Why you can't trust a real estate agent.
Surely a real estate agent would want to get you the very best price for your home. After all, they earn commission. The more they sell it for, the more they make, right? Well, the popular book Freakonomics , which I'm reading and devouring right now, proves this is not the case.
Now, I'm not saying all real estate agents are doing this, neither are the book's authors Steven D. Levitt and Stephen J. Dubner. But it does cast a huge shadow of doubt over the entire real estate industry. Judge for yourselves.
Here's the game, and how it's played.
It's all based on incentives...what's in it for you, what's in it for them. And it also plays on your fears. Fears that you don't know how to sell your home, that it will be on the market for years and that, of course, you won't get the best price. So, you call a real estate agent and use their huge knowledge of the market to sell your home quickly, easily and for the very best possible price.
And that's the sticking point.
Due to the way commission is structured, it's not in the real estate agent's best interests to get you the best price for you home. Let me repeat that...it is not their priority to get you the most money for your house. No, they want a good price, but they want a quick sale. It is far more profitable to get you to take the first reasonable offer that comes along, than wait another week or two and get $310,000 instead of $300,000. The incentive problem. Let's looks at that more closely. At first it seems well worth the wait. Two weeks for $10k. For you, it is good. Of that $10k you get around $9400. The other $600, that's the 6% commission fee, gets split 3 ways. Half goes to the buyer's agent. Then the real estate agent gets $150 and her firm gets the other $150. $150? For all that time and extra work? Not so great now, and you know, I'd feel the same way. Just look at the numbers. It's simple math.
- Sell the house now for $300k, make $18k commission and get $4500 cold hard cash.
- Or, wait for two weeks or more, do a lot more hard work, sell for $310,000, and get $4650 cash.
It's clearly not worth the wait, when you could sell early and start work on another commission. This is the problem. Big incentive for you, tiny incentive for the expert. And the experts have many tricks up their sleeves to ensure a quick sale and easy ride.
The code words used in Real Estate ads.There are good words, and bad words. Most of the time, you can make an educated guess. Consider these terms when selling a home. Five are good, five bad. Could you tell which?
• great neighborhood
here's the answer. The words in italics are good. Why? Because they say something positive and definite about the house. You may or may not like granite, but there's no denying the implication of rich and aspirational. The same goes for corian, maple, state-of-the-art and gourmet. Whatever you feel, you cannot deny the meaning. Now look at the other words. Spacious? What does that mean? Is it impractical, badly laid out, cold, roomy, who knows? Charming is just as banal and ambiguous. And as a writer, I know that using anything like fantastic or ! means you have nothing of substance to say. When a house is fantastic, you don't have to say so....it sells itself. And great neighborhood basically means it's not the best house on the block. When you know how to read the code, and it's not difficult to figure out, you know what the agent is trying to do. Through the use of this language, they're saying "this house isn't so hot...maybe you should make a lowball bid, it may just get accepted." And when a bid does come in that's lower than you'd like, hey guess what, you should take it. After all, that nicer home across the way hasn't sold yet and it's been on the market for months. What happens when a real estate agent sells her own house? That's when the data get's even more interesting. She'll use descriptive words that mean something. Terms like "move-in-condition" and "granite" will be on there. Ambiguous phrases like "immaculate" and "wonderful!" will not. Studies performed by Levitt and colleague Chad Syverson also proved that real estate agents hold out for more money when they sell their own homes. Of the 100,000 home sales they looked at, real estate agents kept their homes on the market for 10 extra days and made 3.7% more money. So, what next? The Internet is your friend. Information that used to be at the disposal of the experts is now readily available. Do some homework. See what is selling, for how much and where. And don't let the real estate agent pressure you into taking a lower bid because the market is "just in a terrible state right now." As sure as night follows day, the same agent will tell a buyer "pay more, the market is really moving." It's truly a cat and mouse game.