Why you can't trust a real estate agent.

By Paul Michael on 5 April 2007 (Updated 9 June 2007) 32 comments

Sell

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?
• fantastic
granite
• spacious
state-of-the-art
• !
Corian
• charming
maple
• great neighborhood
gourmet
Well, 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.
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Guest's picture
Guest

I am a real estate agent and Sellers DO NOT simply rely on our advice. Most sellers think their home is worth more than the market can bear at the time of sale and price it that way. Most agents know this and do what is called "buying" the listing by either agreeing with the seller, or by simply giving the seller a big price. Once they secure the listing the sellers usually stay with the agent as the price goes lower. That is why you see so many price reductions. Realtors keep prices high and the market moving. Buyers with questions do not write contracts. Realtors educate buyers so they can make an informed decision.

Guest's picture
John M

I don't think the point of the article was to bash realtors. It just points out that incentives influence a person's beahvior. Realtors have an incentive to sell homes quickly. It does not mean that most realtors are purposely trying to sell your home for less money. They just have an incentive to sell it for less. It is important to understand in life why someone wants you do something.

Guest's picture
Toby Cameron

All realtors are crooks...see my video on why

http://www.youtube.com/watch?v=fdCVHbeH6rM

Paul Michael's picture

The reason we can't trust the real estate agent is that they are only human. As I say directly in my article ...

 "$150? For all that time and extra work? Not so great now, and you know, I'd feel the same way."

 Freakonomics is also a study of human behaviour and the incentives that move us. I know I would not want to work harder to make an extra $150 weeks or even months later. In that time I could have sold another few houses.

Will Chen's picture

During housing market downturns do you get a lot more unreaonable customers?

Guest's picture

I am a Realtor, and I do what is best for my clients. I think it is wrong to make a generalization like this about real estate agents.

If I list a house for a seller, I consult with them up front to find out what their expectations are, as should any good agent. If the market conditions say that their home is worth $225K to $230K and the average days on market to achieve that price is 60, and they want $235K in 30 days, I explain to them how this is not possible, and why. They should choose what is most important in their situation, moving in 30 days, or getting the absolute maximum amount for their home. If they want to sell in 30 days or less, they should price it according to the market. If they don't have a certain timeframe, it might be OK to list at $235K , keeping in mind that if an offer of $225K is made and they turn it down, it may be a long time (or never) until another offer comes along, and there are no guarantees the next offer will be any better. Ever heard the saying "a bird in the hand is better than two in the bush"?

My concern is not with how quickly the home sells, but just that it sells in the timeframe the client expects,and within fair market value. I don't want anyone to give their home away, but I also know that the first few weeks after putting a home on the market are your best chances of getting a sale, as that is when you will get the highest amount of potential buyers looking at the home. The problem you run into when pricing a home too high is that you eventually have to come down if it doesn't sell. When a home has sat on the market for a long period of time is when people will start throwing "low-ball" offers at you.

If a seller wants to "play the market" at 10% higher price than fair market value, and has no motivation to move, I'm not going to list their home. Why? Not because I want "quick" cash, but because I spend a lot of time and money on advertising the home, with no guarantee of a sale. Overpricing the home of an unmotivated seller greatly reduces my chances of recouping my time and money spent. On the typical $200K home here in the Tulsa, OK area, I spend approximately $500-$800 in marketing costs UP FRONT on a listing, not including things like my license fees, MLS key fees, sign costs, insurance, etc. As a business person, you have to spend money to make money, but you also have to choose your opportunities wisely. I don't mind waiting 60, 90, or even 120 days to be paid on the sale if it means making the seller a little more money, but I do eventually want to be paid. Wouldn't you?

While we're on the subject, let me enlighten you as to how much money real estate agents ACTUALLY make on a sale. OK, on a $200K home listed at 5.5% commission (2.5% seller agent, 3% buyer agent) the sales commission is $5000. Sounds like a lot right? OK, from that $5K, if you're on a 60/40 split with the broker (fairly common), now you as an agent have $3000. Still not bad, huh? But, you have to pay taxes/social security on this amount, let's say 20% (low), that leaves around $2400. Oh, then you have the $500-$800 marketing costs mentioned above, let's say $700 for this scenario, leaving you $1700. OK, now factor in all the other costs above (MLS fees, signs, keyboxes, vehicle, gas, insurance, etc.) and you have approx. $1300 left over to take care of your family. If it takes you one month to sell a house, and you net $1300, not so impressive, huh? So, to net just $50,000 in a year, you only have to sell 40 or so $200,000 homes. That should be a cakewalk, right?

Don't get me wrong, I think a lot of agents have put this perception on themselves. I just wish more of the public knew the real story about how much money their agent makes.

Guest's picture

All of these comments were great. I do not think one can offer the blogger's generalization as a valid thought. It's not even worth the write up. Maybe one agent may have looked at selling a home that way...but I do not know of any. And yes, as agents we do want to sell the house quickly, but of course not at a loss as the homeowner does as well. They take a loss for every minute the house sits on the market don't they? And the cost of marketing a home is huge. There is not another industry, not even used car salesmen where it has been so accepted in a society to ask for a commission reduction. do you ask your dentist, your stock broker, your teachers for money out of their pockets? Im worth every penny of what I earn and I am a savvy marketer, however, some homes are just kept in very very bad shape and not very ofter is a homeowner going to listen to an agent about cleaning up a home to sell, pricing, or painting. Watch HGTV if you don't believe me. Agents know what they are doing and the ones I know do it well and sacrafice their time and money to sell the house at the best and highest price within the quickest amount of time. No question.

Paul Michael's picture

is in direct alignment with your calculations about income. Is it not better for you to sell MORE $200,000 homes than to sell less $210,000 homes. The extra amount you would presonally get from making a home sell for more money is so small, it's not worth the effort. As Levitt says, better to sell more homes than to sell less homes for slightly more money. Your own math has just proven that I believe. And a lot of real estate these days is selling for way more than $200k. How many homes $400k homes would you need to sell to make a decent wage? Or $550k homes? 

Guest's picture

is that your initial topic that says agents don't want to wait around for 1 or 2 weeks to make a seller $10K more is totally wrong. I would gladly wait an extra week or two to make my seller $10K more if I was sure that the scenario would pan out in their favor. The problem is, I can't be sure- THERE IS NO GUARANTEE IF/WHEN YOU WILL RECEIVE A BETTER OFFER. It's not about me wanting my money, it's about me doing my job to help you sell your home.

Quote: "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."

You are assuming the reason they want you to take the $300K offer is because they want a "quick sale", when the real reason is more likely that they want you to take a "sure thing", knowing that another offer may be weeks or months (sometimes even years) down the road. I noticed that you said "reasonable" offer. If you had just 6 weeks to sell your home, and you got the offer in this scenario in week 3 or 4, wouldn't you take it? Or would you risk having to pay double mortgage payments, or live apart from your family for months, etc. to POSSIBLY make 3% more? (knowing also there is a possibility you would get less) Would I be a "better Realtor" if I advised you to take that risk?

I have some friends who recently sold a home in Kansas City. They got an offer for $5000 less than asking price within the first month. They decided they really wanted the full price or closer to it, and declined the offer (against the agent's reccomendation). Seven+ months later, after dropping the price that same $5000, paying a lot more interest on the loan, and a few double mortage payments, they ended up taking an offer for $2500 under that.

It doesn't matter what you want for your home, it only matters what someone is willing to pay for it. Every buyer wants a good deal, and every seller wants top dollar. Realtors have to walk a tight rope to balance things to try and achieve a win-win for both buyers and sellers. The homeowner has complete control over how much they will accept for their home, an agent cannot force them to accept an offer. If you have an agent that is trying to bully you into accepting what you consider to be unfair offers, FIND A NEW AGENT!!!

And by the way, the median home price in the Tulsa, OK area is $160- $180K, not $400K. Are there $400K or $550K homes, yes. But there are WAY more homes under $200K than over $400K. That goes back to my point about generalization. Are there agents who think the way you perceive them to think? I'm sure there are. I'm just not one of them.

Guest's picture
Tom

Freakonomics is making a logical abstract point, but, and it is a big but, houses are not like cartons of milk. The majority of property is unique in one fashion or another. As well, how are the statistics compiled regarding the agents selling their own homes for 3.7% more money? Is this based on sale to list price?

So if an agent's home that is listed at $105,000 sold for $103,700 is compared to one of his client's home which is inferior, but due to the client's wishes was also listed at $105,000 but only sold for $100,000 does that qualify as "having sold his own house for 3.7% more"?

I do not know how anyone could realiably compile this 3.7% stat so that it actually meant anything.

Please, someone correct me if I'm wrong.

Paul Michael's picture

Are you seriously saying that as a realtor you have no vested interest in selling homes more quickly? If every one of your clients right now decided to hold out for 6 months until a good offer came along, because right now the market is terrible, wouldn't that leave you out of commission and therefore out of a job? How can you really stay impartial on this, even with your clients' best interests at heart? Surely your own family and income would take precedence.

Guest's picture

You have not defined what a "good" offer is. The only definition of a "good" offer I have to go by is that the offer is within the market value of the area. If the market conditions say the average home sells for $270K to 280K in 45 days, and a seller wants to price their home at $300K and is willing to wait six months or more for a "good" offer, I would not list their home. Period.

My job is to tell people what they REALISTICALLY expect to sell their home for, and then work to get them that figure for their home as quickly as I can. The majority of sellers cannot wait, and do not want to wait 6 months for their home to sell. Sellers are extatic when their home is sold in 2 or 3 weeks. They think their Realtor is the greatest. You know what they think a Realtor that takes 6 months to sell it is? A BAD REALTOR!

I have absolutely no control over if/when sellers receive offers. I cannot make someone buy their home. The only tools I have to sell the home are the price, condition, location, and marketing. I only have control over the marketing, with hopefully some influence over the pricing and the condition.

Did you even read my last post? The longer you wait for a "good" offer, the worse the offers get. It is absolutely 100% best to price your home competitively if you want to get the most for it. I know it sounds hard to believe, but if you'd sold a few houses, you'd see what I mean.

The sellers that agree to the price I recommend (I always give them a range, based on the CMA for the area, and they choose within that range), always sell their home quicker and for more money than those who don't. They love me. They are happy. They recommend me to friends & family.

Every time I've taken a listing at a higher price than what the ACTUAL SALES DATA shows the home is worth, the home has not sold in a reasonable amount of time, and the seller ends up getting less for the home than they would have gotten if they'd listened to my advice up front. And you know what, they always somehow blame me, the Realtor for the home not selling quicker and for more money. They refuse to admit that it's their own greediness/stubborness that kept it from selling quickly.

I've got another example for you, as it appears you didn't read my last post.

I sold a house last year that I wanted the owner to price it at $127,900 to $129,900 (based on the ACTUAL SALES DATA for the neighborhood this was on the high end). I told him to expect a sales price of $126,000 to $128,000. He wanted to list it higher, at $132,900. I advised him that we were soon coming into the holiday/winter season where there are fewer buyers looking for homes, and that pricing it competitively (not low, still on the high side for the neighborhood) was very important if he wanted to be out by spring. He disregarded my price and listed for $132,900. The home didn't sell for 5 months, until AFTER a price drop to $129,900. What did it sell for? $125,900. I am 100% confident that had he listed it from the beginning at $129,900, it would have sold much quicker for at least a thousand or two more.

I'm sure you're thinking "how is it possible to sell quickly AND make more money on the sale?". The reason is because if your home is priced competitively for the market you will have more potential buyers looking at it. The more buyers you have, the higher your chances of offers. The more offers you get, the more likely you will get a "good" one. Or even better, multiple offers. That is the best situation to be in as a seller. If your home has been on the market for 30 days or less and is priced right, people won't try to haggle with you. But, if your home has been on the market for 180 days, you'll get lowballers. That's the way it works. Buyer start thinking things like:

What's wrong with that house?
This home has been on the market for 6 months, and they lowered the price, they must be desperate to sell.
Let's throw this number at them and see what they say.

The sad thing is, that many of these sellers by this point are desperate enough that they often take much lower offers than they should out of frustration.

The other thing the seller needs to consider when thinking of pricing too far above the market value is the appraisal. Most homes are bought with a mortgage, and the lender will not lend more money to the buyer on a home than the appraised value. I know of countless situations where sellers "held out" for a "good" offer, and when they finally got a contract for the amount they wanted, the home didn't appraise for as much as the contract, causing the contract to fall through unless the seller lowered the price to match the appraisal.

I never, ever ask someone to price their home lower than what I know they can get. Believe it or not, I have had occasions where the seller wanted to list lower than my reccomendation because they need a quick sale. I discourage people from this, but it is ultimately up to the seller.

Back to your question, if a seller is content waiting 6 months or more to sell their home, I don't want to list their home. I'm not in the business to spend money marketing a home for someone who doesn't really care if they sell or not. If someone had a million dollars worth of gold, and told you that you could be paid 6% on the sale if you could sell it for $1.2 million within 6 months, would you spend your time and 1/3 to 1/2 of your profit trying to find a buyer for them, knowing that it's only worth 1 million? What if you sold cars, and all the other dealers in town charged $40,000 to $42,000 for the same cars your boss expects you to sell for $50,000. Plus, you have to run all your own TV, radio, and print advertisements for the cars and pay for them upfront out of your pocket? How long would it take you to leave and go work for one of the other dealers?

I personally don't care as much about how much I make on the sale of the house, I just want to be confident that it actually will sell and that I get paid at some point. If I know it won't sell for what you've unrealistically "got to have" for it, I'll let someone else list it for you.

Paul Michael's picture

...but the Freakonomics data also showed that Real Estate brokers get more money for their own houses, and keep them on the market longer, than they do on clients' houses. And doesn't your last paragraph basically prove this point?

I personally don't care as much about how much I make on the sale of the house, I just want to be confident that it actually will sell and that I get paid at some point.

 I did not write Freakonomics by the way, I was simply reprting the findings of a well-respected and notably brilliant economist. I suspect that we will never see eye-to-eye on this Scott, as you could never really be impartial considering your profession. But I do thank you for taking the time to write such involved and well-thought-out replies.And I assure you, I read every comment carefully. If I don't quite get the point you were making, that is my fault. 

Guest's picture
Guest

I've come to this discussion through a search, and I can tell you that Scott was spot on and you were ignoring his point, the the extent that in this post you change the subject. The point is a house sells quickly when it's priced near market value. Looking back on this discussion from 2010, his comments are even more pertinent today than in 2007. I just walked away from a homeowner who bought for 480,000 in 2002, and has been on the market for a year at 899,000. In our interview she insisted she was looking for an agent who wanted to take on a "challenge", would not accept less than 860,000, even though she acknowledged my data that showed her house would sell for 599,000-620,000 was correct. I walked away from that listing (and she has referred me twice since then! Score one for honesty and not buying a listing!). Another homeowner was listed at 980,000. I took on the listing a year later at 875,000. We had an 800,000 offer and I was basically thrown out of the house. 8 mos later when a comparable home on the street sold, we reduced to 825,000 and had a 750,000 offer a week later. I was dismissed again and released her from our contract. She has relisted with another agent-- for 950,000!!! This agent is engaging in an exercise in futility. This should be pretty easy to grasp.

Tara Struyk's picture

Maybe realtors do get more for their homes, but shouldn't they? A lot of people's homes are dirty, smelly and in poor condition and they just don't want to hear about what they have to do to get the price they want. A realtor knows how to price their home accurately and present it for sale. There's nothing wrong with that.

Guest's picture

I know that there are shady real estate agents, just like there are shady lawyers, doctors, financial planners etc. It just irks me that I always seem to read about how agents are trying to screw clients in the media nowadays, and I feel like much of it is unjustified, or at least too generalized. They are many hardworking, honest Realtors out there who genuinely care about their clients and want the best for them. If you or any of your readers have had bad experiences, I apologize on behalf of my profession. The title of your original post especially rubbed me the wrong way.

I would be interested in seeing their study, I guess I will have to pick up the book. I am curious to see how they compiled their data. When they figure out that Realtors made 3.7% more money on their homes, were they figuring that off of gross sales price, or net? I would assume gross, as that is the publicly available number, but I would be interested to see the numbers. To me the 10 extra days part doesn't mean much, the average days on market in my area is about 45 days already. I just don't want your readers to assume that they should wait another 10 days after a first reasonable offer for a better offer that may or may not come. They need to weigh their situation carefully to see if the risk of waiting outweighs the reward.

Scott

Guest's picture
Guest

Hi. I saw a home that I like a lot. My husband likes it too but not as much as I do b/c it lacks a garage and has a shared driveway. Not a problem for me at all. I went to see the house by myself and then called my husband to take a peek to see what he thought. He was very interested. The same day I went to the Seller's agents office and told him that I would like to bid on the house. I explained to him that I would only pay $430,000. b/c the house has no driveway, the siding in the back of the house is melted b/c of a BBQ being a little too close to the house, the kitchen was very dirty and needed to be updated and they had a small portable washer. The house is on the market for $469,000. The seller's agent told me that the seller had another house built and that they would accept our offer and that he would start out with a low bid of $410 and go up in $5,000 incraments. The bidding started and the seller went as low as $440,000. My husband said that all he would pay is $430,000. Nothing more. And now everything has come to a complete hault. I spoke to the agent on a friday and now it's Thursday of the following week and I haven't heard anything. I called yesterday and the agent told me that the listing agent is trying to work something out with the buyer... what does that mean? I don't have a buyers agent so the commision doesn't have to be split with anyone. Are they playing games with me?????? why are they taking so long to call me. Isn't it a yes or no answer from the seller? P.S. after speaking with my husband last night he has agreed to go up $5,000.00. Should I mention it to the agent or just wait to see what happens. I truly think the bidding part of the deal is over. HELP! what should I do???????

Guest's picture
Vanessa

Awesome post.

Check out this one too.

Why do real estate agents drive fancy cars?

http://www.zillowblog.com/real-estate-agents-and-their-cars/2008/01/

Guest's picture
bIgDa

You real estate agents who have posted here are either:
a. The (very) few truly responsible agents, or
b. Defending the profession.

We have only owned three homes in our lives, (in three cities) After each the transaction (buying/selling), we discovered information that made us feel as we were taken advantage of.

I'm sure that there are some responsible real estate agents out there (somewhere). But as for my wife and I, we will never, ever, ever use an agent again. We will never, ever recommend the use of an agent. We would rather take a substantial loss on our house than feel the shame of being duped.

Friends that we have spoken with may not have had the same difficulties, but there are many more bad stories than good ones. It is human behavior to justify ones own actions. I suspect that no matter what they do, agents cannot see themselves as the 'bad guy', and believe their inappropriate actions are either insignificant or misunderstood.

Guest's picture
another guest

Isn't it possible that realtors average 3.7% more on their own homes partly because of their knowledge of the profession? When they originally bought their home, if they were a realtor at the time, they knew which neighborhoods to buy homes in because the value is likely to increase more, and what type of home resells easily and at a good price. Also, because they are probably not relocating, they are likely selling their home because they want something different, not because they need to sell. So they have the choice of when to sell their home, and can put their house on the market at the best time, and can take it back off and relist later if they don't get the offer they want. I think there a lot of variables that can come into play. I am not a realtor, BTW.

Guest's picture
Guest

Interesting 10 day scenario. I think that if you knew for absolute certain that you could get 10k more in 10 days, then there would be no question about the decision. The problem in real estate is uncertainty. Let me give you an example. I had a home for sale years back. I had a cash offer for 135k. I was going to have an auction in two weeks with the starting price at 150k. I declined the offer of 135. Two weeks later, no one bought the house. The cash buyer bought another house. The house sat on the market for nearly a year and sold for 135. As a real estate agent, I would encourage a seller to take 300 rather than hold out for 310 for this very reason.

Guest's picture
Guest

Exactly. A home is listed for 325,000. You are offered 300,000. You would like 310,000. Would you go to Vegas and slap down 300,000 on the table because you might end up with 310,000 if the dice goes your way? Of course not. It's the same thing with selling a home. Just because you get one offer doesn't mean another is coming along, like a bus, in 20 minutes. In my area it can take the buyer and seller 2 weeks to get into fully executed contract because of inspections, etc. The owner is free to accept another offer at any time till they are in fully executed. I have sold homes in 4 day, 20 days, 15 on the market. . . During the the intervening period that the contract is signed, the home is shown. I had a 300,000 accepted offer on 315 asking--while waiting for signed contracts another offer came in at 260,000. Should they have turned it down and waited. I had a 240,000 accepted on a 249,000 list. while waiting for contracts there were NO other offers. People may sell a house or two in their entire lives. We are in the market every day, we know the market.

Guest's picture
toby cameron

all realtors are crooks check out very short video that shows why

http://www.youtube.com/watch?v=fdCVHbeH6rM

Guest's picture
john r

The problem with this article is the writer thinks waiting around for the buyer is a good idea. He doesn't consider the FACT that traffic is greatest in the first 2-3 weeks and that is why its our goal as agents to get it sold at the right price during that time-frame. Once we have left the first three weeks its really challenging to get people to come through the properties. If the properties are not priced correctly they haven't a chance to sell. BTW the homeowner always has the last word on pricing. If they don't listen to experience, and the data the listing will sit... if they are not in a hurry, that's fine. don't expect magic though.

Guest's picture
Guest

Two basic points:
1) The study referenced in Freakonomics is based on a study that DOES compare apples to apples (unlike suggestions in some comments previously) and Realtors are coming out ahead on sale of their own homes.

2) Sellers' interests and listing agents' interests are not aligned, as the sweet talk from an agent would have one believe.

First, there is the issue of "correct price" as mentioned in the comments. Reality is that there is a broader range of possible prices than the agent would have you believe - think bell curve and the agent's recommended price landing on the left side below the mid point to attract more potential buyers.

They do this because, secondly, they have a lower risk tolerance for closing the deal than the homeowner. They risk getting zero compensation whereas the homeowner will still own the asset after the contract expires. As time passes, the agent will be investing additional effort and money in selling the property. This does get complicated by market direction, season, etc., but is generally true.

However, if this is the agent's home, these interests become aligned. The agent will benefit by seeking a higher price, knowing that it will take slightly longer to sell as fewer potential buyers will be prepared to make an offer.

Like most people you likely run into in your daily life, the majority of agents are likeable and generally trustworthy individuals. Because of the way the original post was provocatively worded, it sends folks in the industry onto the defensive. However, it is entirely separate from how agents are incented to behave, either consciously or intuitively. That is what the study from Freakonomics is pointing out.

The implication for the seller is that they need to do their own homework on price, determine their own risk tolerance for the sale, and not just settle for what the listing agent tells them. They have a decent chance of doing better if they are willing to take the additional risk.

Guest's picture
sickofthebull

A real estate agent moved in next door to me last year, and she has been trying to take our property we have had since 1975, sell it for us or buy it from us or buy a piece of it. I don't trust her one bit! She confesses she can't pay for her own house and hasn't made a sale in a year, and then she actually thinks we are stupid enough to sell to her!

Guest's picture
Guest

The article is interesting, but fails to take into account, the longer the house is listed, the more likely buyers are going to offer a lowball offer. The longer a house sits on a listing the more likely that the sellers will have to list for lower in the future to generate any interest. A listed home becomes a non-sale if it sits on the market too long. Also Real Estate agents, probably will list theire homes earlier, because they may have the experience and knowledge to plan their sale and move ahead of time, alot of people who list thier homes, purchase a new home and sell thier old home at the same time, theres the risk of double mortgages when you wait to long to sell your home.

Guest's picture
Guest

The real reason agents are "crooks" is because they don't do ANYTHING and they collect money. The listing agent posts the house and waits on phone calls, that is ALL. The buying agent puts the buyers criteria into a search engine and it will generate an auto email on a daily basis. Then the people tell the agent which houses they want to look at and the agent turns the key to let them in. "ohhhh, but there is more to it than that!" I am making a general statement and I know it, because it is true. Who else, in America, does less and gets paid more???? Bankers and politicians, who are the biggest crooks of all. Thanks for taking 6 percent of something you didn't build, live in, invest in, work for, or pay for. It's almost like agents are bad version of the IRS.

Guest's picture
Tommy D

Thank you for the article. I have always thought realtors were crooks. It seems anybody can become a realtor and the job works on commission. Of course, the realtors do not have the client's best interest in mind, they have their pockets in mind. I have never seen a job that does nothing have the potential to make so much money.

Guest's picture
Guest

The writer make the erroneous assumtion that THERE WILL BE ANOTHER OFFER COMING....WON'T THERE? Maybe, maybe not, depends on market conditions, and no 2 markets are the same. It's like playing black jack in Vegas, and ASSUMING that you KNOW FOR SURE a "21" is going to be dealt to you the very next hand. How do you know? You don't. There are only so many buses coming to the station....you better get on ONE, or get left behind.
Bottom line... numerous studies have shown that homes that sell the quickest... sell for the most money. TOO MUCH TIME ON THE MARKET, waiting for the offer YOUR ASSUMING IS COMING, makes buyers wary that something MAY BE WRONG with the home.

J.C Chadband
Broker
Investment Property USA
Silicon Valley, CA

Guest's picture
Guest

Interesting article! I recently bought a house and as a prospective buyer thought that all Realtors were playing games to increase the price of the house. Most of us buyers learned long ago that just because a listing agent says "...we have three cash offers and several additional offers above asking.." May really mean they have no offers on a house with 300 days on market and their next ploy will say "highest and best" where the highest bidder might be selected to be the most "upside down". In this common scenario many of us buyers later learn that we are bidding against ourselves. One of the trickiest gimmicks I have seen is that the listing agent will refuse to answer the telephone, FAX's or emails from Buyers agents, especially on the telephone number listed on advertising and marketing materials. As one listing agent told me "..there is no law that says I have to answer the telephone..." So why would a listing agent stall the sale of a house? To get BOTH SIDES OF THE DEAL...and double the commission. The Listing agent carefully checks out the calling party on the caller ID and carefully returns the call if they think the caller is an unrepresented buyer.

How did I learn this? By having this happen many times. I learned that listing agents do not want to talk to buyers agents because they want both sides of the deal. So who represents me? After being tricked so many times, I decided to play my own trick. I saw an interesting new listing and immediately called my buyers agent. We were pre-qualified we want to see the inside of the house and if interested make an offer. But big problem. The Listing agent would not return our Buyers agents calls! So why let the Realtors involved keep us from buying? The house was listed as "Active " which means it is NOT a Short, REO or other difficult to close property.

I went to a local discount super store and bought a prepaid cellphone with a telephone number area code and prefix for Beverly Hills. I called the Listing agent and she answered on the first ring. Imagine that! The First question of this Listing Agent was "Do you have to sell your home in Beverly Hills to buy this house?" Aha Gotcha! Why would a total stranger care unless she wanted to be my agent? Also how does she know where I live ( ha ha . Never been to Beverly Hills, but I saw 90210 on TV). I checked with the county and found another lie. The house was listed for auction in 3 days! It was an obvious short sale that the listing agent "forgot" to mention.

So the listed price was $325k and in 20 minutes I had her down to 200K and I never had looked at the house. Remember I am supposed to be in Beverly Hills. I told her I had a family member in the neighborhood and could they arrange to see thew house. The listing agent was SOOO busy she couldn't but had her husband show it to my relative that afternoon. Well needless to say I showed up looked art the house and made a WRITTEN offer through my wife (different last name) for 200K with NO contingencies. I knew that she would get the mail the next day and probably open it. I called her on the telephone and made an offer also with no contingencies for $5,000 more. $205k. Why did I offer more? Because I knew that if she were a moral person she might feel less guilty by offering the "best" of two offers. Why no contingencies (except mortgage funding) with no inspection? I knew I had at least a ten day rescission rate with the bank. So the listing agent got her $12,300 at a selling of $205,000 instead of the $9750 she would have made if it sold at $325k and she worked with a "buyers" agent. Our Buyers agent had an agreement with my wife ONLY and not me. Me and my wife easily qualified for our own 3% 15 year fixed loan. I only paid 63% of asking and all parties were happy. There is a sad side note. The listing agent was sneaky and "forgot" to tell me that the seller was living out of a car and tried to rent rooms to pay for the mortgage. The plan did not work because the renters didn't pay rent. It could have cost me tens of thousands of dollars to eject the non-paying freeloader tenants. I learned all this because of a NOSY neighbor who told all the gory details. I used a ruse to get the tenants out of the property one week before closing, and quickly put up a fence and Keep Out signs and hired a security service to sit outside of the property right next to the KEEP OUT signs. The deal closed and we moved in 3 days before the loan was funded. The Listing agent gave us the keys because she didn't want to get sued because of non disclosure of the tenants. When the dirt bag tenants tried to return they were met with either the private Security Guards or the Sheriff. The tenants were already "known" by local law enforcement.

Today Zillow shows us at Zindex of $471K. Not bad! YOU as a BUYER or SELLER MUST BE AN ADVOCATE FOR YOURSELF or you will get eaten alive by these salesmen who will tell you anything to make a quick commish. Did these Realtors break the law? NO This is what they do. The REAL client of the salesmen is themselves FIRST.

Guest's picture
david moore

I agree with this article and those of you who don’t like it …tough. After many house sells and purchases we are amazed at the lack of negotiating that each realtor as shown. Why would a seller/buyer get offended at an offer? Why? It’s a free market folks. We had a realtor annoyed that we wouldn’t meet a sellers price by 3k. We stuck to our guns and won. He was sweating bullets for days though. It’s our money after all. And yes, for Michele, we have jobs too…maybe more hectic than yours…it’s debatable. Hard work equals money. That simple. Don’t expect to get handed sales on a platter while laying in bed. Buck up! Ps , we hired you. You work for us.