Real Estate opinions

[kalstar]

First, just as a back ground, I am in the process of building a cabin in NH so I have been reading this forum for a while now. So I was hoping to I could ask for some of your feelings and opinions. I am starting a new national franchise that is very different to current (old school) way of selling real estate.  I own a very successful Real Estate company that is prospering even in this economy. I work outside of the box and it is rewarding, however I like to hear where the industry needs change or improvement. Hold nothing back....let me have it!

What do you feel is wrong with the real estate industry, more particularly the way we sell/buy it?

What do you think the drawbacks are of using a Real Estate agent or purchasing though the owner directly?

Why would you NOT use a Realtor or if given the opportunity to change something, what would it be?

Would you avoid a "for sale by owner" for any reason?

Input into where fundamental or even minor change is needed would be greatly appreciated.   

[muldoon]

What do you feel is wrong with the real estate industry, more particularly the way we sell/buy it?

Fraud and grifting is commonplace at all levels.  From the land deal, to the kickbacks to the city/muni to allow it to happen, to the grift from the inspectors to get the infrsatructure in, to the outright cheating by the contractors and subs using cheap illegal labor to build them, to the predatory lending - interest rate only loans, negative equity loans, even the safest gov backed loans a re a sham - go look at HUD/Ginney May programs FHA will allow for 50 debt to income ratio.  Is it in any way sane to allow a family of 4 who makes 50k to have their house payment be 50% of their income?  One illness, one broke down car, one job loss for more than 2 weeks nearly guarantee a default.  The loan approval process can be a nightmare, with lock-ins being unlocked if it goes the wrong way, with some lending agents simply dropping the deal days before closing.  The appraisal is rigged in far too many cases - go ahead use the contractors apprasial and watch it come in 10-15% higher than whatever they are asking; or use your own and find it come in 20% under.  They just regurgitate whatever is wanted by the man paying the bill.  The insurance is a scam - and one I have seen play out over and over here after the hurricane - people pay in only to find the company just flat refuses to pay - or insists on the same cheap illegal laborers doing shoddy work that in most cases would never pass code.  Tax assessments are over-inflated, with thousands of cases where the county refuses to reduce valuations for tax purposes no matter what the house would actually sell for. 

The mass availbility of credit led the prices to inflate.  That credit is no longer there - and neither is the real ability to borrow.  Instead of dealing with that outright complicity in fraud is the norm and commonplace.  That is whats wrong with housing.  It's all a bunch of bottom feeders and crooks grifting their 3-4% off every transaction. 

- No offense to the people in the real estate business, I have several in my family as well and I am not saying everyone is bad.  But enough are sleazy enough to give the entire industry a bad name. 

What do you think the drawbacks are of using a Real Estate agent or purchasing though the owner directly?

Drawbacks of an agent are the cost, the frustration if you feel the agent is not as dedicated to your transaction as you are. 
Largest drawback for owner directly would be my lack of confidence in their ability to stick to a deal and honor the terms. 

Why would you NOT use a Realtor or if given the opportunity to change something, what would it be?

I would not use a realtor for purchasing land, I would do a handshake deal, then hire an attorney and do it amicably. 

[kalstar]

That was an awesome post thank you. Keep them coming!

[NM_Shooter]

I don't like the fixed 7% fee associated with commissions.  Seems a very odd way to transact.

For instance, the difference in work between selling a $100k house and a $1M house does not justify the difference in commission which is $7k vs $70k.  No way does the amount of work that a realtor does justify that extra $63k.

There are certain fixed costs associated with listing, maintaining, and documenting the sale that are very, very similar, with no regard to the cost of the home.  However, the equation to determine the cost of the commission seems to be tied only to the sale price of the home.

I think a much more fair way to sell the home would be based on the equation for a line.... y=mx + b.

b is the fixed charge that a realtor charges to do the basics... listing, contracting, representing.  m is the commission, and x is the sale price.  m should probably be more in the 2 to 3% range.  b should be a fairly heavy component in the equation...

I would even prefer using a sliding scale for calculating commission.  For instance, I know of many folks who are "encouraged" by their realtor to drop their price or to accept a much lower offer.  Realtors don't have much skin in the game, and I feel (maybe incorrectly) that the realtor wants a quick sale and to get out.

If I had a house that had a fair market value at $200k, and I was fishing with a starting point of $215k, I would gladly pay a higher percentage to the sales person on the amount of the sale above $200k.  Drop below $200k, and your commission percentage drops too.  

I once had to sell a house in a bad market (Houston, 1996) and told the realtor that I would pay a bonus to the selling agent if the price did not drop below 5% of my asking point.

Very often the selling agent is the one who scores the most.  The selling agent should have a fixed fee, not based on percentage commission.

I guess what I am trying to say is the following:

1)  Be fair in how you are asking to be compensated
2)  Be flexible in your commission plan.
3)  Be a real partner to me in this deal.  I need you to be my representative, and I need to be able to trust you.
4)  Be prepared to be accountable with regards to what you have done for me.  I want feedback on visits on my property, and I want to know what you are doing to market my property.
5)  I would prefer an ala-carte fee pricing schedule where you tell me what additional costs I incur for additional things.  For instance if you bring somebody over to help me prep the home for sale, improved or preferential listing locally or nationally, more expensive marketing (brochure of property, TV or radio exposure), whatever.  Give me some control in what the costs are.

I'm very lucky in that locally I have a very good realtor who is a friend of my family and who works for a reputable firm.  I cherish that relationship.

[Mike 870]

The biggest thing that bothers me, is that (in Ohio) there is an inherrant conflict of interest.  We have dual agency system.  Buyers agent and sellers agent or a dual agent (represents both the buyer and seller).  If you're a buyer, I don't believe your realtor really represents your own interests.  They have a vested interest in seeing the sale through (so they get paid), and therefore will do almost nothing to stop a sale even if it's not in the buyers interest for the sale to go through.  They won't share comps (comprable sales) if the buyer might be overpaying, they won't disclose potential issues if they buyer isn't aware of them.  All they want is for the buyer to buy as expensive a house as possible. 

This set up also helped lead to people overreaching and getting in over their heads.  People make the mistake of confiding in their realtors.  When you are making a big purchase, you just want someone to say "it'll be ok, go for it".  I can't tell you how many times I have heard a realtor say "Oh you will always get your money out of it" back in the 2002 - 2007 time frame.  Lucklily I did not trust them.

[kalstar]

There are many things I feel is wrong with the Real Estate industry. Keep the posts coming.

[waggin]

I am a real estate agent, and I agree there is a lot that the industry does poorly.  That being said, there are also a lot of misperceptions of the general public about real estate. 

The field is full of conflicts of interest, and remember, most brokerages are focused on closing transactions.  Agents/brokerages only get paid when a transaction closes.  A lot of advice and "news" reported by people in the field will be directed toward closing transactions. 

Unfortunately, it is too easy to get a real estate license.  Once you have it, too much of the ongoing training is geared toward closing transactions without running afoul of real estate contract law.  That's a bare minimum, and doesn't really serve the people that are actually buying and selling property.  I'd like to see more regulations and training geared toward providing better service to the clients.  Interestingly, I had no clue how much of a disservice most agents are doing to their clients in a raw land transaction until I bought a piece of raw land myself.  Types of easements, widths of easements, setbacks-not just property line, but from critical areas of any kind, geotechnical study requirements, zoning considerations, marks on title, cost considerations based on distance from utilities, well log info, topography for well drilling access considerations, and much, much more are things most people don't think about in advance.  These are things where a savvy agent is worth it. 

Washington is a dual agency state too.  I agree it's a crappy idea.  I've only done one dual agency sale in seven years.  I was the listing agent on a bank-owned, hard core fixer.  I sold it to a contractor/investor who knew the process inside & out.  Every other opportunity, I referred the prospective buyer to someone else.  To do a dual agency transaction, I feel that you have to do a little bit less representing of both parties often enough that it's at high risk of being a conflict of interest.

Antiquated practices persist.  When selling, a seller has to purchase title insurance.  In the same transaction, the buyer also typically has to purchase title insurance for their lender (when financing.)  Anyone else see an issue with two title insurance policies purchased for the same transaction?  Not everything that the title insurers and escrow companies do is bad though.  I work with a great title insurer that has some excellent & thorough researchers.  If I see something odd on title or in recorded documents, they will investigate it based on a phone call even without a policy in place.  That said, their relationship to my company is a little too cozy in some respects. 

Standards are in place to protect & serve the powerful.  Look at the loopholes available to large developers vs. individual homeowners.  A developer can have an individual's property condemned to allow their development to be more profitable and provide the "highest and best use" of the land.  BTW, that's shorthand for more tax revenue & why it persists.

Real estate contract law is a minefield.  Some of what the agents/brokerages are doing behind the scenes, the clients never know about.  Problems pop up all the time and are resolved without ever having to worry the clients.  Good agents are handling this every day, where if some of this stuff pops up in a for sale by owner scenario, it's an expensive call to an attorney and a delay, or a failed transaction & hurt feelings.  If you have lousy agent(s), you'll end up here too.  For sale by owner houses are fine if you know  the ropes.  If not, most agents will help you for significantly less than standard commission rates.  A-la-carte pricing works great here.  (NM_Shooter really seems to have a great grasp of several concepts.  I just want to make sure that the variable commission based on the sales price is applicable to the listing agent, not the selling agent though.  If you were offering that to the selling agent, it's a horrible conflict of interest for them.  They would get paid more for pushing their client (buyer) to pay more than they should for a property.  Oddly enough, that is legal!  It really upsets me to see that.)  It's a sleazy tactic used by some listing agents.  How would you feel if your agent was representing you as a buyer & pushed you to make a higher offer & it turned out that it wasn't what they thought was best for market considerations, but what got them the higher commission!?

Bottom line, if you can do it yourself, you save money.  However, you will have to research & work to do it.  Insert no free lunch concept here.  If considering using an agent, people need to really interview them.  If you think they're trying to tell you what you want to hear, walk away.  Don't dismiss someone who tells you things you don't want to hear.  Consider that maybe they're telling you the truth & will actually represent your interests.  Too many people get greedy themselves & pick an agent that tells them what they want to hear.  That's the individual's fault.

Appraisals:  This used to be a perverted process where the appraisers were in the hip pocket of the mortgage broker.  A bureaucratic attempt at a solution is the HVCC, Home Valuation Code of Conduct.  A new process has been created to favor large intermediary companies that shuffle paper & collect dollars.  I think this should be handled differently, but that's an even longer discussion.

Oh, and if you're thinking of doing something different, the entrenched establishment will fight you tooth & nail.  If you've figured out how to improve the process and add value for people while being compensated yourself, congrats!  Tell us more as you can.

[kalstar]

As a back round on me, I have been a Realtor for 13 years and I agree with most what has been said here. I am very good at what I do and am in high demand. The national average is under 2 sales per year per Realtor, I sell upward of 100 per year with nearly half a billion in sales during my fairly short career. I truly feel the system we currently have over rewards the gifted and gives to much creed to the inexperienced agent.  I have many ideas how our system needs change and it starts with not demanding so much of the sellers equity. If we were paid smaller amounts and the cost to do business became more expensive than many of the agents less worthy would wash out. It takes 1000 hours of internship to become a barber but only a weekend course and a test my third grader could pass to become a "professional".

I am making this change not out of financial necessity as I have earned a very good living over the years, but as a creative new way to look at the sale of real estate. I am not trying to build a better mouse trap I am just trying to make the hamster wheel more efficient. As for the gentleman that said the agents will fighting me tooth and nail on change, the old guard will to a point, but I I'm not effecting their income (well not right away anyway) so the change will be so subtle in local markets that, it should be a harmless transition when it does happen. I will say this, I feel, the younger generation buyers/sellers/and new agents will embrace it. I am to early to explain my ideas and I type way to slow anyhow, but it takes a lot of ideas from established companies mixes them together; fills in the voids with common sense and what is created is a low cost, high value product where the seller retains more of his equity while the agent and office owner make more income. The days of big office low production needs to go the way of the Dodo bird. High production, low agent/office cost, elite service and low owner costs....while not effecting the selling agent any of their earned fees.

I need the continued banter, since I am in the business and nearly 100% of my buisness is referrals I am somewhat shelterd. The more I hear about what the consumers impressions are the better. If I want to go at this the right way I need direction from people that see inaccuracies that should/need to be addressed.

Thanx again.....keep it coming.