Robot Outperforms Realtors Finding Homes Buyers Prefer

In the “nothing can take the place of an experienced realtor” category comes this story from Inman News. Over three days a robot (aka a computer algorithm) competed head-to-head with three highly experienced Denver real estate brokers to see who recommended homes a buyer most preferred. The buyer consistently ranked the homes suggested by the algorithm as their first-choice favorites all three days.

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When the robot can open the door, what will be left for the buyer’s agent to do but collect the commission?

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.

Can The Intelligent Home Seller Movement Change the Real Estate Industry?

Home sellers, who are fed up with the outdated customs of the residential real estate industry in the United States, are starting to band together in a movement called The Intelligent Home Seller movement.

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These intelligent home sellers are not advocates of For Sale By Owner and are not anti-real estate agent. In fact, they see real estate agents just as much of victims as home sellers in the way the real estate industry currently functions.

They do not believe that some new “ap” or legislation will fix the problem. They understand the only thing that will change the industry is changing buyer and seller behavior, and they are leading the charge to do so. How are they doing that? By refusing to follow the industry’s outdated customs.

In simplest terms, The Intelligent Home Seller movement believes the real estate industry should start behaving like every other home service industry. In this regard, they advocate the industry adopt the following three fundamental changes.

Do away with percentage-based commissions. It does not cost twice as much or take twice the effort to sell a home for twice price, so why should home sellers pay twice as much? It is a custom that is unfair for all but a small number of home sellers and intelligent home sellers are putting down their collective feet by refusing to compensate agents in that manner. What do they suggest replace the percentage-based commission? Fee-for-service or flat fee, both of which are more in line with compensating agents based on their expertise and level of effort.

Those receiving the service should pay for the service. The US and Canada are the only countries where, by custom, the seller is expected to pay for the buyer’s agent. This not only results in commission rates up to five times higher than in other countries, but creates needless conflicts of interest between agents, buyers and sellers. These intelligent home sellers would like to see buyers start to pay for the real estate services they use because they understand the only way buyers will ever receive expertise they can truly trust is by paying for it themselves.

Stop working for free. Of all the customs that create conflicts of interest between seller and agent, perhaps the worst is that of the commission which is contingent on the sale of the home. Intelligent home sellers believe that real estate agents should never be put in a position where they can render their valuable services for free. And whether that means putting up a small, non-refundable deposit, or paying them as they go, intelligent home sellers see this as benefiting everyone. Agents will never have to risk working for free and home sellers will get better advice from their agent who is not put in an all-or-nothing situation.

The real estate industry may have adopted some unfair customs, but that does not mean home sellers have to follow them. And that is exactly what these intelligent home sellers have come to understand. And if enough home sellers become intelligent home sellers, the industry will change. It will have no other choice.

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 to Pay Nothing and Still Get Ripped Off

It is hard to imagine that you could pay nothing for something and still get ripped off. Unless, of course, you are buying a home.

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In the US, by custom, the seller of a home is expected to pay for a real estate agent to help a buyer buy the home. Naturally most home buyers jump on the deal. After all, you can’t do much better than free, or can you?

While buyer’s agents may do many things for buyers, buyers really only work with agents for one reason: expertise. In particular, they seek the answers to two very important questions from their agent:

1. Should I buy this home?
2. How much should I offer?

In the US there is another custom when it comes to compensating real estate agents: most of them work for lottery tickets. And as result, the buyer becomes the agent’s lottery ticket. A ticket they hope will pay off some day.

One of the consequences of this lottery-like compensation is that the agent’s true allegiance is NOT to the buyer, but rather to the deal itself. Regardless of how hard they work, to get paid, their buyer has to actually buy a home. And to make sure that happens, the agent may have to talk the buyer into buying a home they probably shouldn’t. Or, worse yet, talk the buyer into paying more than they should for a home, just to ensure the deal gets done and they get paid.

So, buyers work with “free” agents primarily for their advice and ultimately cannot trust it because of the way they are compensated. Nice.

In this circumstance, the rip off comes from taking the advice of an expert who cannot be trusted. An expert offering misguided advice that could easily cost the buyer more money than if they simply paid for their own agent by the hour. An agent who would be loyal to them because they were not working for lottery tickets.

So, why do buyers subject themselves to this potential rip off? Because it is invisible. Paying a real estate agent by the hour, which could cost a couple thousand dollars, is highly visible. It is “real” money the buyer has to pay out. On the other hand, paying ten thousand dollars too much for a home because they took compromised advice is invisible. They may have overpaid for the home, but they will never know it, so all is good.

When it comes to infrequent, big-dollar transactions like buying a home, nothing is more valuable than expert advice. But it only has value if it can be trusted. Advice that cannot be trusted is not worth the price, even when the price is free.

 

 

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.

Why Haven’t Real Estate Commissions Gone Down? Unimaginative Home Sellers

I am perplexed that home sellers, in hot seller’s markets like we have today, have not yet learned to use that fact to reduce the commission they pay to sell their home. Most home sellers thoughtlessly hand over tens of thousands of dollars in commission to sell their home, even though the home practically sells itself, the pent up demand is so great. The only way I can explain it is a failure of imagination. Most home sellers cannot even imagine that they can pay less to sell their home. The thought just does not even occur to them, for if it did, clearly they would pay much less, because it is not that difficult to do.

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When sellers have buyers climbing all over themselves to buy their home, sellers should learn to use that circumstance to reduce the commission they pay to their agent, if they hire one, AND to the buyer’s agent. And while real estate agents will try to convince home sellers that they have to pay 5%-6% commission to sell their home, in a hot seller’s market, there is no reason to do so.

Even in a hot seller’s market, saving money on commission requires two different strategies: one for the buyer’s agent and one for the listing agent. Saving money on the listing agent’s commission is pretty easy to do and there are a lot options from which to choose. Flat-fee realtors, fee-for-service realtors and discount realtors can all save home sellers a lot of money on the listing agent’s commission. But it is the buyer’s agent’s commission that presents the real challenge to commission savings, even in a hot seller’s market.

The challenge to saving on the buyer’s agent’s commission stems from a problem known as buyer steering. When a seller sells their home they are expected, by custom, to pay for the buyer’s agent. And since the seller does not get a chance to negotiate with them directly, the only choice the seller has is to offer them less than the customary amount (2.5% – 3%) in the listing agreement. The risk in doing so is that buyer’s agents may “steer” their buyers away from buying such a home until the seller raises their rate back up to what is customary. In this regard, buyer steering makes the buyer’s agent’s commission more of a ransom than actual compensation for work done. So, how does a home seller offer less to the buyer’s agent in a hot seller’s market and avoid buyer steering? By incentivizing the buyer.

When homes for sale are hard to find, desperate buyers look for any advantage they can get to try and win a bidding war when a home they want finally comes on the market. What I recommend sellers do in such a situation is to let all buyers know that they will give preferential treatment to any offer made by a buyer who pays for their own agent. Now buyers who really want the home will start to consider the possibility of paying for the real estate services they are receiving.

If done properly, this technique can benefit both the buyer and seller. The seller can sell their home for a fair price without having to pay for the buyer’s agent. And the buyer can negotiate compensation with their agent which may cost them less than trying to win a bidding war. Of course the buyer’s agent may not receive the amount they are accustomed to. That’s okay. They can make up for it during the next hot buyer’s market.

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.

Of What Use is the NAR Code of Ethics?

Realtors like to point out that when you hire a real estate agent to help you buy or sell a home, you shouldn’t just choose a real estate agent, you should pick a Realtor™. What is the difference? Realtors belong to the National Association of Realtors (NAR) and just plain real estate agents do not. And how does membership in NAR benefit buyers and sellers? The best I can tell, only one way: Realtors have a code of ethics.

angel2Go ahead. Ask any Realtor why it is so important to hire a Realtor and not just a real estate agent. Almost without exception they will tell you that they have a code of ethics. Of course a code of ethics is only effective if the people bound by it actually abide by it. So, do Realtors abide by their code of ethics? Not so much.

Based on a recent survey of more than 300 real estate agents by Consumer Reports, they found that about 86 percent said they have seen other real estate agents engage in poor business practices. That is code for violate their code of ethics. Of course none of the 300 real estate agents surveyed had ever done that. They were all angels.

What were some of the dirty little secrets agents confessed to? Here are quotes from the article:

“I sometimes steer clients toward houses that will bring me a higher commission, rather than the best house for them.”

“You can’t believe everything I say about myself in my marketing material.”

“I might persuade a client to sell a home for less than it is worth.”

“I might encourage buyers to make an offer that is too high.”

“I sometimes reveal information about the lowest price a seller will take or a potential buyer’s top price.”

“I might not disclose problems with the neighborhood to potential buyers.”

So you hire a Realtor for their expertise and you cannot trust what they tell you. Lovely. So what is the value of the NAR Code of Ethics? There isn’t any. The ONLY way to make sure your Realtor is doing right by you is to be an educated consumer. Everything else is just misdirection. To learn to be a more informed home seller, visit ReaListing.

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 Dare You Let Home Buyers Know What Their Agent Will Make

It was bound to happen. An Internet startup in real estate had the gumption to actually display, in public, for all to see, what commission a buyer’s broker would make representing a buyer for the homes on their website. And the storm that immediately ensued was a thing to behold.

If you have not been following the news, new home selling platform Trelora started publically displaying the buyer’s broker’s commission for homes advertised on their website. And since Trelora gets their information from the local MLS, and since the local MLS forbids such behavior, it took the local MLS all of about 12 milliseconds to blast out their cease and desist letter to Trelora, who reluctantly complied with their wishes by taking down the information.

None of this comes as a surprise to anyone who closely follows the residential real estate industry. Of all the new-age concepts that have escaped adoption by the real estate industry, the concept of transparency is right at the top of the list. We love you home buyers and sellers, we really do, but we do not want you to know a damn thing about how we operate, especially how much money we make. We have you in the dark and that is where we prefer you stay.

Still, the behavior of the local MLS, REColorado, raises the obvious question: why is it against MLS rules for a buyer to know how much their broker makes? The buyer is, after all, the one employing them.

Now if the buyer is the one actually paying for their broker—which does happen on rare occasions—how can they do so without knowing what the broker intends to charge. On the other hand, if the seller is paying for the buyer’s broker—which is more common—why do they care?

One reason why they care is because if the buyer knows how much money the seller is paying for their broker, they may be tempted to want some of that for themselves. But I have another theory why MLSs go out of their way to make sure no one in the general public sees any compensation information: they’re embarrassed. They are embarrassed by how much money they make for the work they do and the last thing they want is to draw attention to that. It is as good an explanation as any.

All this recent fuss is just one more byproduct of the outdated and asinine custom of having the seller pay for the buyer’s agent. If buyers had to actually come up with the cash for the brokers providing them the service, you can be sure of two things. The buyers would know what the brokers were charging, so keeping it off the MLS would be moot. And the brokers would make a hell of a lot less money.

Will sellers ever revolt and insist that buyers start paying for their own services? Not if the real estate industry has any say in the matter. There are too many dollars at stake. If you are getting ready to sell your home and you would like to know how to keep more of those dollars at stake for yourself, visit ReaListing.

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.

It’s My Job as the Listing Agent to Get the Appraisal to Come in Right

I couldn’t believe what I just heard. Those words were spoken by an experienced and highly regarded real estate agent. Did he really believe what he just said?

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To offer a little background, I was watching a video of a real estate agent conducting an open auction to sell a home. It really is quite a clever idea, and something that is done often in other parts of the world.

Whenever there are a great number of buyers interested in a particular home, it is in the seller’s best interest to make it a competition. And the best way to do that is with an auction.

There are two different kinds of auctions the seller can employ. The first, and the one home sellers are probably most familiar with, is the sealed bid auction. With a sealed bid auction, the seller requests that the buyers submit a “best and final” offer to purchase the home. In this manner, buyers do not know what other buyers are offering and are left to guess as to what price it will take to win the home.

The other auction type is the open auction. You know the kind where the auctioneer speaks a mile a minute and looks around the room for buyers to raise their hand as the price goes up. And that is what this real estate agent was doing. He gathered all the interested buyers into the living room of the home for sale and began a live auction. It was fascinating to watch (although he did speak a lot slower).

Before the bidding began, one of the buyers asked the obvious question: what happens if the final bid is above the home’s appraised value? It does no good to submit a winning bid of $400,000 for a $300,000 home, unless you are an all cash buyer, of which these buyers clearly were not.

The agent responded to that inquiry with the line in the title of this post. In essence, he told the buyers in the room that it was his job to make sure the home appraised for whatever price the highest bidder offered. Now I am under the impression that it is the appraisers job to submit an objective and unbiased (by anyone, especially real estate agents) opinion of a home’s value.

Perhaps what the real estate agent meant was that he would take it upon himself to make sure the appraiser had all the relevant comparables. And by relevant, I assume he will be including all those “comps” that support the offered price and conveniently omitting all those that do not. I am okay with that, if that is what he meant.

I doubt there was a buyer in the room that picked up on what the agent said regarding the appraised value. They were probably too preoccupied with formulating their bidding strategies. But I did. And because of that I got a glimpse into the mindset of those operating in the real estate industry. There are just too many commission dollars at stake to leave a home sale up to the findings of a lowly appraiser. With thinking like that, I cannot imagine why we had a real estate bubble back in 2008 (and will probably have one again real soon).

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.