Consumers are devolving real estate

Consumers choose their agents
Consumers directing real estate industry (infographic from househuntnetwork.com)

The National Association of Realtors annual Profile of Home Buyers and Sellers (nar.realtor) reveals insight into consumer real estate trends.  It provides an understanding into home buyers’ and sellers’ experiences and what they want.  One aspect of focus from the Profile is how consumers choose their real estate agent.  The survey consistently indicates that a referral from a friend, neighbor or relative plays a big part in their choice.  But how do buyers and sellers view real estate brands?

There are reams of research about the relationship between brands and consumers.  However, recent data regarding millennials suggest that brand loyalty may be changing.  Jeff Fromm’s article for Forbes (Why Label Transparency Matters When It Comes To Millennial Brand Loyalty; forbes.com; December 13, 2017) points out what consumers are looking for and what they deem important.  Fromm states

If the brand doesn’t provide the information they need, millennials will look elsewhere… when millennials make purchase decisions, they’re considering more than the traditional drivers of taste, price and convenience.  They value authenticity, and make decisions based on the way they perceive brands to impact their quality of life, society as a whole, and how that brand may be contributing positively to the world.”

Real estate brokers and agents should pay close attention to the new consumer research.

This evolution of brand loyalty and how consumers perceive brands may explain the growth of independent brokers.  A 2015 Special Report by Inman Select (inman.com) The Shift Toward Independent Brokerages indicates that the number of real estate agents affiliating with independent brokerages (not affiliated with corporate or franchise real estate companies) grew significantly over the last decade.  The percentage of agents affiliating with independent brokers jumped from about 45 percent in 2006 to about 55 percent in 2015.  About 80 percent of real estate brokerages are independent.  And the trend is expected to continue.

According to the Special Report, the major advantage cited for affiliating with a brand name brokerage is brand awareness.  However, there may be a limit to the influence of a real estate brand.  Unlike retail brands, real estate brands do not have total control over the consistency and quality of the services provided.  That is left to the individual agent.  Independents, on the other hand, cite the ability to quickly adjust to consumers’ needs and being focused on the local real estate market as an advantage.

Yes, the real estate industry appears to be devolving.  Another example of the devolution is a decreasing reliance on the MLS for home listings.  It’s not to say that home sellers are not listing their homes with agents, because an increasing number of sellers are looking to agents for their expertise.  However, brokers and agents are maintaining control over their inventories through alternative means of selling homes, such as pocket listings.  An increasing number of brokers are also restricting their listings from internet syndication to increase the quality of information provided to consumers.  Although it may sound counter-intuitive to not widely broadcast a home for sale on the MLS or internet, however, a lack of transparency remains a problem for some real estate aggregator portals.

Are real estate brokers and agents listening?  The business of real estate is changing and devolving.  Control over the industry has slowly been transferred to real estate consumers.  Real estate consumers are savvy and intelligent.  They know if a broker/agent is really focused on revenue streams, gimmicks and salesy techniques.  Real estate consumers want agents and brokers who are authentic, transparent, and provide a quality service.

Copyright© Dan Krell
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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. Using this article without permission is a violation of copyright laws.

Confidential information

confidential information
Keeping your information confidential (infographic from larealtors.org)

A real estate agent, who allegedly represented Paul Manafort’s family, recently asserted his fiduciary privilege to avoid appearing in front of a grand jury.  However, as Politico reported, his efforts were thwarted by a judicial opinion, and subsequently reported to the grand jury.  But can confidential information be disclosed?

A fiduciary is generally described as someone who acts as a custodian of their client’s rights and/or assets.  The fiduciary has a responsibility to act with honesty and integrity, as well as act in their client’s best interest and not exert influence or pressure on their client for their own or others interests.

Both the National Association of Realtors and the Annotated Code of Maryland (COMAR) reference directly and indirectly a real estate agent’s fiduciary obligation and handling confidential information.  The NAR Code of Ethics Standard of Practice 11-2 states that a Realtor (when acting as an agent or subagent) has “the obligations of a fiduciary.”  COMAR states about the brokerage relationship (MD BUSINESS OCCUPATIONS AND PROFESSIONS Code Ann. § 17-534):

Except as otherwise provided by this title or another law, keep confidential all personal and financial information received from the client during the course of the brokerage relationship and any other information that the client requests during the brokerage relationship to be kept confidential, unless (i) the client consents in writing to the disclosure of the information; or (ii) ) the information becomes public from a source other than the licensee.

Of course, all jurisdictions are different, having their own laws and customs that govern the actions of real estate agents.  Manafort’s alleged real estate agent claimed a fiduciary privilege under the DC and VA real estate statutes, which is similar to Maryland’s.  However, in a recently unsealed Memorandum Opinion (www.dcd.uscourts.gov/unsealed-opinions-sealed-cases), Chief Judge Beryl A. Howell of the US District Court for DC believes that real estate agents don’t have an “absolute duty of confidentiality.”  She opined that a real estate agent is not excused from complying with an obligation to respond to a grand jury.  But what about confidential information?

Judge Howell wrote:

The respondents take the position that a court order compelling compliance with federal grand jury subpoena is required to overcome the confidentiality protection afforded to real estate brokerage records under District of Columbia and Virginia law. They rely on identical provisions of District of Columbia and Virginia statutes that require a real estate licensee engaged by a buyer, such as the Clients, to ‘[m]aintain confidentiality of all personal and financial information received from the client during the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential unless otherwise provided by law or the buyer consents in writing to the release of such information.’ D.C. Code § 42-1703(b)(1)(C); Va. Code § 54.1-2132(A)(3) (emphasis added). The government does not dispute that these statutes extend confidential treatment to the subpoenaed information, but argues that ‘the laws do not impose an absolute duty of confidentiality on real estate agents’ or excuse compliance with ‘a legal obligation—enforceable by a federal court—to respond to the grand jury’s request for documents, testimony, or both.’”

A real estate agent’s fiduciary obligation and handling confidential information is not taken lightly.  Thankfully, most real estate agents don’t face a grand jury subpoena.  However, during the course of daily business, a real estate agent does have an obligation (whether by NAR Code of Ethics, their local statute, or both) of keeping their client’s personal and financial information confidential.

Copyright© Dan Krell
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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. Using this article without permission is a violation of copyright laws.

Real estate BS detector

real estate BS detector
Become a real estate BS detector (infographic from visual.ly)

DARPA issued a recent request for information seeking ideas about how to create automated capabilities to assign “Confidence Levels” to scientific studies, claims, hypotheses, conclusions, models, and/or theories.  In other words, the Defense Advanced Research Projects Agency wants to create a BS detector.  First reported by Adam Rogers for WIRED (Darpa Wants to Build a BS Detector for Science; wired.com; July 30, 2017), DARPA doesn’t look at it as rooting out “BS” but rather establishing the what, why, and how scientists know stuff. Imagine how this could be applied as a real estate BS detector!

The Defense Advanced Research Projects Agency’s stated mission on their website is “to make pivotal investments in breakthrough technologies for national security.”  So, chances are that if they are able to devise a real working BS detector, you won’t know about it.

When it comes to real estate, people sometimes bend the truth.  Additionally, real estate agents are known for “puffery” and are generally not trusted because of the salesy techniques they employ.  But having a real estate BS detector would be huge breakthrough!  Imagine being able to weed through the BS and nonsense that many real estate agents spout when they are clearly trying to sell.  Wouldn’t it be wonderful to check your real estate BS detector, when an agent is pontificating about a house or themselves, to know if the agent is wasting your time?  Unfortunately, the real estate BS detector is not a real device.  However, there are strategies to help you detect real estate BS.

“Luke, trust your feelings.”  Ok, there’s no such thing as a Jedi, but empirical research has demonstrated that intuition can be used to weed out lies.  Many say they rely on their gut instincts to protect themselves.  But the truth is that many ignore or don’t trust their intuition because the rational mind takes over and dominates.  Increasing your intuition could help you detect the real estate BS and prepare for (and maybe prevent) regretful situations.  Becoming more aware about your “gut feeling” can increase your intuition.

Being cynical can also help detect real estate BS.  Don’t be rude of course, but questioning what others say helps you clarify and understand them at a higher level.  It can also reveal untruths.  Question all claims and over-the-top statements.  For example, if you’re dealing with a real estate agent, ask for support to any assertion they make about themselves or their services.  Ask to speak to their references.  Also, ask for additional information that support their opinions on the housing market and deciding on a price to sell or buy a home.

Do your due diligence to discover real estate BS.  After asking questions, take what others say or do during the real estate transaction at face value and take it upon yourself to verify it.  It can save you a headache down the road.  It’s easy to verify many aspects of the real estate transaction, because many local jurisdictions have their databases online.  However, making a call or two to a helpful government employee is straightforward and can provide bonus information.  Verify licenses of real estate agents, loan officers, and even home contractors.  Verify permits of home improvements.  Verify the local schools and the home’s zoning.

Finally, don’t feel pressured to do anything.  The BS artist will make it seem as if you have to act immediately.  But if you are not comfortable with the situation or are not yet ready, take a pause.

Copyright© Dan Krell
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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. Using this article without permission is a violation of copyright laws.

Real Estate Expert

Real estate expert
Real estate expert (infographic from infographicportal.com)

When I began my real estate career, every budding agent was taught that we should farm neighborhoods to become the local expert.  Agents would (and many still do) farm neighborhoods by spending a small fortune on mailings and other promotional marketing about themselves just to tell you how smart they are about your neighborhood.  The notion that only one agent is “the expert” on selling homes in your neighborhood has become antiquated.  The demise of  this long standing rite is approaching as consumers become increasingly savvy. Enter “The Real Estate Expert.”

Before the MLS, real estate was a local business, where real estate brokers set up their offices in neighborhoods and became the “local experts.”  The neighborhood broker guided home sales and prices because they were the expert.  Home buyers and sellers went directly to these agents if they wanted to buy or sell a home.

However, the advent of the MLS opened up the marketplace and created “market experts.”  Not having prior knowledge about a neighborhood was no longer a problem for real estate agents.  The MLS provided agents the data and home information to become the local housing trends expert.  The MLS essentially allowed agents to sell more homes in the broader regional area.

The internet changed all that, of course, by providing data and home information to anyone connected.  Everyone is a neighborhood expert thanks to the internet!  However, there is downside to having an unlimited stream of figures, statistics and trivia without a filter.  Home buyers are on information overload.  They are inundated with information about a home’s history, as well as advice about buying and selling.  Buyers and sellers have so much information, they are overthinking every aspect about the home buying and selling process.  They are getting in their own way and potentially sabotaging their own transactions.

The ever-improving technology and the proliferation of information has changed the business of real estate, which has made the “neighborhood real estate expert” a thing of the past.  Sure, there are many agents who still market themselves as the neighborhood expert, but does that make them more qualified to sell your home?  Agents hyping themselves to know more about your neighborhood can also potentially sabotage your transaction if they make it personal.  They may be able to tell you about what makes your neighborhood special, as well as share trivia.  But so can your neighbor.  Does that make your neighbor qualified to sell your home?

Enter “The Real Estate Expert.”  The Real Estate Expert is a professional who follows the housing market and can interpret the data about your neighborhood in a meaningful way.  They can compile information to provide you with a detailed and meaningful market analysis to assist you in deciding on a sale price without personal bias.  The Real Estate Expert knows how to market your home in the current economic environment.  They understand what home buyers want in a home, and they can prepare and present your home to promote it to grab home buyers’ attention.

Real Estate Experts are trending away from marketing themselves, and leaning towards being attentive to their clients.  Real Estate Experts also understand the nuances of negotiation, and are current on legislation that can affect their client’s rights and obligations.  They also know how to facilitate a transaction, so as to protect their client’s best interest without regard to their commission.

Copyright© Dan Krell
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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. Using this article without permission is a violation of copyright laws.

Consumers changing real estate agent commissions

real estate agent commissions
Real estate agent commissions (infographic from visual.ly)

Consumers have most likely complained about real estate agent commissions since the advent of real estate brokerage.  However, before the turn of this century, most did not question the real estate agent commissions they paid because they chalked it up to the cost of selling a home.  Times have changed, such that having a conversation about commissions and compensation is a common topic when agents and consumers first meet.

Real estate agent compensation is evolving as fast as the industry.  The US Bureau of Labor Statistics (bls.gov) reports the median annual wage for real estate sales agents was $44,090 in May 2016 (The lowest 10 percent earned less than $22,230, and the highest 10 percent earned more than $112,570). The BLS states:

“An agent’s income, therefore, often depends on economic conditions, the agent’s individual motivation, and the types of property available. Income usually increases as agents become better and more experienced at sales. Earnings can be irregular, especially for beginners, and agents sometimes go weeks or months without a sale. “

Before the turn of this century, there was more conformity in real estate agent commissions because most agents were not negotiable in the compensation they charged.  However, modern agents have adjusted their business models and are open to negotiate how much they will be paid.

There are also many real estate broker compensation structures from which you can choose.  Some brokers offer limited services, and some offer fee-for services, which includes a MLS placement service.  Some fee for service brokers offer à la carte services, where you can choose specific services for which you want to pay.  Most “full service” agents still charge a percentage, but the percentage can vary from agent to agent.  Full service agents can also vary on the extent of the “full” service they provide; however, many will be open to negotiate their commission rate.  Regardless of model, get the agent’s services in writing and hold your agent accountable.

The increased market pressure on agent compensation is actually good for the consumer.  It doesn’t only lower the cost of the real estate transaction, but it also increases the quality of services.  This was the finding of an empirical study by Panle Jia Barwick and Parag A. Pathak (The costs of free entry: an empirical study of real estate agents in Greater Boston; The RAND Journal of Economics; Vol 46, No. 1, Spring 2015, p.103–145).  Their study investigated three scenarios that are chipping away at the traditional real estate agent compensation models: lower commissions, commissions based on break-even costs, and improved information about agents’ past performance.

Barwick and Pathak found some interesting outcomes from their research.  Besides concluding that there are consequences for fixed real estate agent commissions, they also discovered that the easy entry into the industry (i.e., the ease of getting a real estate license) reduces the quality of service.  Furthermore, the increased competition among real estate agents caused by easy entry into the industry is not beneficial to a home selling or time on market.  They also concluded that

“…lower commissions reduce transaction costs, which might lead to a more liquid housing market, improved asset allocation, and better housing consumption. Flexible commissions also provide a channel for consumers to choose services tailored to their preferences.”

Their results suggest

“…that a 50% cut in commissions would result in 40% fewer agents, social savings that amount to 23% of industry revenue, and 73% more transactions for the average agent.”

Realtors should embrace the discussion about compensation and real estate agent commissions with their clients.  It offers the agent an opportunity to demonstrate their accountability.  It also promotes transparency and the services we Realtors provide, and builds the trust that is lacking in the industry.

Copyright© Dan Krell
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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. Using this article without permission is a violation of copyright laws.