{"id":2000,"date":"2009-10-07T07:59:22","date_gmt":"2009-10-07T12:59:22","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=2000"},"modified":"2009-10-07T07:59:22","modified_gmt":"2009-10-07T12:59:22","slug":"real-estate-a-personal-story","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=2000","title":{"rendered":"Real Estate: A Personal Story"},"content":{"rendered":"

First I’m going to apologize in advance. I am about to insult all real estate agents out there.<\/span>
\nHere’s a personal story (very current) that I think you’ll find interesting, insightful or maybe just rude. …
\n<\/span>
\nCouple things…<\/span>
\nIt’s always been my opinion that real estate agents are nothing more than glorified secretaries that enter info into a computer database and make sure you fill out paper work properly. They do not add value to any transaction they’re involved with. In fact I could say they detract value. Let’s say a new house sells for $300K with standard 6% commission (yes agents are often involved in the sale of new homes) – that’s $18K in commission. Five years later the house sells for $325K (another 6% or $19.5K in commission). Then ten years later it sells for $340K (another $20.4K in commission). This is not an unrealistic situation. Fifteen years, three owners, $57.9K paid in commission on a house which is now worth $340K. Where’s the value added?<\/span>
\nIf I hire an accountant to do my taxes, there’s a 100% chance that accountant will save me enough money to justify the service. If I pay him 500 bucks, he’ll save me $1000 in taxes. Most services work like this; you get enough value to pay for service – sometimes many times over. I can’t say the same about real estate agents. Not only will an agent not be able to sell a house for 6% more to justify the commission, she actually wants you to lower the price because it makes the property easier to sell, and it doesn’t cost her much.<\/span>
\nIn doing research for Freakonomics, Steven Levitt and Stephen Dubner uncovered some interesting facts about real estate – that when a broker sells her own house, the house stays on the market for longer and fetches a higher price than when she sells someone else’s house. The reason? Selling her own house for an extra $10K puts $10K in her pocket, but selling someone else’s house for an extra $10K only makes her an extra couple hundred bucks. It’s not worth the effort. She’d rather dump it at what the industry calls a “competitive price,” and take the money and run.<\/span>
\nSo here’s my personal story.<\/span>
\nI own a condo walking distance to the slopes at Keystone. With infant twins now in the family, I’ve only used it a couple times the last year. I don’t think prices will be going up much the next couple years, so I’m considering selling it to save myself the monthly payments and then rebuying another unit in a couple years when the kids get older. <\/span>
\nSo I’ve started talking to a couple agents and have been extremely surprised by the vibes I’ve gotten from them. I thought they’d want my business; I thought they’d be happy to work with me because the market is slow, but they don’t – unless it’s on their terms. I told them I’m not desperate, and if someone low-balls me an offer, I’ll reject it. If I get a decent price (not great, just decent – I’m not greedy), I’ll sell, but absent a decent price, I’m not selling. The implied responses I’ve gotten go something like this: “I’m only interested in working with you if you’re willing to drop the price to a very competitive level. Otherwise it’s not worth my time.”<\/span>
\nThe definition of “competitive level” is: a level low enough to induce a quick sale.<\/span>
\nSo here’s my rhetorical question. What do I need a F#%king agent for if all she’s gonna do is drop the price, throw some info into a computer system, do a couple open houses, hang a $30 lock box on the front door and then wait for all the buyer agents in town to show the unit off? What exactly am I getting for the $25K in commissions I’m going to end up paying? If I’m going to pay such a high price to sell the unit, shouldn’t the agent work hard to get me a higher price, not lower?
\n<\/span>
\nWhile on the phone, all the agent did was paint a very negative picture…”there are twice as many units on the market as usual, the number of closings is down 70% from just two years ago” etc etc. Her only goal was to convince me that I should list the unit at a “competitive price.”<\/span>
\nIt doesn’t matter my building is only 10 years old when most buildings in Keystone are > 20 years old.<\/span>
\nIt doesn’t matter my building’s HOA has > $200K in cash in the bank when many buildings are scrambling to build up reserves.<\/span>
\nIt doesn’t matter my monthly HOA fee is half of what most buildings charge and one-third what is typically charged in River Run.
\n<\/span>
\nIt doesn’t matter there is no 2% transfer tax as there is in River Run.<\/span>
\nOn the surface, my 2BR\/2BA unit which is walking distance to the slopes seems indistinguishable from several dozen others which are on the market, but I can make a strong case my building (and therefore unit) are unique because of the HOA’s strong financial position and lower on-going costs. But none of this matters to an agent. The only thing the agent cares about is dropping the price to a ridiculous level so she can make her money and run.<\/span>
\nSorry, ain’t gonna happen.<\/span>
\nMy conclusion from dealing with agents the last week…<\/span>
\n1) Freakonomics is right. Agents don’t care about getting a good price for your house. In fact they want you to lower the price to make it easier to sell, so they can make their money and move on.<\/span>
\n2) I am right. Agents are nothing more than glorified secretaries that add no value to the transaction. It doesn’t take a rocket scientist to enter info into a computer, send out an email to 1000’s of brokers and then sit back and wait for the phone to ring.
\n<\/span>
\n3) If agents only take on clients who are willing to dump their properties at very low prices or if agents highly encourage sellers to drop their prices, the real estate market has a long way to go before bottoming.<\/span>
\nI probably won’t sell the condo, so if you’re in Keystone this winter, look me up. I’ll be zig-zagging out of the trees on Outback. \ud83d\ude42<\/span>
\nMore ranting…<\/span>
\nThe entire industry thrived when they had access to information no one else had access to. That was their business model – the less info everyone had, the more people needed them and the more power they had. Then along comes the internet and destroys their world. I don’t need an agent to find out what other units have sold for (in my building or anywhere in town). Suddenly an agent’s competitive advantage [over the rest of society] and justification for employment has vanished, and their world is crumbling.<\/span>
\nThis reminds me of the airline industry. Remember back in the early 90’s. You call United to get a price. Then call right back, get a different operator and a different quote. You wondered if you should call on Sunday afternoon or Tuesday night knowing the prices will be different. The industry did well because no one knew anything. The along comes the internet. Now everyone knows all prices at all times. The industry has crumbled.<\/span>
\nThis relates to an issue I have with the health care industry. When was the last time you walked into a doctor’s office and saw a bulletin board with a list of services rendered and prices? Probably never. Why are prices kept a secret? Do they not want you to shop around? I’m guessing yes. I’m not talking about heart surgery here, but there are many procedures that are very routine – things a much less skilled person without 10 years of school can do. Are doctors afraid many of the services they render are commodities, and if prices were advertised, they’d lose business? <\/span>
\nIMO, any industry which thrives by being a closed system that keeps information a secret will eventually be destroyed. It happened to the airline industry. It’s happening to real estate. It’ll happen elsewhere.
\n<\/span>
\nJason Leavitt<\/span>
\n
\n<\/p>\n","protected":false},"excerpt":{"rendered":"

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