Freakonomics Asks: Does your real estate agent have your best interest in mind?

[AnnetteFunicello1]

f I got a 96% offer on my client's house, we would counter, never take it as is. The dillusion that a week will go by and a better offer will magically appear is not supported by any credible data.Finally, the seller sets the price, not the agent, and the market responds. If you don't get a full price offer, that's because you have overpriced the home. If an agent gets a full price offer, it is because they have taken their own expert advice, priced correctly and cleaned and staged the home.. .

[itsel1994]

soo whose buying a house for 300,000 anyways ?

[tedabalos5]

There’s a wonderful book that just came out that explains the entire REO Process- check it out it has over 400 pages on how to become a successful REO agent the book is called “REO BOOM” by Aram Shah And Tim Shah.

[2raspy4u]

You made a BIG mistake. How do you know you will get a higher offer of 300,000? Saying that Realtors get more money for there houses could also be contributed to the fact that Realtors know how to Stage a home, make sure its actually clean and additional factors. Also considering the market is declining and has been since well before this video was uploaded I bet there are 100's of not 1000's of people who WISH they would have taken the Realtors advice and accepted that offer for 10k under

[kflann1]

@hfmom2229 Really? National Association of REALTORS show stats in favor of REALTORS?? Imagine that. Gimme a break. Everyone is looking out for themselves when it comes to money. Realtors are no exception (in my experience, they are even MORE guilty of it than the average person...but that may just be in my experience). Now, there are some good points as to why they do better for a seller who isn't educated on selling a home, but an educated individual will always do better for themselves.

[Jufland]

Incentives? Does an accountant get paid when they complete a tax return? Do doctors get paid after an exam? Do authors, LIKE THESE, get paid when their book sells? Well, real estate agents get paid after a house sells. As a buyers agent I help negotiate a lower price for my client. Why? If my client saves $10K, I earn $125 less. I then have a satisfied client who returns & refers and has more margin when they sell, w/ my help. Don't be so cynical. You're not the only good person in this world.

[nestorysusamigos]

then you will have your house for another 6 months or then end up selling FSBO for 270,000

[beachesandsunshine]

Where is the guarantee that you will get a full price offer a week later? "Full price" offers are a fairly rare animal in this housing market, unless a property is seriously underpriced. That "week" may turn into months, possibly years to get the property sold and then you will have to look at carrying cost, etc. What you are suggesting is not in a seller's best interest. Many sellers are kicking themselves down the road because "the first offer is often the best". Compromise and make it work!

[Danaceb]

Doesn't change the fact that all of your shitboxes are still massively overpriced any any homeseller today deserves to have their faces dragged through the mud. Using old pre bust data from a group of people who are professional shysters MEANS NOTHING.

[Danaceb]

@Danaceb Also, BY ALL MEANS; go bankrupt as your unwanted property rots on the market for months and months.

[TamilLatest]

If you wanted to save money why let go 6% of your equity to a real estate agent?

[NUMBER1CEO]

Bottom line, (most) agents aren't bad people but the numbers show they put their own interests first.

Even on the buyer's side, I've seen agents say they are "embarrassed" to make a low ball offer on behalf of their buyer. I think what they are really saying is "let's just offer a number much closer to the asking price so that a) we can close the deal quicker and b) so I can make a higher commission."

Thankfully the internet is leading the way for discount brokers and flat fee mls.

[mikerohrig]

I love you guys and I know some Realtors who are exactly like that but it isn't as simple as that. Money is not the only motivation. We have had plenty of sellers lose money wishing they had taken an earlier offer.

[hfmom2229]

con't - the next offer might not come for 3 weeks or 3 months. And by then the market may have dropped so your $300k house is now a $280k house. As a seller, you could have held out for that higher offer to come, and ultimately ended up selling for less than the first offer. I have seen sellers do this again & again. Interview and hire a professional Realtor. And then listen to what they have to say.

As far as the FSBO - NAR stats show a FSBO sells for 13% less than one sold by a Realtor.

[hfmom2229]

I want to start by saying - usually I love the videos done by Freakonomics. Hats off to you guys for taking a topic and making it easily understood by a layperson.

That being said - you missed the mark on this one. First of all - your Realtor should have showed you comps of what to expect the house to sell for. Secondly a good Realtor will also show you historically that the first offer is the best offer. It is a no brainer if you know a $10k higher offer is coming next week. But you don't know

[ScottTaylorRealtor]

From an agent's perspective... True, $150 is not a good enough inscentive to wait another week but you never know if it will be another week or maybe it will take several MONTHS for the next offer at which point the sellers list price will be reduced much more I'm sure. So who's best interest does the real estate agent have when he's reccommending they take the offer now? THE SELLERS!

[Johnf85]

there are other elements not discussed here. the sale price in this case could have been too high to begin with. a reasonable offer should be accepted regardless of the agents motives. bc if he did wait out and didnt get the full 300k I guess we have to blame the realtor for not encouraging him to take the 290 right? this video was made before the market crashed. I am a fan of freakonomics but this particular example is a creative assumption. lots of agents wait it out.

[23rdLetterFIlms]

Well done visual storytelling style, but real estate nonsense.

I've been a Realtor for 10 years, and grew up in a real estate family, and I can tell you that not only is this vintage 2003-2005 data, but one deal is never ever like another. Think ex-girlfriends, or Sheen remarks. These two numbers dudes can talk big picture about names or trends but when it comes down why people take what they take it can be as simple as they need the money to buy the next home, or as complex as a short sale.

[jamal22066]

@23rdLetterFIlms I think you're missing the point about the video. Yes, what you say is true but the bottom line is that an agent wont work an extra week for only $150 more dollars (current real estate complexities aside). It is in the agents best interest to sell it for $290k.

[SaltLakeShane]

I agree with a few comments below. No... they don't take into account the condition of the home or motivation.

Real Estate agents know HOW to sell and what the market will bear. An agent will stage, improve and fix a home so that it appeals to a buyer. Most buyers are lazy and would rather spend 10K more if THEY don't have to make the improvements themselves. Sellers price high & spend little.

Motivation. An investor ie... agent, will hold out for a higher price than someone who MUST sell.

[Agomongo1235]

PEOPLE THIS IS A MOVIE THIS obviously won't tell everything about the book.

[kylefer]

@Agomongo1235 REALLY!

You know what I liked about the Movie?

No reading.

[Agomongo1235]

@kylefer I don't get it "No reading" you mean "Not reading the book"???

[Masonictoaster9]

I see these guys not taking into account that a real estate agent knows how to sell, uses time wisely and probably had a clean house that showed very well and may have had some really nice features not mentioned here because they are appealing to envy as well as jealousy and suspicion...to sell you Freakanomics. Sell little scribe, sell....Probably didn't break a sweat writing the book either.

[Agomongo1235]

@Masonictoaster9 Yeah and if he is not good? Yeah about the real estate thingy with the cleanliness. You are forgetting they mean in general same house, same cleanliness, and same functionality.

[Masonictoaster9]

These guys sound biased to me. They don't tell you about the people who put their house on the market above what the agent told them to. The house doesn't sell and then the owner complains that the agent didn't work hard enough. The people competing with realtors can appeal to the spirit of one upsmanship (war and competition) and tell you a conspiracy is going on, you are beign ripped off. Then they can come in, sell you a system, or a book meanwhile all the risk and effort is on the FSBO.

[Agomongo1235]

@Masonictoaster9 This is a movie it doesn't tell about the whole book my god IT'S A MOVIE!!! Movies can't explain everything.

[polkadott18]

GRRR....I actually received my RE broker's license when I was 19 years old, around 30 yrs ago. I was offered a job in a RE office. After much thought, I declined. I didn't have the stomach to sell "The American Dream" of poorly built "builder's specials" to families and smile. Having dealt with 2 RE salespeople as an owner, (buying and selling), I'm sickened. The lack of integitry seems to alude the profession-kinda like lawyers and bankers these days. BE CAUTIOUS!! (I say FSBO)

[Masonictoaster9]

@polkadott18 If you felt the Real Estate agents were unethical it is your duty to report them to the state licensing authority. Do it.

[Agomongo1235]

@polkadott18 ???

[fdh2006]

Seems like common sense.

[jasondillardcom]

I would always take the for sure 290K instead of a maybe who knows how much at some point in the future that may never come. Not taking an offer is the same as rebuying the house at that price. If you would buy the house today for 290k, then don't take the offer.

[AndyLad84]

@jasondillardcom I don't think you take into account deeper economic factors - supply and demand, local market developments, economic climate etc. If you genuinely think your house is worth $300k, and you feel (based on your due diligence, your research etc) that it's very likely to sell for $300k, then you're mad to accept $290k. I'm from the UK where the standard of Real Estate Agents are very very bad, and I'm certain it's similar in the US. You should not believe everything they tell you...

[nextclosevideo]

While it is true that times have changed, the argument that the roles incentives play into an agent's decision to influence their client can't be ignored. I took personal interest in this theory when I was determining if I should launch a for sale by owner website. One of the authors of Freakonomics published an article backed by much research concluding that agents that sell their own home sell for 3.7% more. (Published 2008) I have since launched NextClose to help home sellers save.

[ByronUnderwood]

Your assumption that people, which includes real estate agents, lack integrity is both disappointing and short sighted. If this assumption is true then the public should doubt your motives for making these comments. I feel sorry for you.

[jbregolisse]

The extra week may make a difference in a market that is moving up, but this is very dangerous advice in a downward trending market! Not taking an offer seriously in my area right now could cost you a sale. Period!

Also, to assume all agents think, behave and advise one way is ridiculous!

[BillMcCartney74]

You guys really present things in a manipulative way.... not very ethical in my opinion.

[BillMcCartney74]

Completely wrong!!! We don;t make the decision for our clients... Ultimately our job is to coach and educate our clients so that they can make decisions for themselves. We do not make decisions for them... It may be true that agents get more (On average) for thier home but did you ever think to consider that it's because we know how to sell homes and we follow our own advice more easily than that of someone else? You don't know if you can get 10K more next week without a crystal ball... Duh!

[cciwia]

Many states disclose the sale price publically which allows the public to do their own market data and comparables. Their confidence also reflects that they would feel themselves better qualified to negotiate the best price for themselves. Thus I would highly doubt that they would ever list with a real estate agent due to their low regard for the industry. I reflect the question back to them, "Do you have the public's best interest in mind?" Or are you just trying to sell your book?

[MadEasterbunnies]

You guys think you've got it all figured out. I doubt that with your cynical view of the world you would trust the Realtor's recommendation for the asking price to achieve the highest and best offer. A price that is closer to what the home is worth generally attracts higher offers because it generates more excitement. Most people don't trust Realtors. Agents, on the other hand, know the market that they work in and price the home properly from the start, resulting in higher sale prices.

[pevans360]

1) The alignment might not be perfect, but it's not bad. What's a better alternative smart guys?

2) The statement that realtors sell the same homes for more when they own them is simply preposterous. How could you ever demonstrate such a conclusion? The realtor and the client would have to try to sell the same home at the same time for a valid comparison.

3) When a home is listed, all active buyers see it. Waiting a week, only a few more will see it. 1st offer likely to be best.

[agentsplanet]

actually TinaD, bayinhomer (the first response) mentioned that... so I didn't feel the need to repeat that option. I know it's hard to read EVERY comment before you make yours but when you criticize everyone else, you should have your facts straight...

[tinadmerritt]

wow - i'm amazed at all the real estate agents defending their profession yet not one mentions using their negotiation skills to move that offer up to where it is at a price their CLIENT wants. "the first offer is the best" - really? THAT is how you negotiate? my job as an agent is to learn everything i possibly can about that buyer and their agent and use that knowledge to negotiate the absolute best deal i can for MY client.

[agentsplanet]

so what is the incentive for producing such an irresponsible video (sellers that see this could refuse offers they otherwise wouldn't)? Maybe.... to sell more books? Hypocrites...

[agentsplanet]

OH, and one more thing. OF that big commission a real estate agent typically gets - (say 6% of the $290K = $17,400) they split it with the other (selling) agent (now we're down to $8700), then they deduct their expenses (if an agent sells 1house/mo) (~$1000) (not just expenses on THIS house, but to be in business which means cell phone, website, office, etc.), split with their broker, then divide by 2 for taxes(and agents typically pay their OWN SS tax) which MIGHT leave maybe $3K??

[agentsplanet]

AND... there are so many OTHER circumstances involved. What's the strength of the buyer? Are there any other interested parties or has it been dead so far? What's the seller's situation? Are they asking for points or closing costs? Repairs? ALL of these are circumstances a good (and MOST real estate agents are good) real estate agent will take into account... and ALL of these are points these "geniuses" missed because they're talking about something they don't know...

[agentsplanet]

NOW, let's do the OTHER side of the math equation (can't believe an MIT graduate missed this one). Of the $10,000 the seller is risking $290,000 to try to get (in poker it's called "pot-odds"), there's more time on the market... What's the TVM if there's $100K in equity? How much in taxes is that extra $10K gonna cost? Additional commission & closing costs? By the time they "might" get that extra $10K it's really more like $4K. These "freaks" are just jerking us around to sell their stuff.

[agentsplanet]

Wow... more theorized ignorance. Have either of these guys been real estate agents themselves? Of course not.. but they know all about being one, right? Be one for awhile THEN you can talk about knowing what one thinks. As for @marktheprotector? you're a joke. The fact that you admit lying to your clients discredits anything else you say and I'm guessing you didn't "retire", you had your license taken away (or should have)...

[joditussing]

as a REALTOR since 1980 my biggest incentive is a happy customer that will then refer me to another potential customer.... Which is really a better incentive - do the best job possible for my client- do you REALLY think keeping the house on the market another week is SO HARD? It isn't - nor does it cost us MORE MONEY in advertising!!! That shows how lame this train of thought is- in my career only ONE TIME - did a buyer purchase the house they actually called on.

[mikerohrig]

You're making too many assumptions and stuck in a model. As much as I love your books this one misses the mark. I have talked people out of buying and selling. My agent friend didn't hold out for the $10,000. In 2006 when the market was hot he accepted less.

There are agents like you describe but it isn't the norm and there are other incentives involved in a transaction.

[LittleHouseCompany]

The very fact that commisions exist will mean agents will try to get their money as soon as possible. However when markets are slow the first offer may be your only offer . Private house sellers (for sale by owners) should all know that everyone has three offers in them never accept first offer as this is pure Freakonomics!

[marktheprotector]

Dear Mphughes ....your voices speak the truth about real estate agents. The commissions we collect are so huge, it forces us to lie to the consumer. That is why our reputation has fallen below the used car salesman. With the Internet, people aren't dumb anymore. I am a retired real estate broker who spent a successful 25 year career lying to my clients. These guys from freakonomics are 100% correct and both of you know it. Your comment here just makes us look worse with buyers and sellers.

[mphughes]

Yes, it may appear this way ... however, an experienced agent knows (and many sellers will confirm) that the first offer is the best offer. Also, the property comparison (agent vs. regular owner is failed because no two homes are the same). I challenge these guys to spend a day or week with me (they can even stay in my spare room) to really understand the real estate profession. However, this would greatly reduce their ability to negatively comment on real estate agents - this is an open offer.

[janetsloan]

In this market, you may only receive one offer.  If, as an agent, I encourage a seller to hold out for a higher offer, he may never get one and in the meantime, the market could slip even further. Each market is unique. I don't think you can make a blanket statement that works in every scenario. In this case, I would certainly make a counteroffer and try and negotiate a higher price.

[bayinhomer]

this might be your only offer so go ahead and hold out and then blame the Realtor later for not taking the offer... or you could counter at 295,000 and see where it goes... sometimes the first offer is the only offer...