I recently came across an article that put something so well and so clearly that I really don’t think I could improve upon it. Everyone interested in real estate investing would do well to check it out.
In “Why Do You Still Need an Agent to Sell Your Home?” author Douglas Gantenbein makes an excellent case for the thing I am most passionate about: homeowners getting the power back in their real estate transactions (i.e., selling their own homes).
Written all the way back in 2004, this article cited the then-statistic that “Americans will spend about $1.14 trillion buying 6 million homes this year-both [setting]records.” And of that $1.14 trillion, Gantenbein writes, an enormous chunk would go to realtors. Is this fair?
Here are some highlights from the article:
- Realtor work doesn’t equate with realtor commission.
“And what do Americans receive in exchange for that commission, which can total up to $24,000 on a $400,000 home? In many cases, not much. A realtor’s license can be had after as little as 50 or 60 hours of training (the person who cuts your hair probably has 1,000 hours or more).”
- Realtors seldom work in your best interest.
- The NAR is an exclusive group that doesn’t want to give up dominance.
- Therefore, FSBO has a lot to offer, in my opinion.
I was flipping through Freakonomics recently and remembered this little anecdote from one of the authors’ real experience:
“K. wanted to buy a house that was listed at $469,000. He was prepared to offer $450,000 but he first called the seller’s agent and asked her to name the lowest price that she thought the homeowner might accept. The agent promptly scolded K. ‘You ought to be ashamed of yourself,’ she said. ‘That is clearly a violation of real-estate ethics.’
K. apologized. The conversation turned to other, more mundane things. After ten minutes, as the conversation was ending, the agent told K., ‘Let me say one last thing. My client is willing to sell the house for a lot less than you think.’
Based on this conversation, K. then offered $425,000 for the house instead of the $450,000 he had planned to offer. In the end, the seller accepted $430,000. Thanks to his own agent’s intervention, the seller lost at least $20,000. The agent, meanwhile, only lost $300-a small price to pay to ensure that she would quickly and easily lock up the sale, which netted her a commission of $6,450.
So a big part of the real-estate agent’s job, it would seem, is to persuade the homeowner to sell for less than he would like while at the same time letting the homeowner know that a house can be bought for less than its listing price.”
“Overall, the NAR has ensured that nearly all residential real-estate transactions still are conducted between two agents in cahoots. And they’re largely responsible for keeping commissions close to that 6 percent level when any normal law of competition would suggest they’d be lower.”
Using a quality FSBO company like Buy Owner puts the power back in the hands of the investor. It’s definitely a smart decision for savvy investors.