In Defense of Realtors
Your home-buying sherpa won't be disintermediated (completely)
I just bought a home.
In another state. Far away.
And I couldn’t have done it without the help of my Realtor.
The topic of Realtors is so fraught with emotion that I hesitate to even write about it. So many buyers and sellers get so angry when they see their closing statements and finally do the math on what the Realtors get paid in every transaction.
“He made that much for simply putting up a sign and letting a few people into my home over a single weekend.”
I’ve been hearing it for years and we will continue to hear it.
It’s a logical fallacy and a sample size problem.
That is, someone has a bad experience with a single Realtor and then extrapolates that experience to an entire profession globally. The thinking goes - my Realtor did almost nothing and got paid a ton of money so all Realtors must be overpaid.
Hopefully you can see that with a sample size of ONE, you do not have enough evidence to make that leap.
As a full time PropTech investor, this is a false narrative that simply refuses to die. If you are reading this article, you know that I have dedicated my career to disrupting and innovating around real estate and its transactions. But we need to disabuse ourselves of the idea that somehow Realtors will go extinct one day.
Again, I get the sentiment. Seeing tens of thousands of dollars slip through your hands and into the account of a Realtor who seemingly only did a few hours of work stings. That feels like YOUR money that they didn’t earn. At least not all of it.
But here’s the rub -
There are many spectacular Realtors.
Just like every other profession in the world. Most painters are below-average to average. Most musicians are mediocre or worse. Most teachers are so-so.
But the top 10% to 20% are terrific and worth every penny they earn.
And there are plenty of great ones. I have one and I’m related to another.
They take their roles as advisors seriously and become psychological counselors as much as transaction coordinators.
I have a hunch that the problem has to do with three factors:
An abundance of mediocre Realtors
Getting your Realtor’s license is pretty easy. I even had mine temporarily. How many people do you know that have a license and just “sell homes on the side” or in their spare time? I know dozens. Now, how many people do you know that are SPECTACULAR at anything they do part time or in their spare time? Know any part-time dentists or attorney or accountants? Is it really a shock that the industry has such a reputation for mediocrity?
A highly-emotional transaction
You’ll buy a home a handful of times in your life. It is far-and-away the largest financial decision of your life. You are stressed, tense, and on the edge of panic at every moment.
Comparison to other transactions
Why do I have to sign everything with wet ink? Why are home estimates and prices all over the map? Unlike buying a car, a stock, or anything else in our life there is almost no technological innovation in the process and no bankable math behind what a home will sell for and why.
Is it any wonder that there is so much animosity towards Realtors? You are making the largest, most stressful financial decision of your life with no technology and no certainty and your Realtor (cousin) Jimmy can’t tell you what’s next or what to expect because he just does this between DJ gigs.
Boy, I can’t imagine why so many buyers and sellers have negative reviews of Realtors and their tens-of-thousands of dollars in fees. What a mystery!
(*someone please invent a sarcasm font*)
But don’t throw the baby out with the bath water.
In my case, I was buying a home in Arizona - a state I do not live in. My wife’s family has been friends with a Realtor in Phoenix for years and we signed her up to represent us in our buying process.
She was terrific. (My Realtor that sold my home was not. Not bad just not impressive.)
I easily called her 40 times in the course of three months as we worked through the process of offering on two homes. We bought the second one. And I’m a real estate professional. I invest in PropTech for a living and bought and sold real estate for ten years before that. Hopefully I know a little more than the average bear about how real estate transactions work.
Still, I had tons of questions that needed to be answered by someone who knows the market better than I did. As I mentioned in my Power Buyer article, Phoenix real estate is nonsensical right now (it costs the same to build in Phoenix as it does in LA!). I needed a guide.
As an example, here are some of the questions I would ask her that I had no way of knowing:
What do homes typically sell for as a percentage of asking price? How does that change for in-town markets vs the suburbs?
Given that number, what number should we offer to get our best deal without upsetting the seller with a low-ball offer?
This home has been on the market for ____ days, how aggressive should we be on our pricing and diligence?
This one just hit the market and looks well priced. Should we try and go see it today before the open house on the weekend invites a bidding war?
What street in this neighborhood is most desirable for raising kids? (Side note - For some reason, Phoenix does not expand in concentric circles like most other cities. 1st and 2nd Avenue might be wonderful and then 3rd and 4th are extremely dangerous. Then 5th and 6th are utopias. You can’t parachute into neighborhoods other than Paradise Valley and Arcadia and assume you’re in a good spot.)
What’s a typical diligence period for a home in this market?
What additional items of diligence should we ask for outside of our inspection? Are termites an issue in the desert? Does a “wash” equate to flood zone risk?
How does this location coincide with school zones given that Phoenix children can go to any public school they choose regardless of where they live?
If you know the other Realtor, how close are we to the real final price of the sellers instead of them positioning to get more money out of us.
How many items on this inspection report are fair to ask the seller to fix?
Looking back at my inbox, she was on 234 emails pertaining to our house search. And I think ours was relatively simple and quick with us buying the second home we offered on. That’s a ton of work.
And she always patiently explained where we were in the process and what was typical in her 40 years as a Realtor.
Tell me - How does technology replace that?
Sure, we can get data and best practices. We can get digital signatures and streamlined mortgage applications and inspections. But there won’t be anyone there to guide you through it and tell you what’s typical or explain the human/emotional elements.
As I said, she was as much a counselor as a transaction coordinator.
A freeze-resistant robot could guide you up Mount Everest but would you want that? Isn’t an experienced Sherpa worth her cost?
Is that guidance worth 3% of your purchase price?
Probably. It’s definitely worth a lot and I was happy to pay it. In fact, we got her a nice gift as a thank you for all her hard work.
So while I understand the gripe about commissions to mediocre agents, I’ll push back and say that the problem isn’t the profession. You just have the wrong Realtor. If you met your mediocre dentist every 6 months, you’d change and find a new one. If your monthly calls with your accountant were unimpressive, you’d find a new one.
Go find yourself a rockstar and you’ll be glad to pay them their fee . . . just like I did.
Who knows, you might even make a friend that can help you sell yours when the time is right.