This is the fourth installment of my essay on the future of real estate sales. I’ll send this along to Brad Inman, who is gathering thoughts for a leadership conference at the end of March, so they have my perspective from the street.
In summary:
The unconscious desperation among agents is ripping apart the formal agreement between brokers to share listings. The environment is going the way of commercial brokers, where exposing listings to other agents is a last resort.
We see it happening – there is the occasional article – but without vigorous intervention by realtors themselves, the MLS will slowly disintegrate and be picked apart by outsiders.
Sadly, the sharing of listings is what is best for sellers, buyers, AND realtors, but the greed and desperation among agents gets in the way.
What Can Be Done? What Are The Choices?
- Individual agents can adopt a full-transparency program, starting with publicly describing the specific services they offer, and their commission rates. If consumers took the time to educate themselves about the differences between agents, at least they would make better decisions than they do now. It’s unlikely that this will happen, because agents are lazy and won’t bother, unless forced to do so.
- We can hope that N.A.R., C.A.R., big brokerages and other industry titans will address this specific problem, and implement changes to save the MLS and broker cooperation out of a commitment of doing what’s best for consumers. Probably the least likely of these five to actually happen.
- We can have big leadership conferences where outsiders will speculate how the disrupters will pick us apart, piece by piece.
- We can wait for the government to intervene.
- We can do nothing, and watch the broker cooperation via the MLS – which is the best thing for everyone involved – die a slow but certain death.
We can hope that somebody will find an answer. But it would have to include ways to eliminate agent shenanigans, invigorate consumers, and be a forward-thinking solution that benefits all.
The inquiry might start with creating a national MLS, or electing a real estate czar, or encouraging agents to keep their word and quit cheating their own customers out of what’s best.
But what if a thing was the answer?
The solution is LIVE AUCTIONS.
We can easily incorporate them into our regular business as the process to select the winning bidder. All other selection processes used today are subject to the listing agent tilting the table – with a live auction, all participants will be watching, and able to determine the actual winning bidder.
Could there be shill bidders who run up the price? Yes, but let’s insist that every buyer is represented by a realtor – that way, at least the agent’s reputation is on the line.
Live auctions would keep listing agents and buyer-agents employed, though the fee structure may be in flux. But our commissions are already under attack, so let’s take a chance that consumers will agree to pay a reasonable fee for these live auctions, and the other additional benefits provided by realtors.
A live auction doesn’t have to be a showy, champagne-filled soiree with a fast-talking auctioneer. They can be as simple as gathering the buyers around the living room, in a rather informal setting.
I am offering the live-auction strategy to my sellers as the fairest and most effective way to select a buyer, and let the full transparency be the best way to reach top-dollar.
Here’s an example – catch the winning agent’s comments at the 9-minute mark:
I know Harcourts offers an auction process, but the added twist of being able to buy it before the auction is asking buyers to bid against themselves.
It doesn’t take out the potential for shenanigans either. There was one recently where the winning bidder was taken to the winner’s booth to complete the paperwork, only to be told that they were declaring a new winner, one who had changed their mind and was willing to pay more, after the gavel went down.
What does it take to be an auctioneer in California? You have to have a real estate license and a $20,000 bond on file.
http://www.sos.ca.gov/business-programs/special-filings/faqs/
Auctions are used simply to establish price right? Standard contingencies like home inspection, getting a mortgage, title search etc still apply.
Auctions are used simply to establish price right?
Yes, just a simple buyer-selection device.
But it is more powerful because the buyers themselves determine the winner, instead of the listing agent in the back room.
Today’s buyers are consumed with how to get an insider deal – as taught by realtors who insist on putting their latest off-market kill onto the MLS for all to see.
If they didn’t have to worry about missing out on the next good buy, their focus would shift to getting good help.
If every house had an auction date, all buyers and their agents would have to do is get fully prepared. Review HOA docs/inspection/termite reports, secure financing, and have a good sense of the comps – all things where a good agent would prove to be valuable.
A top-notch listing agent would come in handy too – to do all the things we do now to prepare the house and seller to achieve a top dollar sale before and after the buyer is selected.
A live auction is merely the best way to select the buyer.
Most financing is contingent on an independent appraisal. Would that be done prior to the auction? If so, whose responsibility would that be, the buyer or seller?
How will the inevitable coming “buyer’s market” change this whole dynamic? Would traditional listings but with full transparency be the best model in a buyers market?
Your thoughts, Jim.
Most financing is contingent on an independent appraisal. Would that be done prior to the auction? If so, whose responsibility would that be, the buyer or seller?
It came up in the video, and as listing agent, I took responsibility for making sure the appraisal came in right. It did, and they closed at the auction price.
There are agents who want buyers to remove their appraisal contingency, or all contingencies in the beginning. But we are at the stage that buyers have some control, and I wouldn’t blame them for wanting a discount now.
I’d rather have them pay the higher price, and take my chances with the appraisal – any good agent can find enough comps. Besides, they can find another reason to cancel, or just forfeit the deposit.
I’m in the business of selling homes, not collecting deposits.
How will the inevitable coming “buyer’s market” change this whole dynamic? Would traditional listings but with full transparency be the best model in a buyers market?
In the beginning, we only need the auction format if you have multiple bidders, which applies to the Under-$1,500,000 in NSDCC today.
If it were a buyers’ market, the regular auction format would still be the best way to select a buyer. But sellers would have to subscribe to the no-reserve, sell-no-matter-what-the-price-is method. We have a ways to go before that happens.
But it’s more likely that we’d shift to a no-reserve auction than revert back to traditional listings with full transparency. Listing agents love the option to tilt the table, and they aren’t going to give it up just because some part-time blogger is taking the high road.
BTW, if anyone thinks this is just speculation on my part, or I ate some bad pizza last night, think again.
All of the proof is in full view on the MLS – these agents have no qualms about letting everyone know how they do their business.
If I ever get out of the business, I’ll expose everyone first, and burn this house down to the ground.
Did I ever tell you that I met with an FBI agent for lunch once?
I laid out one of the worst violators of short-sale fraud, and turned over overwhelming proof of ten super-shady deals where the listing agent spooned short sales to his waiting buyers at ultra-low prices, and then once closed, put them right back on the market at huge gains.
The FBI agent was impressed, and said the evidence was solid.
But he never got back to me.
The realtor is still in business. And he rents.
I should write a book!
The FBI has no time to work on a couple of shady RE deals even if the evidence is rock solid.
White-collar crime is a dime a dozen. No blood = no problem.
I brought a ‘slam dunk’ multi-million dollar fraud case to them. Their interest temperature was lower than luke warm.
The one guy I heard who might take an interest is Steven Robinson at the DA’s office. But I couldn’t find his contact info.
“I should write a book.”
As a writer, I say, YES! Your real estate knowledge, 35+ years of stories and your famous sense of humor, JtR, would make it a best seller.
One of my favorite quotes: “I am a writer. Anything you say or do can be used as a story.”
On the commercial property side, why do sellers allow all the dual agency stuff and allow agents to expose properties on loopnet etc only when all else fails ? These are sellers who typically have a lot more experience and capital than your average residential buyer and yet they still allow it. It’s just very relationship oriented.
On the commercial property side, why do sellers allow all the dual agency stuff and allow agents to expose properties on loopnet etc only when all else fails ? These are sellers who typically have a lot more experience and capital than your average residential buyer and yet they still allow it. It’s just very relationship oriented.
It sure makes you think that there is a lot of upside for residential agents to do the same.
Want more stories? Wonder how crazy it really is?
A long-time agent told me that half of his 2017 sales were under the table. His broker was ok with him getting paid cash, as long as the brokerage wasn’t named anywhere. And he sells as many as I do.
Tim and I will bring marshmallows! 🙂
Eddie89,”Mystery Man” and I will bring the graham crackers and choco-lick. Smores! 🙂
“If I ever get out of the business, I’ll expose everyone first, and burn this house down to the ground.”
Burn baby burn!
What was the address of that auction property? I am curious if the buyer made 50% on his purchase. People were dropping out over a couple grand.
https://www.zillow.com/homedetails/655-Shenandoah-Ave-San-Marcos-CA-92078/16672972_zpid/
Just about +50% since 2012.
SP = $411,500 and zestimate is $600,000.