The Best Use for “Coming Soon” – Doing Away With Agents

The “Coming Soon” feature is all the rage. Ever since Zillow announced the feature, all I see now are Coming Soon notices on top of For Sale signs in my neighborhood.

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If you are not aware, last year Zillow announced a new feature available on its website called Coming Soon. This allows homes to be pre-advertised for sale, before they can actually be purchased.

In theory this is a good idea. It can help build excitement for a home soon to come on the market, as well as provide an opportunity for the home seller to get feedback on their asking price without spending any days on the market. If you are getting ready to price your home too high, it would be nice to know before you actually listed it. The problem is that Coming Soon has nothing to do with building excitement or getting pricing feedback. Coming Soon is about pocket listings. Coming Soon is about dual agency. Coming Soon is about double ending.

Most home sellers are too naïve to understand the subtle trick the real estate industry is playing on them with the Coming Soon feature. Most probably think it is a good idea, but nothing could be further from the truth.

Imagine you are a home buyer and you see a Coming Soon home that you are excited about. You want to get in to see it. You want to make an offer. But you can’t. The only thing you can do is contact the listing agent. And that is the key to the scam.

The listing agent gets to identify interested buyers WITHOUT having to put the home up for sale. And if they can identify enough interested buyers, they can convince their seller there is no need to list the home on the MLS because they already have a buyer for them. And if they can keep it off the MLS, then they can keep the buyer’s agent’s commission too. And while most home sellers would view keeping it off the MLS as a good thing, most home sellers also do not realize that they probably just got screwed out of several thousand dollars. Any marketing approach that limits a home’s exposure (e.g., pocket listing) tends to limit its sale price.

It got me to thinking. If an agent can identify buyers without actually putting a home up for sale, so too can the home seller. It is simply a matter of taking some nice photos, writing a description, coming up with an asking price and posting it to Zillow (which is free). Then, when an interested buyer calls, rather than speaking to the agent, they will be speaking to the seller. And if the seller can find a buyer interested in paying the asking price, then they truly can keep it off the MLS, and thereby save the entire agent commission altogether. All they would need is a few hours of a real estate attorney to help with the paperwork. Now that is a good use of Coming Soon.

To learn how to make sure Coming Soon works for you and not against you, visit ReaLising. ReaListing helps home sellers keep more of their hard-earned equity.

 

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.

Will 2015 Bring Meaningful Change to the Real Estate Industry?

2014 saw a lot of new technologies and “aps” hit the residential real estate market with much excitement and fanfare. Some of them were even purported to help buyers and sellers. But when all was said and done, not much has changed.

problemHere is a list of problems in the real estate industry that all that technology did not do a damn thing to solve last year:

• We still have pocket listings
• We still have dual agency
• Lousy agents still expect the same compensation as good agents
• Commissions are still tied to the price of the home
• Sellers are still expected to pay for buyer’s agents
• There are still too many real estate agents
• It is still too easy to become a real estate agent
• There are still too many conflicts of interest between buyer/sellers and agents
• Sellers are still asked to pay for the buyer’s home warranty
• There is still buyer steering
• Agents still push their affiliated service providers onto their clients
• Contracts are still too difficult for the average consumer to understand
• Some MLSs still delay listings to the portals, limit the information, or do not send it all
• We still have minimum service laws

So, the question I want an answer to is this: will anything change in 2015? Probably not. All those problems cited above result in some pretty well-off operators in the industry, and none of them want to see anything change.

No, 2015 will be the same as 2014 and every year before that. Nothing meaningful will change in the residential real estate industry until the one group that can actually affect change does something about it. When buyers and sellers decide to stop being uninformed, lazy and fearful about the home buying and selling process, then we will see meaningful change. Until then, meet the new year. Same as the old year.

If you are a home seller and you are ready to sell your home a more intelligent way, that leaves more of your hard-earned equity in your bank account, visit ReaListing and help change the industry one informed consumer at a time.

 

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 Much Would Buyer’s Agents Make if Buyers Had to Pay?

I always thought it was a little strange that when selling your home in the U.S., the seller is expected to pay for the buyer’s agent. It seems like that approach is ripe for setting up misguided loyalties.

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In my neighborhood, where homes sell for around $700,000 and the customary buyer’s agent’s commission is 2.5%, an average commission is in the range of $17,000. Paying that amount, as a home seller, really stings. I am forfeiting a big chunk—and yes $17,000 is a big chunk—of my equity to pay someone whose job it is to make sure my adversary pays me as little money as possible to buy my home. But this dollar mount is skewed, since the buyer assumes their agent’s service is free, they are not incentivized to negotiate a lower fee. It is not a true representation of the buyer’s agent’s value.

It got me thinking: how much would the buyer’s agents in my neighborhood make if the buyers had to pay them, either cash up front, or as an add-on to their loan? How much would a buyer’s agent make if the person receiving the service actually had to pay for the service? Is there anyway to find the answer to that question? Turns out there is.

In a little place far away called Australia, it is not customary for the seller to pay the buyer’s agent. So, how much do buyer’s agents make in Australia? It is hard to say, because according to Simon Baker, former managing director of REA Group in Australia “there are hardly any buyer’s agents in Australia. Nearly all house hunters go unrepresented, because, unlike in the U.S., a buyer has to cover a buyer’s agent’s commission, not a seller. Maybe 1 in 1,000 use buyer’s agents.”

So, when forced to pay for the buyer’s agents themselves, 999 out of a 1,000 Australians value the buyer’s agents service at zero dollars. They would rather go unrepresented than pay for an agent. Hmmm.

One of the consequences of such an arrangement is that most home sales in Australia are, by definition, dual agency. The seller’s agent, who represents the seller, also handles the transaction for the buyer. In the U.S., dual agency deals are problematic because they create incentives for the agent to get both commissions, which can compromise their loyalty to the seller. But in Australia, that is not a problem because there is no buyer’s agent’s commission. Consequently there is no reason for the agent to prefer one buyer over another, thus eliminating the conflicts of interest that normally result from dual agency.

I know as a home seller I prefer the Australian home selling customs. I know home sellers do better there. Australian seller’s agents fair about the same as they do in the U.S. (customary commission there is 2% – 2.5%). Buyers there may do better or worse than buyers in the U.S. I suspect that since Australian home buyers are generally unrepresented by agents, they take it upon themselves to be more educated about the home buying process. Seems like the only real losers with the Australian model are the buyer’s agents. But they do not even exist, because the market has spoken and decided that they are not worth the expense.

Only one question remains: how do we convert the U.S. model to the Australian model? Anybody up for a challenge?

 

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.

Three Clauses You Should Definitely Use to Amend Your Listing Agreement

When it comes time to sell your home through a real estate agent, the document that cements the relationship is called a Listing Agreement (or Listing Contract). I assure you there are two aspects to the Listing Agreement few home sellers know about.

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First, the Listing Agreement is not a government sanctioned form. It is a form typically created by the state’s Association of Realtors. It is created by realtors, for realtors—not consumers. It lays out the terms of the contract between the broker and the home seller, and its primary thrust is to make sure the agent/broker gets paid (and doesn’t get sued). Consequently, the default terms of the Listing Agreement tend to be very favorable toward the agent/broker, which is to be expected.

The second thing most home sellers do not know about the Listing Agreement is that it can be amended by the seller. All of the terms of the Listing Agreement will take effect unless they are superseded by amending clauses. As a home seller, you do not have to accept the terms as stated on the Listing Agreement. You can amend the agreement with terms that are more favorable to you. All Listing Agreements have a section called “Additional Terms,” or something similar. All you have to do is add the amending clauses to that section and get the agent/broker to agree to them. What if they do not agree to your amending clauses? You can back down, or you can do what I would do: find another agent. As things turn out, there are lots of them.

So, what clauses should you use to amend the Listing Agreement? There are many you might consider, but the three detailed here are a must for any intelligent home seller. (Special thanks goes to CAARE, the Consumer Advocates in American Real Estate for suggesting some of these clauses. Visit their web site for suggestions on other amending clauses.)

The first clause you should use makes sure all the other clauses take precedent over the Listing Agreement.

1. The following clauses take precedence and supersede any conflicting terms that exist in the Listing Agreement.

The second clause ensures that there is no chance of dual agency. This is an absolute must if you want the best, most committed representation from you listing agent. Of course, this is only required in states where dual agency is legal.

2. The broker/agent will not engage in a dual agency relationship in which the broker represents both the buyer and seller when selling the seller’s home. If a multiple representation situation arises, the agent/broker will refer the buyer to another broker.

The way most Listing Agreements work, is that the commission you agree to pay goes 100% to your listing agent and THEY agree to pay a portion of that (typically 50%) to the buyer’s agent. In the event that they are not required to compensate a buyer’s agent, they get to keep 100% of the commission, unless you add the following clause:

3. In the event the broker/agent is not required to compensate a buyer’s broker, the funds earmarked for the buyer’s broker shall be refunded to the seller.

These three amending clauses should be included on any Listing Agreement you use to sell a home through a realtor. They may not even come into play, but in the event that they do, you know you are protected. You will know that the equity in your home which is rightfully yours is yours, and that your real estate agent is truly committed to your success and no on else’s.

To find more helpful information to protect your hard-earned equity when selling your home, 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.

Why Redfin Will Be The Nation’s Biggest Brokerage

A recent article on Inman said Redfin may not be the nation’s biggest brokerage (yet). But it operates what’s by far the most popular real estate brokerage or franchise website. Why do so many consumers start with Redfin? CEO Glenn Kelman explains

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I remember not too long ago, when Trulia and Zillow were raising huge buckets of venture capital money, Redfin was struggling with cash flow. To the VC community, all Redfin was at that time was a discount broker with cool search capability. And discount brokers do not last. Boy were they wrong.

Redfin flat out gets it. Not only are they the absolute leader in technology and accuracy of real estate data for consumers, but they are taking the lead in the desperately needed area of transparency. While Trulia and Zillow (soon to be Zulia) serve agents as their customers, Redfin serves consumers. Why do consumers start with Redfin? Because it makes them the smartest home buyers and sellers.

Now, if that was the end of the story, Redfin would simply be a better version of Trulia and Zillow. But Redfin is not a marketing platform, it is brokerage. And in an industry where everyone is desperately trying to maintain the status quo, Redfin is doing something unheard of: passing the savings, that technology affords in real estate, onto the consumer. Their business model, which includes reduced seller’s agent’s commissions and treating their agents as employees (rather than contractors), is a glimpse of what the real estate industry will become. Today, Redfin is the irrational oddball. In the future, when most other brokerages are operating in a similar fashion, the industry will wonder why it ever operated any other way.

But Redfin’s transformation of an industry in desperate need of it is not yet complete. Offering discounted seller’s agent’s commissions and buyer rebates is a start, but it is not where the industry ultimately needs to go.

For the transformation to be complete, Redfin still has some work to do. First, it should establish a consumer’s bill of rights which eliminates all the dirty little secret behaviors in the real estate industry such as pocket listings, dual agency, minimum service requirements and controlled business arrangements. Even if Redfin itself does not condone these practices, a bill of rights can serve as an opportunity to educate consumers, who will see Redfin as being on their side.

Second, they need to further preserve home seller’s equity, not just from reduced seller’s agent’s commissions, but also from reduced buyer’s agent’s commissions. In the past, buyer steering, although highly unethical, was a real problem, which meant offering anything less than customary commission to the buyer’s agent risked a serve reduction in home buyer traffic. But today, Redfin has the ability to combat this using their own platform, to bypass the agents, and educate the buyers directly about this deceptive practice.

Finally, Redfin should become the industry leader in advocating a shift from seller pays for buyer’s agent to buyer pays for buyer’s agent. Sub agency legal relationships serve neither party particularly well. Ultimately, buyers will be better served by shopping around for, and paying for, their own agent to represent them. Only in the real estate industry is it considered a crazy idea for the person receiving the service to actually pay for it.

I like Redfin. I wish them luck. But, there is a $60 billion industry out there that is hoping they fail. After all, success for Redfin means that $60 billion number will go down (just like everything else technology benefits). But if it sticks to its guns, there is no doubt in my mind that someday Redfin will be the nation’s biggest brokerage. Fight on.

 

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.

OMG! I Just Found Two Ethical Real Estate Agents

As circumstances would have it, I am in the processing of interviewing real estate agents to list my home.

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Now, most home sellers do not bother interviewing agents—they just choose the first one they speak with. The few that do interview agents tend to do it in person, usually at their home. Not wanting to do things as everyone else, I have taken a different approach. I made up a survey and emailed it to agents in my neighborhood (over 80 of them). Among other things on the survey is a series of probing questions to see what kind of real estate agent they are. (To see a list of over 30 questions you can use to interview listing agents, click here.)

One of the questions I included in the survey was meant to discover if they are truly an ethical agent. Here is that question:

Is there a chance you will represent the buyer when selling my home?

This is probably the single most important question you can ask a listing agent during an interview, because it tells you everything you need to know about how ethical they are.

Representing both the buyer and seller in a real estate transaction is called Dual Agency. The consumer advocate group CAARE calls dual agency “The Biggest Consumer Scam in Real Estate.” It is so bad, dual agency is illegal in every other profession. Only in the real estate industry could a practice so unethical, actually be legal. Would you want your lawyer also representing the other side in a lawsuit?

Needless to say I was disappointed when 100% of the agents who responded to my survey answered this question “yes.” I would like to think those answers say more about the industry than the agents. Can it be that 100% of real estate agents are unethical? I was beginning to think so.

Just as I was about to give up on the whole lot of them, I came across an (old) article by a real estate agent from Seattle named Patrick Flynn where he discussed the merits of dual agency. Patrick, a true hero in the real estate industry, actually proclaims, in writing, that dual agency is intolerable, a no-win scenario and should be avoided at all costs. Thank you Patrick.

Not to be outdone, Jay Thompson, a real estate broker in Phoenix, echoed the same sentiments as Patrick when he said, regarding dual agency, “just because something is legal doesn’t make it right or what is best for all parties involved.” Kudos to you Jay.

As long as this highly unethical and objectionable practice remains legal in real estate, it is incumbent upon the seller (and the buyer) to forbid their agent from acting as a dual agent, because you can be sure, left to their own devices, most agents will gladly forfeit their fiduciary duty at a chance of collecting double commission. Show me the money. Oh the hypocrisy.

To see how ReaListing puts and end to the hypocrisy, 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.

Zillow’s Last Act of a Desperate Business Model

If you are not buried deep inside the residential real estate industry, you probably do not know that there is a heated debate going on over Zillow’s new “Coming Soon” feature. This new feature allows an agent to advertise their seller’s home on Zillow before it can actually be purchased. The purpose, ostensibly, is to gauge buyer interest for the home and make price corrections, as necessary, before the home is marketed for real (including posting it on the local MLS). Of course the truth is far different.

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Real estate agents will tell you that the real purpose of the “Coming Soon” feature is to generate pocket listings. Nothing in the real estate industry makes a broker happier than a pocket listing, because it enables the broker to get both sides of the commission (buyer’s agent and seller’s agent). These “dual agency” deals are so heinous, they are illegal in almost every industry except real estate. And almost without exception, pocket listings result in a lower price for the home seller. The good news for the brokers though is that most home sellers do not know that. Hell, even NAR (the National Association of Realtors own trade association) does not think it is such a good idea.

Zillow, the nations largest third-party real estate portal, makes most of its money from real estate agents advertising on its site. These agents advertise to attract new clients. In an effort to increase this advertising revenue, Zillow only offers this “Pocket Listing on Steroids” feature to, you guessed it, agents who advertise on its site. The message is clear: if you want both sides of the transaction, you are going to have to pay Zillow.

The idea of pre-marketing a home is not inherently bad, only the way it is being used by Zillow is it bad: to foster dual agency. The real problem though, for Zillow, is that the “Coming Soon” feature is the last act of a desperate business model.

The real estate advertising market is roughly $10 billion – $12 billion annually. Ironically, the information and marketing platform that Zillow (and others) make available to consumers will soon make home buying and selling an (almost) frictionless transaction. It follows then that this will ultimately reduce the number of agents, as well as drive down the average commission per transaction, just as it did in the travel industry and the stock brokerage industry. And the less the agents earn in commission, the less they can afford to spend on Zillow ads. In essence, Zillow’s success will eventually put them out of business, if they stick with their current business model. One real estate agent recently lamented that Zillow’s “Coming Soon” feature is so last year. So is trying to grow revenue through agent advertising. That number is going to go down over time, not up.

So, what will Zillow do? Will they continue to cling to their existing business model, desperately trying to squeeze dollars out of a shrinking pie, or will they do as Brad Inman suggests and become the company who fundamentally changes the old ways of doing business? Will they become “the company that controls the quality of the transaction from end to end, offering a connected, elegant and easy-to-use online place for buyers and sellers as they go through the rigorous 90-day workout.” Time will tell.

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.