Category Archives: Recent Blogs

Trust But Verify

Real estate agent also acting as loan agent is a conflict of interest

In the last couple of years, we’ve noticed a dramatic increase in the number of agents representing buyers who also act as loan brokers. Likely, this is because there are so many new agents chasing a limited number of deals and originating the loan for the buyer is an efficient way to maximize one’s income from a given transaction. Lenders themselves have encouraged this with software packages and web links that make it easy for agents to originate loans.

But this practice represents a big problem from the listing agent’s point of view. When I am evaluating an offer on behalf of my seller, I need to assess the buyer’s ability to obtain financing. Normally, an offer is accompanied by a “pre-approval” letter from a lender or loan broker. If I don’t have any prior experience with the person who wrote the letter, I will most likely call them and ask a series of questions designed to see just how far the loan process has really gotten. Questions such as: Has she actually received a completed loan application? Has she verified the buyer’s source of down payment? Has she run a credit report yet? Continue reading

Homeowners Can Be Fooled

“Homeowners Can Be Fooled”
Says S.F. Chronicle Columnist

Arthur M. Louis, author of the San Francisco Chronicle’s “Moneybag” Q&A in its Business Section, has run some wonderfully provocative commentary lately about real estate commissions. He sure is no fan of the traditional 6% commission!

In columns printed March 3, March 18 and April 1, 2007, one agent writes to complain that Realtors aren’t compensated enough, given that its costs so much to market a house. Another writes that he considers its offensive that Louis “completely underestimates the level of expertise required to be a good Realtor.” And lastly, an unnamed agent claims that his self-interest in earning the highest possible commission would require him to steer clients away from otherwise desirable houses if it offered a lower commission. Louis’s response to this last complainer summarizes them all: “Are you trying to convince me that all those dreadful stereotypes of real estate agents are based on fact?”

As a full service Realtor charging untraditional commissions for over 20 years, I am in full alignment with Louis’s assessments. The problem that Louis points out, and has been documented in several research studies, is that the 6% commission is designed to compensate an agent for the all the time and money spent he/she spends in activities other than the actual job of helping a person buy or sell. Activities like farming, brand advertising, referral fees, and image marketing with fancy offices and luxury cars. Does a nationally airing TV commercial of a generic agent standing in front of a generic house mean that “Joe” seller in Berkeley will get the highest possible price for his house? Why should a seller pay 6% just to support a relo service that requires the buyer’s agent to pay 30% of her commission as a referral fee?

Among agents, it is considered heresy to point out that for the work and expertise we actually utilize to sell a house, or help a buyer purchase one, we are OVERPAID. This dovetails with what Louis says: “many full-commissions real estate agents seem to assume that the world owes them a living.” And clearly, despite many new business models to emerge because of the Internet, “Homeowners can be fooled–witness the fact that many of them still pay 6% commissions.”

Louis offers his own “modest proposal”: “slash the standard commission to 1% and let 5/6 of the agents find other work. The remaining agents will be adequately compensated and home sellers will get a better deal.” No objection here.

The “Epidemic” of Under-Pricing

An open letter to the real estate community regarding the “epidemic” of under-pricing

(first published May 2005)

You know the practice: suggesting, or going along with a seller’s idea, that the best way to obtain the highest price in the sale of a house is to deliberately ask a price that is well below what you expect it to sell for. A more odious variation: agreeing to list a property at a price the seller has told you he would not accept. You figure this is pretty safe: everything gets bid up these days. The SF Chronicle recently dubbed this the “under-pricing epidemic.”

Sometimes this practice is blatant, as when the agent puts in the confidential remarks section of the MLS: “seller reserves the right to reject any and all offers.” Other times, it is hidden, as when offer day comes and you, the buyer’s agent, deliver the only offer. You are then countered at a price ten of thousands, and sometimes, hundreds of thousands of dollars more than the asking price. In essence, the buyer is being told to bid against himself.

Doesn’t anyone (at the very least, the listing agent) see what is wrong with this? Totally ASIDE from the human toll (disgruntled, disillusioned and desperate buyers, sometimes willing to pay anything just to get a house) and the negative image this casts on our profession (what about our duty to be “fair and honest and deal in good faith”), we may have an even bigger problem.

The issue is fraud. My dictionary defines this as “a piece of trickery; a trick.” Therefore, the agent who knowingly agrees to list a property for less than what the seller will accept is a party to fraud. Secondly, it is “false advertising,” a violation of real estate law. Business and Professional Code section 17500 states:

To Make or Cause to Be Made False or Misleading Statements in Unlawful

17500 It is unlawful for any person, firm,…with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise….to make or disseminate´┐Żany statement concerning that real or personal property…which is untrue or misleading, which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, or for any person, firm…to make or disseminate….a plan or scheme with the intent not to sell that personal property…so advertised at the price stated herein. Any violation of the provisions of this section is a misdemeanor punishable by imprisonment in the county jail not exceeding six months, or by a fine not exceeding two thousand five hundred dollars ($2,500) or by both that imprisonment and fine.

In our office, we have made is a policy that the asking price on any of our listings is a price the seller will accept if that is “all” they receive. This hasn’t stopped us from receiving multiple offers and large overbids. But this is the doing of the market, not the result of a calculated ruse.

We know we have lost listings because of our pricing policy. We’ve heard that other agents dismiss a seller’s ethical concerns with the statement “everyone under-prices. It is expected.”

This has gotten out of hand.

Respectfully Submitted,

Brett Weinstein Broker, Realty Advocates


Within days, we had received many letters of support from fellow Realtors. We also heard through the grapevine that any number of Realtors were quite upset with us. Guess who they were: the ones that deliberately underprice their listings to make their statistics look better (i.e. “my listings consistently sell for 20% over their asking price!”).

A few months later, the Berkeley Association of Realtors dedicated a lunch seminar to the topic, with the attorney for the East Bay Regional Data as the guest speaker. While she conceded that the practice of deliberate underpricing could have some negative, nonlegal consequences, she completely dismissed my interpretation of B&P Code 17500, saying in effect, that the prohibition against deliberate false advertising applied only to personal property, not real property. Therefore, according to her, it is perfectly legal to falsely advertise a house but illegal to falsely advertise a digital camera, for instance.

The bottom line, again, according to her, was that listing agents have the primary fiduciary duty to the seller to get the highest possible price, and that false advertising was a perfectly legal means to this end.

After the meeting, one agent who shared my view shook her head with disgust and said: “we should have known better to ask about ethical conduct from an attorney.” A moment later, an agent who did not share my view said: “nice try, Brett. Now get real.”


Within about 6 months of this meeting (June ’06), the seller’s market juggernaut in our market area sputtered to an end. Now, even if one deliberately underpriced a listing, there would be a 50/50 chance that you still wouldn’t get a single bid, let alone one over the asking price.

Freakanomics Friendly


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.