Friday, May 27, 2005
Freakonomics: Real Estate Agents and the Ku Klux Klan?
A new book hit the shelves last week: “Freakonomics�, by Steven Levitt and Stephen Dubner. (www.freakonomics.com)
Written by an economist and becoming an instant best-seller (quite a feat, if you stop and think about it), Freakonomics takes another look at many widespread public perceptions, and asks some interesting questions – such as “What do schoolteachers and sumo wrestlers have in common?� and “Why do drug dealers still live with their moms?�. (I’m not making this up. These are real chapter titles; and the author really does delve into the answers)
The book is very educational, and a fun read. But the reason I bring it up on this blog is because of chapter #2: “How is the Ku Klux Klan Like a Group of Real Estate Agents?�, which may be reason enough to buy the book for anyone thinking about buying or selling real estate.
It’s no secret that there is an all-out war (PR, legal, et al) going on between the Traditional Real Estate Agent Establishment [National Association of Realtors] and proponents of discounted, alternative real estate companies. So in Freakonomics, Levit seeks out the truth: do real estate agents really get their clients the best deal, as they claim (and as they can explain / justify quite eloquently)?
The data screams “NO.� Levitt goes into much more explanation, comparing real estate to the insurance and stock brokerage industries which were revolutionized by the internet, but a highlight from the book is this: A sampling of 100,000 homes sold in the Chicago area showed that 3,000 homes were owned by the agents who sold them.
The best way to compare whether an agent is working for you is to compare what they do for themselves vs. what they do for you. Of the 3,000 agents in Chicago selling their own homes…
- The agent’s home stayed on the market an average of 10 days longer than those of their clients
- The agent’s home sold for an average of 3% more than those of their clients
There you go. No spin, no fast-talking, no beating around the bush. Just hard data that backs up why owners should consider selling their homes “By Owner.�
In the book, Levitt goes into more depth explaining why an agent would sell your home slightly faster for less (hint: holding out for $10,000 more dollars for you means only an extra $175 for them) - and that the internet has now significantly narrowed the information gap between what real estate agents can find out and what you can find out. If you’re interested, go grab a copy of the book even if you just read that one chapter. It’s highly enlightening.
Michael Poythress
The FSBO Blog
June 17th, 2005 at 1:42 am
As a long time real estate broker, I would just say that in some cases FSBO works, mostly for those who have had experience buying or selling real estate, or for those in a market that is very competitive and in high demand. However, its the Jif and Skippy story most of the time….FSBO’s usually only have one item of inventory and 95% of the time, when buyers call about an advertised property, they DON’T buy the property that was advertised, but instead buy something else. This is why real estate agents work. We have all the brands of peanutbutter on our store shelves and if the customer wants Jif, we’ve got it. If the FSBO is a Skippy, they’re out of luck and have to wait for a Skippy buyer to show up. It’s very frustrating for FSBO’s most of the time. The real job of a real estate agent is that of a trusted counselor, advisor, problem solver, umpire, investigator and interviewer. As a broker, my greatest asset is my ability to interview prospective clients as to what their needs are and then do my best to meet those needs. If a buyer calls in on an ad, it’s basically an ice breaker. I ask them all kinds of questions and then tailor my informational feedback to them personally so that all of us save time, effort and money in the hunt for that perfect property that suits their needs. The same thing goes for the sellers. I ask the sellers detailed questions, the most important of which is whether or not they really want to sell their property. Its surprising to me how many sellers are not really committed to selling or not really ready to sell. My greatest frustration is other agents who are either coercive, greedy self-serving low-lifes or just plain incompetent. Its no wonder that an entire FSBO market exists. People have been disappointed and frustrated by lawyers, car salesmen and real estate agents for a long time and while there are good lawyers, car salesmen and real estate agents, the stereotypes exist for a reason. I bet, if you asked most real estate agents if they thought that real estate agents in general were trustworthy people, I’m not sure if the majority would say that they were. This is a very strange occupation and its the rare agent who really puts the needs of their client first without some thought about “what’s in it for me”. The worst agents are those that are in the business for the money. The best agents look at real estate like its a vocation. The best agents genuinely like people, like to solve complicated puzzles and pay attention to details. They are knowledgeable, friendly, professional and honest. I like to think that I am one of the good ones. My messy desk might make some people think I’m too disorganized to do a great job, but my track record says otherwise. I am an independent in my own company. I rarely have to seek out new listings or clients because my reputation as a real estate problem solver draws them to me. If things get much worse, I may go back to college and pursue a law degree specializing in real estate law. It’s just getting too crazy and becoming a real estate lawyer is very tempting as the next step in helping my customers holistically deal with their real estate situations.
After all, approx. 83% of all FSBO’s eventually list with a broker; roughly 75% of all real estate lawsuits involve FSBO situations; and like I said before, 95% of all calls on real estate ads don’t buy the property they called in on. The average value of a buyer call on an ad is $750 so it’s important to know how to interview that buyer and convert that call into a sale. When a buyer calls a FSBO, the FSBO only has one listing. When a buyer calls me, I can talk to them about more than a thousand listed properties with all the information right at my fingertips in a computer database. This is my full time job. I’ve changed the oil on my car one time. It took me better than two hours and it was a messy job. Now, I take my car to Oil Can Henry’s or Jiffy Lube and it’s done in 20 minutes, no mess, no fuss and professionally executed. I’m willing to pay those professional oil change guys because I learned my lesson a long time ago. Selling your own house is like changing your own oil. You can do it if you want to, but why would you want to? Hire the professional and spend your time working at what you do best instead. That’s my best advice.
August 11th, 2005 at 4:25 pm
The Authors creditials look great. I will return to this blog often. I’ll read the book “Freakonomics” too.
Hal
October 22nd, 2005 at 12:11 am
Great reponse from the broker-lady. She’s obviously got lots of experience. But where, I wonder, does she get figures like 83% of all FSBO’s end up using brokers? If 95% of all calls on real estate ads don’t buy the property they called on, 5% would be an incredibly great success rate… seeing as you only need to sell your place once. Her numbers don’t feel true.
November 29th, 2005 at 12:20 pm
Statistics in Real Estate are nearly meaningless because each Sale is unique. But that doesn’t mean selling as FSBO will be easier…it won’t be. My wife and I are Buyer Agents and we include FSBO’s as part of our inventory….if it matches the buyers criteria. We want to make sure our Buyers have the opportunity to see every home available. But I’m certain, we are in the minority. I don’t trust the National Association of Realtor statistics nor would I believe the statistics of a “anti-agent” proponent. It’s all about the market. You price the home according to market value and it will sell. If you price it too high - it’s not going to matter whether you are with an Agent or you are going it alone - it won’t sell. As Buyer Agents in the Lake Norman Area of North Carolina, we do exhaustive reasearch to determine what our clients should pay for a home and we ask them to stick to our advice. There’s nothing worse (in terms of investing your money) than over-paying.
April 6th, 2006 at 8:11 pm
I would like to know where the broker comes up with the figures as well. Quoting stats is great but here is the bottom line. The broker is the “middle-man”. The MLS is still heralded as the end-all, but what is the MLS? It is a database of homes. (any broker will of course argue it is MORE THAN THAT). It is a database, pure and simple. Relevent before the internet, but not relevant today. With many sites that help FSBO sellers co-op, the FSBO popularity will continue to rise. Sites like mine at www.lawrencefsbo.com.
Also with homes being less affordable for most families, there has to be something that gives…and that something is the transaction costs. Paying someone…even a professional to sell my $200,00 home and charge me $12,000 is WAY TOO MUCH. I shouldn’t have to pay that and neither should the buyer. Why is it so bad to save families money be cutting out the middle-man? It isn’t bad at all.
As far as lagal problems with FSBOs, I think the numbers are high due to the fact that some FSBO sellers make the AWEFUL mistake of not getting an attorney to review the contract and paperwork. WORST MISTAKE EVER IN FSBO selling. If a person needs their hand held from start to finish, there is an attorney in our area who will charge $600 to do EVERYTHING…including ordering the title insurance and attending to the closing. For the less hand holding method, there are other attorney’s who will review the contract for less than that, if a FSBO seller is knowledgable about the process. I would rather have a real estate attorney represent me over any broker or agent ANY DAY! I’m selling my home for the third time FSBO, am very comfortable with the whole process and WILL HIRE AN ATTORNEY to review my contract….yes, even the third time around!
The problem with many FSBO sellers is they just don’t approach it correctly. They don’t know how to be professional and so many don’t list their homes on the internet. THAT IS BAFFLING!! I see FSBO ads in the paper with no internet listing for people to see pics of the house. What about people moving from out of state reading the local paper online? People want to see pics!!! Besides, it costs much less to put pics and a ten line ad in the internet than in the paper. I HAVE MY HOUSE ON SEVERAL SITES…SOME OF THEM FREE!
Fixing up your house to make it attractive. Just like going out on a date…you have to do a little “sprucing up.” Here is some news. Whether a person lists with and agent or sells it themselves, that seller must keep a very clean home when selling and pay for little or large improvements…again, whether they list with an agent or not. Is the agent who is listing your home going to put fresh mulch down, trim the yard, put some fertilizer down, keep the house vacuumed, etc. etc. IF YOU LIST WITH AN AGENT AND ARE NOT DOING THESE THINGS
June 21st, 2006 at 11:44 am
I sold two homes myself. The last one was in Massachusetts and I sold it because it appeared on the Internet. The buyer said his broker did not show him our house, even though it fit his requirements and we agreed to pay the 3$ commission of any buyer’s broker.
The house we sold in California was through the aid of Help-U-Sell, which listed the house for a flat fee and did all of the paperwork. I had been a licensed broker in Massachusetts at one time and I know it costs no more to list a $1,000,000 home than it costs to list a $100,000 home. The slick brochures are to impress the seller not the buyer who seldom sees the brochure if the home is sold by another broker through MLS.
The broker who drives a client around to show different houses is providing a service. The listing broker is receiving a windfull. In California, when I was there, only 1% of the homes listed were sold by the listing broker.
June 27th, 2006 at 2:24 pm
I want to read this book! I am a REALTOR and the only reason I became one is because my husband is a residential contractor. I HATE REALTORS!!!! I like the people in my office but I get tired of all the b*****t I hear them spout off! What a shady line of work.