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.

Is an Instant Sale an Instant Rip-off?

“Sold. The minute you’re ready,” declares the home page of upstart real estate company Opendoor. They certainly have a new take on selling your home. Rather than deal with real estate agents and months of hassles and stress, they will buy your home from you, right now, no questions asked. You can get your money in as little as three days. The only question is, should you?

opendoor

Generally speaking, anything that eliminates the middleman in a transaction, I am all for. Eliminating the middleman eliminates their expense, which should result in a cost savings for the consumer. Since Opendoor is eliminating real estate agents, I would expect some cost savings there. The only problem with Opendoor is that it is not clear there is any cost savings to the home seller. In fact, I suspect using their service is extremely expensive.

It is hard to know for sure if there is any net-benefit to using Opendoor. They have only been around for a few months and it appears as if they only operate in Phoenix, Arizona as of this writing.

Here is what we do know. Their transaction expense is very high. They charge the home seller 5.5% commission, which they brag about being less than the standard six percent charged by real estate agents. It is true that 5.5 is less than 6, but with a little shopping around, any home seller can sell their home for 4.5% total commission. That seems to be the new standard, especially in markets where Redfin is present. And in more expensive neighborhoods, with some negotiating prowess, a home seller can secure the services of a real estate agent for 3%, or less, total commission. So, using Opendoor is definitely going to cost you thousands (or tens of thousands) of dollars in transaction fees compared with using agents. But the more important questions is, what will they pay you for your home?

Like most venture-backed companies these days, Opendoor is a data analytics company. It is not a real estate brokerage. They operate by taking publicly available pricing information, plus information from the home seller, cranking it through some magical algorithm and coming up with an amount of money to offer you for your home. But is the amount fair?

Intelligent home sellers know that their objective is to sell their home for its appraised value. That is the best most home sellers can do. So, the big question for Opendoor is, will they offer you the appraised value (or something very near it) for your home, or will they build in “a little” profit for themselves by low-balling you? Time will tell. If I had to guess, I would speculate that the Opendoor business model includes paying less than the appraised value for your home. Anything else probably does not provide enough profit margin.

If that turns out to be true, using Opendoor will simply be a really fast, really expensive way to sell your home. Home sellers desperate for cash just may take them up on it. Unfortunately, those taking them up on it (i.e., desperate for cash) are probably those least able to sacrifice their hard-earned equity.

I have no idea what the future holds for Opendoor (and any imitators likely to pop up if they are successful). Who knows—maybe they are the future of residential real estate. What I do know is that the three companies touting the benefits of the Opendoor with testimonials on their website are fortune.com, venturebeat.com and techcrunch.com. You know what company I do not see? Consumer Reports. Hmmm.

 

 

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.

When it Comes to Real Estate Agents, Do You Really Get What You Pay For?

Try to negotiate commission with a seasoned real estate agent and you will invariably get one of two responses:

1.      If I cut my commission, I’ll have to cut my service

2.      You get what you pay for

The responses are by rote, and so automatic that you wonder if the cerebral cortex is even involved in the reply. The intent of the responses, of course, is to end the debate (over commission).

Money in hand

The first response is laughable. Since real estate agents do not get paid a penny until the home actually sells, eliminating any service that jeopardizes the sale of the home reduces their commission to zero. Naturally most sellers do not see it that way and tend to nod their head in agreement. Negotiation complete.

The second response is more interesting, and begs the question, when it comes to hiring a real estate agent, do you really get what you pay for?

Now I am not going to take a real estate agent’s word for it, since their answer is clouded by a conflict of interest. What I would like to see is something a little more objective. Perhaps a survey by a disinterested third party with no stake in the outcome. And as luck would have it, it has already been done, by Consumer Reports, no less. Consumer Reports is probably the most well respected organization looking out for the interest of consumers. Oh, and did I mention that they are independent and non-profit. Can’t get any more objective than that.

What did the Consumer Reports article, titled Home Sellers Can Haggle Broker Commissions, have to say about the relationship between real estate agent compensation and service? How about this:

  • Sellers who paid commission of 3% or less were just as satisfied with their brokers performance as those who paid 6% or more.
  • Sellers who paid more were more likely to have regrets about the selling process.
  • Sellers who paid more wish they were more assertive in negotiating their fees.
  • Paying less does not hurt the quality of service.

That is pretty damning evidence against assertion number two. Based on the survey responses, a case could be made that the more a seller pays the less they actually get. That is the exact opposite of assertion number two. While the service is statistically no better, the higher commission definitely comes with a boat load of regret.

Real estate agents will undoubtedly respond by saying that higher commission agents sell homes for higher prices, thus justifying their additional expense. Of course they will have no proof of that. It will be just one more unsubstantiated assertion agents use to try and end the commission discussion. But the discussion is not over—it is just beginning.

As technology makes information more available and the agent-seller relationship morphs into more of a partnership among equals, it is only a matter of time before home sellers ask themselves the question posed in the title of this post. And if I were a real estate agent, I would be concerned over the way they answer it.

To learn how ReaListing helps sellers negotiate less regrettable commission with 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.