Consumer Edition Blog

Are You Looking for Value When Comparing Real Estate Services?

2008-03-21T15:20:56Z

It's no secret, we live in the world of "big box" alternatives. More and more, the businesses we've relied on for products and services are being replaced by the super marts with larger inventories and smaller prices. This is the age of the "deal". So when we're embarking upon a real estate transaction, the notion of shopping for real estate services that let us keep more of our hard earned dollars is certainly tantalizing! But, as Mom used to tell me, all that glitters is not gold!

Last summer, my daughter had a very interesting experience, and the more I thought about it, the more I recognized how strong the analogy was between her decisions (and their subsequent consequences) and those made every single day by prospective buyers and sellers of real estate. Let me explain. Shannon is a very independent, self sufficient young lady. She has a job that she loves, writing and editing for her local online newspaper. Last year, as one of her work assignments, she trained for and participated in a local marathon race. Right from the start, she knew she had to replace her running shoes...they were old, and worn, and simply not up to the task ahead. Now, I will say that was not an easy decision for her. She's frugal. She watches her budget. And she doesn't replace things just willy nilly. So when she said she needed new running shoes, I knew for a fact she NEEDED new running shoes
]]> Well, she's also young, adaptable, and very resilient, and, as you can tell, has a wicked sense of humor! Shoes in general were not a big issue to her. For the most part, as long as they stayed on her feet and were reasonably comfortable, she was a happy camper. So, she set about to finding a replacement for her shoes. After a bit of shopping, she found a pair that fit nicely, plus came at a great price. All in all, she was pretty proud of herself.

Training began and, fulfilling her role for her job, she began writing and recording the various phases of her experience. There were workout sessions to build stamina; there was nutrition counseling to make sure the participants knew the best ways to nourish and hydrate themselves for the challenge ahead; and, yes, there were practice running events.

At first, everything seemed just fine. She was getting great workouts, and on those shorter runs she was doing just fine. But as time went on, she noticed her feet, and even her legs, weren't feeling so great. But she'd made a commitment and she was bound and determined to fulfill it. Even with sore feet, she still got to write, and blog, and video...and all the while she got plenty of support and encouragement from people she knew and people she didn't.

The day of the big event arrived, and despite some hurdles, she was pretty excited and feeling "relatively" prepared. The race began, and it wasn't long before Shan discovered that her body was rebelling! Running turned to walking; walking turned to limping; limping was reduced to hobbling and grabbing any chance to sit down along the route. Now, she never expected to finish the race in the top ten. However, the plan WAS to finish. That didn't happen. Her feet simply wouldn't tolerate it.

And, to add insult to injury, in the days following the race, even more problems cropped up. Some of the muscles she had used in an effort to "adapt" to her foot pain had been strained by the over-activity. Eventually though, after a visit to the doctor and some time off her feet altogether, she fortunately healed just fine.

Those running shoes came with a very enticing price tag. However, their COST was considerably more. Even though Shannon had made every effort to be a reasonably well informed consumer when she started looking for shoes, the one thing she hadn't counted on was the fact that there were some things she simply didn't know (like how an otherwise great pair of shoes might impact her particular feet)! And though no permanent damage was done, thankfully, the experience did bring with it a couple of great lessons. One of them is one of my personal favorites ... that "sometimes the journey IS the destination." The other, which I'm sure will prove invaluable over time, is that Price and COST are two very different animals.

Unfortunately, the painful lesson that Shannon learned is shared by thousands of others every year, though at a significantly higher cost! Think about the buyer who loses the home they wanted and their good faith deposit because they chose the "deal" that gave them most of the "commission" back at closing; or the seller who is locked into two mortgages because the great discount they got on commission also translated into an even greater discount in services. Even when a buyer or seller does a fair amount of due diligence in an effort to be an informed consumer (they interview several agents or visit several websites which all appear to offer pretty much the same thing, except of course, price) why wouldn't any reasonable person want to pick the cheapest?

The challenge, of course, is in finding out whether they ARE in fact offering exactly the same thing, except for price (and you can be pretty sure the answer is they are not...as they say, "there ain't no free lunch")! From the onset, that's been the beauty of Real Estate Consulting as provided by ACRE® agents across North America. They provide the consumer with, not only a wide range of options in the services they offer, as well as alternatives as to how they can be paid for, but they also provide a transparent way to understand exactly what it is they are (and more importantly what they are not) getting when making the choices that best suit their needs.

And consumers want those choices! But when it comes to evaluating real estate services, it's more important than ever that the focus be on the "value" rather than on "cheap". More and more the lesson seems to be that quality service, at a fair and transparent price, doesn't leave you wincing in pain.

The Mortgage Mess

2007-11-03T16:59:46Z

In a recent article in Inman News: Mortgage bankers oppose workouts for bankrupt homeowners, Matt Carter reports that legislation that would allow judges to modify the mortgage loans of troubled borrowers who file for Chapter 13 bankruptcy protection would increase the interest rate on loans with small down payments by up to 2 percent, according to testimony by the Mortgage Bankers Association at a hearing on HR 3609, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007.

]]> Do you not think it strange that lenders - the very people who gave these bad loans to consumers - consumers who should never have been approved for them in the first place - are opposing this bill?

Is there a reason this happened? Yes - somebody wanted to make money, a lot of money. They were not concerned for the poor consumer, who didn't understand how mortgages worked, or that their loan would go up and UP. All that the mortgage people cared about was making money.

Having said that, there are good mortgage professionals out there, we just need more of them. For that matter, there are also bad REALTORS®, appraisers, underwriters, title companies and attorneys out there also.

It is time to put a stop to this nonsense. The average consumer is not in a position to know the best mortgage lender, agent, attorney, or title company/attorney.

But what is the answer? More governmental control? No.....I think not. Perhaps more on our part to do the right thing? ahhh, that would be too easy!

More education is one answer, but that doesn't resolve the issue of ethics. More money to stay in the industry would certainly work to weed out those who are not serious about real estate and doing this for a hobby.

I also think that there should be more stringent controls to get a real estate license, appraiser's license and a Mortgage Brokers license. Currently, it is just too easy, only taking a few hours and a few hundred bucks. Then these folks are turned loose on the public at large while we, the serious and experienced ones, have to take the fall for this? No.

I vote for an internship program. Get your license, then work for two or more years UNDER an experienced person before you can go out on your own and serve the public consumer who is entrusting thousands of dollars and their lives in your hands.

The next best thing would be to dramatically raise the price of being in the profession. THIS would resolve the problem of the non serious and hobby people! Once they are gone, the rest of us who do this for a living and consider it a serious profession would have no problem paying higher fees, because there would be less competition from the non-serious newbie hobbyists, so we'd make more money, and it would be worth it.

THAT would be a start in fixing the problems with the entire industry: real estate, mortgages and appraisals. Make it harder, make it more expensive, and you get rid of the chaff.

Works for me - but probably not for NAR - who wants all the money they can get from those who seek their real estate licenses. . . or the Board of REALTORS®, who seek dues from them for belonging, as well as the MLS fees. Nor would the Mortgage Brokers Association probably like it very much either, and the appraisal boards.......ah the list goes on! Politics, money. Who is watching out for the consumer?

Because of politics, and so much money at stake, where does that leave the consumer, or those of us who have been in the business for years and ARE ethical, honest and competent?

Politics - money - government control. There is a thought for those who are trying to figure out how to fix this whole mess. Those in power, who could make the change for the benefit of all, will never do so, because they will lose money.

You can't fix greed and you can't fix 'stupid'.

Maybe the answer is to start up a new system? hmmm? For those who are 'not in the know' this is already in the works. A shift from a sales to a consulting model and a public MLS would fix this entire problem. I'm an Accredited Consultant in Real Estate™, so I do things a little differently. If more agents or mortgage brokers got paid for their time without the contingency of a closing - it would dramatically change our industry. Why is it that we give our work and expertise away for free? There are, of course, personal injury attorneys that work on a contingency basis - but they charge 33.3% of the winnings and they don't take cases they know they won't win. The commission system for agents, mortgage brokers and consumers is broken and it is time for a change.

No NAR dues, no local board dues, no MLS fee's, no politics, no problem. I can not wait for someone to get this working, but there we go again, we have those politics working against us, and they have very deeeep pockets. One day though - that well will dry up because everyone is getting tired of being thirsty, and consumers aren't stupid. They want value for their money and I don't blame them. The real estate industry is tired of it too, so where is that going to leave the politicians? Looking for a new job, and you know what? I hope they try to sell real estate or mortgages and see what mess they have created!

Online Referral Sites: What you need to know

2007-06-17T19:31:22Z

In a recent article, the founder of a leading online real estate referral site, tried to make the case to beleaguered real estate agents that buying leads is good for their business and intimated that failure to buy these leads from third party companies (such as theirs) is to miss out on business.

First, let's start with the basic premise - I agree with them that there is a cost to agents of obtaining business. Whether they do old-fashioned farming, mailings, phone calls, or put your resources into your client base and get your business from referrals, business has to come from somewhere and it has a monetary cost.

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Capturing online business costs money too, in the form of hosting fees, time spent uploading properties, paying for virtual tours, buying the newest gadget for virtual tours, responding via your cell phone to inquiries - the agent's time cost plus the cost of the cell service, search engine optimization, assistants, taxes, and a myriad of overhead costs, whether they buy leads from these companies or promote their own web site and put their money into search engine optimization (SEO) either way, there is a cost. The bad news is that 3rd party lead generators espouse the fact that their agents are 'elite, experienced, etc' when in fact anyone who gives them a credit card can join their club. What the public doesn't know is that once you get a middle man involved in the process, that low fee, best price they hoped for goes out the window, because someone has to pay these fees to them.

Unfortunately SEO has shown to have greatly diminishing returns over the last few years as the big third-party companies with the deep pockets, compete directly against individual agents for the online consumer. That directly affects the consumer as they are led to believe if they pick a certain company to hire an agent that it costs them nothing, they get the cream of the crop, and they don't have to do the interviewing process. Nothing could be further from the truth.

So, as much as I wish we could go back to the good old days of promoting our own online presence where the consumer could go directly to the real estate professional (who could actually help them - imagine that!), the reality is that these third party companies are probably here to stay, in one form or another because they have the big bucks to reach out to the consumer and make them falsely think they need them to help in the real estate process when all much of them do is just get in the middle and add fees to the agent and the consumers pocketbooks.

The biggest concern I have, and the message I would like to impart to these lead companies and the consumer is this: Be truthful to both parties and make sure you are offering a real added value, otherwise, new players such as the rising real estate blogosphere, will ensure the eventual demise of any "middle-man" entities that don't add value to the transaction, whether it's lead generating companies, or real estate agents that perform strictly functionary activities that are increasingly being replaced by technology. ie: MLS-only companies that for a fee will list your property, but not help you negotiate against the agent who does it for a living - more on that sore topic later!

So, let's do a little real estate 101 for the consumer and the 3rd party lead generators:

AS REGARDS THE AGENT:

Give The Agent The Whole Cost. This article made a financial argument using the figure of $50 per lead to justify why it made financial sense for the agent to buy leads. Of course, when you go to their site you see that it is, in fact, $50 PLUS $50 per month membership fee. So, why not be truthful in the beginning? This "not telling the whole story" is one of the reasons that agents are so resistant to the pitch of third party companies. It's bad business, nobody likes being mislead for the 'sake of the sale'.

Don't Kill the Goose That Lays The Golden Egg. When these companies started a few years back, they were charging 15-20% of the agent's commission on average. (Some like the aforementioned company do a membership fee and per fee charge). Then, they went up. And up. Some, are now charging as much as 30% PLUS a $30 per month charge. In an environment where commissions are going down, housing prices are dropping, agent expenses are increasing these third party companies have to realize that every time they raise their costs, they lose the better agents who have more ability to generate their own business and will back out of buying leads if the cost is too high. Companies are then left with the "newbie's" who have a difficult time closing a deal. And what is 30% of 0? Does that benefit the consumer? I don't know about you, but I don't want to trust the biggest asset I own to the hands of a novice who paid $50 for my information.

AS REGARDS THE CONSUMER:

The Quality of the Agent: When I hear these ads touting to the consumer that when they use one of "their" agents, they get a high quality, seasoned professional, I roll my eyes. In fact, what the consumer is getting in the vast majority of cases, is anyone with a real estate license who can fog up a mirror and is willing to give them a credit card.

Stop the Bait and Switch: Many of these sites hook consumers by offering a free market analysis (CMA). Often consumers think that this CMA is computer generated and that is what they think they are signing up for. Companies then sell these "leads" to agents and then consumers are genuinely taken aback when they are contacted by an agent (or agents). If the CMA's are coming from agents that are doing them for free in hopes of getting the consumer's real estate business, level with the consumer on the site. Don't make the agent pay for the privilege of being treated poorly by a consumer who didn't know they would be contacted. Oh, and when you run those ads on the internet and on TV, don't be afraid to tell them an agent is going to help them, don't put it in microscopic print so they don't notice. That serves no purpose at all because the consumer is mad, the agent is mislead, and in the end YOU lose both of our business.

Don't make the agent into a commodity to be shopped by price: A certain online lending company has the slogan "When lenders compete, you win", sending the message that in shopping for lenders, cheaper is better. I know a lot about mortgages, closing costs, junk fees and I could shop for you, but the majority of consumers don't know enough about how the lending institution really works to do a good job on their own.

Many online lead companies send out the same message about real estate agents. Many in fact, give the lead to several agents; have them take time to do a proposal, with the consumer in the mind-set to pick the cheapest commission. In fact, because the agent is already handing out 25-30% of their commission to the lead company, the consumer has lost any ability to negotiate commissions with the agent - the agent is tapped out. Most consumers have no idea that by using the agent through an online lead generator that the agent is paying for them as a "lead". Additionally, most consumers don't understand that agents usually make them more even after paying a fee than they can make on their own, plus agents do the work they do best, market, negotiate, advocate and get your house sold. Now who do you want to use to do that for you? The agent who can't even negotiate their own fee? The newbie who will charge so little they have no margin to market your property? What is most important? What you pay the agent, or what you end up with at closing in your pocket?

As technology continues its march, lead generation companies need to provide a true benefit to both consumer and real estate professional, and add real value if they are to be profitable and survive.

Filling the Choice Gap

2007-06-16T15:26:19Z

Every seller is a "For Sale by Owner." Every buyer is a "do it yourselfer." It is simply a matter of how much of the work in a real estate transaction is contracted to a real estate professional. From none to the entire transaction. Or in industry speak, from the stereotypical FSBO for a seller to a "full service" listing.

]]> There are inherent issues with these extremes. A FSBO may be able to do the bulk of the work but, requires help with contract matters and getting their buyers to the closing table. The full service brokers and their sales associates want all or nothing; the way they have always done business. FSBO's are constantly preyed upon by full service sales associates waiting for them to fail in hopes of getting the listing. The full service brokers essentially offer a one size fits all sales commission approach without regard to the actual work required to meet a seller's objective. A typical agent's objective is to get the commission.

For buyers, the tremendous Internet resources available allow them to search neighborhoods for homes, check out schools, crime, weather, lenders and the like. Buyers using these resources to find their dream home make it pretty easy for a buyer's real estate agent to essentially close the deal. What is the financial benefit to the buyer for all the up front work? The buyer broker/agent typically takes what the seller is willing to pay.

Both of these may be oversimplifications, but not by much. Enter real estate consulting and the consultant. Here are great definitions:

CONSULTING:
A consultant is a professional that provides expert advice in a particular domain or area of expertise such as accountancy, information technology, the law, human resources, marketing, medicine, finance, real estate ⁽¹⁾ or more esoteric areas of knowledge. (Wikipedia)

CONSULTANT:
Often a consultant provides expertise to clients who require a particular type of knowledge or service for a specific period of time, thus providing an economy to the client. (Wikipedia)

The key words are: professional, expert, knowledge, and advice.

The professional real estate consultant's first and foremost responsibility to a client is to use their experience and knowledge to give expert advice on real estate matters. A consultant isn't trying to "sell" a client anything. Just like in other consulting professions, a real estate consultant only expects to be paid for their time and expense. And, consumers can hire a real estate consultant to do as little or as much as needed and/or desired. For example, if a consumer can do the marketing for selling their home, maybe they just need help with the contract negotiations and working through contingencies to get to the settlement table. Or, a consumer can hire a consultant for marketing their home and hire a real estate attorney for the contract issues. A buyer can do their own home search and only engage a real estate consultant to assist with the purchase contract and closing details. There are an infinite number of possibilities in between.

Again, real estate consultants are experts in their field using their knowledge and experience to provide services and advice to clients on how best to realize the clients objectives.

What it really boils down to is empowering consumers with the ability to choose. Choose the professional you want to work with and the choice of what services you can buy and the way you pay for them. There is total transparency in the engagement that is typically lacking with other real estate business models. Consumers want what they want and want to know what they are paying for.

Real estate consulting is simply a better way to do business.

(1) Inserted for emphasis

Myth 1: You must have an agent

2007-05-30T16:32:57Z

I recently had time to surf around the Internet and came upon this terrific article regarding the top five real estate myths, that even some agents believe, from a well respected real estate publisher and investor, as well as a friend of mine, Rennie Gabriel of Gabriel Publications.

This article originated from Parade Magazine, an insert into many major newspapers. Rennie's comments are in response to the misinformation that abounds in that article, which, for the most part, I wholeheartedly agree with him on.

]]> It is strange that most people will believe something printed in a major publication or seen on a major broadcast TV network, like the worthless CBS 60 minutes piece on how agents make too much money.

(My fabulous co-authors have also provided their own thoughts about the 60 minutes show. See 60 Minutes put our knickers in a twist. So what? by Merv Forney and Minimum Service: Restraint of Trade or Consumer Protection? by Mollie Wasserman.)

I for one, tend to 'trust but verify' but I'm amazed at the others who just take what I consider bad reporting ethics at face value. Just because it is in print, or on TV, doesn't mean it's true! I realized this quite some few years ago when researching something I saw in a major publication that due to my real estate experience, I knew simply wasn't true...so, for those of you who want to know the real truth, read on, here it is, in all it's glory.

So, getting back to the 5 myths, here is Rennie's post Five BS Real Estate Myths - # 1-You need a Realtor to buy or sell your home and I thought it was a good topic for all to be aware of, and why real estate consulting is good for both the consumer and the agent.

Below are all the myths and I will address the first one in this post. Stay tuned for my .02 on each of the other myths coming soon. You may want to get a cup of Java or depending on the time of day, a stiff drink, keep an open mind and like one of my favorite quotes "Trust but verify".

ALL FIVE MYTHS OF REAL ESTATE:

1. Only a licensed real estate broker should sell your home.
2. Your broker wants to get the highest price for your home.
3. A low credit score means you won't qualify for a mortgage.
4. The advertised rates are what you'll get from a lender.
5. Your home must be turned into a showplace before it's listed.

With the utmost sympathy to those agents who believe, as I do, that more people will benefit by having a professional agent on their side, and with regards to recent articles by the NAR (National Association of REALTORS®) stats on this topic which state that a professional REALTOR® will make the consumer more money even after paying the real estate fee than they can get for themselves, as well as USA Today reports which state that professional REALTOR® make over 21% more for the consumer after paying the fee, the reality is this:

Some people are just fine without an agent.

Not the majority, I believe, but sometimes, yes, they are just fine, but I've found that those people are far and few between, hired professional help from a real estate consultant, a real estate attorney, appraiser, home inspection firm, title company etc. and spent scads of their life trying to save a buck or two, but yes, it does happen, albeit very infrequently and not without much sacrifice on the part of the seller.

Having said that, I will also comment that most often after trying diligently on their own, most people realize it is a LOT harder to sell their houses for the most money in the shortest time frame than they originally thought, yet, you can't blame them for trying. In my humble opinion though, as a professional REALTOR® myself, were I to sell my own personal residence, I'd have someone else handle the transaction for me as most people get caught up in the emotional rollercoaster ride of defending their emotial turf which greatly impedes negotiations, is one of the biggest reasons transactions fail to close, and also one of the biggest reasons people call me to consult with them on their transaction.

Now, stay tuned for Myth #2 which I'll discuss in great detail. I welcome any comments to Myth number one that anyone should care to add.

Is the commission system broken?

2007-05-12T11:39:12Z

A couple of days ago in an article for Inman News entitled "Realtor® Ranks Swell but their Pocketbooks Don't", Glen Roberts reported what we agents already knew: that despite the huge increase in housing prices over the last ten years with the accompanying public perception that agents are making gobs of money, the truth is quite different.

In actuality, Realtor®'s median income was down 3.2% in 2006 compared to 2004, while their 2004 median income had dropped 5.6% from 2002. Roberts quoted Chang-Tai Hsieh, an associate professor of economics at University of California, Berkeley, who said that the median-income drop for Realtors®

"is clearly driven by the fact that there has been excessive entry in the last two years. You would expect to see some exit in the near future, but as soon as housing prices pick up we're going to see more entry and then that's going to drive down (income)."

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While there are top-producing Realtors® who make a lot of money, "on average Realtors® are not making much money."

Hsieh said that while typical Realtors® may not make much money, he believes that the prices consumers pay for real estate services are "extraordinary" and that those services "shouldn't be costing that much." His analysis of Realtor® commission, population and income was cited in a real estate competition report released this week by the U.S. Justice Department and Federal Trade Commission.

"What is particularly tragic about this industry is that not even the Realtors® benefit from this," he said. A much smaller group of real estate professionals, who charge for hourly work performed, could create a more efficient marketplace."

Hallaluyah to Professor Hsieh who confirms what I have been saying for years: that the commission model in real estate is broken. Back in 2000 in an article for Realty Times entitled "Is the Commission System Unfair?", I wrote that commissions have evolved into a truly lose-lose bargain. Because the consumer is essentially paying for risk mitigation, commissions are an extremely expensive way to pay for real estate services.

Professor Hsieh is absolutely correct: real estate services shouldn't be costing so much and they wouldn't if consumers were to pay for the services themselves rather than what is essentially an insurance policy with services thrown in.

The other side of the lose-lose proposition is what is happening to the agent. Professor Hsieh is also correct that what is tragic is that Realtors® are not benefiting from being paid by commissions either. As I point out in my book Ripping The Roof Off Real Estate, when I teach my consulting course, the Accredited Consultant in Real Estate (ACRE™), live to agents, I always ask them to do the following exercise: Take their gross commission income last year and divide by 12 so they now have their average monthly income. Then divide that income by the total number of hours they estimate they work in a month. If they can't estimate that, I tell them to break it down into a weekly figure. "The sad truth is that with all that the requirements, training, liability, and continuing education, the average agent today earns less than minimum wage."

Yet, for the most part, the real estate industry refuses to start providing some responsible options that give the consumer real value for their real estate dollar yet pays the Realtor® fairly for the valuable contribution they make. Part of the problem is the Realtors® themselves - for the most part, agents don't think in terms of hourly worth. When agents get a large commission check, they almost always forget how many unpaid hours (and transactions that fell apart) that check has to cover. The commission checks for the transactions that close in fact have to subsidize all the work done for transactions that don't, not to speak of all of the "free" services that agents are expected to provide.

Paying a much more reasonable price for real estate services will also require a paradigm shift for the consumer: if they want to pay for the services themselves, they are not going to also get the insurance policy. The consumer needs to understand that they can't expect an agent to continue to provide free market analyses and "tour guide" services. They need to understand that if they want to pay more reasonable real estate fees, they can't also expect to pay an agent contingent on getting their desired outcome. Services rendered need to be paid for and nothing in this world is free. If we want to get out of this lose-lose scenario, both the consumer and the real estate industry itself needs to accept this reality.

To continue to stick to a broken commission model is to see a future of continued decreasing compensation for hard-working agents while leaving the public priced out of vital services and representation. The public will continue to be at the mercy of hucksters who would have them believe that selling or buying a home is no more difficult than selling used clothes at a yard sale.

Technology Vs. Expert Advice

2007-04-25T15:11:37Z

WHY CAN'T THE CONSUMER HAVE BOTH?

In a recent article in RIS Magazine, Brian Buffini, founder and chairman of Buffini & Company made a very interesting observation: despite the fact that 80-90% of real estate buyers start their home search online, how many, when browsing homes online and finding one that they like, would actually go to the next step and click "Add to Shopping Cart?"

]]> I have been a long time coaching client of Brian Buffini's Referral System. Brian teaches that instead of spending huge bucks marketing to strangers, to put your money into those who already know you and the referrals they send your way. His system has been extraordinarily successful for me; for the last five years, my personal business has been 100% by referral.

At the same time, I originally built my business online and have long been an early adopter of technology. Known as the "tech queen" I have long been in favor of using technology to do functionary tasks better, faster, and cheaper.

The problem is that in the current environment, there seems to be no middle ground. On one hand, traditional real estate companies and associations are still telling the public that if they want the hands-on personal care that is the back-bone of Buffini's system, the consumer needs to get full-service and can only pay by commission, effectively not allowing them to take advantage of the do-it-yourself opportunities (and cost savings) that the plethora of property search and valuation sites provide. And they don't address the fact that many consumers want quality services and may in fact want full service, but just don't like paying by commission.

On the other hand, the myriad of third-party companies that advertise that their sites and services can replace what a good real estate professional provides are also missing the boat - while technology can provide data, and lots of it, without a pro to interpret what it means, the consumer can lose big on their largest financial asset.

For instance, Zillow does a great job of saying that it's "zestimate" is just a starting point and is not an appraisal. Unfortunately, the message isn't always getting through - we agents are continually running into self-described "zillow-ites" that argue with our price analysis of their home, saying the "zestimate" came in much higher (and more to their liking). Lending Tree continually advertises that when "lenders compete, you win" encouraging the mindset that lenders are commodities to be shopped by price and clearly sending the message that cheaper is better. Discount real estate firms, promising a big rebate if you use one of "their" agents, are sending the same message about real estate agents.

These messages are creating, what Walt Backowski, president of the Metropolitan Consolidated Association of REALTORS® in Michigan calls the "Artificially Empowered Consumer".

As I discuss in my book "Ripping the Roof Off Real Estate", lenders and agents, like other fiduciaries such as CPA's, financial planners, or attorney's are not commodities. The quality of their service, level of expertise, talent and experience can make a huge difference in whether you get good value and peace of mind with your loan, purchase, or sale, or get financially hung out to dry.

It's time for a middle ground which the rapidly emerging field of Real Estate Consulting can provide: harnessing the incredible power of the Internet to allow those consumers that have the time and desire to market or find their own homes to do so, while bringing in a real estate consultant to provide the vital fiduciary contract-to-close duties. The consultant can also provide choices in how their services can be paid for.

The statistics are clear: agent-assisted properties net far more than those that are sold entirely by owner, and that's after paying the agent's commission or fee. Whether it is USA Today's 2003 study that found agent-assisted properties netted 21% more or the National Association of REALTORS® 2006 Home Buyer and Seller Survey that found that agent-assisted properties netted 23% more, the bottom line is that having a real estate professional on your side will save you far more than it costs.

The trick is using technology and the Internet for what it does best, providing access and compiling data, while bringing in a real estate professional to interpret what all that data means and handle the contract-to-close responsibilities that are so vital if the consumer is to get the best deal when they buy or sell a home or make other real estate decisions.

Information without guidance leads to disaster

2007-04-05T16:01:11Z

The papers and newsmagazines have been filled of late with articles about the crisis in Sub-Prime loans issued over the last few years. Seems as though many buyers took out loans that they clearly should not have: loans that sucked them in with a great interest rate for the first year or so and then boom! A monthly payment that doubled or worse and sending many new homeowners into forclosure and financial ruin.

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Many of us who work in the industry saw this coming a few years ago: both in people sucked into buying a home without understanding how the "miracle" loan worked, and those who responded to the refinancing pitches of getting quick money out of their homes without being advised that this money should not be used to pay monthly bills. Many of us worked with people who got a "fantastic" rate through an Internet mortgage company and when we tried to get them to use a local lender, we were shot down by these buyers who were so enamored that with bad credit they could buy a home through these "miracle" online loans.

A miracle indeed. This crisis brings to mind a very important principle that I talk about in my book: what the Internet can and cannot do. I have long been wary of Internet mortgage companies because there is no accountability: if you work with a local lender, especially one that has been recommended, they have an interest in doing right by you as they have a reputation to protect. The online company out in dot-com land doesn't. If you get screwed, they move on to the next person. There is no one to help you understand the "fine print". A mortgage professional who has a relationship with you will look long-term and advise you against loans and programs that will hurt you.

It's the same in real estate. Property data flows freely: you don't need a real estate professional to simply provide data. But that is not where the value of a good Realtor lies. Their value lies not in providing data but making sense of what it means. Real estate,like other fiduciary fields such as finance and law, is not a good do-it-yourself project. This does not mean that you can't do a lot of legwork yourself but when it comes time to making the ultimate decisions regarding a loan program or which house to buy, make sure you consult with a pro.

Fortunately, with the growth of real estate consulting, you don't have to pay a full commission when all you want is the fiduciary counsel in making a real estate decision. You can hire someone to provide just the services you need. And you never have to go it alone.

Choice: Risk Vs. Reward

2007-04-01T16:02:59Z

In real estate, quality is essential for keeping the most money in your pocket when you ultimately close. But should that mean that you are locked into paying by commission in order to get that quality? I believe the answer should be no.

Of course, after you have explored and weighed different options, based on your individual needs and comfort level, you may find, as many consumers do, that a traditional commission is the best choice for you. And that's perfectly fine. But you should make that choice because it's the BEST option, not because it's the ONLY option.

]]> There is no question that when you pay for real estate services either by a flat fee or by the hour, you can save a lot of money. But unlike using a discount agent who agrees to cut their commission, you don't have to sacrifice the number OR the quality of the services you receive. Why is this? Because by choosing a flat fee for a bundle of services, or paying by the hour, you are receiving and paying for only the services or the time received. You are NOT receiving a guaranteed outcome, but, you also do not have to pay a premium for that guarantee - the "insurance" that if you don't achieve the desired outcome, you pay nothing. Therein lies the savings.

Actually, paying for services by fee or by the hour isn't that radical an idea. If you think about it, fees or hourly are how most professionals and service providers are paid.

Real estate professionals have traditionally been paid contingent on an outcome, even though no matter how skilled they are, they cannot control that outcome. The simple fact is the initial pricing of a home and the economic climate is what will determine how fast and for how much a home sells for.

Yet, with the traditional commission system, agents are paid as though they could control the outcome and that "insurance policy" of only paying if the house sells is what makes this method of compensation so expensive to the consumer.

When I explain to a potential seller how they can save a lot of money by paying for the time or services of an agent, rather than the outcome, the response I often get is "But what if the agent doesn't do a good job?" By that reasoning, you would have to question whether any service provider would do a good job if there pay was not contingent on the outcome.

As an example, a dentist is paid for their services and expertise, regardless of what dental issues come up. No matter how skilled the dentist is, he cannot control whether you only need twice-a-year cleanings or an abundance of root canals, bridges or implants. He might influence your future dental health by making suggestions on the care of your teeth, but he certainly cannot control what ultimately happens with your mouth; that depends on factors such as heredity and how diligently you care for your teeth. So if the dentist is paid for his services regardless of what comes up, how do you know that he will do a good job? The fact is you don't have a guarantee. That's why you usually don't pick a dentist from the phone book; it's far better to get a referral from someone who is already a content patient.

School teachers are paid a salary regardless of how many of their students ace the SAT's. They are paid, and promoted, based on their teaching skills, not necessarily how many students go on to college.

And so it is with most service providers. Obviously, if you pay for someone's services by non-contingent fee or by the hour, you need to have confidence that that provider will do quality work.

Although some consumers believe that a real estate agent will work harder knowing that they will only be paid if the house sells, the reality is that top-notch REALTORS®, like any other good service provider, work hard for their clients because they have a reputation for quality work that they want to protect and because they want to continue to receive a good share of their business by referral.

Now, I want to be very clear: paying for real estate services by non-contingent fees is not for everyone! As my Mom likes to say "That's why they make chocolate and vanilla." Some people (like my Mom) are risk-aversive, and they are better off paying for real estate services by traditional commission. There is nothing wrong with that as long as they understand that they are paying a premium to have no risk. At the same time, there are a growing number of folks, once understanding that the outcome is not controlled by the agent, whom are willing to forgo the guarantee and pay a lot less by fee, while still getting quality services and counsel.

Note: the above article is an excerpt from my book Ripping the Roof Off Real Estate.

Real Estate Vs. Financial Planning: Looking Ahead

2007-03-31T18:57:19Z

One of my goals in writing my book "Ripping the Roof off Real Estate" as well as in developing the Accredited Consultant in Real Estate (ACRE)™ course for agents is to see the real estate industry evolve similarly to how the financial industry did 20 years ago.

]]> At the beginning of the 1980's, "financial planners" were, for the most part, salespeople selling financial products. Of course, it sounded a lot better to put "Financial Planner" on one's business card than "Salesperson" but the public wasn't fooled and from this inherent conflict, came the birth of the CFP® - the Certified Financial Planner.

Today, while there are still salespeople operating in the financial industry, there is a clear line of demarcation between these salespeople who are paid to sell products and CFP®'s who are paid to provide objective counsel. I would like to see the ACRE® accreditation develop into the same symbol for the public of professional, objective counsel in real estate as the CFP® does in financial planning.

And, just like in financial planning, there will probably always be a niche for real estate salespeople whose primary job is moving the inventory. But, at the same time, I hope there will be an increasing demand for Accredited Consultants in Real Estate™ whose focus is not to sell the product, but rather to act as an advisor and advocate for their client, helping them to reach their goals.

Real Estate Consulting: Simply a Better Idea

2007-03-29T10:00:00Z

This past Sunday, the cover article of Parade Magazine was entitled "Do You Have a Better Idea?" The article talked about how solving problems can be accomplished by simply looking at the issue at hand and "thinking out of the box". From the "Forever Postage Stamp" to increasing the supply of organ donors, the article offered many examples of how we can devise simple solutions to big problems by simply borrowing an idea from another country, industry, or context and applying it to a problem.

A similar point was made by my colleague and friend, Ken Deshaies, in the foreword of my new book "Ripping the Roof off Real Estate". Ken noted that the authors of the book "Blue Ocean Strategy" described how major business successes over time have come from innovative business leaders re-imagining the business at hand.

]]> I could think of no better way to introduce this new blog than to point out that the concept of real estate consulting is simply taking a tried and true model that works in other industries and applying it to real estate. We, the authors of this blog, think that the consulting model is the perfect medicine for what ails the real estate industry.

And make no mistake; the real estate industry is ailing. Conceptually, the business of real estate has morphed over the years from a sales profession where practitioners would simply sell a product (a house) for a sales commission to one where practitioners are not only being asked to move product but simultaneously, are expected to provide objective, fiduciary counsel and guidance to consumers looking to purchase or sell their largest asset. Yet, the method of compensation has not changed. This inherent conflict of interest is what I call in my book "the elephant in the room". Everyone knows the conflict is there but no one acknowledges it and certainly, no one wants to talk about it. But how does a real estate professional provide objective counsel when the amount of their compensation (or whether they get paid at all) is dependent on the decision the consumer makes that the agent is advising them on?

It's time for choices that make sense for the consumer and the real estate professional. Because without choices, consumers are stuck with either paying a full commission for services they might not want or need or going it totally on their own or with a discount service that doesn't provide the vital counsel and hands on care that will keep money in their pocket when they buy or sell a home.

We believe the time is now to provide consumers what they have wanted for years - responsible options that give them real value for their money yet provide the real estate professional the compensation that is worthy of the skills, experience, and expertise that we agents bring to the table. If you agree, we are looking forward to a lively discussion!

Mollie Wasserman

Pothole #1: Pricing Your Home

2007-03-21T20:08:55Z

Property and homes are commodities, pure and simple. High demand and low supply drives prices higher and the asset becomes more liquid (easier to sell). Low demand and high supply drive prices lower and assets become less liquid (harder to sell). Market value is ultimately determined by what a buyer is willing to pay and a seller willing to take. I hear the following statements from consumers: Well, I can't sell for less than my tax assessment! My home is worth at least my appraised value! My neighbor said... My Mom told me... The one down the street sold for...and my home is better... Zillow says...

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Assessments: The tax assessor compiles general data about about home sales in specific areas in a jurisdiction looking back the last year. Yes, the last year. County records are incomplete, contain very little detail and is fraught with error. The assessor has no way to evaluate the quality of a property; condition, how well it is maintained, amenities, or any other qualitative measures. When was the last time an assessor visited your home to determine these things? Never! Markets change and can do so rather quickly. Your assessment has everything to do with generating revenue for the jurisdiction and always lags current market conditions. The average Loudoun County home sales price went up 23% last year. The average assessed value went up a bit more than that. Some individuals more, some less. There was strong market demand the first half of the year. Prices rose rapidly. There has been extremely week demand for the latter part of the year. Demand drives market value. The assessor doesn't have it. If anything, if you believe your assessment is too high, appeal it!
Appraisals: Appraisers have a little better handle on market value. They visit the property, take measurements, take pictures, note features and amenities, have opinions on quality and condition and are out in the market and have a pretty good idea of what's happening. They see lots of homes. They approach residential value from two perspectives, current cost to build (cost models that take into account lot, size of home and amenities) and comparable properties that have sold (usually in the last six months or so). The are also looking backward. Appraisers have algorithms and formulas for adjusting value based on comparisons of location, lot size, square footage, age, condition and amenities. Banks base their loans to buyers on an appraisal. But again, they are looking backward. A market value appraisal performed for a seller 3 to 6 months ago does not reflect current demand. So, we need to be careful on how we use it, if at all.
Comparable Market Analysis (CMA): This is the method used by most real estate agents. It is not only a comparison of similar properties that have sold (backwards looking in time), but also a comparison of similar properties currently on the market. We also look at location, condition, size, quality and amenities as well as time on market (an indicator of market condition). Knowledgeable, experienced agents will not provide a specific market value. Instead, they will provide an approximate range of potential value. We will also take into account buying patterns of consumers. For example, wood floors, upgraded cabinets and appliances, granite or stone counter tops, finished basements and home theaters are in strong demand. It is expected in certain price ranges. And, in a buyers market homes that have these features will be the first to sell everything else being equal including price. So, if a home does not have these, a much lower price is what will attract a buyer. Adding these amenities will not necessarily allow you to set your price higher than comparable. Adding these may, in fact, simply allow you to compete with other properties on the market that do have them. Bottom line: CMA's do not set market value...they are just estimates.
Zillow: New, exciting, cool, presents lots of information. Zillow bases their Zestimates on public records. See Assessments above. End of story for Zillow.
Neighbors, Family, Friends ET Al: These lovely trusted people have opinions. If they are not real estate agents or appraisers that have not done the necessary homework, they don't have the data. Respect their opinion but don't listen.
All of the above (except #5): All of these are helpful in estimating market value and we use all of them. We show potential clients how we use each of these to "triangulate" determining the most probable range of value. We use our market data studies, in general, to advise clients on what to expect. In a buyers market, sellers would be advised to set their price lower in the range. In a sellers market, higher in the range. Of course, competitiveness of the property plays a big factor as does the market price range sellers are in. Entry level properties have more potential buyers, high end properties have a significantly smaller pool of potential buyers. Of course, there are other personal factors to consider such as how fast a seller needs to sell for whatever reason.

Sellers are not only competing with other sellers, they are competing with new home builders. In our current market, new home builders are offering huge incentives to buyers to move their inventory. These include all the bells and whistles mentioned above and/or CASH.

The conclusion? Pricing and presentation are everything in attracting buyers. Estimating market value is as much an art as it is a science. Be prepared to be logical and realistic above all else. Our job is to apply the art to the science and help sellers get the highest value that the market will provide.

Here is some other interesting and relevant reading:

Balanced market creates new approach to home selling
Previous listing strategies may backfire in 2006
Monday, February 20, 2006
By Dian Hymer | Inman News

There are plenty of home buyers intent on buying while they can still lock in a relatively low mortgage rate. So, the 2006 housing market should present good opportunities for sellers who understand how to maximize profit in this new, more balanced, selling environment...

The first step is to start thinking like a buyer, not a seller. Although buyers are anxious to buy before rates rise further, they know that the appreciation rate is subsiding.

When the market is rising quickly, buyers are less concerned about overpaying because they're sure they'll recoup the excess payment within a few months because of robust appreciation. This was the psychology of last year's buyer. Now, buyers are much more concerned about value...
Read the whole story here.

And from the Times publisher, Mollie Wasserman, this and other insights from her previous blog about using information:

What the Internet Can and Cannot Do
It is often said that "the only thing new in the world is the history that you don't know". This saying kept going through my brain last week when a new home valuation web site named Zillow was launched to a lot of buzz. The press, as usual, carted out the same tired (and wrong) prediction that it has made for fifteen years: that home valuation sites like these will put Realtors® out of business or at least greatly reduce our fees.

Actually, over the last dozen years, the opposite has transpired: it doesn't matter whether you are talking about law, medicine, accounting, mortgage or real estate; the more that the public uses the internet to gather information, the more they turn to professionals before they make major decisions. That's because there is a huge difference between gathering information and interpreting it.

Over ten years ago, I penned a Real Estate Internet Warning that seems even more relevant today than it did then:

REAL ESTATE INTERNET WARNING© Despite advertising claims to the contrary, the internet is NOT an experienced Real Estate Professional. It cannot consult, counsel, advise, have knowledge of local laws and market conditions, make judgments, "own" the result, or most importantly, understand your individual goals and needs and care about you as a Client. Furthermore, while the internet can provide information, it cannot interpret it. To obtain an accurate assessment of any data you're receiving online, please contact us.

Mollie Wasserman (The rest of the article here.)