Another Home Seller Gets Screwed by the Real Estate Industry

I was driving through my neighborhood in Southern California last weekend when I came across this sign leaning up against a stop sign pole.

NotOnMLS

I am guessing that these houses sell for around $800,000. Is this how you want your $800,000 home marketed…on a piece of cardboard? More importantly, is this how the home owner wants their home marketed? And do they even know about it? I assure you there is not a real estate agent in America that does not know why this home was kept off the MLS.

It is true that most home owners know little about the process of selling their home. I would bet a majority do not know what a pocket listing is, let alone that it can unknowingly cost them thousands (or hundreds of thousands) of dollars when they sell their home.

Yes, I know. Every industry has some bad people, it is not just the real estate industry. But it is the real estate industry that has, in twenty states, passed minimum service requirements laws that even the Department of Justice declares harm consumers. And why, ostensibly, do these minimum service requirements states have such laws? To protect consumers from themselves.

The justification must be that consumers are so dumb when it comes to selling their home with a real estate agent, that they could be financially harmed if they were given a choice about which of the agent’s services to choose. So, rather than giving consumers a choice, they let the state choose for them. Because they are just too stupid to know any better.

Let’s assume I go along with the notion that consumers are so uninformed in the home sale process that they have to be protected from themselves. Why not make pocket listings illegal? You know, to protect consumers from themselves. I do not know of a single legitimate study that shows consumers benefit from pocket listing, but I can sure as hell point to some that show by how much they are harmed.

The industry claims there are legitimate uses for pocket listing, like when rich, famous people sell their home. Apparently they do not want the common folk to know they are ditching their digs, so they have to keep it off the MLS. Fine. You do not want to make it illegal, then just add a disclosure to the listing agreement. You know, to protect consumers from themselves.

The disclosure should declare that the use of a pocket listing primarily benefits the agent by enabling them to avoid paying a buyer’s agent’s fee, and that it will most likely result in a lower sale price for the home. Then, if a home seller wants to sacrifice their home equity for the sake of the agent’s commission, they can do so with a full understanding.

Unfortunately, this change will never happen, because the only thing the real estate industry wants to protect more than consumers, is their opportunity to double-end the commission. To see how ReaListing  puts and end to pocket listings by educating home owners, click here.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

The One Change That Would Dramatically Improve the Real Estate Industry

There is a dirty little secret in the residential real estate industry. Agents know it, brokers know it, and even homer owners sense it. What is the secret? There are too many damn real estate agents.

masses

There are about one million full-time, active real estate agents in the United States. Now, since there are about five million homes sold every year, that equates to around five homes sold per year per agent, on average. I doubt any real estate agents outside of Beverly Hills or Manhattan could make a living selling five homes a year.

Why are there so many real estate agents? Two reasons: low barriers to entry and the myth of instant riches.

What does it take to become a real estate agent? Not much. Do you need a college degree? Nope. Do you need some minimum work experience in the industry? Nope. Do you need the thousands of dollars it would normally require to start your own business? Nope. (By the way, when you become a real estate agent you are in fact starting you own business.) The only requirement to becoming a real estate agent is you must pass a test. And judging by the number of people who have passed the test, I think is fair to say that it is not an overly challenging test. Certainly nothing along the lines of the bar exam or the CPA exam. And probably not as difficult as the SAT test. Anybody who can pass this nominal test, becomes a real estate agent. That is a pretty low barrier to entry.

This explains why there are so many real estate agents. What other business opportunity can you start with little training, little money and offers the promise of instant and almost unlimited riches?

If the real estate industry really wanted to improve how it does business and how it is perceived, it would eliminate both these sources of agent oversupply. And how could it do that? The same way plumbers and electricians do it: with a mandatory apprenticeship.

During this period, the real estate apprentice would serve under the mentorship of a senior agent, really learning the business, but not making a lot of money. The result would be an industry with fewer, but more highly trained, agents. And more importantly, these would be people who really wanted to be real estate agents.

How many current real estate agents can honestly say they would have become a real estate agent if they had to serve a two year apprenticeship, knowing full well there was no chance of making the big bucks during that time?

I doubt this change will ever happen. Since most real estate agents pay some sort of fee to their broker, even if they sell one home or no homes, they still represent a source of income for the broker, who is motivated to have as many agents working for them as possible (i.e., masses of asses). So, until the brokers change the way they do business, the dirty little secret will persist.

To see how ReaListing intends to reduce the surplus of real estate agents, click here.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

A Realtor™ Would Never Do That

I have this crazy notion that I am going to sell my home and pay a fair, fixed-price commission to both my listing agent AND the buyer’s agent. No 6%, no 5%, just a nice cold hard chunk of cash, independent of the selling price of my home. That would be quite a trick.

Mask

Now, there are a lot of flat-fee/discount brokers in the real estate industry. They have been around forever. Why they do not have more market penetration, I have no idea. So, they can save me money on the fee paid to my listing agent. But, all these discount listing agents have one thing in common: they all suggest/recommend that I pay the buyer’s agent the full amount (i.e., 3%). The problem with that, of course, is a mathematical one. For me to save serious money on realtor fees when I sell my home, I have to realize savings from both the seller’s agent AND the buyer’s agent. Otherwise, my savings are almost inconsequential. So, what would be so terrible about offering a flat fee to the buyer’s agent?

Talk to any listing agent and they will tell you the problem with offering less than customary commission to the buyer’s agent is that they will steer their buyer away from your home and show them homes that are more profitable for themselves. But what if my home is the ideal home for their buyer? I thought to myself, “A Realtor™ would never do that.” Now a real estate agent might, but not a Realtor™. What is the difference? A Realtor™, as they are so quick to point out, abides by the National Association of Realtors (NAR) Code of Ethics. And what does their code of ethics say about showing my home with its less than customary commission?  Well, let’s read it together:

The duty obligates a real estate broker to act at all times in the best interest of his principal, to the exclusion of all other interests, including the broker’s own self interest.

I feel like it is that moment in the movie A Few Good Men where Tom Cruise’s character asks Jack Nicholson’s character, “Why the two orders? If the men were given the order that Santiago wasn’t to be touched, and your orders are always followed, why was it necessary to transfer him off the base?”

If Realtors™ abide by a code of ethics which prohibits them from steering buyers away from my home, and Realtors™ always abide by their Code of Ethics, why is it necessary to offer full price commission to attract them to my home? Why the two orders?

These discount listing agents must be mistaken. A Realtor™ would never do that. I can rest easy now knowing that every Realtor™ representing a buyer in my neighborhood will show my home with same alacrity as every other home.

But just in case, to learn how ReaListing makes unethical buyer’s agents a thing of the past, click here

 

 

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

The Worst Reason to Choose a Real Estate Agent

Of all the mistakes home sellers make when choosing a real estate agent to sell their home, this is probably the biggest.

As most home sellers know, when working with a real estate agent to sell their home, one of the first things the agent does is to assemble a Competitive Market Analysis (CMA) for the home seller. The CMA includes the prices of recently sold homes in the area, prices of currently for sale homes in the area, and maybe even prices of homes that failed to sell recently in the neighborhood. The idea is to use this information to come up with an asking price for the seller’s home. But who determines that price…and why?

Price

Deciphering a CMA is a lot like reading tea leaves. Because pricing a home is not an exact science, you can pretty much see any number you want in it (and justify it). When employed correctly, the CMA is used by the seller and agent together to strategize about an asking price for the home. When employed incorrectly, it is used by the real estate agent to get the listing. The agent “gets” the listing by reading the tea leaves and promising the seller that they can sell their home for more than any other agent. And that is the worst reason for choosing one agent over another.

The reality is that agents have no idea what you home will sell for. All the can do is help you enact strategies to ensure you get the highest price possible, within a certain time frame, given the current market conditions. So, choosing an agent who promises you the highest sale price based on the CMA is choosing the agent who is the biggest liar. But do not blame the agents for this. There are two parties that encourage this behavior.

First, the real estate industry is complicit in this behavior. It has established, as standard operating procedure, that the CMA be done before the agent has secured the listing. This only encourages the agent to use your CMA as their marketing tool. A better way to operate would be to first choose the agent and then, after the seller has “hired” them, conduct a now-unbiased interpretation of the tea leaves. But it is not just the industry who is at fault.

Sellers themselves are just as much to blame for this behavior. They either do not know any better, or just want to believe the lie. I liken to those who lose money in a Ponzi scheme. Deep down they know it is not true, but they want so much to make that money that the suspend judgment and common sense.

If you really want to know what you home will fetch, I suggest you pay for a professional appraisal. That is the number the bank lending the money to the buyer is going to use, and you will have a hard time getting much more than that unless you can get a bidding war for you home between cash buyers.

Next time you are interviewing a real estate agent to list your home, don’t ask them what they think your home is worth. Ask them how they will go about getting you the highest possible price for your home. The realtor that answers that question the best is the one who should get the listing.

To see how ReaListing makes the job a choosing an agent easier, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.