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Articles for ‘Myths & Lies’

Would You Trust A Realtor?

Thursday, October 1st, 2009 by Gary Lucido

Apparently, you would. At least that’s what a Gallup poll released in November 2008 revealed. Although it’s old news I thought it was interesting since I routinely hear people within the industry lament the “fact” that realtors have one of the lowest trust ratings of any profession – next to used car salesmen.

Well, it looks like this might be another one of those industry myths and lies – but this time it’s one that clearly does not promote the industry. Here is the actual data from the Gallup poll where they interviewed 1010 adults across the nation about their perceptions of the honesty and ethics of 21 professions.

Public Trust Of Realtors

As you can see, realtors actually landed in the middle of the pack, right behind lawyers. The ranking above is based on the % of respondents that gave professions high or very high marks. However, you can also see that if you were to rank these same professions based upon the % that gave professions low or very low marks, realtors’ ranking would actually rise a couple of notches.

Surprised? Yeah, me too.

Real Estate’s Top Producer Myth

Wednesday, August 19th, 2009 by Gary Lucido

There are a lot of real estate buyers and sellers in Chicago who erroneously believe that there is some kind of advantage to be gained by working with a “Top Producer”. The industry certainly encourages this belief with numerous rankings across the city or in specific Chicago neighborhoods or within specific offices or brokerages. Thus many, many real estate agents get the opportunity to claim the title of “Top Producer”.

But, aside from the fact that there are a lot of realtors who can claim to be a top producer out there, the whole notion that these realtors possess some kind of special powers is totally absurd on so many levels that it’s going to be really hard to keep this post to a reasonable length.

First, let’s consider exactly how someone gets to be a top producer. A realtor becomes a top producer by closing more real estate deals than everyone else. And they close more deals not necessarily by being better at selling real estate (although that helps) but by being better at getting clients. And a sure fire way to get more clients is to be a top producer since everyone wants to work with a top producer. In other words, it’s a self fulfilling prophecy – a vicious circle. And once you break into this vicious circle there is no way you are going to discount your commission.

Second, many of the top producers in Chicago are celebrity realtors who head up a “group” at a brokerage. They have several other realtors that work for them and they are all part of the “Joe Realtor Group”. What this allows them to do is to aggregate the business of all these realtors under the group head’s name, thus giving this realtor top producer status.

But is there a real difference between the top producer and a realtor who is not? Well, I do think it’s safe to say that you can’t become a top producer if you are a Bozo. So the moniker does serve as a crude filter. But are there any more substantive differences?

So that I don’t make a career out of writing this post let me focus on the sell side for the time being. When picking a listing agent you have to ask yourself “What can these people possibly do that is better than other agents?” Better yet, ask them that question and demand specifics. Here are some of the ridiculous answers you might get – if they are even willing to get specific:

Marketing Speak
The Truth
I have buyers No he doesn’t. The fact of the matter is that it is very rare for the listing agent to bring a buyer to the table. Besides, if he pushed his own properties on his buyers he wouldn’t have many buyers much longer – not to mention the dual agency issues that creates. And if he does have a buyer that would be interested in your home then he will absolutely show it regardless of who lists it.
I’ll promote your home within my brokerage He’ll send out an email to all his colleagues and they will delete it without reading it along with all the other emails they get about properties for sale.
I’ll put your home on __________ – fill in Youtube, Craigslist, Twitter, 100 newspaper sites And so will every other half way decent agent that lists your home. As for those 100 newspaper sites…I’ve seen the list and it includes small newspapers in Ohio – like Ohio has a bunch of people planning to move to Chicago and searching their local newspaper Web site for Chicago homes.
I’ve sold more properties in _________ than anyone else That would be because he gets more listings than anyone else. What is he going to do differently?

Periodically I get letters from one of the neighborhood top producers citing his accomplishments but without providing any specifics of what he will actually DO for sellers. Here are a few examples:

  • “I sold __________ in only 26 days after it sat on the market with another agent for almost a year” Well, he cut the price and increased the size of the home by 100 square feet (not sure how he did that last part).
  • “I sold __________ in 56 days in a multiple offer situation. That means I have buyers…” No, he doesn’t have the buyers. Some other agent does and those same buyers are available to whoever lists your property.
  • “Average property market time 47 days” There are several tricks at play here. After his properties sit for a while he cancels the listing and re-lists it. I wonder how he keeps track of his market time. Besides, you can achieve really great market times if you price low. Furthermore, it’s standard industry practice to measure the market time based only upon properties that actually sold – which totally skews the results.
  • “Industry high list-to-sell ratio” Think that’s based upon the last list price or the original list price?

The fact of the matter is that all realtors have access to the same toolset today. Technology has totally leveled the playing field and the top producer really has no advantage over any other realtor in selling your home. In fact, you may even be disadvantaged in working with him. Here are a few examples how:

  • Let’s say that you have one of several fairly identical condos on the market in your development and only one or two are going to get sold this selling season. Do you want your condo represented by the same guy representing all the other condos or someone focused on selling yours before the other ones?
  • Suppose your home is competing head to head with another home in the area/ your building and the other home has some serious flaw. If both homes are being represented by the same agent will that agent point out the other home’s flaws to buyers looking at both places? Is the agent even ethically permitted to discuss such issues?
  • If you are dealing with a celebrity realtor chances are you are going to be relegated to working with one of his minions.

Here’s the bottom line. In this day and age the most important thing is finding an agent that is smart, hard working, and responsive. Don’t get hung up on statistics that are largely meaningless and easily manipulated.

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Standard Measures Don’t Tell The Real Story

Saturday, July 25th, 2009 by Gary Lucido

There are a few statistical measures that realtors use to monitor the condition of real estate markets. Two of these measures are months supply of home inventory (how many months it would take to sell off the current inventory at the current sales rate) and market time (how many days homes have been on the market). Seems simple enough, right? Not so fast. Believe it or not there is plenty of room in defining these measures to make them look either better or worse.

Let’s start with months supply of home inventory. Realtors have access to a statistical tool that conveniently spits out months supply of inventory for just about any slice of the Chicago real estate market you might want. However, for purposes of this “official” calculation the tool starts with the number of homes on the market at any time during the month and then reduces that number by the number that went under contract during the month and the number of listings that expired. I guess the rationale for doing it this way is that this represents how many homes remain to be sold. The only problem with this approach is that expired listings were part of the overhang that needed to be absorbed during the month. The fact that sellers gave up on them doesn’t make that housing supply go away. Therefore, I think it’s appropriate to include them in the calculation. The graph below compares the two approaches for measuring months supply of condo (2 – 3 bedrooms) inventory in Chicago. As you can see, the more comprehensive measure is always larger than the official numbers – especially in the fall.

Chicago Home Inventory

BTW, you will notice that the June home inventory level for Chicago is actually lower than last  year for the first time in over a year.

Then there’s the market time. The real estate industry’s official measure of market time is based upon the number of days that a home was on the market before going under contract. Therefore, it only measures the market time for homes that actually sold! So, it excludes all the homes sitting on the market unsold. Well, that seems sort of biased, doesn’t it – not that the real estate industry would ever want to paint a pretty picture of the real estate market? So I believe that it is more accurate to calculate the average market time of all homes – sold and unsold. This more accurately reflects the pain of home sellers. The graph below compares the market times in Chicago using the different methods. As you can see, it’s a fairly dramatic difference and the more comprehensive method also reflects the seasonality that you would expect to see in a measure like this.

Chicago Market Time Comparison

Effective July 1, 2009 we have restated all of our statistics (current and historic) using these new methodologies. As always, you can find Chicago neighborhood specific real estate market data here:

NAR’s Public Awareness Campaign: Homes Will Appreciate

Wednesday, January 21st, 2009 by Gary Lucido

The NAR has recently released their newest (and totally unbiased I am sure) advertising campaign. The main message of the radio, TV, and print ads is that buyers shouldn’t wait to buy a home. In one of their TV ads, below, they point out that 8 out of 10 economists believe that home prices will appreciate over the next 5 years.

NAR’s Buyer Strength TV Ad

There is some kind of small print in the ad that I can’t make out but I suspect it tells us that this statistic comes from the Keller Center at Baylor University, which is mentioned in a similar 60 second radio ad. Hmmm. Keller sounds an awful lot like Keller, Williams, the national real estate brokerage. Oh, yeah, he started the Keller Center with a $5MM donation.

You can find a copy of the entire study here. It has some other interesting statistics not mentioned in the ad. For instance these same economists concluded that the gains would be modest. In fact, here is the breakout of their forecast:

Table 2. Compared to today, home prices in five years will be . . .
Percent of Responses
At least 10% lower 5%
0% to 10% lower 16%
1% to 5% higher 24%
5% to 10% higher 25%
10% to 20% higher 23%
20% to 30% higher 6%
More than 30% higher 1%
n = 803.

Funny that the ad didn’t mention this. The other interesting fact that is not mentioned is that this survey was conducted in July 2008. Well, I’m sure that the NAR didn’t feel that it was necessary to mention this since nothing has really changed since July of last year.

Actually, there is a set of questions that the economists responded to in this report that I thought was really good and deserves special mention (seriously):

Table 3. Reasons to Buy a Home
Percent Responding
Statement Agree or Strongly Agree Neither Agree nor Disagree Disagree or Strongly Disagree
In choosing a time to purchase a house, buyers should primarily focus on whether they are ready for such a purchase from a financial and life-cycle perspective. 94% 4% 2%
In choosing a time to purchase a house, buyers should try to “time the market” in an attempt to obtain the greatest possible financial gain. 26% 23% 51%
The primary reason that individuals should purchase and own a home is as a place to live. 79% 14% 7%
The primary reason that individuals should purchase a home is as an investment vehicle. 9% 20% 71%
A person can increase their long-term wealth by purchasing a house rather than renting. 58% 32% 10%

“In addition, 89 percent of the economists agree that people should closely evaluate the benefits and costs of owning versus renting before buying a home.”

You know, these economists must be pretty smart since they tend to agree with me. People shouldn’t buy homes for their investment potential but rather as a place to live. Perhaps if the NAR hadn’t emphasized the investment potential in the past and again today we’d all be in better shape now.

Former NAR Economist Comes Clean

Sunday, January 18th, 2009 by Gary Lucido

I know that this must be a shocker but the former NAR economist, David Lereah, has recently admitted in a Money Magazine interview that he “put a positive spin” on his housing forecasts. Wow! You mean you can’t believe everything the NAR says?

Now that he’s no longer getting a paycheck from these folks his outlook for housing is not nearly as optimistic as it once was:

My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.

Barry Ritholtz actually has a far more colorful assessment of this turn of events on his Big Picture blog: David Lereah is a jackass.

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