Thursday, May 29, 2008

Wal-Mart and Real Estate commissions

I am biting off a hard subject here today. Realtors and their commissions. I read an editorial this morning in USA Today. It had to do with a recent agreement, under pressure from court action, between National Association of Realtors (NAR) and so called internet real estate brokers. One such broker is Redfin which is an online brokerage that supposedly gives its users a big break on real estate commissions. The meat on the table is access to the 800 something Multiple listing services (MLS) around the country. Redfin insists that they should be able to access that information just like all other brokerages. NAR decided that they would share the information. Let it be said that they sure don't share that knowledge with me, a licensed real estate broker, unless I pony up about $1200 a year. The big, all knowing, USA Today Editor accuses the real estate industry of collusion, antitrust violations and downright meanness. He is as uninformed as he is opinionated.

First off, I am positive that this editor does not donate his time to USA Today. I will bet that he makes a pretty decent salary and probably some incentives. Why? Because he knows how to run a newspaper, or at least a department within a newspaper. So we can assume that the nasty old profit motive runs deep to his core beliefs.

The belief that the commissions realtors earn is out of line is not a new concept. When I first got into this business I had no clue how a Realtor made a living. I was advised that the average Realtor makes about $36,000 per year. I would be willing to bet that Mr. USA Today makes a lot more than that in a year. You must then take into consideration that a Realtor pays all, and I mean ALL of their own expenses. No company car, gasoline credit card, health benefits, etc. Add a 15% self employment tax on top of that and you will find that most Realtors make less than minimum wage. That does not take into consideration the costs for membership to the MLS, Licensing fees, Education costs, Lock box dues, cell phone, PDA, laptop computer,ISP costs, errors and ommissions insurance, etc. Then a salesperson has to split their commissions with their broker. My first broker splits were 50%. The negotiated 8,7,6,5% commissions are split between the Listing agent and the Selling agent, one representing the Buyer and the other the Seller.

I was fortunate to enter the business 6 years ago when the boom was on. I attained several listings from people who knew me and thought me to be a pretty savvy business man and wanted me to sell their houses. I had this "friend" who was a Broker who went around behind my back telling the people I had listed that he would have charged them 1/2 of what I was charging them to sell thier home. I confronted him and he told me that we Realtors make too much money in commissions. He spent his career in the Public sector so I laughed him off as just not quite understanding the good old American profit motive.

I told him this story that was told to me by an economics professor when I was in college back in Alabama. Seems that there was this manufacturer of widgets located up around Sylacauga, Alabama. He turned out 10,000 widgets a day which he sold for $1 each. He had several employees and business was good and life was rewarding to all involved. One day his assembly line came to a sudden and alarming halt. Over the next couple of days he called his engineers together to address the problem. Nothing, 4 days passed without a single widget rolling off the assembly line. They finally had no other choice but to ask for the Tech rep of the manufacturer of the assemblage machinery to come have a look. Into Sylacauga on a private plane comes the Tech rep. He comes to the factory with an attache' case in hand and walked up and down the frozen assembly line. He finally stopped at one particular place and opened the atache' case. He pulled out a hammer and gave a mighty whack to the line and it came to life rolling along without a hitch. Business was back on track and the widgets rolled off the line as before. A couple of days later the CEO recieved an invoice from the manufacturer for $10,000. The old man was livid. He told his Secretary to call the company and demand an itemization on the invoice. The itemization arrived a few days later. It said: $1 for hitting with a hammer. $9,999 for knowing where to hit. He paid the bill.

I remember back around 1988 putting my home on the market by myself as a For Sale by Owner. Interest rates were 18% on mortgages. Mine was 13.5%. No one was selling houses. My little FSBO sat there for two years. All the while I wondered what in the world I would do if someone came along and wanted to buy it. I had no clue what the next step would have been. I finally woke up and gave it to a Realtor and about 3 months later I attended the closing and got a check. I had little clue as to what happened in between.

You pay a Realtor for what they have between their ears. I have sold a little more than $10 million dollars since I first entered into the business. I have handled over 100 transactions, not all successfully. One thing I have learned along the way is that if you have seen one real estate transaction then you have seen one real estate transaction. They are all unique one to another. You need the professional by your side. Please see my last post.

In our modern world we have, including myself, developed a Wal-Mart mentality. We are all about saving the dollar, getting the best deal. Can we find it at Wal-Mart? You know they ALWAYS have the best price. What about Craigs List, E-Bay, etc. ? Let's take the Realtor out of it and then we can really shuck some corn and save a boat load of money.

I cannot for one minute imagine some faceless person on the internet in front of a keyboard on a computer caring about me in a real estate transaction. I mean really caring about me and my best interests first. You need someone you know well. A person who you trust and believe will put your best interests first and foremost. Most people only buy or sell a house 1-2 times in a lifetime. Wal-mart, E-Bay, Craigs List, Amazon discounting just does not apply in that scenario.

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Enjoy this bottom line philosophy of Marvin Gaye and Tammy Terrell:

Saturday, May 24, 2008

The Golden Rule and Realtor Ethics

I just completed a 3 hour continuing education (CE) class on Ethics. Realtors are required to acquire 14 hours of CE with every license renewal, approximately every 2 years. National Association of Realtors (NAR) requires that every 4 years Realtors must have 3 hours of Ethics training.

Why this emphasis? I suppose that the most common thread running through the practice of selling Real Estate is distrust. Distrust amongst the folks who practice and certainly amongst the consuming public. I remember as a small child when a family member would make a far reaching comment on something requiring trust, the comment fired back would be something like,
" Right, next you will want to sell me some swampland in Florida." This distrust runs beyond the spirit of Caveat Emptor, Buyer Beware. We are all naturally on edge in buying. The bigger the purchase the keener the edginess. In Real Estate, dating back to when Adam and Eve were evicted from the garden, because of their dealings with the snake, the distrust of Realtors has been a prominent reality.

I have now been in this business going on 6 years through numerous transactions. I am more aware of the necessity of being on edge, now more than ever. Trust me. There are numerous snakes still active in the garden of home ownership. This stretches to all involved, unfortunately, including the Buyer and the Seller. You need to be on your toes. You need to tread carefully.

I took a canoe trip through the Okefenokee swamp once. Did I go alone? Absolutely not ! I went on a guided trip. I did not know the guide, but I assumed that someone would get him if I ended up like Amos Moses, alligator bait. All ended well. You need a guide in the business of acquiring real estate, especially if you are inexperienced. Even if you have experience buying in Milwaukee, you do not have experience in buying in Tallahassee. Real estate is a regional business. What goes on across state lines does not have uniformity everywhere. If you are a buyer it costs you nothing to employ a Realtor. Get a good one. Someone you know personally or a referral from a friend that you have high confidence in.

The instructor in my class was a Broker from a competing firm. I have done business with that firm. Just like me, they bear watching and holding to standards of performance. We all make little mistakes. Then there are those who want to throw you under the bus to profit from your sacrifice. You need to have your advocate, guide and friend with you along the way, no matter who you are dealing with.

This instructor started the class by searching for a definition of "ethics". Someone offered the Golden Rule as definition. I attended Vacation Bible School at the Hillsdale Presbyterian Church, in West ( By Goodness ) Virginia in the summer of 1955. I was 9 and the thing I had on my mind mostly was the softball game and the ice cream. Yet I do recall the dissertation on the Golden Rule. " Do unto others as you would have done unto you." Zowie ! What a concept ! I pretty much lived my life from then on assuming that all others were practicing the same precept. I had a few bumps along the way and I remember getting beaten out for various things and then finding out afterwards that I had been "had". Not all God's creatures are dealing from the top. Many are dealing from the bottom. Many are quite comfortable living in the bottom land of reptiles and sliminess.

That was made crsytal clear to me during the segment of my life that involved lobbying legislatures in various states. I represented a Fortune 500 company with deep pockets. I remember running across another definition of the Golden Rule. It was simply. " He who has the gold...........................RULES !" What a concept ! As we seek truth and sanity through the upcoming election we will see a vivid representation of this aspect of the Golden Rule. The emerging victor for whatever office will most likely be the victor because of huge amounts of money to convince the public that he/she is the best candidate. Such is the case in the world of real estate.

Reputations are mostly earned but many are bought through the reality of money spent on advertising. Choose carefully. There are 1.2 million members of the National Association of Realtors. Let's do some simple math. There are 300 million Americans. Let's say they live in families of 4. That gives us 75 million households. Not all people own homes. Let's say that 50% do and 50% do not. Half of 75 million is 37.5 million. Now, if there are 1.2 million Realtors, then we can assume, roughly, that there is one realtor for every 38 households. It is not that hard to get a license. It is a little harder to keep a license. We had a gentleman here in Tallahassee who sold jewelry. His name was Lester Moon. He always ended his commercials with the statement
" If you do not know jewelry, then know your jeweler." To the same point if you do not know real estate then make an attempt to know your Realtor. Get a referral from a friend. Make calls to former clients. You know the drill. Everyone is not grinding the pencil of the Golden Rule from the same end.

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Wednesday, May 14, 2008

In the eye of the beholder

Back when I was in college I took an art appreciation class one semester. Thought was that I could skate through it and earn 3 credit hours that would not tax me too terribly. I have to say that it was a major struggle. I worked long and hard to get a passing grade. I looked at stuff that was supposed to be art that I swear my 5 year old grand daughter could now produce.

I think of Pablo Picasso, particularly. I remember looking at his works and thinking what the heck. This guy has been doing some serious hallucinogens. The instructor would ask our opinion of the artists expressions in his paintings. Where I saw a woman with a giraffe neck with halibut eyes on one side of her head someone else saw an expression of life's struggle within and frustration spilled out all around until it painted her personality in a surrealistic tone. The latter comment would get the A+. I was asked to stay after class and put in some extra study. To top it all off this painting hung in the Louvre and was worth millions of dollars. I still am not seeing it.

Since I have gotten into real estate I struggle with another artistic expression. The appraisal. I was taught in the University of Real Estate that appraising was not an exact science , it was more of an art. That is the understatement of the century. Now, please don't think that this is an attack on appraisers. I have great respect for the path they trod to become certified in appraising. They put in enormous classroom hours and pass some really hard tests to make the grade. They then are not allowed to be the head appraiser until they have been someone's apprentice for two years. So it is a distinctive role.

I read a little blurb in the USA Today just this morning that real estate fraud was rampant and being put under the microscope and the hammer was coming down on those who committed it. One area they sited was over-evaluation of property by appraisers.

That works like this: A Realtor writes a contract for a certain amount of money on a property. There is built into the contract that an appraisal must be performed. The buyer's lender usually orders the appraisal. The appraisal ALWAYS comes back at the price or slightly above the price. In my experience I have not ever been involved in a property transaction where the property did not meet appraisal. I worried about a few of them as I thought that the price was pretty aggressive compared to the market comparables that I had looked at. Time wasted. The appraisal would always hold water.

Imagine, please, that you are in the business of loaning money. You finance lots of properties and you need appraisals quickly and reliably. The appraisal company is in the business of valuing property and you have solicited several lenders to send their appraisal business to you. Now what is going to happen if you bring back low appraisals to that lender? Well, the buyer has a right to opt out of the deal leaving you, the lender, holding the bag. That is why the price of the property is communicated up front to the appraiser. The appraiser figures a way to hit that number. You are not going to get repeat appraisal business if you come low too often.

It is sort of like the only accountant joke I know. A Fortune 500 company has need of hiring a CFO for thier company. They want a CPA with some experience. They arrange to interview several people over the course of one day. The candidates are lined up outside of Mr. Big's hotel suite to be interviewed. He asks each candidate the same question " What is one plus one ?" to which everyone answers the obvious, " Why, that would be two, Mr. Big." This continues until one fellow comes in and Mr Big poses the question, " What is one plus one ?" This candidate goes and draws the blinds and then locks the door. He then leans in close to the corporate bigshot and says, " What would you like it to be, sir?" He gets the job.

I recently had a transaction wherein an appraisal was performed about 9 months prior to the sale of a property. The appraisal at that time was around $200k. A contract was written and sent over to the Title company. The lender ordered the appraisal and lo and behold it came back $3K over the contract price, about $25k south of the earlier appraisal. Same house, same neighborhood, etc. Hallucinogenic expression? No the bubble bursting on the real estate market.

You can take your home and figure what it is worth in your head and what you will take for it. In our current market you will need to take about 10% off of it just to get it in line with where home values are currently.

Market value and Appraised value have not always seen eye to eye in real estate. You see, appraising is not an exact science it is more of an art. The value comes down to what the seller wants for the house and what the buyer is willing to pay. In this market adjustment the equation has only gotten more complicated. The lady with the giraffe neck has now added a third eye and some warts on her neck. It still confuses and mystifies.

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Monday, May 5, 2008

How do you like my hat?

I just got a cool hat. I ordered it from It is red and has Callaway advertised on it. To top it all off, it has my name, Lee Vass, stitched in white thread on the right side. Now what is so big about a hat? Search me, but I have always loved hats. Ask my wife. I have the entire top shelf of my clothes closet covered with hats. Some are so sweat stained that they look like something from the 40's. However, I cannot bring myself to part with them.

I suppose that the enamourment with hats is because it tops off your ensemble for the day. I like to match my shirts color to that of the hat. I go back into the 60's when shirts had to match the color of socks. I suppose that carries over to my hat fetish.

I recently lost a sale to a home inspection. The home was built in the 60's and no one was around who could tell us when it last had its hat changed. This buyer drove the seller off the price by $35, 000. I paid $32,000 for a brand new house in 1972. The home inspector declared that the roof was at the end of its useful life. Never mind that they loved the location of the house, the friendly neighborhood and they had to have loved the price. They could not move past the old hat. I guess they are a lot like me and just obsessive compulsive about what sits on the top of the
edifice. Some folks are like that. They could have had 5 new roofs put on the house with the $35k they saved.

I read a very scholarly article, sometime back, by an FSU Real Estate professor about the various elements of a home and how they independently affect overall price. He, straining my memory, said that the various components affected the price in incrementally different manners. He said that the house was like a bag of groceries. Encapsulated in the overall house was a kitchen, some bathrooms, some counter tops, some flooring, some windows, a roof, a garage, perhaps a pool. The question on the table was where could you best put your money in updating the house? The final answer, as I remember, was the kitchen. I don't think the roof was in the top 3

Now back to the roof people. They are not all that unique. I sold another house, sometime back, that was also built in the 60's. We did not get a lot of showings initially. I suggested to the owner that since he needed a roof anyway, then why not go ahead and put one on. These sellers had treated this home with extreme care and it was in great shape. He did replace the roof and in short order we had a contract that we successfully closed.

Different strokes for different folks. Some pass on a nice home because they don't like the wallpaper in the family room. The WALLPAPER for crying out loud. How much does it cost to replace wall paper? A real estate transaction is an emotional experience at both ends of the spectrum, whether buyer or seller.

I lived in an old farmhouse when I was a child. It had a tin roof on top of it. As I recall, it had some badly rusted areas that probably signalled a new roof was needed. I, being 10 years old, could have cared less. However, I was keenly aware of that roof. It played music to me when it rained. Nothing soothed my soul more than the "rhythm of the falling rain." It put me to sleep as predictably as Ambien does today. Why the Cascades even made a top 10 hit about my roof. I suppose that roofs are important as are hats. The appeal is along a broad span of reasons. All of which could be made painfully obvious after a few sessions with our favorite psychoanalyst.

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