The Consumer is King in Real Estate, Except When it Really Counts

If you spend a lot of time trolling the real estate industry—which most consumers don’t—the buzzwords du jour are consumer-centric. “The consumer is king. Case closed. Period. There is no going back,” claimed an article on the Inman News website awhile back. Why this has not been true for the past fifty years is a mystery to anyone. I suppose it is a consequence of the universal unleashing of information in the real estate industry due to the prevalence of the internet. Perhaps it was easier to be agent-centric when they had a stranglehold on all the information. Not so much today.

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But for whatever reason, I am glad the industry has finally come around to putting the needs of the buyers and sellers first. They do, after all, pay everyone’s salary. So, I was a little disappointed to read last week that the California Association of Realtors (CAR) is going to out “Code of Ethics” violators to members only. In other words, which agents are in violation of their code of ethics will not be made available to consumers—the ones most harmed by the violations. That is the kind of information, if made available, that would be extremely helpful to buyers and sellers in vetting a real estate agent to represent them. But, it would be an even more powerful deterrent for agents, knowing that consumers can easily discover their dastardly deeds. If you want to eliminate unethical agent behavior, you have to make it costly to engage in it. Just outing them to other agents is an insufficient penalty.

I do not know whether to be grateful that the association is doing something more than nothing with regard to the violators, or disappointed that they did not take the more aggressive step of alerting consumers. But it is certainly not unexpected. They do, ultimately, represent real estate agents and not consumers. The association actually has a financial incentive to never out violators to consumers: they risk losing a dues-paying member.

Perhaps someday the real estate industry will embrace true transparency, put the needs of their customers ahead of their own (like it states in their code of ethics), and believe that buyers and sellers are best served by the quality of member agents and not the quantity of member agents. Now, that would be consumer-centric. Until then, all buyers and sellers will continue to be in the dark about which agents strictly adhere to their code of ethics and which ones just brag about it.

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.

$1B Invested in Real Estate Tech and not 10¢ to Empower Sellers

An article appeared on Inman News (a real estate news website) last week entitled $1B invested in real estate tech, with companies bringing innovation to search, discovery leading the pack.

Along with the article is a fantastic chart detailing the companies receiving the investments, and whose technology is going to power the next generation of residential real estate transactions. There are even a couple of companies in the category of Buyer Education Platforms.

inmanThe buyer education platforms purportedly provide education and tools for buyers to make more informed home buying decisions. And for that, I applaud them. Anything that empowers consumers to make more knowledgeable decisions is good thing, and sorely needed.

I could not help but notice, however, what is conspicuously absent from the chart: seller education platforms. You remember sellers, don’t you? You know, the ones who contribute most of the $160 billion dollars that comprises the residential real estate industry. But I suppose that is the point: nobody in the industry wants that number going down. Try starting a tech company that helps sellers negotiate dramatically lower commission with real estate agents and see how fast that gets funded. Consequently, there is not a lot of good information out there right now for home sellers, and the little that there is, tends to be non profit. Go figure.

ReaListing is a new (self-funded) resource that addresses this very problem: seller education and empowerment. ReaLisitng’s goals include:

o Show home sellers how to negotiate commission that are more fair for everyone
o Reduce or eliminate the conflicts of interest in the agent-seller relationship
o Teach sellers how to distinguish a good agent from an bad one
o Detail the pitfalls to avoid when selling a home

To learn more about how ReaListing can help you keep more of your home equity when you sell your home, 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.

How Home Buyers Can Win A Bidding War Without Offering More Money

Let’s face it, there are a lot of hot real estate markets right now. There are many areas of the country where buyers outnumber sellers by a large margin, and that can only mean one thing: bidding wars. As a buyer in today’s market, you already know going in you will probably be in a multiple offer situation. The only questions is, what to do about it?

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One strategy to win in a competitive market is not to offer more money, but to “pretty up” your offer. With this approach you try to get the home by making your offer more attractive than the other buyer’s offers. Some buyers write letters to the seller telling them how much they love their home. Others offer free tickets to a sporting event or offer a flexible escrow duration. And while none of these strategies can hurt, at the end of the day most home sellers opt for max cash. This strategy may work, but why take a chance?

Another strategy is to just offer the most money. This almost always wins, and for sure some buyers desperate enough to purchase their dream home resort to this tactic. Of course, this has a couple of drawbacks. First, if you are not paying all cash, a dramatic overbid may not appraise, and you will still not get the home. The other drawback is, who wants to get ripped off? Anybody can overpay for something. Where is the challenge in that?

But, what if there were a way to offer a higher price than every other buyer without spending more money than them? You probably think it is impossible, but it isn’t. All you have to do is get a little creative (and find your dream home without the help of a realtor).

Imagine you find your dream home, without the help of a realtor, on one of the myriad of third party real estate websites like Zillow and Trulia, or maybe even by attending an open house. Let’s further assume that you have done your homework and you have a pretty good idea what price to offer for the home (and you are pre-qualified for that amount with a lender, if your are not paying all cash). All you really need a realtor for at this point is to fill out the offer sheet for you and take phone calls from the listing agent during negotiations. And if that is all you need, why pay for any more?

Here is what you do. Call up a real estate agent and tell them you would like to make a bid on a house. All you need them for is to fill out the paperwork and take calls from the listing agent. And for this meager effort, you will pay them $2000 out of escrow. Can you find an agent who will do that? With inventories this low, that should not be a problem. Most agents would love to make two grand for a few hours work.

Now, here is the trick. When you make your offer, you stipulate that the buyer’s agent is rebating all but $2000 of the commission back to the seller.

Let’s work through an example to see how it works. Suppose the home you want to purchase is $500,000. Most sellers pay around 5% commission to the listing agent, of which half usually goes to the buyer’s agent. In this case, 2.5% of $500,000, or $12,500, is earmarked for the buyer’s agent. But you are only going to pay your agent $2000. The remaining $10,500 goes back to the seller. You just made a offer ten grand higher than an equivalent bidder without spending a dime more. And there is one more thing. That ten grand you are returning to the seller is not just ten grand. It is their equity. It is ten grand they earned over years of dutifully paying their mortgage. They have an emotional attachment to that money, because it is not yours (or your bank’s), it is theirs. That is how your really pretty up your offer. Let the seller keep more of THEIR money.

Good luck and happy house hunting. To see how ReaListing teaches buyers and sellers how to be smarter consumers, 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.

How Home Buyers Get Screwed and Agents Violate Their Code of Ethics With a Click of the Mouse

There is no doubt about it. New technology makes home shopping easier, for both home buyers and their agents. Gone are the days of having to visit every home. Now, with third party sites like Trulia and Zillow, there is a wealth of information available to today’s home buyer. But, there is something even better (for now) than these third-party websites. Something more comprehensive and accurate: MLS direct to the desktop. (MLS = Multiple Listing Service)

Today, your buyer’s agent can set up search criteria according to your requirements for a home and have the MLS listings e-mailed directly to your inbox. You just click on a link and view the home. That’s right. Your buyer’s agent now has the ability to show you every listing in your price range without ever leaving the comfort of your home. But they won’t.

You see, along with search criteria like number of bedrooms, bathrooms and price range, your buyer’s agent also has the ability to limit the listings you see by THEIR commission. That’s right. If your ideal home comes with a less-than-satisfactory commission for your buyer’s agent, there is a pretty good chance you will never see it in your inbox. You will not see it because your buyer’s agent does not want to make a less-than-customary commission, and because they want to punish the listing agent for attempting to sell a home with one.

As you can see in the image below taken from the CLAW (Combined Los Angeles Westside) MLS, when setting up a home buyer search, there is field called “CSO”. Simply put, the percentage or dollar amount placed in the CSO box is the amount above which the commission must be for the e-mail to be sent. Anything below that amount and the buyer will never see the listing.

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Now, limiting the homes your agent shows you by their commission is called steering, and it is a clear violation of the NAR (National Association of Realtors) code of ethics. Interestingly, to use most MLSs you have to be a member of NAR. And to be a member of NAR you have to agree to abide by their code of ethics. So, pretty much every agent using this form to set up a search for a buyer has already agreed not to limit the homes they show their buyers based on their commission. This raises the obvious question: what the hell is that field doing there in the first place? If the field’s only value is in limiting the homes a buyer sees and limiting the homes a buyer sees is a violation for everyone who uses the form, why have it?

As a home buyer there is nothing you can directly do to prevent this from happening to you. You can try to find a completely ethical agent (I am sure they exist), but in the end you have no way of knowing for certain. If you really want to cover your bases, set up home searches on the third party sites like Trulia and Zillow. Buyer’s agents cannot restrict what homes show up there. Then if a home you are interested in shows up on one of those sites but does not show up in your inbox, you and your agent can have an interesting ethical discussion.

To see how ReaListing tries to increase the transparency in the real estate industry, 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 Big Lie That Keeps the Real Estate Industry Rolling

Do you belong to Costco? Why? Because you want to get a deal—save a little money. Ever used a coupon? Ever shopped during a sale? Why? You wanted to save some money. Everywhere in your life you try to be a smart consumer and save a little money except one: when it comes to selling your home.

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The real estate industry has home sellers so freaked out that they are literally afraid to save themselves money when they go to sell their home. And we are not talking Costco money here. We are talking about tens of thousands of dollars of potential money savings. It is hard-earned equity that rightfully belongs in the home seller’s bank account, but ends up in the real estate broker’s bank account instead. And why are home sellers so afraid to save money when they go to sell their home? Because they have, and continue to, buy into the one big lie the real estate industry is holding onto for dear life.

You get what you pay for. That is the big lie you will hear over and over again if, god forbid, you try and negotiate a more reasonable commission for the sale of your home. What else can explain why home sellers continue to pay outrageous (for the level of effort) commissions, when there are tons of options to pay less and all impartial research indicates that paying less commission results in more money in the home seller’s bank account? In other words, you actually get less than what you pay for. That is why I call it the big lie.

If I call up the best real estate agent in my neighborhood—assuming there is some way to measure that—to list my home, they will want 5-6% of the sale price to do so. Now, if I call up the worst real estate agent in my neighborhood, guess what they will want to list my home? If I call up an agent with 28 years of experience and one with 28 days of experience, they too will both quote me the same commission to sell my home. Am I wrong, or is real estate the only industry where you pay no penalty for being bad or inexperienced? How can you get what you pay for when agents of different caliber charge the same amount? Surely somebody must be a rip off.

A 2002 study in the International Real Estate Review found that had home sellers, en masse, stopped believing the big lie, it would have reduced the size of the residential real estate brokerage industry by about $30 billion dollars. Of course, today, the number is probably closer to double that amount. And that is why it is even more imperative for the industry to perpetuate the mass delusion of the big lie. There are a lot of people whose Lexus depends on it.

But the era of the big lie is (slowly) coming to an end. Information has been set free, technology is empowering consumers and the Millennials are starting to enter the real estate market. The customary (5-6%) commission is under attack on so many fronts, the big lie will someday soon be called the big laugh. Nobody will buy it, and trying to convince someone that getting ripped off is actually in their best interest will no longer instill fear, but rather a howling chorus of laughter. Be afraid, be very afraid just will not work for very much longer. It might be time to think about leasing a Kia.

To learn how ReaListing puts an end to the big lie forever, 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.