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High-Balling

When homeowners interview more than one realtor for the job of selling their home, how do they select a winner?

In almost every case, they pick the agent who quotes them the highest price.

It’s irresistible for those who aren’t that comfortable, and want to make a quick decision.   Heck, you’d want more money if you can get it, right?

I’m convinced that it doesn’t even occur to people that they should investigate thoroughly – everything else is just a click away, let’s have money be the deciding factor!  Greed is good!

But we’re into the stage of the cycle where if you over-shoot, the market may not catch up with you as fast – or at all.  With fewer comps these days, it’s not easy for buyers to decide if that new listing is worth it, and don’t be surprised if we phase into a more-cautious marketplace.  You’ll know because average market times start extending, and unsold listings begin to pile up.

How can sellers know if they are being high-balled on price?

  1. The listing agent wants a long listing period – more than three months.  We are in the prime selling season, and there are plenty of qualified buyers – especially in the under-$1,500,000 market.  Any good listing agent should have enough confidence in their abilities – and pricing – that they can procure a sale within three months.  Besides, you don’t want it to drag on – buyers will lowball the lingering listings.
  2. When it comes to explaining their price, there isn’t a direct relationship to the comps.  The conversation gets vague, or they make jokes about it.  Pricing is not funny.
  3. Their price is higher than your price.  Sellers think highly of their house, and already have an opinion of value based on realtor postcards and internet evaluations.  But it’s a value goosed with optimism, and if the realtor quote is even higher, something is wrong.
  4. The listing agent has some special formula or new-fangled technology that delivers higher prices.  Buyers have never heard of them, however, and will rely on the old-fashioned ways.
  5. The listing agent wants you to rush your decision.
  6. The listing agent doesn’t have bidding-war strategies, or gets vague.

You can’t tell if you are being highballed by the agent’s length of time in the business.  Inexperienced agents can do it by accident, and experienced agents do it on purpose.  I have had long-time experienced agents tell me that they deliberately go high on price and then take long listings as regular business – in spite of it being a violation of our ‘strict’ Code of Ethics.

How can buyers tell if the price is too optimistic?

  1. There’s not a supporting comp for miles.
  2. The listing agent has a recent history of listings taking longer to sell – and virtually no listings that sold quickly.
  3. It doesn’t appear that anyone else is looking at it.
  4. The condition of the house isn’t great, and no effort was made to stage it or make it presentable.
  5. You felt the price seemed high from the beginning.

If you’ve been seeing a lot of homes in person lately, then your brain is a natural computer full of relevant data that gives you ‘gut instinct’ on pricing.  It’s as good as anything else!

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Jim represented the sellers, and helped navigate a broken water pipe inside the unit during the escrow period!


Real Estate’s Future

After reading my auction-is-the-answer series, Brad Inman invited me to his conference in the desert yesterday.  I politely declined, because the real estate industrial complex is more interested in profits, than ethics – and a little guy like me isn’t going to change it.

These days, the big push is for brokerages to employ artificial intelligence to predict who will be selling their home.  They are able to watch your internet patterns, just like the NSA, and know when consumers are searching real estate websites.  Then agents will be calling, knocking, and advertising on your Facebook account to get your business.

Because this will hopefully produce some fantastic new listings, these brokerages will be able to leverage their proprietary AI as a recruiting tool.  Before long, agents who have seen enough of their clients get poached by these antics will have no other choice but to join them.

It could lead to a massive consolidation among traditional agents.

KW said yesterday that they aren’t a real estate brokerage any more – no, they are a technology company now, which gives you a glimpse of where they stand.  Compass is doing the same thing (developing AI), and Reology bought Zip Realty to use their technology platform – the hits keep coming!

This happy talk will dominate the industry for the next 1-2 years, and that ethics/auction stuff by that part-time blogger down San Diego way will be quickly forgotten.

Expert vs. Trainee

We covered in my four-part series that there is a vicious undercurrent of fraud and deceit being imposed upon buyers and sellers alike, and that drastic action is needed to stop it.  But such action is unlikely to happen – at least until the district attorney has a few perp walks to get everybody’s attention.

It means that Brad Inman’s conference needs to come up with a real humdinger of a solution.  In the meantime, maybe we can improve on what we have?

I mentioned that traditional agents are reluctant to say anything in public about how they do their business.  But now that the disrupters are spending millions on advertising, it’s time we step up to the microphone.

The disrupters’ underlying theme is that traditional agents charge 6%, and they will do the same for less.  Here they focus only on saving money on the commission, and never talk about what they actually do to sell your home:

Agents who only talks about their rate, rather than the quality of services they provide, must not have much to offer.  Their website has some data though – this is their main page:

We don’t have to look very far to see how trustworthy they are.  They say Bethany has ’10 YEARS EXP’, but when you go on the DRE website, this is what you’ll see – she has been licensed since 2016 (you can always get a hint from the license numbers, which are issued sequentially):

I’m sure she is a nice person and means well, but to use her as your front person when she barely has two years experience as a licensee probably means that the other agents have less.  Pardon me if I’m skeptical of how ‘intimate’ she, or any of their agents, know their LA/OC territory.

Companies who blatantly lie about the people on their main page will say anything to convince you they are legit. Ask yourself what you are willing to endure – you only have one shot.

Apparently they charge you the $3,200 fee whether they sell your house or not, and they take your credit card number up front.

Rex is another one – they claim to sell your house for 2% by themselves without cooperating with other agents. Here is reality:

Redfin?

You may like their sexy website, but who are the people handling your sale?  I have spoken to both current and ex-Redfin agents, and it sounds like a sweat shop – much like our local IPayOne, which failed twice, or Roxtons.  They are good people, but the employees are being asked to handle a high volume of business with minimal support.

Sellers should wonder if that will equate to a top-dollar sale.

An ex-Redfin senior agent told me that he quit when upper management insisted that he get ‘five more deals out of every agent’ this year.

Here are other opinions:

https://www.indeed.com/cmp/Redfin/reviews

Here is what one ex-Redfin senior agent from Florida said last year:

I worked for Redfin for two and a half years. First as a transaction / hybrid coordinator then as a senior agent in the field. The concept is amazing but the reality will drown you. As a licensed broker who has over a decade of experience my base salary was $20,000 after “bonuses” paid (only after a glowing review from the client) my W-2 showed $42,000 income. Keep in mind I closed over $7 million dollars in real estate transactions last year. If you can’t close minimum of 3 transactions in a given month you are promptly let go for poor performance. With no cushion or savings because again top pay was 42k in the year. Your expected to have your schedule open for tours 7 days a week. Ready to meet a new customer not vetted not approved within a 3 hour window. Vacation is offered but is never approved. And in my market we were required to span over 300 Mile radius covering 4 counties. You are paid for each tour but it’s $35 and again you’re expected to drive 3 counties away at no notice just to be stood up. You will need to have knowledge of that area as well. Because your clients will review per tour and they will not appreciate an agent who is not knowledgeable. Please please please if you are considering joining this company be ready to give away all of your commission and time and learn from my experience. I’ve never written a review before but I’m passionate about getting this out there. Don’t believe their hype. Thank you for reading and considering.

How do they handle the critical points of engagement?

Want to see a house? A trainee gets paid $35 to $50 to open the door.

Sellers hoping for top dollar?  Trainees do the open houses.

The good agents there make around $3,000 per sale between salary and bonuses, while dealing with outside agents who make substantially more.  If you were a great agent, wouldn’t you work somewhere else to make more money selling fewer houses?

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Bottom-line:

Sellers have one chance to hire a great agent to sell their house for top dollar.  Every agent can sell your house, and heck, you don’t even need an agent – just stick a sign in the front yard and you’ll get calls.

But houses don’t sell for the same price – there is a 5% to 10% range, depending on who is handling the sale.  You’ll hear that the market is hot, and that houses sell themselves – but for how much? Will your agent do everything it takes, AND have the expert salesmanship to get you top dollar?

If not, you are going to feel like a chump for falling for their BS advertising.

Operation Transparency

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?

  1. 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.
  2. 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.
  3. We can have big leadership conferences where outsiders will speculate how the disrupters will pick us apart, piece by piece.
  4. We can wait for the government to intervene.
  5. 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:

Inventory Watch

(Last week’s Inventory Watch) How does the flow of new listings in 2018 compare with previous years? If there was any panic among sellers over the stock market jitters, and/or higher mortgage rates, we’d see it here:

Year
Number of New Listings between Jan 1 – Feb 15
2013
622
2014
622
2015
648
2016
703
2017
629
2018
599

No panic yet, but sellers might be the last to care.

P.S. Statistics are quirky – I doubled-checked, both 2013 and 2014 has the same counts.

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