…will definitely hurt them.

I was poking around this morning doing some research on enhancing real estate searches for our Web site. We’re about to introduce building specific searches. While testing the listings for 340 On The Park I discovered that we are only allowed to show 9 listings, while there are actually 15 units for sale in the building. Why can’t we show those other 6 listings? Well, we could if we required you to register but we don’t want to do that because registration is a pain in the ass. Furthermore, it’s a real turn off for real estate buyers who are afraid that some pushy real estate agent is going to start harassing them – not to mention that many home buyers provide bogus registration information when faced with that requirement.

But why do we have to get you to register to see these other 6 listings? Because the real estate brokers that are listing those units do not participate in an arcane and convoluted program called broker reciprocity. As explained in that prior post real estate listings from brokers that participate in the program get put in the IDX feed, which is broadly available on all realtor Web sites without registration. If a broker does not participate, their real estate listings are only available in the VOW feed that requires registration to access on a realtor’s Web site.

What is surprising about the 340 On The Park situation is that 6 out of 15 listings are not in the IDX feed. That’s a huge number. Just the other day I did a quick estimate and determined that in the city of Chicago only about 2 – 3% of the real estate listings are missing from the IDX feed, which is consistent with what the MLS folks tell me. That’s the reason that we decided to not require registration on our site.

So why is 340 On The Park so different? It all comes down to the dominant broker in the building who has all 6 of those listings. Apparently, this broker does not participate in the reciprocity program. This is especially peculiar in light of the fact that a real estate broker has to actually go through the trouble of opting out of the broker reciprocity program. In addition, opting out of the program only prevents the listings from showing up on other realtors’ Web sites. The listing brokerage still has the ability to advertise the listing on any Web site they choose – e.g. Realtor.com, where these “missing” listings do appear and without registration. So the listing brokerage selectively withholds access from the Web sites of brokers like us who refuse to require registration for accessing MLS listings (we still have access to the properties through the MLS system but we can’t put them on our Web site without requiring registration).

All of these shenanigans highlight yet another problem you can run into using the top producer. So, if your home is currently listed and you want to find out if your realtor is holding out on you just check for your home on our site. If it doesn’t show up then it’s not getting the broadest distribution possible.

As I asked before, why would any broker not want their listings to receive the broadest exposure possible? Could it be that they are trying to restrict access to their listings so as to increase  the likelihood of their getting both sides of the transaction? Nahhhh. A real estate broker would never put their own self-interest above that of their client.

According to the Mortgage Bankers Association FHA and VA loans comprised 36% of the mortgage applications in the month of June – which is a lot. There’s a really simple reason for this huge share of the mortgage market and it should come as no surprise to anyone. Since banks have stopped loaning 100% or more of the purchase price to buyers and people have had to come up with real down payments the government is the only game in town for low down payment mortgages. And there is a huge demand for low down payment mortgages.

Now if you are selling a single family home it’s relatively easy for the buyer to get FHA financing – assuming the house is in decent shape. However, condos are a different animal. There are a whole host of reasons that a development won’t qualify and the condo itself can only be mortgaged for $410K.

So you would think that condo listing agents would be all over the FHA program to make sure that their listings are eligible for this government giveaway. But you would be wrong. We have buyers that need FHA financing and there is no point in showing them condos that won’t qualify. There’s actually a field in the MLS where the listing agent can check the types of financing options available but it’s rarely used and even if it is used the FHA option is overlooked. So the first thing we do is call the listing agents to find out if they think the development will qualify for FHA financing. And you would be surprised how often the agents don’t know and don’t seem to care to find out. Well, let’s face it. It’s only 36% of the potential buyers.

I just downloaded the latest roster of Chicago Association Of Realtors (CAR) members and was delighted to see that the number of realtor members plummeted by over 4,000 in the last year. At December 2007 the number stood at 17,266 and as of January 2009 it was at 13,051. That’s almost a 25% drop. And based upon what I know about the productivity of individual agents right now I would guess we are going to see even further declines.

While I sympathize with people who are having a hard time making a living I have to believe that this is a welcome change for the industry. Chicago just had way too many agents. But more importantly, I would imagine that many of the weaker real estate agents have left the business and both the industry and the customers are better off without them.

However, there is a flip side to this story as well. Some of the agents that are leaving are ones whose real estate skills are fine but they just don’t know how to generate business. And generating business is in fact the hardest part of real estate. It’s so difficult that the median net income for a realtor in the first two years is only $9,400 per year and 80% abandon the field in their first year.

So why do so many people go into real estate in the first place and why do they keep banging their heads against the wall? Presumably it’s because of the promise of substantially more money down the road. Some agents make a lot of money, with 13% of the realtors with 6 – 15 years experience netting over $100,000 per year. There is really no other explanation as to why these folks continue to starve while trying to get their own business off the ground (especially in this environment).

Of course, we think this approach of agents trying to run their own business no longer makes sense and that’s why we’ve created a different and better model. Our agents do not do any prospecting or lead generation. We do it for them so that they can focus their efforts on providing real estate services and in the process earn much higher commissions.

The amazing thing is that so many real estate agents are still clinging to the old way of doing business and starving while reaching for that brass ring.

The Ministry of Truth (NAR) is at it again with the launch of a 2 hour weekly radio program called Real Estate Today. Here is how it is being described to realtors:

Real Estate Today will premiere the weekend of February 14-15. We’ll show consumers why REALTORS® are the most credible, trusted source of real estate information, and convince them that using a REALTOR® when buying, selling, or investing in real estate is the smartest decision they can make.

We’ll also be building consumer confidence in the market and in the long-term value of real estate to help bring buyers back into the market.

Kinda makes your skin crawl, doesn’t it? Maybe the above description is just targeted to realtors. I listened to a sample broadcast and it didn’t come across this poorly. As long as they provide objective information about home ownership and the real estate market then it might not be that bad. However, if this is just a thinly veiled self-serving attempt to  do exactly what they are telling realtors that they are doing then it will be another industry embarrassment.

If you have two hours to kill some time Real Estate Today will air online at www.RETRadio.com – visit the site anytime after the premiere to listen to current or past programs. Beginning on February 14, satellite radio subscribers can hear Real Estate Today on America’s Talk, XM Channel 158, Saturdays 5-7 p.m. EST; Talk Radio, XM Channel 165, Saturdays 1-3 p.m. EST; and Stars, Sirius-XM Channel 102, Saturdays 6-8 a.m. and Sundays 9-11 a.m. EST.

Bet you can’t wait.

One of the most important decisions in buying or selling a house is finding a good real estate agent. Unfortunately it’s not an easy process for one simple reason. There are a lot of really bad real estate agents out there. The following quote in the November 2007 issue of Realtor Magazine from Bert Waugh Jr., CEO of Prudential Northwest Properties in Portland, Ore., sums it up nicely “Most of the surveys you see on how people think about real estate professionals don’t paint a good picture. We as the brokers are the ones at fault, because we’re still hiring 100 percent of those who get into this business. It takes a beautician 1,700 hours to get a beauty license in Oregon; it takes a sales associate 150 for a real estate license.”

You can get a good feel for just how weak the playing field is by actually reading the direct mail pieces that come to your home or browsing through the online profiles of some real estate agents. For the most part there is nothing that distinguishes these agents from each other – there is no value proposition and in some cases… well, check out some real examples:

• Mission Statement: to assist my clients in utilizing other peoples (sic) money to aquire (sic) appreciating assets of which the profits can be 100% tax free
• I have excellent customer service skills and always put my clients first.
• My #1 priority in the course of business is my clients.
• As a __________ agent, I have a commitment to my clients to provide them with exceptional service.
• I am a client advocate…I am customer focused and work at clients’ pace.

I think you get the picture.

So let’s talk about how you should go about making this decision and, just as importantly, how not to make the decision.

Knowledge

One of the key reasons for using a real estate agent is to be able to tap into their knowledge of the market and the real estate transaction. Don’t be afraid to quiz prospective agents about information that you are looking to access through them. However, no agent can know everything so it’s also important to find an agent who has…

Intelligence

It’s critical to find an agent that is resourceful, knows how to deal with unusual situations, and knows where to go to get answers to questions. Unfortunately, determining how smart an agent is is a bit of a squishy undertaking. You can start by talking to them to see how they come across. You can also find out about what educational background they have, in what academic area, and what business experience they had prior to their real estate career.

Integrity

As you can surely appreciate, when dealing with the purchase or sale of a home integrity is a major consideration and the real estate industry has not done a great job of making people comfortable with the integrity of their agents. In the absence of direct feedback on the integrity of an agent there are a variety of questions you can ask to reveal an agent’s integrity:

• Have you ever served as a dual agent? In that case describe for me how were you able to balance the interests of both the buyer and the seller?
• Have you ever discouraged a buyer from considering a home that they liked? Tell me about it.
• Tell me about how co-operating bonuses work and how you deal with them when working with a buyer. See if you can draw them into a discussion of the possible conflict of interest in showing a buyer a home with a bonus and whether or not they disclose these bonuses to buyers. Of course, if you come right out and ask them if they do, they will answer “yes”.

Business Model

What type of business model does the agent/brokerage employ? Will you be getting full service or will you be expected to do a lot of the work yourself? Find out exactly what services and support you will be receiving. If you are selling your home find out what vehicles will be used to market it. Here is the typical list:

• MLS listing
• Professional photos
• Brochures
• Direct mail
• Newspaper
• Newspaper Web site
• Specialty magazines
• Open houses
• Broker open houses
• Email
• Craig’s list
• Other Web sites

This is a fairly standard list, yet agents will present this list as though they are the only ones that can provide it – and consumers fall for this all the time. On the other hand, the list is useful for what an agent might leave out in an effort to cut costs. The only trick is that several of these are ineffective at selling your home and are used to merely pacify you, raising their operating costs in the process. So you need to carefully consider the options being presented.

One other consideration. Find out how the agent will communicate with you and how often. During what days/hours are they reachable?

Cost

Don’t let anyone fool you. Cost does matter. Find out what the agent charges and how they justify their commission. And if you are buying find out if the agent provides a commission rebate and how much you will be getting back. At this point most agents will look at you like you are from another planet.

Skills

Find out what capabilities the agent has in key areas. There is no better way to do this than to get specific:

• Negotiation skills. Ask the agent to describe for you in detail a particularly difficult negotiation that they handled.
• Communication skills. Is the agent articulate? If they can not communicate clearly to you then not only will you have difficulty in working with them but they will not be able to communicate effectively with the agents on the other side of your transaction.
• Marketing skills. This is key if you are selling. Ask the agent to write up a description of your property for the MLS to share with you. Does it capture the essence of your home? Does it set your home apart from other properties in the area?

Avoid These Pitfalls

Friends or Relatives in the Business

Friends don’t let friends handle their real estate business – unless they are the most qualified to represent them. Many people make the mistake of using a friend or relative simply because they feel like they are expected to do so. In fact, this is a key element of the traditional real estate model: get your friends to do business with you because they won’t try to negotiate the commission down. However, this creates a serious problem when the friend or relative is not really qualified. In fact, from our observation of the characters in this industry we would guess this happens at least 50% of the time.

Getting a Referral From Another Agent

Agents love to give referrals – for a very simple, self serving reason. They get paid handsomely to do so – anywhere from 25 – 30% of the commission. They will give you a glowing recommendation of someone from the other side of the country whom they have never met – just so they can collect that fee. Often that person is just some random agent from an affiliated office. So beware of referrals and ask the referring agent specifically what their experience has been with the referral.

Getting a Referral From a Friend

There is nothing wrong with getting a referral from a friend but just make sure that your friend’s referral is based upon a rigorous examination of objective criteria. Ask them what they specifically liked about the agent. If all they can talk about is the annual wine and cheese picnic or birthday cards or pumpkins at Halloween then you should look elsewhere.

Going With the High Volume Agent

Everyone wants to work with the winner but there are a couple of problems with this approach. First, top producers don’t discount because they don’t need to. They have all the business they can handle. Second, they have so much business that they won’t have much time for your transaction. You will either have trouble getting the time of day from them or they have a team of agents working for them and you will be passed off to one of them.

Going With the Highly Visible Agent

The agent that has high name recognition usually spends a lot of money and time building up that recognition. They advertise, they belong to civic groups, and they do lots of charity work. But that says nothing about their capabilities. The only thing you will know for sure is that they are brilliant at marketing…themselves. And all their marketing activity raises their operating costs.

Going With the Big, Highly Visible Brokerage

Some people get a sense of security from going with an agent from a large, highly visible brokerage with a particularly appealing image in the marketplace. Similarly they might be impressed with a fancy office on Michigan Avenue and CMAs that are bound in leather. But it’s a false sense of security. First, all that “brand building” is really expensive. They do that to justify their high commissions and they need their high commissions to pay for their high overhead. Second, real estate agents move between brokerages like bees pollinating flowers. The agent that works today for the broker with pictures of clients in formal wear was wearing a yellow jacket yesterday. When the rubber meets the road you will be dealing with the agent, not the brokerage, and most of the time that agent is just an independent contractor.