occaision, more important) than location and price.
But it really comes down to availability (Are there two houses in the same price range and locale that have different layouts) and the willingness of the home buyer to compromise. Cost is usually not someting a homebuyer can compromize on, which leaves location.
However, I think location is a bit more tricky to nail down in terms of whether or not people are compromizing. For instance, do people live in the suburbs to afford more desirable layouts (or more space), or is it to provide a "Safer" environment for children, or perhaps even a cleaner, more modernly planned grid?
I know that when Katya and I bought our house, the interior layout was a significant factor. But then again, we had a number of options in both price range and location.
Mouser-
I haven't really looked at the Los Alamos market for a decade or so, but even when the RIFs were occuring, the market wasn't too unusual. Sure, it cooled, and there's a particularly stubborn proportion of sellers up there that will insist on overpricing their home—but other than that, I'm not too sure it's too different. I also know that over the five houses we had up there, my mom had to go through over a half-dozen agents before finding anyone competent. I'll ask her next time I talk to her if she's got any recommendations.
Layla-
Exactly my point—you're just incredibly more concise than I am.
Rob-
The point I accidentally forgot to raise is that it's absolutely critical that you really inspect the home—but you should do so by telling your agent what your parameters are, letting them assemble a list of appropriate properties, and then visiting them one by one. You won't have the pressure of having a listing agent in the room with you, and you will have honest opinions about what sucks and what doesn't from your own agent.
When I mention location and price, I do so because they're really the things that don't have much flexibility. You don't see this as much in smaller New Mexican towns, but in Albuquerque or Seattle there are worlds of difference between one side of town and the other. And you're right—cost isn't something buyers can usually compromise on. It's a parameter that drives your home selection far more than any other. Sure, a fantastic floorplan is easily worth a few thousand dollars over a crappy one—but if that difference comes up to $50k or more, it doesn't really matter how much nicer the other floorplan is.
--Dan