Realtor production or customer satisfaction – importance and meaning of rankings

What’s more important? The number of homes your real estate agent sells; or the customer service they provide?

“#1 Real Estate Agent.” “#1 in Sales.” “Top 1% Nationwide Producer.” If you’ve spent some time with real estate agents, you may notice how many tout themselves as being #1. And although some of these rankings are legitimately given by a recognized organization; many agents may be creating their own production ranking designation to use for marketing purposes.

by Dan Krell © 2013

Ranking designations are used in various industries to demonstrate a superlative product, or excellent service. One of the most recognized organizations that bestow ranking designations is J.D. Power & Associates. J.D. Power & Associates is most notable for ranking customer satisfaction in the auto industry, but they also rank satisfaction and other industries including real estate. In fact, you may see the J.D. Power & Associates ranking on a home builder or national/regional broker.

Production ranking is more prevalent in the real estate industry, however, and there are a number of organizations that rank the production of agents, teams and brokers. With the growth of the internet, unofficial production rankings can be found on many home search and real estate data websites. REAL Trends (realtrends.com) is a company that is dedicated to providing analysis of the residential real estate industry, and offers real estate data online; the site provides agent, team and broker production rankings in the U.S. and Canada

The National Association of Realtors® has been toying with the idea of adding a ranking system on the consumer home search site Realtor.com (operated by Move.com). The pilot program, called “AgentMatch,” has not been received well by many agents. There are concerns about the perceptions created by the displayed production statistics; some critics cite issues about statistics that may not be representative of production, which also may not tell the entire story behind of many transactions.

Another NAR initiative in agent ranking is a pilot program called the “Realtor Excellence Program.” Currently the program is being tested in several U.S. markets; and as a recent Chicago Tribune article (Realtor group testing agent ratings program, March 15, 2013; by Mary Ellen Podmolik) reported, it is being received well. What’s different about the “Realtor Excellence Program” from other agent ranking programs is that this program provides agent ranking through customer satisfaction. A quote from Laurie Janik, general counsel of the Mainstreet Organization of Realtors® says it all, “I’m looking at reducing liability. I want happy sellers and happy buyers…Right now we measure agent performance based on how many deals they did…But was (the transaction) a train wreck?”

This distinction between agent production and customer satisfaction is an important one. Although you might think that high volume production and customer satisfaction are not mutually exclusive, the relationship usually has some negative correlation; customer satisfaction typically takes a back seat when production goals increase. If a high volume real estate agent or team is invested in maintaining or growing their production, you need to ask about their commitment to customer satisfaction.

Many agents use national averages to determine that they are in the top percentile in production. Using these averages and stats, I also find myself in the “top tier” of various categories. Be that as it may, many consumers deem self promotion about production in a service industry as gauche and trivial. Many consumers are less interested in hiring agents whose focus is about being #1; rather, consumers want to be treated as #1.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. This article was originally published the week of November 18, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

October 16, 2013July 5, 2019

Debt ceiling, default, and fear; how housing market will react

There are no courthouse default notices, and it is unlikely for real estate investors to go knocking on the white house doors to try to purchase it as a short sale. Although a government default is not quite the same as a default on your mortgage, a government default will nonetheless have consequences in the housing market.

A U.S. default would be uncharted economic waters; there is no way to know exactly what will happen – but it will most certainly not be good. When speculating about the consequences of a government default, some talk about 1930’s Germany and 1990’s Russia; these defaults occurred for different reasons and had different outcomes.

Experts discuss a possible consequence of a government default to be an almost immediate economic recession, which could rapidly evolve into a depression. The resulting shock from a possible economic contraction would filter through the economy and would no doubt result in mass layoffs. And just like the most recent recession, mass unemployment had deleterious effects in the housing market and real estate industry resulting in waves of foreclosures and property devaluation.

Other possible outcomes of a default could be runaway inflation, sky high interest rates, and/or general economic calamity. In these scenarios, forget about a housing recovery; home buyers could find it exponentially difficult to obtain a mortgage to buy a home. Homeowners who have fixed rate mortgages should be safe from payment increases; however those with adjustable rate mortgages could possibly see interest rate increases hitting adjustment caps.

In an October 9th article, Morgan Housel wrote (“What Happens If the U.S. Defaults on Its Debt?”; fool.com); “…Those holding bad mortgage debt fared the worst in 2008, but financial pain spread throughout the entire financial system, and to areas that had nothing to do with real estate. The reason was fear. If the global financial system is built on credit, it is supported by trust. When you remove trust, people hide now and ask questions later. The system freezes. I don’t want to lend to you because you might hold something bad, or be lending to someone who is holding something bad, or be lending to someone who is lending to someone who is holding something bad. So people just wait. Credit stops flowing, and as we learned in 2008, that simply devastates the economy… But a credit crisis doesn’t need to last long to bring the house down. Lehman Brothers was well capitalized two days before it was bankrupt…”

Fear is a very powerful emotion that can be used to influence popular beliefs and behavior. As congressional budget talks have been at a standstill, talk of a government default seems to be on everyone’s mind as we approach the debt ceiling. And although we fear a government default, the distinction must be made between default and debt ceiling.

Put in a very simple way: raising the debt ceiling is akin to asking for an increase in your credit card limit. However, you don’t default just because your credit limit is not raised; you default when you fail to make payments on your debt. Even if there is no debt ceiling increase, many experts agree that a chance of a U.S. default is slim; it has been estimated that treasury revenue is much more than the amount needed for debt servicing. Regardless, the fear of a government default is enough to chill the housing market.

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By Dan Krell
Copyright © 2013

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

October 2, 2013July 5, 2019

Another government shutdown article – what home buyers and sellers should know

Yes, another column about the federal government shutdown (like you need to read another column about the shutdown, right?). Although it is expected that the majority of home purchases won’t be affected by the shutdown, home buyers and sellers should be on their toes to avoid possible pitfalls; buyers and sellers should be aware of what could affect their purchase/sale. And even if both houses of Congress agree to some continuing resolution before publication, the shutdown information could be useful during the next budget battle (which is likely to occur in about two weeks).

Many experts agree that the government shutdown won’t last long. Regardless, there is a consensus that the longer the shutdown continues, the potential increases to impair the housing market. Additionally, some experts expect the shutdown to dovetail into an anticipated bitter debt ceiling battle later this month.

It has been widely acknowledged that the recovering housing market has been a major contributor to the 2% GDP growth. Economists have agreed that it would be logical to maintain government functions that compliment and support the still fragile housing recovery.

However, regardless of what you hear; the shutdown will certainly affect the housing market. Some mortgage originations and closings will be affected, and some buyer activity may be put on hold until the government shutdown ends (like the sequester). Although there appears to be a commitment to maintain FHA and VA loan operations during shutdown, new loan processing may experience delays (Federal department shutdown contingency plans can be viewed on Whitehouse.gov).

FHA’s (Department of Housing and Urban Development) contingency plan states that: “The Office of Single Family Housing will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market. (FHA endorsements currently represent 15% of the market.) Approximately 80% of FHA loans are endorsed by lenders with delegated authority. The remaining 20% are endorsed through the FHA Homeownership Centers, leveraging FHA staff with a contractor that works on-site.”

The VA’s (Department of Veteran Affairs) contingency plan states that during 1995-96 government shutdown, “Loan Guaranty certificates of eligibility and certificates of reasonable value were delayed.” However, learning from that experience, the shutdown contingency plans indicate that there will be 95% of employees who are either fully funded or required to perform “excepted” functions.

Conventional loans should be unaffected as Fannie Mae and Freddie Mac operations continue through the shutdown; Fannie and Freddie operations depend on lender paid fees.

Unlike shutdowns in the past (the last Federal shutdown was 1995-96), approximately 90% of all current mortgages in the country are insured, guaranteed, and/or purchased by federal entities. During the last shutdown, a thriving private sector mortgage industry existed; private investor groups that purchased mortgages on the secondary market, as well as many portfolio lenders (lenders that keep and service loans they originate) offered alternatives to home buyers. During the last shutdown, home buyers who were unable to obtain or wait for government loan approval, had other options for financing that included “Alt-A” and sub-prime mortgage programs that seem to not widely exist today.

If you are planning to settle on a home in the next few days, confirm with your lender that there are no delays. If you are in the process of looking for a home, check with your loan officer about a reasonable closing date before you enter into a sales contract.

By Dan Krell
Copyright © 2013

September 26, 2013July 1, 2019

Are rising interest rates helpful?

After much speculation, mortgage interest rates appear to be on the move. Even with rising interest rates, rates are still relatively low. Some economists expect that when the Fed’s Quantitative Easing program begins tapering, mortgage interest rates may jump due to financial market volatility.

Many fear that rising interest rates could derail the recovering housing market. In an August 19th news release (realtor.org), Chief NAR economist Lawrence Yun stated that although the pace of home sales are at its highest since February 2007, the market could be experiencing a “temporary peak” due to home buyers’ seeking to close deals before interest rates rise significantly. Looking ahead, Dr. Yun expects that rising interest rates and limited inventory could create an imbalanced market due to inconsistent home sales.

Home sale prices also have been rising, prompting bidding wars, as the median home sale price was reported by NAR to have maintained nine consecutive months of double digit year over year increases. However, Dr. Yun stated, “Limited inventory in some areas means multiple bidding remains a factor; 17 percent of all homes sold above the asking price in August, although 63 percent sold below list price.”

This week’s release of July’s S&P/Case-Shiller Home Price Index (spindices.com) also revealed that home sale prices were still holding onto the double digit annual rate of gain over 2012 levels, as the 10 city and 20 city composites posted about a 12% year over year increase for July. However, it is pointed out that home price are still “far below their peak levels.”

The sharp increases in home sale prices sparked fears of another housing bubble. But price gains only increased about 2% from June to July. Monthly price gains have lessened, and the gradual slowdown of home price gains may indicate that home prices may be peaking. Chairman of the Index Committee at S&P Dow Jones Indices, David M. Blitzer, stated, “Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing. The Fed’s announcement last week that QE3 bond buying will continue for the time being may have only a limited, though favorable, impact on housing.”

The rapid increase in home prices has affected potential appreciation for many home owners who waited to sell their homes. And the increased inventory provided additional housing stock for eager home buyers. Given the recent increases in home sale prices, the expectation of an uncertain real estate market may not be welcome news by home buyers and sellers.

But home price increases have not only helped the housing market, but the economy as a whole. CoreLogic (corelogic.com) reported that the housing sector contributed about 17% to GDP growth during the first quarter of 2013. However, CoreLogic predicts that increasing mortgage rates will directly affect the housing market, and indirectly affect the overall economy: Single family housing starts (new homes) are thought to be declining because of increasing mortgage rates; and CoreLogic estimates that long term GDP growth to be about 1.75%.

It remains to be seen if modest increases in mortgage interest rates have been beneficial to stave off another housing bubble. However, given that the indicators and experts point to a housing recovery peak; increasing mortgage interest rates could suggest caution for the housing market.

Original located at https://dankrell.com/blog/2013/09/26/rising-interest-rates-a-help-and-hindrance-to-recovering-housing-market-2/

By Dan Krell
Copyright © 2013

September 12, 2013November 23, 2021

Dual agency debate continues; revealing results from recent real estate research

by Dan Krell © 2013
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Understanding representation in a real estate transaction can sometimes be tricky. You might think, after all, “If I work with a real estate agent, they represent me.” Not so fast; understanding whom real estate agents represent can be confusing in some situations, most notable is the concept of dual agency.

Maryland, like many other jurisdictions around the country, allows for dual agency. “The possibility of dual agency,” as described on the Maryland Real Estate Commission website (www.dllr.state.md.us/license/mrec/mrecrep.shtml), “…arises when the buyer’s agent and the seller’s agent both work for the same real estate company, and the buyer is interested in property listed by that company. The real estate broker or the broker’s designee, is called the “dual agent.” Dual agents do not act exclusively in the interests of either the seller or buyer, and therefore cannot give undivided loyalty to either party. There may be a conflict of interest because the interests of the seller and buyer may be different or adverse” [emphasis added].

Dual agency has been widely debated since its inception. And as the industry rapidly transforms, the issue is likely to continue to be a hot topic; for example, as real estate teams have become more prevalent in the marketplace, many argue that the potential for conflicts of interest in dual agency transactions becomes increasingly significant.

In his February 2010 Agbeat.com article (February 16, 2010; The Age Old Dual Agency in Real Estate Debate), Patrick Flynn states that although dual agency is legal in many jurisdictions, “…dual Agency is the ultimate no win scenario. Even if all parties agree in writing (and if you explained the likely pitfalls and risks to both parties…they never would agree) you simply cannot perform your prescribed duties…”

He continues to say that although there is potential for damage and irreparable harm to those involved in a dual agency transaction, most of these transactions close “without a hitch;” and the agent’s attention moves from common sense and integrity to the “little devil” on their shoulder that tells them, “Look at all the money you made!”

Recent research, investigating whether dual agency transactions are a result of agent incentives (e.g., money) or efficiency, suggests that the issue deserves further investigation to understand (among other things) the effects of dual agency, potential for conflicts, and to determine if buyers and sellers are poorly informed. Regardless, Brastow & Waller conclude in their 2013 study (Dual agency representation: Incentive conflicts or efficiencies? The Journal of Real Estate Research, 35(2), 199-222) that dual agency is more likely to occur at the beginning and end of a listing contract. When a dual agency sale occurs at the beginning of a listing, they conclude that it is a result of agent incentive and results in an efficient quick sale. However, when a dual agency sale occurs at the end of a listing contract it is usually due to agent incentive (e.g., avoiding loss of sale) and the home is more likely to sell for less.

Locally, the Maryland Real Estate Commission requires that real estate licensees, who are assisting you, provide disclosures describing agency relationships (including dual agency) “at the time of the first scheduled face to face contact with you.” Your agent can assist you in understanding dual agency, when it occurs, the potential issues of dual agency, as well as what should happen if you decide to not agree to dual agency.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. This article was originally published the week of September 9, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

What’s more important? The number of homes your real estate agent sells; or the customer service they provide?

by Dan Krell © 2013

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by Dan Krell © 2013
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