Here’s a frustrating circumstance: I get an offer on one of my listings but one of the two seller clients has seemingly gone out of town without telling anyone and is not picking up his messages! It’s a perfectly good offer, by which I mean it is counter-able, and the one seller I’ve been able to reach is ready to sign. But without his partner, we are dead in the water! I’ve asked the buyers to be patient and that I do expect to give them a formal response. I just can’t say when.

This is very off-putting to the buyer because it reminds him of what happened on the last offer he made on a property: the seller’s agent stalled giving the buyer a response while “shopping” their offer around to other prospective buyers, i.e. telling other buyers how much the received offer was for, with the idea of getting even higher bids. The buyer got wind of this activity (which is perfectly legal but not particularly nice) and decided to pull his offer altogether.

In this case, no such thing is happening. One of my sellers is simply AWOL. But I can understand the buyer’s frustration and realize that unless we respond soon, he may very well move on to another property. All I can do is ask for his patience.

Of course, I hope that everything is ok with my client. Ah, just another day in the life of a real estate broker.

Brett Weinstein

The Emperor Has No Clothes!

Does the name of the “For Sale” sign in front of a house make any difference in its sale price? The truthful answer is, of course, no. A company doesn’t sell a house—an agent does. And there are good agents and not-so-good agents and any given company is going to have some of both. But the fact remains that there are some sellers who make their choice of who to list with based on the company name.
I guess it boils down to the mystique of “branding.” On any objective basis, there often is no qualitative difference between one product and another. In fact, in some cases two differently branded products come from the same factory, produced to the same exact specifications. The only difference is the name on the label, and a 500% difference in price! It never ceases to amaze me that some people will pay such premiums, not for any assurance of inherent quality, but simply for the snob appeal of a name.

In real estate, a similar phenomenon occurs. Some companies spend millions of dollars to brand themselves as the Gucci of companies. List your house with us, they say, because our name is synonymous with high class, and high class will attract a higher paying buyer. Newsflash: the emperor has no clothes! Houses aren’t sold this way. The majority of times, a buyer is represented by an agent from a different office. The buyer could care less who the listing agency is.

The best service comes from the best agent, period. Everything else is simply smoke and mirrors, or to borrow from Macbeth, “sound and fury, signifying nothing.”

I was at a party the other night, speaking with someone I just met about the North Berkeley real estate market, and whether houses were still selling quickly and with multiple offers. I stated that while general headlines are reporting on a market decline, North Berkeley is, with some exceptions, still doing very well. When the conversation came to the prospect of selling his house, he casually stated that if he did sell, he’d keep his house on the market longer and would get 10% more than everyone else. I had to chuckle-I immediately recognized this as a reference to the book Freakanomics, by Steven Levitt and Stephen Dubner, where the authors state that research shows that when a Realtor sells her own home, it stays on the market longer and sells for 10% more than her client’s homes.

I don’t have the book in front of me so I can’t check what “research” actually shows this. But I most certainly take exception. I’ve sold a few of my own homes and can not brag any such thing.

A house will sell over its asking price if the asking price is artificially low and it is sufficiently marketed. Deliberate underpricing is a very easy way to warp statistics to benefit the agent. Up until recently, this practice was practically epidemic (see “The Underpricing Epidemic”). It allows the agent to brag “my marketing efforts and negotiating skill produced multiple offers and a sales price 25% over asking.” Most people don’t seem to realize that, on its face, this is completely meaningless. Any idiot who underprices a house when demand is high will get the same result. The more interesting question is what would have happened if the agent priced the house at the number she really thought it was worth.

The authors big beef with Realtors seems to be around the notion of information asymmetry. We know more than the buyers/sellers and use this information solely to enrich ourselves, not our clients. They see the ever increasing availability of information on the internet as the beginning of the end of real estate brokerage as we know it. They even go as far as to equate the demise of the Ku Klux Clan with what will happen to Realtors.

Back to the party I was attending. My new friend was clearly impressed that I knew to what he was referring. It then gave me a chance to talk about how my real estate brokerage practice was different from most, and that I would not only sell his house for the absolute highest price the market would bear, but also charge him many thousands of dollars less in commissions.

He asked for my business card, but alas, after searching around in my wallet, I told him I’d have to got out to my car to get one. He said no problem-he’d take a walk with me. I guess I made a good impression.

It’s a fact: a growing number of agents rebate some part of their commission to the buyer. Combine this with another fact: many agents pay a hefty referral fee for new business, whether to other agents or through a relo company, of usually between 20-35% of any commission eventually earned from the referral.  Now with all this money being given away, it begs the question: where is this money coming from, and why is it being away?

The money, of course, comes from the seller, who signs a listing agreement, agreeing to pay a commission and authorizing/instructing the listing agent to offer, usually half, of the total fee to buyer’s agents as an incentive for them to bring buyers to the house.

But at some point, sellers are going to realize that this is a pretty crazy system. Take a million dollar listing, with a total commission of 5%, or $50,000.  The buyer’s agent share would be $25,000. Now, if the buyer’s agent has to pay a 30% referral fee, that equals $7,500. So the seller is paying $7,500 to someone who has nothing really to do with the sale of his house.  That’s a lot of “fat” in the system, so it shouldn’t come as a surprise that new business models are emerging to make the process more “lean.”

But its not all so new.  Agents like to complain when a listing offers them “only” 2% , from a total commission of 4%. But these are crocodile tears—they routinely accept this much when a referral or relo is involved. The bottom line: few agents can make a living from just a couple of transactions a year. Sometimes you take a listing at 6% and also represent the buyer, keeping the whole 6%. Sometimes you do both ends and gross 5%. Sometimes, you do one side and get 3%. Or 2.5%. And sometimes its 2%, or even less. It all evens out in the end.

And I, as a 20+ year veteran, won’t exactly be sad if the some of these complaining agents drop out of the business. It another place where there is way too much fat in the system.