In his video on Thursday, broker Jim Abbott made an impassioned argument against third-party advertisers. But it tip-toes around the role of real estate salespeople in general.
Do consumers want less from their agent?
In Colorado, agents can do less – they can be ‘transactional brokers’ as defined here, from wiki:
After 1994 (with changes in 2003), Colorado created the option of having no agency nor fiduciary relationship between brokers and sellers or buyers. Having no more than a facilitator relationship, transaction brokers assists buyers, sellers, or both during the transaction without representing the interests of either party who may then be regarded as customers.
In California, we don’t have ‘transactional brokers’ like they define them in Colorado, but there are “limited service” agents, and single or dual agency where buyers and sellers don’t have separate agents representing each party (like the traditional agency). It can get murky.
Here is a court case that highlights one of the pitfalls:
In 2004, Hall Realty signed a transaction broker’s agreement to list and sell the Lake Forest Resort, a 12-unit RV park in Colorado owned by Daniel W. Weddel, which comprised six cabins, a home, a grocery store and an office area.
Hall Realty advertised the resort as a “turn-key business opportunity”; at the time, it was actually operating as an RV park. In 2005, Gilbert Barfield purchased the property.
In 2007, the Colorado Department of Public Health and Environment informed Barfield that the water supply system was improper for the property to operate as a 12-unit RV park. Around the same time, the CDPHE and the county reportedly notified Barfield that the sewage system did not have proper permits for the property to operate as it had been.
Additionally, according to court documents, the county informed Barfield that the property did not have the proper operating permits and ordered him to cease business operations.
Barfield filed suit against Hall Realty, alleging negligent misrepresentation (that Hall Realty was unreasonably negligent in determining the accuracy of its advertisement of the property as a “turn-key business opportunity”), fraudulent misrepresentation (on grounds that Hall Realty either knew the “turn-key” representation was false or was utterly indifferent as to its accuracy), and fraudulent concealment (arguing that Hall Realty either knew or was utterly indifferent to the fact that the seller had never obtained the proper permits, and failed to disclose this fact).
At trial, Hall Realty filed a motion for summary judgment, arguing that its role in the transaction was that of a transaction broker under Colorado Revised Statutes 2009 relating to brokerage relationships in real estate transactions.
As a transaction broker, rather than a fiduciary, Hall argued, its “duty ended by describing the opportunity as it appeared to be when listed: an (ongoing) ‘turn-key’ business opportunity,” and it had no duty to investigate or verify anything beyond that.
The trial court agreed and dismissed Barfield’s case.
Barfield appealed, and the Colorado Court of Appeals affirmed the trial court’s ruling. First, the Court of Appeals rejected Barfield’s argument that Hall Realty’s description of the resort as a ‘turn-key’ business opportunity — without investigating further — constituted negligent and fraudulent misrepresentation.
To prove fraud, Barfield would have had to show that Hall Realty either knew that its representations in the property advertisements were false, or was aware that it didn’t know whether the representations were true or false. Photographs submitted by Hall Realty to the trial court clearly showed that the resort was in active operation at the time of the listing.
Accordingly, ruled the Court of Appeals, “the evidence demonstrates that Hall Realty had no reason to believe that the resort was anything but an ongoing, operational RV park,” rejecting the fraud claim.
Further, the court rejected Barfield’s argument that Hall violated its duties as a transaction broker by failing to discover the permit issues with the property. On the contrary, found the Court of Appeals, state law expressly states that a transaction broker is not a fiduciary of the parties in the transaction, like a traditional real estate broker would be.
Additionally, a transaction broker, under the same act, is required to “disclose any adverse material facts actually known by the broker,” but “is under no duty to conduct an independent inspection of the property for the benefit of the buyer … and has no duty to independently verify the accuracy or completeness of statements made by the seller.”
Taken in conjunction, the court explained, the facts that the property was actually in active operations as a 12-unit RV park at the time of the listing, plus the act’s “clear directive that a transaction broker has no duty to investigate,” preclude Barfield from showing that Hall Realty’s misrepresentations were either negligent or fraudulent. As a result, the trial court’s ruling was affirmed and Barfield’s case was dismissed.
Jim:
Although Colorado has provided for the “transactional broker” by legislation, there may be “constructive transactional brokers” in California. Far too often brokers/agents seem to have forgotten what their fiduciary duty is under the California RE laws/regulations.
The example of a broker who is truly looking out for his/her client — such as you — is, in my opinion sorely missing in CA. Perhaps we might as well institutionalize the “transactional broker” in CA and add that category to the CA RE regulations/rules — hopefully, at a far reduced commission for the reduced work.
in vermont, we have a relatively new agency that recognizes that most people are doing their shopping online and alters their offerings to accomodate that. they charge much lower fees than most everyone else in town, but appear to provide the same level of service (trying to make up for it in volume). i haven’t yet used these guys, but they are definitely displacing most of the other agentsin my neighborhood.
http://www.flatfeevt.com/
Here we go!
What agents do, and how much they get paid have virtually no direct relationship.
Add to that the ultra-paranoia about collusion, and NOBODY talks about it within the industry. We can’t – it’s illegal to do so.
Well if we (the agents) can’t talk about it, then it’s left up to the public to figure it out on their own.
This court case pinpoints a dilemma – you don’t really know what service you need, or what you are going to get until it’s too late.
My wild and crazy idea?
If every agent was paid the same, it would cause consumers to shop based on talent/skill and service provided.
It will never happen, but how else can you get the consumer to focus on the service provided? I thought that by now blogging would be an ideal way to help educate consumers. But do you see a truckload of excellent realtor blogs around SD County? Me neither.
I don’t think the consumer knows how to shop for an agent, and nobody in the business is going to tell them.
P.S. I have a junior in college – still no mentions in all her schooling about how to buy or sell a house, so no help there either.
Now that I got that out of my system, let’s review d_2’s vermont-flat-fee idea, which has been around longer than me.
1. I don’t see any Help-U-Sell franchises any more. The one in north county changed their name to a typical generic company name, and you can come to your own conclusion as to why.
2. I Pay One is now I Pay None – out of business in spite of a massive advertising campaign including hundreds of radio spots and sponsorship of the dump called the SD Sports Arena. They had 70 listings when they closed their doors.
3. Redfin has a snazzy website – the best in the business according to my clients – and a rebate program. Yet they have been in business for years and haven’t taken over the real estate world like many of us thought they would.
Why??
Because the great agents do all the business (10% of the agents do 90% of the business).
And great agents aren’t going to work for peanuts – this business is too demanding.
When Jim represented us as a buyers agent we learned what a good agent can to. His team was able to get our bid accepted over 15 others in a bidding war.
The problem with realtors is there’s no way to determine who’s over the top amazing at what they to. (Jim and his team) Or if they’re the kind of realtor that has trouble working a cell phone.
The quality of this blog has always impressed me. And is highly representative of Jim’s ability to buy or sell houses.
Thanks shadash!
It is a struggle for me – should I do more self-promotion here and risk looking like the other realtors who just blather on and on about themselves? Or try my best to keep it to a minimum and hope that people get a good enough feel that they have confidence in my ability?
Last night casanova renewed my faith in the latter (at the latest podcast post).
While we’re on this topic, here’s what one of the alleged titans of the industry thinks they should be spending millions on (hat tip to JS for sending this in):
http://www.forbes.com/sites/jenniferrooney/2012/01/26/why-century-21-is-advertising-in-the-super-bowl-for-the-first-time/
Not a hint of education for the consumer, just blather.
….snark on….
JtR, you might be better served in getting your name out there if you would just advertise more on park benches, bus stops, and shopping carts. Maybe you could draw in more business using a real clever slogan like “Jim reels ’em in!!!”
….snark off….
I have a TV commercial in mind, once the kid comes on board:
The camera shows us standing on the porch, about to hit the doorbell.
“Ring-a-ding, it’s Klinge and Klinge”
🙂 🙂
This is the leader of our industry – chief economist of the CAR:
http://bcove.me/6bnou2q9
Well…another lost 3 1/2 minutes of my life!
As the police usually say…”nothing to see here, folks…move along!”
Where do the CAR and NAR recruit their “leaders”? From the videos of both organizations you have shared on the blog, it would seem that neither group has even a remote touch with reality — or useful information.
you get what you pay for.
Jim,
Your point no. 3 is dead on right.
Much of this this could be resolved if there were 1) high standards for entry into the business of selling real estate and 2) clear terms stating what realtors do and 3) real punishment for those who deviate from those standards and 4) pay that reflected the reality of what they do (no more flat % fees).
Even after our epic housing crash, the realtor profession is still all over the map and includes people who shouldn’t be selling anything.
If 95% of the realtors out here were at Jim’s level of skill and professionalism, we wouldn’t be having this discussion. But the field isn’t even close to that level.
bignrich:
Hey…that’s my line for the so-called Governor of AZ!
As more and more horror stories like this where they don’t have an agent with a fiduciary concern for their clients comes out people will appreciate what good agent’s do.
Word-of-mouth is the best form of Advertising in my opinion. I would hope anyone reading this blog would want Jim as an their agent.
Jim is blessed by the quality of his competition. Mediocrity is often an opportunity.
JtR: “If every agent was paid the same, it would cause consumers to shop based on talent/skill and service provided.”
Isn’t this the way it has been for years (a la 6%ers)? So clearly that doesn’t work.
What we need is what the NAR killed at Redfin (though better implemented): Good quality ratings of all agents. Get rid of the 90% who don’t sell much, and rate the active agents, both on quantity and quality.
I would happily pay JtR, and a few more quality agents, the full 3% for their side of the transaction. But should I be so happy paying the weak, sometimes incompetent agents who populate the other side?
IMHO, this is one of reasons that Redfin is making a go of it: real ratings of their agents, not just the discounts for being an informed, somewhat self-sufficient buyer.
Oh, how I wish that 100% of the do-nothing, know-nothing, couldn’t-care-less RE agents would find another occupation. Then the experienced, knowledgeable, ridiculously-hard working Realtors–like Jim-who truly have their clients’ best interests and needs at heart would be left.
Purchasing or selling real estate may be the most important financial decision of your life. *SMH* especially considering agents receive the same flat 6% commission, why wouldn’t you find and use the best?
In every aspect of my life, I’ve learned that quality matters. In RE, whether it’s building a home (I’ve done it 2x) or working with an agent to buy and sell, in the final analysis, quality is worth every penny…
I like watching Jim’s tell-it-like-it-is videos but I’m sorry to opine that just like booksellers and stockbrokers, real estate brokers seem to gradually becoming “disintermediated” (made obsolete) by technology such as Zillow, Redfin, and Trulia.
I hope that the change will come gradually so that folks like Jim can “ride off into the sunset” instead of being “kicked to the curb.”
Seems to me that as soon as the term fudiciary relationship is introduced we are guilty since we are licensed professionals practicing in real estate sales and all that comes with it (superior knowledge).
fiduciary relationship n. where one person places complete confidence in another in regard to a particular transaction or one’s general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust, but can be one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling.
Where was the due diligence on the part of the buyer? Or the listing agent? It only takes a few minutes on line or on the phone to see what permits have been issued and to determine whether it is worthwhile to talk to a planner in person. I am spoiled, the Sonoma County planning department has a number of long term and extremely knowledgeable employees who are courteous and helpful. David Hardy, the senior planner has helped me resolve some thorny issues. As to pay, I can put in more work on a $200k deal at 5% than a $2mm at 6%, it depends on where the research leads me.