REALTORS® are sales people, do not trust them with your equity.
“How to sell more, earn more, and become the ultimate sales machine.”
Hmmm… Is sales culture good for the real estate industry? After all, for most Americans, the bulk of their net worth is their home equity. It’s an incredibly important asset. Are real estate “experts” really going to sell our home for as much money as possible, or is there perceived value just as illusion?
Several scholarly studies have revealed a real irony: A traditional real estate agent is the last person you want managing your biggest asset. Realtors are sales people, not asset managers. America bought into the REALTOR® brand decades ago. To their credit, the National Association of Realtors has become the second largest lobbying group in the country, and their marketing has been effective in giving people the impression that they are experts. This couldn’t be further from the truth. Realtors have been cashing in on the tradition of hiring a Realtor, an $80 billion dollar a year racket, without delivering anything even close to commensurate value.
Stephen Dubner and economist Steven Levitt, authors of Freakonomics, exposed a problem. The interests of real estate owners and real estate agents are not aligned: Research showed that when agents sold their own homes, they were getting more money than if they sold the same home for their client.
You should know if you’re selling a home, there is a conclusive variable that correlates with achieving a higher sales price: Patience.
It is becomes clear from looking at different sales prices among homes that there are two real estate worlds, even for identical, adjacent properties.
There is the world of higher sales prices and the world of lower sales prices. People who enlist the services of a Realtor, go on a ride to the world of lower sales prices. When homeowners sell their own home (For-Sale-By-Owner), they too earn more than the same Realtor-assisted sales, and as much as the Realtor’s that sell their own property. I don’t want to imply that all Realtors or sales people are bad people, but the data shows that most, knowingly or unknowingly, do two things; they aggressively price property which leaves money on the table, and they encourage their sellers to accept offers that a wise, objective and patient person would not agree to. Of course their is value in a Realtor’s experience, which is why these stats are so telling. Their drive to close the sale is so strong, it eclipses what value they do have so much so that a person with no experience can achieve a higher selling price. This may also mean its just not rocket science to sell a home. The other day I was looking over an HVAC unit with a professional, and he pointed out how these units are designed to be confusing so people don’t go and try to make simple fixes on their own. The REALTOR® institution has done a fantastic job convincing homeowners it’d be a terrible idea to sell on their own. You first have to pay for twelve weeks of courses and your REALTOR® membership dues, then you have all the wisdom you need to sell a home.
Economists from the department of Northwestern University conducted a study and found for-sale-by-owners were netting about $12,000 more than Realtor-assisted sales. Not that they saved twelve grand from not having to pay a commission, the sales price was $12k higher in addition to not having to pay a commission. The irony — when you hire a Realtor you’re paying more money to sell the house for less money. It’d be like paying extra to have someone cut your lawn with a pair of scissors. It costs more and looks worse.
Below is a Zillow review of a “Top agent”. A term that people mistakenly assume involves getting you the best possible price for your house. Top agents are often the worst offenders:
From the Stanford Institute for Economic Policy Research, How Much Value do Real Estate Brokers Add? A Case Study:
We find no evidence that the use of a broker significantly affects either the selling price or the initial asking price, though it does lead to more rapid sale.
“Though it does lead to more rapid sale.” As outlined in Levitt’s research and elsewhere, agents, on average, are pressuring sellers to take offers before it is in their financial best interest.
So Realtors aggressively price property to get it to sell. Is this a phenomenon, should we really be all that surprised?
Of course not. Realtors are sales people, they are not asset managers, nor are they financial advisors.
When one gets a real estate license, they find a broker and go through the in-house sales training, and through osmosis or direct instruction they learn the following: Price homes to sell and list and sell as many homes as possible (sales volume).
The number one real estate trainer in the world is Tom Ferry. He’s never had a real estate license. That’s right, he’s never sold a single home. He is a sales trainer. His training doesn’t touch on equity, economics, accounting and personal finance, and that is because Realtors are not in the business of helping clients preserve their home equity. His father Mike Ferry, is also in the sales coaching business. In his report, “HOW TO GET YOUR LISTING SOLD”, he offers a few pointers that should worry any homeowner working with a Mike Ferry student:
Being patient is not conducive to any sales-first philosophy, so of course we find that people who sell their own home are going to make out better than those that hire a sales guy. You gotta have brass balls and a brass heart to sell real estate…
Sales forces, brick and mortar costs, and sales culture
If a person wants to purchase a new car but is riddled with debt, it doesn’t matter to the dealer. When they walk onto the used car lot and approach a smiling outgoing sales person, it has been drilled into their head — this client doesn’t leave this lot without buying a car. Those dealers have massive overhead, the infrastructure is not setup so that personal finance can be pushed to the front of the conversation like it is when you talk to your accountant or financial advisor. Real estate is no different. Similar to Blockbuster, brick and mortar real estate brokerages are very expensive to operate, often barely breaking even. They can’t be filled with knowledgeable asset managers whose value is measured by how they accelerate your wealth building. It is the very opposite kind of culture informing the Realtors choice of words. If a Realtor goes on a listing presentation, and they leave that interview with a signed listing contract for a 7% commission, they would be considered a fuckin hero. Their broker would give them a high-five. They’d receive some praise and accolades during the next sales meeting. “Hey everybody, before we begin I just want to let you all know Jerry got contract for 7%. Lets all give him a round of applause.” I can see in my local MLS right now, that the same agent got 5% for some listings and 6% for others. What does she do differently for that extra 1%? Absolutely nothing, the homeowner just got suckered.
A cringey Keller Williams sales training video shows the ritual where new recruits are laid on the ground, where they are told they are money magnets, while their coworkers drop dollar bills on them.
This is such a problem because people spend $80 billion a year on commissions. Homeowners on average are already paying between five and six percent, a ridiculously inflated fee. But then on top of that, another few percentage points that they lose due to aggressive pricing. Americans are flushing hundreds of billions of dollars of their hard-earned equity down the toilet every ten years by not selling their own home or enlisting a full-service flat fee brokerage, like Door, Homie, Trelora, Reali, or Houwzer, to get the same exact job done for a fraction of the cost.
Legacy systems and outbound sales forces versus efficient operations
Both models revolve around selling homes, one is much more consumer friendly than the other. Homie’s model, similar to the other firms mentioned, allows the conversation to be about building wealth, saving money and increasing their client’s net worth. They don’t recruit hundreds of sales agents that requires massive office space, which then requires massive overhead, paid for by the homeowner. These bloated models inevitably produce costs of doing business, like Blockbuster’s late fees, that are then passed onto the homeowner. The flat fee alternative brokerage, is lean. They have one location per state or major market, operate virtually, and salary local agents that they can train to be ethical. They can grow as needed, rather than make homeowners foot a bill for a ton of unproductive agents taking up space. Under this new model, agents are trained to sell the house for the highest price possible, rather than trained to get the highest commission possible. Flat fees is how you properly align incentives.
You can’t expect to receive objective advice from a traditional broker
ReMax has 7,841 locations and 119,041 agents. What would happen to their stock price if over the course of the next year their agents stopped pressuring their sellers to go under contract? From the top-down sales driven culture that exists within brokerages stems completely specious one-liners coercing homeowners to settle and leave money on the table: “The first offer you get is always the best”, “A bird in the hand is worth two in the bush”, etc. As Steve and Stephen point out, the interests of a Realtor and client are not aligned.
There are two million licensed agents, most hurting financially
There are two million licensed real estate agents, and just 5.51 million homes resell each year. That’s only 2.75 homes to go around per agent, not nearly enough for everyone to make a living. From a Realtor’s point of view, not getting a house under contract is a terrifying prospect when you don’t have anything else in the funnel.
The low barrier to entry into real estate has flooded the industry with people who have no talent or experience.
Nurses, teachers, economists, software developers and accountants have attributes that got them to where they are, that can be felt in your interactions with these individuals. They make up the industry, therefore the industry at large is well-oiled by these attributes. You can have a highly compassionate, thrifty or analytical-driven industry, because it is driven by those kinds of people. We could expect most nurses to be patient and trustworthy, and that is precisely what consumers report experiencing. They score very high in trust in ethics when consumers are polled. Realtors, conversely, are scored very low when polled. When you combine the ingredients, big commission check and three months of training, you inevitably get an industry driven by greed, negligence and stupidity. There are so many agents bumping around, and the good ones are mixed in with the bad ones because any uneducated and unskilled person out on parole with three months and three hundred dollars can obtain their license. Many Realtors have relocated from other sales industries like Amway, ACN, Herbalife, used cars, cell phones, mattresses, time shares, and other industries comprised of people who lie for a living. My heart goes out to anyone who has suffered from addiction, but its worth pointing out that the advice one receives upon finishing up a stay at a rehab facility is to go and get their license. Or after they are retire from cage fighting:
Or when they are washed up:
Or if you’re bored:
I have nothing against the aforementioned people, at all. I very much respect Ali Aquinta and stay at home moms, I’m merely pointing out that it is problematic that selling people’s biggest asset is the lowest hanging fruit for the unemployed. Real estate is the industry that everyone seems to try out, as though it were Karate lessons. It’s not real estate appraising, a cerebral job involving a steep educational climb and an honest pay, its real estate sales, where you can get paid an obscene amount of money with incommensurate effort.
“I don’t give a shit about homes, they’re just four walls and a roof.”
A ‘top agent’, Joshua Smith, was pulling in $100,000 a month before he hit 30 years old age. He is a brilliant lead generator and sales person. I really do admire his tenacity and his energy. I don’t fault him, or Ryan Serhant for anything. They are round pegs and the real estate industry as it stands is a round hole. It does illustrate my point however, that real estate expertise is besides the point. Josh has said in his podcast, GSD Mode (Get Shit Done Mode), he can apply his sales tactics anywhere: “I don’t give a shit about homes, they are just four walls and a roof.” This industry attracts sales guys like a bug light. That’s just not great for America’s net worth.
National Association of Realtors lies about FSBOs
The National Association of Realtors has the public convinced, if you sell your home on your own, you’ll lose money, we are experts. Trust us with your home. The only value a Realtor is delivering, is the illusory peace of mind. They have fabricated these notions and others, like its a terrible idea for buyers and sellers to meet each other before settlement. Rather cleverly, the Realtor brand is offering the solutions to the problems they invented. But it would benefit homeowners and accelerate their net worth if they snapped out of it.
From their article, “Selling Your Home Solo to Save Money? You’ll Actually Make Less Than You Think”
Here we have a misleading diagram, suggesting that if you go FSBO, you’ll earn “Sixty to ninety thousand dollars less”, as they put it. What’s really unfortunate about this is that selectively grouped by-owner mobile homes, condos and town houses, and compared them with mostly agent assisted single family homes. Naturally, single family homes tend to sell for more than condos. A proper study, of course, would compare like with like — agent assisted condos with FSBO condos and agent assisted single family with FSBO single family. But if they did that, the results would show Realtors are losing you money. Thankfully, most people have an elementary understanding of statistics and push back against blatant bull shit:
NAR is no better than the tobacco industry. I investigate the creepy deception of NAR and their history of antitrust violations in detail here: https://medium.com/@johnfulton85/the-national-association-of-realtors-demonstrates-no-moral-principles-or-honesty-19976285b1e4
Realtor education requirements
Appraisers and assessors of real estate provide an estimate of the value of land and the buildings on the land usually before it is sold, mortgaged, taxed, insured, or developed. Its really not much of a caricature to say the most important thing Realtors do is take pictures and open doors. Think about it this way, what is the one thing that if Realtors stopped doing it, it would create the most problems for the homeowner in terms of the time it takes to sell and the amount of money they make from the sale? Answer: Photography.
Real Estate Salesperson Requirements VS Appraiser Requirements
I’m not picking on Georgia because it looks bad. Their pre-licensure course requirement is 15 hours longer than it is in my state of Pennsylvania.
So, could we make Realtors more valuable by increasing the training and education requirements to become an agent? Here’s the thing — the real estate commission’s requirements are just about spot on. The Real Estate Commission believes, as I do, that the activities of real estate agents are of almost no consequence. They take pictures, open doors and push some paperwork. If it was more complicated than that, they would require more training.
There is a lot on the line in appraising real estate, like avoiding another savings and loan crisis. You can imagine the kind of problems that would immediately rise if we swapped a hair stylists requirements with a real estate agents, 75 hours, no apprenticeship. Within a matter of hours, that system would self-correct, resulting from all the push-back from consumers and employers. It’s rather hard to screw up a real estate listing. Once your house is up and running on Zillow, buyers will find you.
The cost of not hiring a plumber vs not hiring a Realtor
You can measure the value of a professional by the cost of their absence. If you opt to fix an advanced septic or plumbing issue on your own, or remove your own spleen, you will be dealt a cost 10x what the professional charges. The cost of not using a Realtor, who often charge as much as the outpatient surgeon, is you actually make our even better, by about $12k.
Realtor expenses??
Realtors will defend their fees with vague statements like, “I have marketing costs”, as thought that just solves clears it all up.
This top agent couldn’t even be bothered to get out of the car to take an exterior shot of the house, let alone spend the money to hire a professional photographer:
Ask a Realtor to do what virtually every other professional does, and provide an invoice.
SHOW ME THE INVOICE!!
Break it down, unpack these marketing costs. Show us. There isn’t a single Realtor who can demonstrate that they are spending more than the following:
Here we can see how a $14,500 medical bill adds up.
Realtors roll back the odometer on your net worth
What’s unfortunate is that it isn’t more obvious that they are costing people $12k on average, as this isn’t something as obvious as catching a car dealership rolling back odometers to increase the sales price by $12k. When your Realtor says, “This is a really good offer, I think you should take it.” “I think we need to make a price reduction.” “The first offer is usually the best.”, they are essentially rolling back the odometer on your net worth. Even though you don’t feel like a victim, you are. You’re a victim of Realtor bullshit.
Worried about selling your own home? Give yourself the same training as a Realtor. Amazon is selling a box set of everything you’ll need.
