Why Realtors are like Doctors and why you can’t Self-Medicate

Why Realtors are like Doctors and why you can’t Self-Medicate

The main purpose of this article is to draw an analogy between Realtors and doctors in the sense that both are professionals and that we should consult with them regularly for expert advice. If you believe we need expert advice from doctors, then so too do we need expert advice from Realtors.
This article has an apologetic tone to it for many reasons. The first is that the increased transparency of homes for sale empowers consumers to research homes in advance. This allows a more informed user. The same has happened for medical issues being available online. People can search for their symptoms and try to make conclusions about their health from their research.
If you have ever had symptoms and used search engines to identify what you could be suffering from, you can imagine it is a terrifying process. It is terrifying because there are so many uncertainties involved about self-diagnosing that we don’t have enough empirical knowledge or the background knowledge to come to a definitive diagnosis. So what do we do? We end up either acting on a false belief or we set the appointment with the doctor.
If we do the former, we do a self-medication. Suppose we had a viral infection and we think we have a bacterial infection. And suppose further that based on our false belief, we take antibiotics, hoping the infection goes away. Since antibiotics don’t work against viruses, we’re left with all the side-effects of taking antibiotics without the benefit of the cure.
So now let us return to the topic of real estate. When first time home buyers or not savvy persons of real estate think it is good idea to buy or sell the house themselves, it’s clear that they have their own best interests in mind, but it’s not clear that a professional has their best interests in mind. When the buyer/seller is self-represented and the other party has representation, the unrepresented party might ask help from that professional, but there’s no guarantee that that agent will help the other party out of generosity or other virtues.
I have had many sellers with whom I fill out forms, and it is sobering to see my sellers skip or flat out omit information on their disclosures because they don’t want to disclose something. They fear that disclosing something might lower the final price of their home. And they may be right. But when the property condition is not what the other party thinks, it’s a no-brainer that the price reduction in disclosing the material fact is far cheaper than the cost of damages in a lawsuit for the failure to disclose.
Putting the legal aspects aside, the seller/buyer needs to do the right thing and disclose the material facts of the property. The professional Realtor is there to make sure that happens.
I can’t stress enough how important the counsel of a real estate professional really is. A 30 day close requires a lot of coordination and precision among the parties and many things can be missed as a result. A do-it-yourselfer might try selling the house themselves, but any delays in the process could be costly, resulting in per diem fees owed to the other party.
In any event, I hope I have drawn the analogy well between Realtors and doctors and I hope you will find the time to consult your professionals as needed when the time comes.

Why Realtors Need to Stop Bashing Automatic Valuation Models (AVMs)

Automatic Valuation Models are algorithms made by companies in order to value millions of homes simultaneously for the sake of providing users with a ballpark figure of how much a house is worth. Typically, nearby homes are used as part of the model and recent sold homes of similar size are placed into a sort of equation that spits out a value that persons can use to estimate the value of the house.

Recently, it is often found in the media that people like to bash AVMs, saying they are inaccurate. I will now investigate why people think this, what role real estate agents play in this, and how we can use AVMs to our advantage.

AVMs have to value millions of homes in a short period of time. You can imagine right away that an endeavor like this will have a higher margin of error versus a real estate agent who will sit down for 2-3 hours to pound out a competitive market analysis (CMA) in order to find out accurately a good list price for the home.

Nevertheless, AVMs still have their place among users who need a quick number when an expert is not available. If someone views ten properties in a particular area and there is no recent sold history, an AVM will step in as a good way to understand the values of that neighborhood. From there, it can be a stepping stone or conversation starter with a real estate agent to find out exactly how much a particular home is worth.

We have now established that AVMs serve a purpose when experts are not available and can be used as conversation starters with real estate agents who can either affirm or deny the findings. We understand that real estate agents are there to verify the AVM’s work. The AVM could be accurate or inaccurate. Its inaccuracies exist in two forms: overvaluing or undervaluing. Whatever the situation, I think professional real estate agents perceive the AVM as a viewpoint that needs to be considered carefully as part of the overall picture of the house. If the general public has access to the AVM and the real estate agent vehemently denies its credibility, then real estate agents and clients cannot see eye to eye on a fundamental level that could cause rifts in the relationship later on in critical junctures of the transaction.

That said, the real estate agent should be charitable to the AVM and determine how the AVM came up with that value. If the AVM is inaccurate, the real estate agent owes the client an explanation of why that is the case. If possible, the CMA should include the AVM as part of the analysis to see where the AVM falls. It could be the case that the AVM falls within the possible market price of the house and it can be credited as a secondary source outside of the real estate agent to justify price.

Imagine if a seller is having a hard time pricing down a listing. An overpriced listing will remain on the market and have sluggish activity—consequences that can eventually be traced back and blamed on the real estate agent. Now imagine that the real estate agent consulted the AVM beforehand and included it as part of the listing presentation. And suppose further that the AVM convinced the client to list the price at a lower price that could allow for more offers (assuming the AVM did come lower as the real estate agent had wanted). The results are beautiful. The real estate agent can refer to another expert opinion—the AVM, to determine that somebody other than herself believes the price should be at a certain threshold, and the seller now has to consider this information wisely.

How will a seller perceive the AVM? Well, if a seller is frequently on her favorite website and that website is informative, then it could be the case that the AVM is well-trusted based on the prior relationship the seller has with that website. Instead of working so hard on earning the seller’s trust, why not confide in the site’s credibility which will allow the real estate agent to beeline directly to the seller and share with the seller the credibility that exists between the seller and the website? Credibility by association is useful here and there’s no point making an enemy of the website if the seller swears by that real estate website. Because you know what they say: the friend of an enemy is also an enemy and a friend of a friend is also a friend. So befriend your seller and befriend your seller’s real estate website, within reason.

What the FSBO Wants

For Sale by Owners (FSBO) represent only 25% of the sales of homes, while the other 75% of sales being those sold by Realtors. I want to first explore historical and cultural considerations surrounding this topic followed by a discussion of why FSBOs want to sell by themselves.

I think we exist in a culture that has a tension of Do-it-yourself and Do-it-for-me. People want to save money but also do not want to put in extra effort, and this tension or stalemate often gets people to not act or not act in their best interest.

FSBOs want to sell themselves because it is supposed to be cost-effective. It is supposed to be part of the Do-it-Yourself movement. It’s supposed to be a triumph against commerce and a way to line one’s pockets further with saved cash. And to some extent, these considerations are very representational of how the average consumer thinks today: to go straight to the source, cut out the middle man, and get the product direct.

But if since undercutting practices are so effective, why are 75% of sellers and buyers still using Realtors to buy and sell their homes? At this point, I of course have a long list of praises to sing for Realtors and their activities, but I will spare you the self-praise and give you a shorter list:

  1. Sellers won’t take the time to learn the legal disclosures required in selling a home – There’s tons of paperwork. It’s almost nauseating. But it’s necessary. Real estate law spans back several hundred years and the disclosures and customs are somewhat respected and retained from past rulings, making the corpus of real estate law quite large. It’s no surprise that FSBOs might have a hard time filling out disclosures to deliver to buyers. It’s a lot of headache, not just as a process but the legal implications of doing them incorrectly could very possibly give someone insomnia. If you’re lucky, FSBOs can reach out to Realtors to help them fill out the paperwork, then promise the Realtor to give them the listing if they cannot sell the house themselves. It’s a good gesture and the easiest way to make a friendship. So FSBOs—what are you waiting for? Call your Realtor and ask for help and make them that promise, now!
  2. Showing property takes time and effort, something a full-time seller might not have—While FSBOs can put up a push button lockbox and show the property remotely, there’s really no telling who will want to see the house, let alone figure out if they are qualified. And where are these people calling from? Craigslist? Trulia? Well, some might be serious, but it’s riskier (relatively). It’s riskier than having an agent set up a lockbox where only other agents can access the lockbox. And when a seller is working all day, how likely is it to get those showings in or actually answer buyer questions until that seller becomes available again? A seller that’s hard to reach by a buyer looking for a discounted property will be easily skipped over if other listings exist that are represented by an agent who is typically available specifically for the purpose of answering questions about the house.
  3. A FSBO may say they already have a Realtor, but why are they trying to sell their house on craigslist without any pictures or adequate descriptions?: FSBOs are regular people who want good deals—this is basically what all Americans want. But when a FSBO says they already have a Realtor but they have the ad online, trying to sell it themselves, it is very confusing to me. When advertising a house, you need adequate descriptions and pictures, not a 2 line ad without anything useful. You also need to have the ability to reach out to the largest audience to get the most views on your listing, where views will turn into offers. If a FSBO truly had a Realtor, or at least a good one, wouldn’t the FSBO be advised to list the home on the MLS where the house can be seen by 40,000 people around the state? That is the truth about the multiple listing service and that is something that is worth paying for. Being able to choose an awesome offer out of 10 other very good offers gives you a real quality buyer you can work with. Not choosing the right buyer can cost money and even serious deals, so getting as many buyers as possible is really the best way to go.

Are you planning to pay with cash or financing?

Many of the phone calls I receive are inquiries about the homes I am selling. They are called sign calls. It is very important for me to identify the person on the other side of the call and to qualify them as best as I can. The very first question I ask them is, “Do you plan to pay with cash or financing?” This is a question that preps the buyer to think in terms of their means to purchase property.

Many people use financing to purchase homes in today’s market. People will save up a down payment sufficient for a loan and then will seek counsel from a Mortgage Loan Originator (MLO) to get qualified for one of the many programs available. Where money is tight, people may ask for gift funds from a close friend or relative. Gift funds must always accompany a gift letter, where it is made clear that the funds are a gift and not a loan. With these steps in play, a person may qualify for a home loan.

Cash buyers are less common, but they exist and we service them frequently. Paying for the entire purchase in cash makes sellers more confident that cash buyers can perform, often in a shorter period of time than financed buyers. But we have a saying in the business: that sellers should choose the “highest and best offer.”

What does Highest and Best mean? It means that not only price is important when selecting the best offer out of the lot, but also that terms are important as well. Terms include the offer’s attractiveness in timeframes, in performance of other duties of the buyer that basically give confidence to the seller that the buyer is giving the seller added value.

So here’s the million dollar question: how does a financed offer get chosen over a cash offer? The financed offer must be more attractive than the cash offer in terms of price and terms. Even if a cash offer can close quickly (because no loan and appraisal contingencies exist), if the financed offer provides a higher price and more favorable terms, the seller, being a rational consumer, will have absolutely no problem choosing a financed offer over a cash offer, even if the cash offer can close sooner. If a seller can wait 15 more days for $20,000 more, then, why not?

In summary, it is important that I qualify each and every phone I receive from marketing media and real estate signs, because buyers will have to think hard about their bargaining power and loan qualifications when making a purchase in real estate.