Freakonomics looks like a very interesting book; I will have to buy it. I won’t be surprised if it has a lot in there that I agree with.
The authors of Freakonomics, Steven Levitt and Stephen Dubner, were on the NBC Today Show the other morning. The only focus in that interview, however, was on real estate agents. They draw some interesting but very faulty conclusions.
As I say, I will probably find this book a very interesting read. However, while watching the interview with the authors this morning I could not help but compare them in my mind to a couple of unmarried marriage counselors.
Your home has been for sale only a short time, and your Realtor is urging you to accept an offer.
University of Chicago economist Steven Levitt says think twice. It’s possible you could get an extra ten-thousand dollars for the house by keeping it on the market an extra week or two, but your agent probably doesn’t want you to hold out.
In the Today Show interview, Steven Levitt makes several statements that I will address. Here they are (paraphrased of course).
- Keeping your home on the market longer will possibly get you more money, and your Realtor doesn’t want that because they would rather the home sell quickly so they can collect their commission.
- You need to be aware of which advertising words work, and which don’t, so that you can arm yourself with information to use against your Realtor (that’s almost a direct quote).
- Realtors only do a couple of things: Advertise your home and find a buyer.
- A flat-fee real estate agency is the best way to go.
Let’s take those one at a time:
1. Keeping your home on the market longer will possibly get you more money, and your Realtor doesn’t want that because they would rather the home sell quickly so they can collect their commission.
It’s not that keeping your home on the market gets you more money, it’s the fact that with anything that is sold, time affects the price. Remember the old saying, “There’s a 5 minute price, and a 5 month price.”
In other words, if a home is priced below market, it will sell faster. If it is priced above market, it may sell at that price, but it will take longer to sell.
When I list a home, one of the things that I ask my client is this: Which is more important to you? Selling fast, or making the most money possible? Or, as with many things in life, somewhere in between?
After giving good, sound advice to my client, and showing them the high price and the low price, my client makes that decision—not me.
Levitt implies that this decision is made at the time of the offer. Not so. In addition, my place as a real estate agent is not to give orders to my clients. My place is to give advice. Frequently, I am in the position where I am representing a seller, and we receive an offer. The seller will often ask me, “If we counter them, do you think we can get more?”
It’s a fair question. The problem is, I’m not a mind reader. It is very common for the buyer to have their own agent representing them, for example. The best advice I can give is to professionally point out what is likely to happen in any given scenario. I can give that advice based on 10 years of experience, but that doesn’t make me a mind reader. I don’t really know what the buyer will do if we counter them.
Another old saying: “A bird in the hand is worth two in the bush.” As I am fond of pointing out to people, it’s a gamble. You can take this offer, or you can see if you can get more money. But be prepared that your buyer may walk away if you gamble. What you do depends on the particular situation and how much of a risk-taker you are. Do you need to get this home sold right away, or can you afford to take the risk of possibly losing this buyer and waiting for another one? Neither way is wrong, it just depends on the situation.
But to imply that real estate agents are really in control of this is ludicrous. Our job is to give good advice to our clients, so that they can make their own decision.
2. You need to be aware of which advertising words work, and which don’t, so that you can arm yourself with information to use against your Realtor. (That’s almost a direct quote.)
I can’t help but think but that at some point in their lives, these two authors have had dealings with an unethical Realtor and want to assume that all Realtors are this way.
There are two things you need in a real estate agent. One, you need an agent that really knows what they are doing. Two, you need an agent who is trustworthy.
I recently hired a handyman service to take care of some things around the house that I live in, as well as my rental homes. To be sure, I shopped around to find someone who knew their stuff and also seemed honest. But once I made the decision to go with that handyman service, it was time to place my trust in them. I’m not very handy at all. I don’t want to hire someone to do something for me and then waste my time micro-managing. I’d rather hire someone I have confidence in—whether it is a handyman service, an accountant, an attorney, or a Realtor—and then let them do what they do best.
To say that a person needs to be armed with information to use against the Realtor is to imply that your Realtor is probably dishonest. Does Levitt go around saying that you need to arm yourself with information to use against your accountant? Or your doctor?
There are good and bad real estate agents, the same as there are good and bad plumbers, mechanics, accountants, attorneys, and every other field. Find someone that you trust—preferably us! —but then let them do their job.
3. Realtors only do a couple of things: Advertise your home and find a buyer.
Again, very inaccurate. Realtors have two MAIN jobs, but that’s not the two. If a Realtor is representing a seller, their first job is to get the home sold. That means advertising, networking, etc. The Realtor’s second job is to make sure the home closes, which can be VERY complicated. Levitt didn’t even mention this part.
I have seen plenty of folks that were lucky enough to find a buyer on their own, but then could not get it closed, because closing real estate transactions is not what they do for a living.
4. A flat-fee real estate agency is the best way to go.
In my area, flat fee real estate companies do not advertise on the MLS, the database that most Realtors use. That is a serious drawback. They also do not hold your house open, do showings, etc. Mostly, they provide a sign for your front yard and an ad in the paper. So in my opinion, you essentially have your home for-sale-by-owner in this situation. If you are lucky enough to find a buyer, they will do the paperwork for you. In addition, you are in a dual agency situation, which is about the same as having an attorney in a courtroom be both the prosecutor and the defense. Levitt conveniently leaves this out when recommending a flat-fee company.
So if you are going to be in a for-sale-by-owner situation, why pay thousands of dollars for something you could try for yourself for a lot less?
Finally, Levitt only did research in the Chicago area on this, yet he is making blanket statements on how Realtors operate everywhere. Levitt must not be aware that real estate is done very differently depending on where you are in the country — sometimes very differently in areas in the same state!
The bottom line is that yes, there are some Realtors out there who care only about their commission. But there are also a lot of very good people who make a living in real estate who not only want to get paid, but also care deeply about their clients and want to do what is best for them—not for themselves.Powered by Sidelines