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Posted on Nov 29, 2013 in Real Estate |

Actually Realtors

Of all the monikers, titles, designations and certifications of which I am aware; the one that stands as the greatest beacon of meaninglessness is this: Realtor.

Problem number one is that to become a Realtor, you first need to get a real estate license; which isn’t worth the paper it’s printed on. A well trained monkey can get this license. I know because I have one…A license that is; not a monkey.

From there all you have to do is join the National Association of Realtors (NAR) and adhere to their “strict code of Ethics” and you have earned the right to call yourself a Realtor…Provided of course you pay your annual dues.

Never mind that the “strict code of Ethics” is really just a list of common sense business practices that if transgressed, would probably get you sued anyway.

But boy do those Realtors like to tout that “code of Ethics” in all their ads. I assume they are banking on you (the consumer) thinking…”hey wait a minute; these ‘non-Realtors’ don’t have any code of Ethics so they must be crooks. Quick…somebody find me a Realtor!”

Don’t get me wrong. I’m all for having your own little club where you can make up your own rules, play your own games and have your own secret handshakes. But when you pass it along to the consumer as a benefit to them…when it’s really just for your own benefit…It rubs me the wrong way.

Far from being an organization that is working to drive down the consumer costs of buying/selling real estate, or from encouraging free market competition; NAR works diligently through its political action committee (RPAC) to accomplish consumer friendly goals like attempting to squash discount brokerage models and preventing banks from being able to sell real estate.

Oh wait a second…that doesn’t help consumers.

That helps Realtors at the expense of consumers.

Here’s a quick math lesson to demonstrate how we are victimized by a pricing model largely insulated from any real competition:

Realtors will try to get a seller to agree to “the customary commission” of 6% of the sale price of a home; though in 2008 the average commission was 5.2%. Now imagine you paid $ 400K for a home and two years later are selling it for $ 500K. You will pay a commission in the amount of 5.2% of $ 500K or $ 26K.

But wait a second…you already paid $ 400K when you bought the house. All that money from the sale is going to pay off your existing mortgage and recoup your down payment (if you had one). Which means that you are paying a commission on money you already spent…not just on money you made.

In this example, $ 20.8K of that $ 26K commission is based on money you already paid to buy the house in the first place. As a percentage of your profit on the sale ($ 100K) that $ 26K commission is 26%…not 5.2%. How’s that for being strictly ethical?

Fortunately we have the National Association of Realtors there to attack and discourage “discount” brokerages, prevent other entities from being allowed to sell real estate and to make sure all our Realtor friends can remain overpaid for the service they provide. These are the kind of shenanigans you can pull off when you donate more than $ 12 million to pro-Realtor candidates in Congress.

And by the way…have you ever seen a residential real estate sales contract? It’s about 8 pages of standardized language, where all your Realtor has to do is fill in the blanks…literally.

What’s that you say? Realtors are experts in negotiation? Without their expertise you would surely negotiate a lesser deal than you would with their assistance? That would be true if you were referring to Realtors selling their own homes…not yours. Unfortunately for you, in the typical residential real estate transaction the word negotiate is a euphemism for working to get a deal done any which way, so long as a commission check gets cut…and soon.

I have negotiated countless deals over the years. Some were real estate transactions; others were multi-million dollar highly technical business to business sales; and I have been trained in negotiation by Fortune 500 and global Fortune 50 (yes 50) companies during my career. I mention this only as a qualifier to my opinion that what passes as “negotiation” in the Realtor community is barely recognizable as such in other circles.

For example, have a look at the inane drivel that passes in the Realtor community as instruction on how to negotiate better:

“Help sellers put a lower offer into perspective. On a $ 200,000 home, an offer of $ 198,000 is only a 1 percent reduction. That’s like offering $ .99 instead of $ 1.”

This pearl of wisdom comes directly from the website. You tell me if you think that foregoing $ 2,000 is the same as foregoing $ .01. But then again it’s not $ 2,000 to the Realtor…it’s only about 5.2% of that; half of which is paid out to the other agent in the transaction so really, it’s only 2.6%. In other words, your $ 2,000 actual loss is a mere $ 52 of commission to your agent. How’s that for properly aligned incentives?

Now I know some will say, wait a minute, those Realtors work hard. They pull up available properties, tour buyers around those properties, manage the offer/counter-offer process, market homes for sale with ads, fliers, open houses, signs etc. etc. To which I say…so what?

Unless or until a Realtor’s commission is tied to the profitability of a sale (or is pre-negotiated according to a meaningful cost structure in cases with little/no profit or where homes are sold at a loss) your Realtor is, according to the laws of mathematics, always benefiting themselves more than you. Naturally, they would take exception to this…But I think primarily because most of them can’t add.

Let’s face it, fliers can be printed for pennies per page, MLS membership costs a few hundred dollars annually, a sign costs about $ 20, and if you rented a limo to take you from house to house to house until you bought one; none of this would likely cost more than a couple thousand dollars in total.

That extra $ 20K+ is one mighty generous tip.

1941 REALTOR ad #2
One of four advertisements promoting the term REALTOR, created by the Philadelphia Real Estate Board in 1941. From the Archives of the National Association of REALTORS®.