Agents "Buying" Listings: Promising the Undeliverable and Hurting Their Clients

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Quite a lot of the time when I view a property, I get requests for feedback.

Usually it's an automated email. Other times, it's some office assistant who wants to fax me a form which will "only take a few minutes of your time".

The point of these, and the various other methods that get used, is to shift the burden of the work they should be doing from the listing agent, which is where it needs to be, to other people. Basically, my competition is asking me to do their job for them. The only time I will respond to requests for feedback is if the agent involved will spend at least as much of their own personal time as it takes for me to provide the feedback. In other words, the agent - not their flunky - has got to listen to me talk, and then write it down themselves. If they start arguing with me, it's no longer a request for feedback, it's a sales call. But in any other circumstances, they're telling me this feedback is not important enough to justify their time, so why should it justify mine? I don't have any responsibility to their client; they do.

The point of both of these, and three or four other methods that get used, is to pressure their listing clients to drop the price. Many offices have multiple employees gathering this information, the idea of which is to get the client to lower the price because the agent didn't do it in the first place. They get the listing by promising a price they know they can't get, and then use the feedback information to hammer the client into reducing the price. This is actually two cardinal sins in one action, and I'll be damned if I'm going to help these slimeballs not only hose their clients, but also take listings away from good agents doing their fiduciary duty by failing to do that duty. This should also tell you how good an agent who uses their great feedback system as a major selling point is likely to be. Agents who know the market don't need a feedback system.

This whole rigamarole is easily avoidable by the agent doing the job they agreed to by accepting the listing.

Here's the way it should work: Agent knows the market. Agent persuades listing client to put an appropriate asking price on the property before it hits the market. Listing gathers lots of traffic, who like what they see. Appropriate offers come in, negotiations ensue, a contract is agreed upon, escrow is opened, and the transaction is consummated. Everybody emerges happy. Time elapsed: under thirty days from listing to contract, under sixty to completion. The only hard part is the pricing and staging discussions with the client, at least a week before it hits MLS. By accepting the conflict then and doing their job in the first place, the agent avoids a lot of problems that will happen later if they do not. Furthermore, the client emerges from the successful transaction not only happier, but objectively better off in that they get more money from a quicker transaction.

Here's the way these problems start: Instead of the above situation, an agent doesn't know the market the property sits in. Maybe they work across town in a different suburb. People decide to list with an agent whose office is near their office for convenience. Unfortunately, that's twenty or thirty miles away from the neighborhood they live in, and the agent might be vaguely aware that the area the property is in actually exists. They have no clue what the market in that neighborhood is like. An agent from twenty miles away is one of the best predictors I know of a mis-priced property. They have no idea of the market in the immediate area. I was just in a very nice property today priced $110,000 more than a very comparable property two blocks away. It's got an extra 3/4 bath, the comparable has a nice California room. The comparable has been on the market for months, and it's only $30,000 overpriced. This should give you an idea how badly overpriced the newer listing is. The listing office is way up in Carlsbad. Big Mistake on the part of the homeowner, and it's going to cost them.

More importantly than market knowledge, the agent didn't do the most important part of their job.

Here's what happens: Homeowners are usually quite proud of their property, and they understandably want the highest possible price for it. They see high asking prices, and they think they should be able to get them. Few members of the general public understand the relationship between the market, asking price, and sales price, not to mention how long it takes to sell. So when they interview agents, they're looking for the agent that will promise the highest sales price.

Here's the issue behind that: How does the client know if the price an agent says they can get is real and deliverable? The answer is that they don't. Ladies and gentlemen, I get paid on commission. I'd like to be able to get $2 million for a tiny condo in The 'Hood. The fact is that buyers choose to make offers upon the property that appears to be the best bargain for their needs and desires. The entire idea of listing and marketing the property is to attract the attention of the buyer whose needs and desires that property meets better than any of the available competing properties. Yeah, there's an element of seducing the buyer into liking the property more so they will pay a higher price. But like a lover, an agent can never seduce two people at once, so if they're seducing the seller they're not seducing the buyer. Not successfully, anyway.

So what a bad agent does is promise whatever sales price they think will get the owner to sign that listing contract. As soon as they've got the contract, they start planning ways to get the owner to decrease the asking price.

What's the harm in that, you ask? Those buyers they are trying to appeal to look at the property online. They see that too high price, and decide they're not interested. The buyers who do come by see that they can get something better for the same price so they make offers on the other property. Thirty days out, pretty much everyone on the market has decided they're not interested, and new buyers coming onto the market see that it's been on the market for over a month and their first question is, "What's wrong with it?" They don't want to go look at it. A good buyer's agent like me might be able to talk them into seeing it if the agent sees a bargain, but they don't see a bargain because it's overpriced. In order to lure the buyers back, you've got to cut the asking price to below what you could have gotten if you had priced it correctly in the first place. Otherwise, you're waiting for months until people like me think you might be willing to negotiate to something advantageous for my clients, and that's going to end up even worse for you. Meanwhile, whatever reason you wanted to sell the property is on hold. Being hammered by your agent to lower the price, you get so desperate that you'll take offers you would have trashed when the property first hit the market.

Here's the cute part, if you're one of these agents: Because these properties eventually do sell, and lots of people fall for this trick, that sleazeball looks like a "top producer." They've always got a large number of listings in the pipeline, Waiting for Godot. When one of them finally has the price dropped far enough, it sells. Since in the production metric used by the real estate industry, they are getting their 3% of lots of different properties, they're doing great for themselves and it appears that they're successful - precisely the sort of agent many people look for. In reality, their clients end up hurting. A freshly minted licensee who approaches the listing correctly will reliably achieve results superior to this.

Unless you're basically an agent yourself, the pricing discussion should be difficult. There is a fundamental tension between the desire to get the highest possible price for a property and the need to price it competitively with other properties. If a prospective listing agent does not understand this, ditch them. If this tension is resolved easily, there are two possibilities. Far more common of the two is that the agent isn't doing their job. They could be ignorant of the market, or they could be seducing you into a listing contract by talking a Bigger Better Deal that they cannot deliver upon. There really isn't much difference. The other possibility is very rare around here, although it was more common when prices were going up like crazy: The homeowner doesn't try to overprice the property.

How can a homeowner deal with this issue? The only foolproof way is to really understand your competition - the other comparable properties for sale in your area. You also need to know about the properties that have actually sold, because it's not uncommon that some idea of inflated value creeps into a neighborhood, and all of the properties sit on the market unsold until they figure it out, while the next tract over is selling a little bit better. Since it's unlikely that the new owners are going to allow you to view their recent purchase, you're pretty certain to be at an information disadvantage.

Keep in mind, however, that the pricing discussion should be difficult. If it's not, there's probably something wrong. Furthermore, unless you're Martha Stewart, the "what to do so it shows well" discussion is likely going to be uncomfortable as well. Remember that it's for your advantage. I'm trying to make you more money, faster, by making your property more appealing to buyers. If the agent doesn't tell you how to clean it up and get rid of the clutter and make certain it stays presentable, that tells you that everything is either already perfect (unlikely) or that they're shying away from telling uncomfortable truths you need to hear. This is never a good sign in an agent.

Avoid listing agents who don't work your area consistently. If their office is more than ten miles away from your property, they're not likely to be a good agent for you. I am willing to list properties outside my area, but I am very upfront that it's going to take me a few days to size up the competition and the recent sales before I'm ready for the pricing discussion. An agent from further away who doesn't make a point of telling you this is dangerous to your pocketbook. My website tells people where I make a habit of working, and by extension, where I do not. Theirs should do the same thing. My website also talks about bargain properties in La Mesa and the nearby communities where I work. This is further evidence that I really do work that market.

The pricing discussion is important, and getting it right in the first place will reliably put more money in your pocket sooner than overpricing it. The agents who won't face the uncomfortable task of persuading you to price the property properly in the first place are not agents you will be happy with later. Keep searching until you find an agent who will work for your best interests, even if it risks irritating you.

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on June 16, 2008 7:00 AM.

Buying or Selling Subject to Existing Deeds of Trust was the previous entry in this blog.

How Can I Lower The Down Payment Requirements So I Can Buy Real Estate? is the next entry in this blog.

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