What Real Estate Agents Wish You Knew About Their Job, Part 1
Real estate is a weird business. It's a major pillar of the American -- nay, global -- economy, as the current malaise shows, and yet so few people understand it.
Buying a home is the biggest financial transaction for the vast majority of Americans, and yet because they do it so infrequently, most consumers don't have a clue about a process that could put them into debt for the rest of their lives. And people's impressions of real estate agents is formed more by movies, TV shows and commercials than reality, because they simply don't interact with them often enough to gain an informed opinion.
Think about it. You see your doctor a few times a year. You see your accountant at least once a year. If you have a lawyer, chances are that you see him or her at least a couple of times a year. You see a real estate agent once every seven years, if you're the average consumer.
The first and most important thing that real estate agents wish you knew about their job is how hard you make it on them.
Otherwise rational, highly intelligent, highly educated people can lose their minds when it comes to their homes. I've heard more than one story of how a Wall Street investment banker, whose day job is to take cold hard looks at companies and put values on them, simply can't accept that his home isn't worth what he thinks it ought to be worth. Why hire an expert, paying them extraordinary amounts of money (5 or 6 percent of a house sale is rather a lot), then ignore their professional advice?
More fundamentally, you don't pay for their time. Real estate may be the last pure commission job left in America -- even retail sales has notions of draw-against-commission. An agent could spend three months and a few hundred hours working for you, showing you house after house, negotiating contracts, working through difficulties, and a hundred other things besides, only to have you change your mind at the last minute and decide to buy somewhere else. The agent made exactly zero dollars from that work. (Someone is going to point out that lawyers work on contingency all the time. True, and they also take 30 percent to 40 percent of the award.)
Real estate is the only "profession" in which the professional owes a fiduciary duty to a client who isn't paying him. All the liability, all the risk, and a relatively small reward (compared to other success-based endeavors) are the hallmarks of real estate. So like venture capital (another high-risk endeavor), real estate agents practice a form of portfolio management: They expect that the vast majority of their deals will fall through, and hope that the one that hits will pay enough to cover the costs of all those that did not. And that, my friends, is why your real estate commissions are so freakin' high: You, the successful buyer or seller, are subsidizing all of those flaky buyers and sellers who had a change of heart, couldn't qualify for financing, had unrealistic expectations, and so on.
To be fair, agents share some blame, too. If they refused to work for free, chances are the industry would have evolved in a different direction. But we are where we are. As we will see in future columns, this particular structure of the industry creates all sorts of interesting effects that real estate agents wish you knew about their job.
But for now: Next time you're in the market to buy or sell a house, and you're thinking about hiring a real estate agent, ask yourself just how serious you are about it. Are you just testing the market to see where your house would sell for? Please try not to waste an agent's time. Are you a buyer, but don't have a clue in which of the 17 nearby towns you might be interested, or what you could actually afford to buy? Try not to think too badly of the real estate agent to whom you represent a whole lot of risk. And when it comes time to pay the piper, understand that you're paying not just for you, but for every buyer and seller who flaked out on that agent.
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