Why you can't trust a real estate agent.

The reason we can't trust the real estate agent is that they are only human. As I say directly in my article ...

 "$150? For all that time and extra work? Not so great now, and you know, I'd feel the same way."

 Freakonomics is also a study of human behaviour and the incentives that move us. I know I would not want to work harder to make an extra $150 weeks or even months later. In that time I could have sold another few houses.

I am a Realtor, and I do what is best for my clients. I think it is wrong to make a generalization like this about real estate agents.

If I list a house for a seller, I consult with them up front to find out what their expectations are, as should any good agent. If the market conditions say that their home is worth $225K to $230K and the average days on market to achieve that price is 60, and they want $235K in 30 days, I explain to them how this is not possible, and why. They should choose what is most important in their situation, moving in 30 days, or getting the absolute maximum amount for their home. If they want to sell in 30 days or less, they should price it according to the market. If they don't have a certain timeframe, it might be OK to list at $235K , keeping in mind that if an offer of $225K is made and they turn it down, it may be a long time (or never) until another offer comes along, and there are no guarantees the next offer will be any better. Ever heard the saying "a bird in the hand is better than two in the bush"?

My concern is not with how quickly the home sells, but just that it sells in the timeframe the client expects,and within fair market value. I don't want anyone to give their home away, but I also know that the first few weeks after putting a home on the market are your best chances of getting a sale, as that is when you will get the highest amount of potential buyers looking at the home. The problem you run into when pricing a home too high is that you eventually have to come down if it doesn't sell. When a home has sat on the market for a long period of time is when people will start throwing "low-ball" offers at you.

If a seller wants to "play the market" at 10% higher price than fair market value, and has no motivation to move, I'm not going to list their home. Why? Not because I want "quick" cash, but because I spend a lot of time and money on advertising the home, with no guarantee of a sale. Overpricing the home of an unmotivated seller greatly reduces my chances of recouping my time and money spent. On the typical $200K home here in the Tulsa, OK area, I spend approximately $500-$800 in marketing costs UP FRONT on a listing, not including things like my license fees, MLS key fees, sign costs, insurance, etc. As a business person, you have to spend money to make money, but you also have to choose your opportunities wisely. I don't mind waiting 60, 90, or even 120 days to be paid on the sale if it means making the seller a little more money, but I do eventually want to be paid. Wouldn't you?

While we're on the subject, let me enlighten you as to how much money real estate agents ACTUALLY make on a sale. OK, on a $200K home listed at 5.5% commission (2.5% seller agent, 3% buyer agent) the sales commission is $5000. Sounds like a lot right? OK, from that $5K, if you're on a 60/40 split with the broker (fairly common), now you as an agent have $3000. Still not bad, huh? But, you have to pay taxes/social security on this amount, let's say 20% (low), that leaves around $2400. Oh, then you have the $500-$800 marketing costs mentioned above, let's say $700 for this scenario, leaving you $1700. OK, now factor in all the other costs above (MLS fees, signs, keyboxes, vehicle, gas, insurance, etc.) and you have approx. $1300 left over to take care of your family. If it takes you one month to sell a house, and you net $1300, not so impressive, huh? So, to net just $50,000 in a year, you only have to sell 40 or so $200,000 homes. That should be a cakewalk, right?

Don't get me wrong, I think a lot of agents have put this perception on themselves. I just wish more of the public knew the real story about how much money their agent makes.

is in direct alignment with your calculations about income. Is it not better for you to sell MORE $200,000 homes than to sell less $210,000 homes. The extra amount you would presonally get from making a home sell for more money is so small, it's not worth the effort. As Levitt says, better to sell more homes than to sell less homes for slightly more money. Your own math has just proven that I believe. And a lot of real estate these days is selling for way more than $200k. How many homes $400k homes would you need to sell to make a decent wage? Or $550k homes? 

Freakonomics is making a logical abstract point, but, and it is a big but, houses are not like cartons of milk. The majority of property is unique in one fashion or another. As well, how are the statistics compiled regarding the agents selling their own homes for 3.7% more money? Is this based on sale to list price?

So if an agent's home that is listed at $105,000 sold for $103,700 is compared to one of his client's home which is inferior, but due to the client's wishes was also listed at $105,000 but only sold for $100,000 does that qualify as "having sold his own house for 3.7% more"?

I do not know how anyone could realiably compile this 3.7% stat so that it actually meant anything.

Please, someone correct me if I'm wrong.

You have not defined what a "good" offer is. The only definition of a "good" offer I have to go by is that the offer is within the market value of the area. If the market conditions say the average home sells for $270K to 280K in 45 days, and a seller wants to price their home at $300K and is willing to wait six months or more for a "good" offer, I would not list their home. Period.

My job is to tell people what they REALISTICALLY expect to sell their home for, and then work to get them that figure for their home as quickly as I can. The majority of sellers cannot wait, and do not want to wait 6 months for their home to sell. Sellers are extatic when their home is sold in 2 or 3 weeks. They think their Realtor is the greatest. You know what they think a Realtor that takes 6 months to sell it is? A BAD REALTOR!

I have absolutely no control over if/when sellers receive offers. I cannot make someone buy their home. The only tools I have to sell the home are the price, condition, location, and marketing. I only have control over the marketing, with hopefully some influence over the pricing and the condition.

Did you even read my last post? The longer you wait for a "good" offer, the worse the offers get. It is absolutely 100% best to price your home competitively if you want to get the most for it. I know it sounds hard to believe, but if you'd sold a few houses, you'd see what I mean.

The sellers that agree to the price I recommend (I always give them a range, based on the CMA for the area, and they choose within that range), always sell their home quicker and for more money than those who don't. They love me. They are happy. They recommend me to friends & family.

Every time I've taken a listing at a higher price than what the ACTUAL SALES DATA shows the home is worth, the home has not sold in a reasonable amount of time, and the seller ends up getting less for the home than they would have gotten if they'd listened to my advice up front. And you know what, they always somehow blame me, the Realtor for the home not selling quicker and for more money. They refuse to admit that it's their own greediness/stubborness that kept it from selling quickly.

I've got another example for you, as it appears you didn't read my last post.

I sold a house last year that I wanted the owner to price it at $127,900 to $129,900 (based on the ACTUAL SALES DATA for the neighborhood this was on the high end). I told him to expect a sales price of $126,000 to $128,000. He wanted to list it higher, at $132,900. I advised him that we were soon coming into the holiday/winter season where there are fewer buyers looking for homes, and that pricing it competitively (not low, still on the high side for the neighborhood) was very important if he wanted to be out by spring. He disregarded my price and listed for $132,900. The home didn't sell for 5 months, until AFTER a price drop to $129,900. What did it sell for? $125,900. I am 100% confident that had he listed it from the beginning at $129,900, it would have sold much quicker for at least a thousand or two more.

I'm sure you're thinking "how is it possible to sell quickly AND make more money on the sale?". The reason is because if your home is priced competitively for the market you will have more potential buyers looking at it. The more buyers you have, the higher your chances of offers. The more offers you get, the more likely you will get a "good" one. Or even better, multiple offers. That is the best situation to be in as a seller. If your home has been on the market for 30 days or less and is priced right, people won't try to haggle with you. But, if your home has been on the market for 180 days, you'll get lowballers. That's the way it works. Buyer start thinking things like:

What's wrong with that house?
This home has been on the market for 6 months, and they lowered the price, they must be desperate to sell.
Let's throw this number at them and see what they say.

The sad thing is, that many of these sellers by this point are desperate enough that they often take much lower offers than they should out of frustration.

The other thing the seller needs to consider when thinking of pricing too far above the market value is the appraisal. Most homes are bought with a mortgage, and the lender will not lend more money to the buyer on a home than the appraised value. I know of countless situations where sellers "held out" for a "good" offer, and when they finally got a contract for the amount they wanted, the home didn't appraise for as much as the contract, causing the contract to fall through unless the seller lowered the price to match the appraisal.

I never, ever ask someone to price their home lower than what I know they can get. Believe it or not, I have had occasions where the seller wanted to list lower than my reccomendation because they need a quick sale. I discourage people from this, but it is ultimately up to the seller.

Back to your question, if a seller is content waiting 6 months or more to sell their home, I don't want to list their home. I'm not in the business to spend money marketing a home for someone who doesn't really care if they sell or not. If someone had a million dollars worth of gold, and told you that you could be paid 6% on the sale if you could sell it for $1.2 million within 6 months, would you spend your time and 1/3 to 1/2 of your profit trying to find a buyer for them, knowing that it's only worth 1 million? What if you sold cars, and all the other dealers in town charged $40,000 to $42,000 for the same cars your boss expects you to sell for $50,000. Plus, you have to run all your own TV, radio, and print advertisements for the cars and pay for them upfront out of your pocket? How long would it take you to leave and go work for one of the other dealers?

I personally don't care as much about how much I make on the sale of the house, I just want to be confident that it actually will sell and that I get paid at some point. If I know it won't sell for what you've unrealistically "got to have" for it, I'll let someone else list it for you.

I know that there are shady real estate agents, just like there are shady lawyers, doctors, financial planners etc. It just irks me that I always seem to read about how agents are trying to screw clients in the media nowadays, and I feel like much of it is unjustified, or at least too generalized. They are many hardworking, honest Realtors out there who genuinely care about their clients and want the best for them. If you or any of your readers have had bad experiences, I apologize on behalf of my profession. The title of your original post especially rubbed me the wrong way.

I would be interested in seeing their study, I guess I will have to pick up the book. I am curious to see how they compiled their data. When they figure out that Realtors made 3.7% more money on their homes, were they figuring that off of gross sales price, or net? I would assume gross, as that is the publicly available number, but I would be interested to see the numbers. To me the 10 extra days part doesn't mean much, the average days on market in my area is about 45 days already. I just don't want your readers to assume that they should wait another 10 days after a first reasonable offer for a better offer that may or may not come. They need to weigh their situation carefully to see if the risk of waiting outweighs the reward.

Scott

Awesome post.

Check out this one too.

Why do real estate agents drive fancy cars?

http://www.zillowblog.com/real-estate-agents-and-their-cars/2008/01/

Isn't it possible that realtors average 3.7% more on their own homes partly because of their knowledge of the profession? When they originally bought their home, if they were a realtor at the time, they knew which neighborhoods to buy homes in because the value is likely to increase more, and what type of home resells easily and at a good price. Also, because they are probably not relocating, they are likely selling their home because they want something different, not because they need to sell. So they have the choice of when to sell their home, and can put their house on the market at the best time, and can take it back off and relist later if they don't get the offer they want. I think there a lot of variables that can come into play. I am not a realtor, BTW.

The problem with this article is the writer thinks waiting around for the buyer is a good idea. He doesn't consider the FACT that traffic is greatest in the first 2-3 weeks and that is why its our goal as agents to get it sold at the right price during that time-frame. Once we have left the first three weeks its really challenging to get people to come through the properties. If the properties are not priced correctly they haven't a chance to sell. BTW the homeowner always has the last word on pricing. If they don't listen to experience, and the data the listing will sit... if they are not in a hurry, that's fine. don't expect magic though.

A real estate agent moved in next door to me last year, and she has been trying to take our property we have had since 1975, sell it for us or buy it from us or buy a piece of it. I don't trust her one bit! She confesses she can't pay for her own house and hasn't made a sale in a year, and then she actually thinks we are stupid enough to sell to her!

The article is interesting, but fails to take into account, the longer the house is listed, the more likely buyers are going to offer a lowball offer. The longer a house sits on a listing the more likely that the sellers will have to list for lower in the future to generate any interest. A listed home becomes a non-sale if it sits on the market too long. Also Real Estate agents, probably will list theire homes earlier, because they may have the experience and knowledge to plan their sale and move ahead of time, alot of people who list thier homes, purchase a new home and sell thier old home at the same time, theres the risk of double mortgages when you wait to long to sell your home.

Thank you for the article. I have always thought realtors were crooks. It seems anybody can become a realtor and the job works on commission. Of course, the realtors do not have the client's best interest in mind, they have their pockets in mind. I have never seen a job that does nothing have the potential to make so much money.

Interesting article! I recently bought a house and as a prospective buyer thought that all Realtors were playing games to increase the price of the house. Most of us buyers learned long ago that just because a listing agent says "...we have three cash offers and several additional offers above asking.." May really mean they have no offers on a house with 300 days on market and their next ploy will say "highest and best" where the highest bidder might be selected to be the most "upside down". In this common scenario many of us buyers later learn that we are bidding against ourselves. One of the trickiest gimmicks I have seen is that the listing agent will refuse to answer the telephone, FAX's or emails from Buyers agents, especially on the telephone number listed on advertising and marketing materials. As one listing agent told me "..there is no law that says I have to answer the telephone..." So why would a listing agent stall the sale of a house? To get BOTH SIDES OF THE DEAL...and double the commission. The Listing agent carefully checks out the calling party on the caller ID and carefully returns the call if they think the caller is an unrepresented buyer.

How did I learn this? By having this happen many times. I learned that listing agents do not want to talk to buyers agents because they want both sides of the deal. So who represents me? After being tricked so many times, I decided to play my own trick. I saw an interesting new listing and immediately called my buyers agent. We were pre-qualified we want to see the inside of the house and if interested make an offer. But big problem. The Listing agent would not return our Buyers agents calls! So why let the Realtors involved keep us from buying? The house was listed as "Active " which means it is NOT a Short, REO or other difficult to close property.

I went to a local discount super store and bought a prepaid cellphone with a telephone number area code and prefix for Beverly Hills. I called the Listing agent and she answered on the first ring. Imagine that! The First question of this Listing Agent was "Do you have to sell your home in Beverly Hills to buy this house?" Aha Gotcha! Why would a total stranger care unless she wanted to be my agent? Also how does she know where I live ( ha ha . Never been to Beverly Hills, but I saw 90210 on TV). I checked with the county and found another lie. The house was listed for auction in 3 days! It was an obvious short sale that the listing agent "forgot" to mention.

So the listed price was $325k and in 20 minutes I had her down to 200K and I never had looked at the house. Remember I am supposed to be in Beverly Hills. I told her I had a family member in the neighborhood and could they arrange to see thew house. The listing agent was SOOO busy she couldn't but had her husband show it to my relative that afternoon. Well needless to say I showed up looked art the house and made a WRITTEN offer through my wife (different last name) for 200K with NO contingencies. I knew that she would get the mail the next day and probably open it. I called her on the telephone and made an offer also with no contingencies for $5,000 more. $205k. Why did I offer more? Because I knew that if she were a moral person she might feel less guilty by offering the "best" of two offers. Why no contingencies (except mortgage funding) with no inspection? I knew I had at least a ten day rescission rate with the bank. So the listing agent got her $12,300 at a selling of $205,000 instead of the $9750 she would have made if it sold at $325k and she worked with a "buyers" agent. Our Buyers agent had an agreement with my wife ONLY and not me. Me and my wife easily qualified for our own 3% 15 year fixed loan. I only paid 63% of asking and all parties were happy. There is a sad side note. The listing agent was sneaky and "forgot" to tell me that the seller was living out of a car and tried to rent rooms to pay for the mortgage. The plan did not work because the renters didn't pay rent. It could have cost me tens of thousands of dollars to eject the non-paying freeloader tenants. I learned all this because of a NOSY neighbor who told all the gory details. I used a ruse to get the tenants out of the property one week before closing, and quickly put up a fence and Keep Out signs and hired a security service to sit outside of the property right next to the KEEP OUT signs. The deal closed and we moved in 3 days before the loan was funded. The Listing agent gave us the keys because she didn't want to get sued because of non disclosure of the tenants. When the dirt bag tenants tried to return they were met with either the private Security Guards or the Sheriff. The tenants were already "known" by local law enforcement.

Today Zillow shows us at Zindex of $471K. Not bad! YOU as a BUYER or SELLER MUST BE AN ADVOCATE FOR YOURSELF or you will get eaten alive by these salesmen who will tell you anything to make a quick commish. Did these Realtors break the law? NO This is what they do. The REAL client of the salesmen is themselves FIRST.

I have purchased and sold 23 properties, realtors are always creating problems and I usually make thesale by sitting down both parties and hassing out the details realtors hate this and many times ask for them to throw I part of their commision to seal the deal.