The onslaught of new-fangled ways to sell homes is getting bogged down in their own zeal – there are so many choices now, which way do you go? You have the sexy off-market package driven by celebrity realtors above, or the typical new-age mobile app at a discount below:
The widget that spends $100 million/year on advertising.
The scarcity of sales should drive more agents out of the business, and the those agents who remain will be increasingly focused on putting their own buyers and sellers together.
We have the listing agents who hold listings off-market in order to find their own buyer, but there are also agents who will do ‘sold before processing’ with an outside agent. This happens quite frequently.
If a listing agent isn’t going to round-trip the commission, and instead let a second agent represent the buyer – why wouldn’t you do what is best for your own client (the seller), and expose it to all agents via the MLS?
An old veteran agent told me that he hoped he would sell his new listing before MLS input, and he did – and an outside agent represented the buyer. The house had been vacant for years so there wasn’t an occupant who held up the showings – all he had to do was install a lockbox, take a few photos with his phone, and spend 15-30 minutes doing the MLS input.
He did input the listing onto the MLS after he found the buyer, so was it the installing of the lockbox and taking a few photos too much of a burden?
Why wouldn’t he do what is best for his seller?
He must either be flat out lazy, or he wanted everyone on the MLS to see that he was the latest to breach his fiduciary duty. It is like a badge of honor!
The realtor business is slowly eroding right before our eyes.
Part of a realtor’s job is to help manage expectations – not only those of their own clients, but expectations of the other agents and their clients too.
Recently I received an offer on a listing that was 25% under the list price. They also wanted my seller to carry the financing for 30 years – which is unheard of – and oh yeah, it was contingent upon the sale of the buyers’ home too.
I told the agent (whose email-signature noted they were in the Top 10 statewide for their company) that if I was the seller and that offer was presented, I’d fire my agent.
Just like when we’ve seen a home with range-pricing that is too wide, it becomes impossible to bridge the gap – for three reasons:
Once a buyer puts a number on paper, their mind starts believing it’s real.
Buyer’s remorse is real too, and they cool off quickly.
Sellers are skeptical, and don’t feel like negotiating much.
It may be discussed as just a place to start, but once a buyer submits their price in writing, it becomes a comfortable number. Going much higher than where they start is usually a function of how fast agents respond. My rule-of-thumb is two counters max for each side, in less than four days.
In this case, my sellers weren’t desperate, they had already determined that they wanted to sell for at least 93% of list and were willing to wait for it. I told the buyer’s agent that our price gap was too big, and I nicely asked the agent and buyers to go back to the drawing board.
Three days later, I received a new offer with bank financing, instead of seller-carry, but it still had the original price of 25% under list. It came with the buyers’ love letter; a full-page of reasons why my listing was the perfect fit for the buyers.
Was the love going to make the looming price gap surmountable?
In spite of houses around the county selling for 99% of list this year, we countered with a price that is 4% under our list – not bad, considering the original offer price. On their counter, the buyers came up to 82% of list, but it took two days to arrive. I knew the remaining price gap and time left wasn’t looking good.
I always want to respond promptly, because of #2 above – buyers cool off quickly. We dropped another 2% within a few hours, but it wasn’t enough. Two days later, the agent emailed that they lost interest – no counter, no love.
Five days gone by (seven days since the original offer), and the initial 25% gap killed our chances. They knew before writing the offer that it would take at least 93% of list to buy the property, and they still offered – so initially there was some willingness to pay that or close.
If they would have started at 82% of list, and trimmed the time spent to 3-4 days, could we have made it to escrow? I think so!
We are in the business of selling thousands of homes every year (last year in San Diego County we sold 23,962 homes worth $17,168,811,888).
Wouldn’t you think that there would be a set of rules to guide us? There isn’t, and what’s worse is that you don’t know what to expect on each house for sale:
Will the listing agent create a bidding war?
Will the listing agent take the first offer?
Will they do their advertised open houses, or not?
Will the listing agent tilt the table, and take his own buyer’s offer?
Each sale is different, and there is no telling what will happen. The uncertainty creates an environment where qualified buyers are denied the ability to compete, and the chaos helps to fuel the buyer frustration, which keeps the frenzy going.
Think if we had a marketplace where you knew that every home was going to be sold the same way. Pick any process – it would bring a logical, business sense to the market if everyone played by the same rules!
I believe that the auction format is the process that is the fairest, but there isn’t a consensus among the big industry players to change anything about the current environment. Will it ever improve?
This week I submitted an offer on behalf of a buyer, and the listing agent reported that he had multiple offers. I asked:
“Are you the kind of agent who discloses the other offers?” and included this video from last week:
He said he would need to ask someone, and then wondered, “Are you one of those agents who would”? I said, “Absolutely, it’s in everyone’s best interest – agents, buyers, and especially sellers.”
Twenty minutes later, he tells me the price and details about the offers on the table, and the price of a previous escrow that didn’t work out – it was the highest of the bunch. He also said that he expected more offers, and that they will just take the best one.
He also added, “You were the only one to ask for more info, so there you go 🙂 Good job working for your clients.”
The industry will be reluctant to adopt the auction format, but maybe we can take baby steps and get there eventually.
Broker supervision is a nice idea but rarely practiced. We need perp walks!
In September 2015, the California Bureau of Real Estate (CalBRE) issued an advisory which was captioned “Disciplinary Warning to Real Estate Salespersons Who Act, Conduct Themselves, and/or Advertise as ‘Independent’ Real Estate Professionals — and a Simultaneous Caution to Brokers Who Allow or Support Such Practices”.
Licensees of CalBRE are well advised to review that prior advisory since we continue to see some of the same bad practices identified in that writing.
This discipline “advisory” is being issued as a supplement to that prior warning since CalBRE has taken notice of the use by some real estate salespersons of names and designations (and attendant Internet and marketing materials) that suggest to the public – and mislead consumers into falsely believing – that such salespersons are real estate brokers.
A scenario that we have repeatedly seen is the use by a salesperson (who for this illustration we will identify as John Doe) of a fictitious business name that would lead members of the public to incorrectly believe that the business is operated and managed by a real estate broker. In this example, salesperson Doe conducts business using the name Doe Real Estate. Doe advertises using that business name, and the advertisements are connected to, or accompanied by, a webpage and other materials that extol the virtues of Doe Real Estate. The public would not think that Doe is a salesperson who must be supervised by another, and would most certainly conclude that Doe Real Estate is a real estate broker or brokerage. And the above practices are unlawful.
In addition to the above, many salespersons continue to brand and identify themselves as “independent” real estate practitioners, and they practice and advertise as such. Unless those salespersons are operating as “teams”, in full compliance with the California laws and rules pertaining to teams (e.g., the disclosure of I.D numbers and the name of responsible broker, and the surname of at least one of the licensee members of the team along with the use of the terms “team”, “group” or associates” with regard to the team), that is unlawful as well.
Further, and depending on the specific language employed with respect to the name(s) and designation(s) used by the real estate salespersons, there might be a violation of the law relative to the use of fictitious names. Please see the prior guidance given by CalBRE on the proper use and licensing of fictitious names.
As was also stated in the prior warning, under California law, with its two-tiered licensing system, real estate salespersons cannot provide – or advertise that they can provide – real estate services independently of their responsible brokers.
Likewise, salespersons must be associated or affiliated with, and be reasonably supervised by (which supervision includes broker review of the advertising used by the broker’s salesperson or salespersons pursuant to Commissioner’s Regulation 2725(e)) a responsible broker in order to engage in real estate licensed activities in California. The law provides no exceptions.
CalBRE will take appropriate disciplinary action (including the imposition of significant fines, and – where appropriate – the revocation of licensure) against real estate salespersons who engage in the unlawful activities discussed above, and against real estate brokers who permit their salespersons to engage in such activities.
I just watched your first attempt at the auction and must say that you did a fine job as the auctioneer. I have been a real estate auctioneer/realtor for 30+ years and have often recommended an auction to fellow realtors in high demand situations such as yours. Of course, it usually falls on deaf ears as the realtors usually feel that they don’t need the service nor do they want to share the fee.
I hope you don’t mind the questions but I have been trying to work with realtors for many years and it seems to be a constant struggle.
I’m curious about what made you suddenly decide to utilize an auction when you could have easily achieved more than the asking price without it?
JtR: Because there were multiple people at the open house that said they would be interested in purchasing the house, I thought this would be the best way to determine the winner fairly, and create maximum urgency. The agents involved were willing, and so was the seller, so it worked out. We did close escrow with the winning bidder at the price determined by the open bidding.
What was the seller’s opinion when you told them you were having an auction?
JtR: She was motivated to sell, so that made the difference. Sellers who aren’t that motivated are suspicious of selling too quickly, thinking that this is like most jobs in the world where you work hard for weeks or months to achieve the desired result at the end.
But selling real estate in this low-supply, high-demand environment is the exact opposite – you stand the best chance of selling for top dollar in the beginning when the property is a hot new offering, and has max urgency. Buyers think something must be wrong with houses that aren’t selling in a hot market.
Did you consider actually marketing the property as an auction for a longer period of time and possible having more bidders?
JtR: No, because the highly-motivated buyers are there first. There could have been other people interested later, but if they aren’t interested enough to come to the open house, then they probably weren’t willing to pay 4% or more over list price. Yes, there could always be two in the bush, but our environment has trained buyers to race to hot new listings that might be a perfect match for them. Not only will they be the most likely to pay more than others, but they are more likely to close escrow too.
I consider the quality/suitability of the property too. This was a 1,541sf two-story house with a steep slope behind, so it wasn’t for everyone. There were 3x as many people who didn’t bid. Sellers and listing agents should consider how many people who came and didn’t offer.
Will you consider using the auction method in the future?
JtR: Absolutely, it is the best way to achieve top-dollar sales. The animal spirits are driven when competing with your opponent eye-to-eye.
But auctions aren’t commonplace yet, so when I have multiple offers on a listing, I create a similar experience by pitting bidders against each other to increase the price. I tell them the price to beat, which nobody does. Realtors want you to think it is better to bid blindly, but buyers are much more likely to go higher if they have a number to beat. I take advantage of the competitive spirit, which you don’t have with blind bids.
For those who might think an auction format would only work for lower-priced properties, let’s note that there have been three sales in Rancho Santa Fe that utilized the no-reserve auction process, and closed for more than $10,000,000.
Those three are the ONLY sales over $10 millionin the last five years in the Ranch, and there are 30 for sale today. Let’s give auctions a try!
Of course, I would be happy to answer any questions that you may have.
JtR: David, if a trusted name-brand company brought a slick and easy auction process to home sales and advertised it properly, do you think they could succeed? Do you think they could change everything, and potentially eliminate realtors as we know them today?
For the first time ever, I’m going to file a complaint against another realtor. In this case, the listing agent discounted her commission so her buyer would win, even though my all-cash buyer had a higher offer.
It is in the vaunted Realtor Code of Ethics that any different commission deal needs to be disclosed to the buyer-agents:
7.22 Dual or Variable Rate Commission Arrangements. The existence of a dual or variable commission arrangement shall be disclosed by the listing broker by a key, code or symbol as required by the MLS. A dual or variable rate commission arrangement is one in which the seller or owner agrees to pay a specified commission if the property is sold by the listing broker without assistance and a different commission if the sale results through the efforts of a cooperating broker, or one in which the seller or owner agrees to pay a specified commission if the property is sold by the listing broker either with or without the assistance of a cooperating broker and a different commission if the sale results through the efforts of a seller or owner. The listing broker shall, in response to inquiries from potential cooperating brokers, disclose the differential that would result in either a cooperative transaction or, alternatively, in a sale that results through the efforts of the seller or owner. If the cooperating broker is representing a buyer or tenant, the cooperating broker must then disclose such information to his or her client before the client makes an offer to purchase or lease.
Of course, when taking the listing most agents don’t think they are going to discount their commission to screw another agent out of a deal, but once they get into the heat of battle, they lose their mind and forget.
Or they never knew it was against the rules.
The maximum penalty is a letter in the agent’s file for six months, so there isn’t a big deterrent to being unethical. They say that the reason the MLS exists is to ensure cooperation and compliance between agents, which sounds good – right up until money is on the line.
I wonder how many agents have read the Code of Ethics?
By now we have all heard how robots will be supplanting humans and taking everyone’s job in the near future. What about realtors?
Rich Barton had thoughts on the topic this week:
NEW YORK — Robots may be taking over the world. But they won’t eliminate real estate agents — at least not anytime soon.
That’s the message from Zillow co-founder Rich Barton, whose 10-year-old Seattle company transformed the real estate business by unlocking massive amounts of data about individual homes. Could artificial intelligence — AI-powered robot agents — be the next wave in real estate?
“I choose to believe that all (artificial intelligence) is an enhancement, not a displacement. Just pick your industry,” said Barton, speaking at the Inman Connect real estate conference in New York this week. “We do like to see the end of the world in every new technology that emerges, but, in fact, the truth is every new technology that has emerged has enhanced humanity, and created new kinds of jobs that are much better and safer than the factory jobs or whatever jobs were being displaced.”
He chooses to believe it when he is speaking in front of a large group of realtors and his Zillow is king of the hill. We’ll see what he says once the Broker Public Portal is launched, and realtors try to deny Zillow access to listings, which is inevitable – the only other choice to compete with Zillow is to spend the same $100 million on advertising, which we’re not going to do.
My guess is that Zillow will develop their own AI, or buy a company that does it, and then sell it to their top-spending agents. We’ll have a realtor civil war – Zillow Teams (Zillow & big-spending realtor teams) vs. BPP/Big Franchises.
The big-box franchises will have to side with the BPP in order to keep their lower-producing-agents-with-the-most-favorable-commission-splits in business.
But I digress.
Would it be so bad if robots replaced realtors?
For the vast majority of old-school agents, the job of being a realtor is to properly complete a fill-in-the-blanks contract. Those who are proficient at it then call themselves ‘great negotiators’.
This week I saw a newer house that has been on the market for months, and from the photos, description, and price, there wasn’t an obvious reason why it wasn’t selling. I called the agent – she didn’t answer – so I left a detailed message asking questions about its salability. The next day she sent me a text that said the house was still for sale, on lockbox, and if I showed it, to lock all the doors when I left. All of her comments were stated clearly in the MLS – her only attempt at selling her listing was to regurgitate what was already obvious.
A robot could have done it better – the robot could have at least responded within a minute with the same information, instead of the next day.
I know it’s demanding to expect realtors to process actual sales skills, but we’re not going to have much choice in the future – agents are going to need better skills to survive. Filling out forms isn’t enough any more – a robot could do that, and frankly, robots might be an upgrade.
When you list with me, you can count on me to properly engage with other realtors, and give them several reasons why they should sell your house.
Home sales that aren’t a result of a bidding war usually have some give and take in price negotiations. It has been a seller’s market since 2009 around here, and the trend of the sellers getting what they want is baked in the cake by now.
Will it change in 2017?
Sellers want their price or close, and believe they deserve it. Almost all of them have their own hand-selected comps to prove they are right, and will wear out the market for months or years before they believe otherwise.
Will buyers dig in, and walk away from deals over the last 1% to 3%?
When most of the sellers have been long-time owners and have loads of equity, it seems ridiculous that a seller would hold out for an extra $10,000 or $20,000 when he already has $500,000+ coming. But it happens all the time.
The listing agents are so used to winning – and used to getting beat up when they are on the buyers’ side – that they don’t think much about changes in the selling environment. And if it’s a new listing, they are getting enough calls that their ego is brimming.
This is where the 2017 market will be made – will buyers walk away when sellers counter over $10,000 or $20,000? If they do, will sellers give?
Sellers aren’t going to give, so if buyers are willing to walk, then we will have the stagnant market stare-down.
If it happens, it won’t be until June. By then, there will be enough OPTs starting to pile up, and the buyers who are still looking will be those who missed out on the other houses that were snatched up by the frenzied buyers who let the seller win the extra 1% to 3%.
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
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