The Anatomy Of A Realtor-Less Transaction
April 10, 2008
Over the last couple of months we have spoken to hundreds of agents who when asked, most can not easily articulate what they do in a transaction. Yet worse, justifying why they receive 6% commission on the transaction is even harder to define.
More often than not their answers have been based upon mantra-like rhetoric that centers around the ignorance of the consumer. One of my favorites, “I don’t get paid for what I do, I get paid for what I know” is representative of the kind of inanity surrounding an industry whose players for the most part are reluctant to provide great detail into what they do.
In this Web 2.0 world, many who are resistant to a culture of transparency and fear disintermediation believe they are beyond reproach and that the technologically savvy consumer could never do without a Realtor’s involvement in a transaction. The misguided belief that “there will always be a need” for a Realtor is ignorant at best.
While true, there may be quite a great number of consumers who DESIRE to have an agent involved in a transaction, much more for convenience sake then anything else, it is big mistake to think that they are NEEDED in a transaction.
The former implies that an agent’s services are thought of by some to be much like that of a “real estate concierge”,while that latter implies some form of prerequisite dependence. This article is written to dispel the rumor that an agent is needed in a transaction.
So from start to finish I will outline a recently closed transaction.
1. Property Selection: A property was found online through tax records as being owned by a bank. The bank had not as of the time of contact contacted or retained an agent. The bank was contacted and the decision maker at the bank communicated their willingness to receive an offer.
2. Due Diligence: Data was reviewed and it was concluded that this would be a great buy. All of the vital signs were reviewed online and required about 2 hours of time. It only took this long because it was located in another state that we were unfamiliar with.
3. Contract Offer: Offer was submitted via email and the bank received it, struck a few paragraphs, required an addendum and sent back to our office for review.
4. Contract Accepted: After one revision and a counter offer in price, the deal was accepted and it was time to prepare for closing
5. Contract Delivery: Contract and all associated paperwork was scanned, and emailed to attorney / Title Company to prepare for closing. Electronic signatures were accepted on the contract and originals were obtained via Fed Ex directly to closing rep
6. Transaction Tracking: Within 2 hours of submitting contract we were given a password to track file activity online…password sent via email to REO department as well.
7. Inspection: A local inspector was obtained online who went to the property, met the bank representative, took pictures, video and presented a full report online in under 24 hours.
8. Municipal Background: A lien was found on the property and there was a cloud on title. We forwarded this information to our attorney who had it resolved in 24 hours. Clear title was available and we were given an abstract for review.
9. Survey: The Hard money lender wanted a survey and an engineer’s report which were ordered and completed within 48 hours.
10. General Contractor Report: A general contractor was given the assignment to prepare a report showing a detailed review as to what repairs, if any, would be needed on the subject property. Took some time on this one as the GC was backed up. Report received within 5 days and nothing major beyond cosmetics found.
11. Greenlight: based upon all of the data, the closing was green-lighted.
12. Clear to Close: Transaction agent sent out email notifications that the deal was ready to be closed and that funds were on hand.
13. Mobile Closers:Mobile Closer sent to our office to execute all closing documents and loan papers from the Hard Money lender as well as an original HUD. Another mobile closer in Maryland was contacted forwarded the necessary documents and met with the designated bank official in Maryland and signed the previously executed docs from here. Closer Fed Ex’d closing docs back to the title company and the transaction was concluded.
14. Time Frame: From the time the property was located through to the time that the deal closed was 9 calendar days.
15. Commission Savings: REO Bank saved $18,000.00 in commissions and liquidated a property they wanted off of their books.
We never even visited the property!
While this type of transaction may be, at this point in time, beyond the scope or understanding and ability of most end users, to think that an end user can’t learn to do this or won’t want to do this, is unrealistic.
Many FSBO’s may not be able to coordinate this type of transaction…yet. However for a Realtor to say that they will never be able to is quite foolish.
It’s not an if, it’s a when. Very soon various companies will begin marketing their services to the consumer that will enable the consumer to buy and sell real estate without the NEED for a real estate agent. This is irrefutable and not even remotely debatable.
What can be concluded is that there will most likely be an ongoing desire for a Realtor to be involved in a transaction. Yet, this desire is borne of convenience, not need.
As such, the seemingly sacrosanct commission will even be more scrutinized. Although it makes for good discussion and debate, I would not worry all that much about disintermediation.
If I was a real estate agent I would instead wonder if I was prepared for what lies beyond disintermediation.
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That easy transaction you wrote about sounds like it’s a one in a million, especially in this market. It might be very misleading to the consumer to publish your story without looking at the whole picture.
I am a Realtor® and I take some offense when I read stuff like this. At the risk of sounding defensive, I’ve got to ask… Which “hundreds of agents” did you survey? Did you ask part time order takers who just starting working in the past few years, or did you ask agents who are serious professionals at the top of their profession? Sadly there are too many newer agents out there that are poorly trained these days, as can be found in any type of profession I suppose. I believe our Realtor® board membership tripled when the market peaked a few years ago and as a result there were agents jumping on board, lining up to reap the quick rewards of a real estate boom. Many of these untrained agents probably wouldn’t know the answers to your easy questions you’ve asked. The top agent’s who you should have asked, are probably too busy to give away more free advice and information. They’re working hard keeping deals together, which is one aspect of real estate that you might have overlooked. Keeping deals from falling apart is the hardest part of my job as an agent.
I’m always happy to hear when a seller or buyer saves money but the sad fact is, most deals are not that easy. Did you do any research to find out how many f.s.b.o. transactions wind up in court? If you did, you’d be shocked. Scare tactic?, no, sad reality. Most f.s.b.o. legal disputes arise surrounding non disclosure issues and poorly written contracts. I’m going to bet that your transaction, as it was through a bank, was one where there were disclosure forms which stated that the bank would make no warranty as to the condition of the house. I’m going to go out on a limb here and guess that you signed some waivers regarding that, right? I’m going to guess that the bank had a large clause or 30 about how they were to be held harmless for any disputes arising from the transaction which involved disclosure or condition. Banks are smart, they know what they’re doing. I think you should have pointed out the other risks involved to a consumer when purchasing a bank owned foreclosure. One major concern for any buyer considering one would be the title. The banks generally won’t give you a normal clear title warranty. You’ve got to do a lot of homework to ensure that there aren’t any problems in this regard before purchasing.
Your web log article sounds somewhat one sided and resentful. You stated that “real estate in the future will be based on convenience not need?”…For some, this may be true. For those who have the luxury of time on thier side, I suppose an agent would not be a neccessity, though I would strongly advise you to consult with a real estate attorney. As you know, attorney’s charge by the hour. If your deal is one of the many deals that are not-so-easy, you may be paying quite a sum. I am not one of those agents who tell people that you can’t sell without an agent, but I do point out all the negatives, In addition to liabilities, a major negative is time on the market. Right now there are over 25,000 M.LS. listings in our area and an average of about 1,500 transactions per month closing out of the 25,000 on average. Do you think that a single f.s.b.o. with limited advertising resources has the same crack at finding a buyer? Sure, you have your sign, and possibly some directional signs strategically placed and a spot here or there in the local newspaper. What is your internet presence going to be? Internet placement has generated more leads for my business than all other forms of media combined in the past 10 years. If you’re choosing an agent, be sure to ask what their internet exposure is. In a declining market, where prices go down each month, a f.s.b.o. may likely end up selling for much, much less and take longer. Did you point that out? You probably should have, since many readers may possibly be facing foreclosure. A home sells much faster with an agent. If agents are having a hard time selling in this market, the private sellers are definitely going to have a much harder time.
These days, print ads only produce about 6% results for agents who have multiple cross properties to sell. Last I checked, sign calls were hovering around 15%. Another tidbit that you might want to ponder if you are thinking of selling your home without an agent: Buyers who make offers on f.s.b.o.’s, usually want to save the commission too. Unfortunately, most sellers don’t use an agent because they don’t want to pay the high commission. Think about this for a while. The National Association of Realtors continually researches statistics for Realtor® listed properties vs. f.s.b.o.’s. Though the figures vary from year to year, they continually find that f.s.b.o.’s sell for an average of 20 to 30% less without a Realtor®. Feel free to do some research on this to verify that, I did.
You have the right to brag about how easy your transaction was. I am happy for you. I’m not thrilled, however, that you chose to slam the entire Realtor® profession.
As an experienced agent for over 15 years, I realize that one of the best ways to obtain buyers is through referrals from other agents around the world. Generating referrals is the best way to get top quality buyers. I work at a large national franchise real estate company. We get many referrals from other agencies within our system, but I also cultivate referrals from other relocation sourses such as internet services and human resource departments at major employers. These buyer referrals are usually very serious, especially if their relocation is because of a new job. Normally, a relocating buyer comes to town for one or two weekends to find a home. They don’t know the area so they wisely choose an agent well before coming to town to find a home. They pick the agents brain to find useful local information about the area, schools, commuting time, home values, proximity to health care facilities, etc. These buyers are generally more serious in nature. Does the go it alone seller have a crack at any of these?, doubtful. In this regard, if sellers are interviewing agents to market their homes, a seller should ask what type of referral network the prospective agent is affiliated with. If they look at a small in town office with no affiliate network, are they possibly missing out on prospects?
I don’t have time to tell you all the things that I do in a transaction. I would have to take time off for a few months so that I could write a book about it, but the book would not be free sir because my time is valuable.
Sometimes, I have to admit, once in a while, though rare, a transaction does go smoothly and seems almost effortless, like the one that you mentioned. I stop to wonder and almost feel guilty charging a higher commission in these extremely isolated instances. But then I have to stop and think about all the transactions that never happened. I think about all the buyers who I’ve worked with over the years who’ve never made a purchase, buyer’s who, for one reason or a thousand, have changed their minds. I think of all the buyers that I’ve lost due to a f.s.b.o. who won’t pay a fee to me. Of course that’s their right not to, but I have to think about the thousands and thousands of dollars spent on ads placed to get the buyers to call which that seller benefited from. I also have to remember how very difficult and highly stressful my job is at times, that I have to pay for my own health care for myself and my family. Believe me when I tell you, the easy deal does not happen on a regular basis. I urge you to walk a mile in an agent’s shoes and then you’ll truly understand what I’m talking about. If you don’t have the time to do that, I understand.
Most of my demands in my profession involve keeping deals together. There is certainly a price paid for knowledge. It’s not an easy job. Perhaps we agents are guilty of making it look too easy because a true professional agent can make most deals easier.
I advise you to interview full time, top producing agents and see if they have time to give you some of their responses about justifying their commission. I’m anxious to hear your response. I hope that you’ll post this response. I realize that you have the option not to. Again, glad to hear about your easy transaction, I sincerely hope the next one is as easy.
Scott..I don’t know where to begin. Thanks for the comment.
I understand your concern. yes, top producing agents are indeed different than most. However the number of top producing agents is quite small..relatively speaking. I think you would agree.
Glad things are working out for you..you seem knowledgeable and on the ball.
In any event..you wrote the following: ” don’t have time to tell you all the things that I do in a transaction”…seems you had time to write everything but. Typical.
[...] We closed the show today discussing transaction management. We were fortunate enough to be joined by Michelle Spalding with Transaction Management Consultants. Michelle discussed with us exactly what a transaction coordinator handles in a transaction and how they can be more cost effective than trying to do handle those tasks yourself. Barry C actually wrote a post on the topic that can be reviewed here. [...]