Saturday, May 3, 2008

An Honest Realtor? Get Out of Town.

I would like to welcome the new readers of RE in the LBC--I'm glad you found the site. I appreciate all the activity in the comments section. A reader shares:

"...Same crap is going on in the Lakewood area, where I live now. Absolutely delusional sellers. I know a local RE agent who handles REO stuff almost exclusively who tells me to just hold on. Very cool lady who says the bottom is going to drop out pretty soon. According to her the listing prices are fantasy and currently any offer within -25% is seriously considered. Even then she said most fail to qualify for a loan. Sanity & CASH while reign within the next two or three years. Thanks again for your great site. It's a blast."

First, thanks for the on-the-scene information. Second, the commenter got me pondering the future of real estate agents now that their pivotal role in the Great Housing Ponzi Scheme has been exposed. I mean, just take a gander at some of the lazy, half-assed, sad sack listings featured on this blog. Need I remind you that even the barely-literate, uneducated, spell-check-deficient realtors demand the same 6% commission?

I am all for commissions and professional services fees in business. The whole idea behind commissions and fees is that you seek the EXPERTISE of a professional, and you pay them for that expertise.

For example, an attorney or a stock broker presumably has more education, experience, and, there's that word again, expertise in their field, and to help me navigate a world I'm less familiar with, paying a fee for their counsel and advice is well worth it. Additionally, if a real estate agent representing a seller can effectively market a home, bring buyers to the table, and get top dollar for their client, then they've clearly earned that commission.

A problem with buyer's agents earning a commission is that, as we found out, many realtors actually knew very little about real estate, basic economics, and financing 101. A buyer's agent with any kind of expertise or understanding of basic fundamentals would recognize that their client was getting into a house they couldn't afford, and a realtor with a moral compass would be obligated to forgo their commission on that particular property and advise their client to look elsewhere and prevent financial Armageddon.

How often do you think that happened during the last five years?

Or what about the situation we're in now, where in a rapidly declining market, seller's agents are afraid to tell their clients the truth (or are equally oblivious to the harsh realities at play) and properties rot on the market. How much of a service are you providing to your client? How does ignoring undisputed economic indicators of housing deflation (or acknowledging them but keeping them from your client) help the person seeking your professional opinion?

The problem here is greed. The bigger the purchase price, the bigger the commission. That motivates seller's agents to hold on to delusional prices and drag out the housing crash even longer than necessary, and it motivates buyer's agents to convince their clients to "stretch" into those more expensive homes.

When I hire an attorney or a stock broker, I want them to tell it to me straight. That's what I'm paying for. In a real estate transaction, I don't want to feel like I'm being hustled by a used car salesman, trying to get me into that overpriced lemon so he can get his cut and never have to see me again. But in many cases, that's exactly what occurred.

So that brings me to the commenter's realtor friend in Lakewood. As much as greed-head realtors were complicit in the housing ponzi scheme and it's destructive aftermath, I have to feel sorry for the honest, educated, hard-working agents out there.

It takes a lot of guts, especially since her sales commissions have presumably dropped off a cliff, to tell a potential client to keep waiting. When putting food on the table and making car payments is at risk, there would be great motivation to lie and spout that same old garbage about, "Now is a great time to buy! Don't get priced out forever! Prices have hit a bottom!"

Anytime I hear that, I instantly know that the person has no credibility, no idea what's going on in their own industry, no grasp of fundamental economics, and no f**king chance of representing me in a transaction.

In fact, I was looking at apartments last week and the woman showing me the rental happened to be an agent for a major real estate agency. She didn't give me her card until after we were finished touring the property, but I should have known given the way she was hyping up the amenities of the outdated, dirty, overpriced condo (I should have brought a camera).

Anyhow, we were talking about my income and credit score when she said, "Well, why don't you just buy a place?" I was a little stunned.

Politely, I said, "I'm waiting until rental rates and mortgage payments approach parity again."

She quickly replied, "Now is a great time to buy."


I asked, "What do you think the mortgage would run on the condo we just looked at?"

She quickly saw my point and the conversation was over.

Those seven simple words, "Now is a great time to buy" told me all I needed to know about her. First, I knew I wouldn't rent an apartment from her, let alone have her help me buy a house. Second, I knew immediately that she has no grasp of her own industry, is oblivious to the very factors that make her industry function, and if she did, she consciously repressed that knowledge in order to sell me on buying a condo.

The point is, I clearly had a better handle on the real estate industry and the housing market than this realtor. Given that, why in the world would I pay her a commission? What exactly is she providing to me for that fee? I just don't see how someone like that could expect to have a future in that industry.

I commend the commenter's realtor friend for having an understanding of the market factors at play, and I'll bet when this housing crash is finally over, our commenter will feel that trust has been earned (at direct, personal expense to the agent) and will gladly pay a commission to be represented by an honest, knowledgeable professional.


  1. WOW, quoted on a good blog. Have I arrived? Will this be enough to get me into cool clubs or a date with Paris?

    Anyway, just wanted to clarify something about my statement. The Realtor in question will absolutely sell to any dope that thinks they're getting a good deal. What I appreciate is that she respects an educated (or at least informed) potential client and doesn't dispense the tired BS lines one would usually hear. One other thing I liked is that like some other agents I've talked to, does not discourage low-ball offers. I mentioned that to her and she said lately, the low-balls are coming from the smarter buyers. WE HAVE THE MONEY! That's another topic, though.

    Maybe I'll try to talk her into going for a few drinks, get her lubed up and REALLY get some good dirt. You and your readers know the score, but I'd still like to hear the honest inside crap that has to be flying in this industry.

    Thanks again.

  2. I'm looking forward to the dirt. Keep us posted...

  3. "but I'd still like to hear the honest inside crap that has to be flying in this industry."

    You make it sound like there is some great conspiracy to uncover here....

    Sorry to disappoint, but there really is none...truth is, most agents are really too stupid and uninformed about economic matters to truly understand what is happening in their world. They drank the kool-aid for so many years (remember, their industry leaders put their heads in the sand and fed lies to them...) that they have not yet caught on.

    Trust me, I know. Nothing to see here...move along.