This is the first in a series of posts discussing what goes on ‘behind the scenes’ in the real estate industry. In fairness, the majority of agents don’t do these things, but some do, and you need to know what to look out for. But first off, what the public typically refers to as an ‘agent’ is actually a salesperson. The agent is the one holding the license and most likely supervising the real estate office. For readability here however, I’ll refer to salespeople as agents.
Let’s start with the basics. A listing is a written agreement signed by the seller (vendor) appointing an agent to sell their home. Under a sole agency, this gives them exclusive right to market and sell your home for a prescribed period - normally three months initially; and following a successful sale within that time they will then receive a commission.
While an agent can also sell other people’s listings in their office, the lion’s share of any commission typically goes to the listing agent - so there’s a strong incentive in the industry to obtain listings.
The first step to obtaining a listing is after advertising, prospecting and networking, agents hope potential sellers will invite them to appraise their property. This entails the agent inspecting the property, interviewing the vendor(s) and researching the market - following which they are obliged to provide a written appraisal of value to the vendor along with a recommended asking price, marketing plan and method of sale.
It’s a highly competitive market for agents, and there are plenty out there who would love to sell your home and receive the commission. They know that you’re likely to obtain more than one appraisal as there is no upfront cost to do so. But how can agents differentiate themselves to you as vendor?
Ideally all appraisals would be at a similar level, and you would select your agent based on their track record in your area, testimonials from other vendors, their marketing plan, commission structure, personality, and level of trust and rapport they have developed with you.
Unfortunately, there is one factor that usually beats all the others hands down. The expected sale price for the property. And all agents know this. They could have an abrasive attitude, poorly prepared appraisal, lack of testimonials - but if they can convince the vendor that they can get them more money - it’s often a slam dunk. For vendors it is incredibly difficult to ignore the person promising the highest sale price. This plays on deep psychological drivers of self-interest and fear that lie within all of us. I have fallen for it in the past myself.
This is what’s called “buying the listing” - promising an unrealistic sale price to get the business.
So, what’s wrong with that? Well for starters its highly unethical and a breach of the industry code of conduct. While an agent should absolutely try to get the best price possible, they are obliged to give you an honest estimate of value as a starting point. The way they get away with it is a lack of any real analysis to compare recent sales or else the lazy excuse “there’s nothing comparable to yours - I see it at $X”. They are in fact required by the Real Estate Authority to justify their appraisal, not just with a printout of raw sales data, but also commentary as to how those sold properties relate to yours.
In a rising market “buying a listing” sees comparatively little damage. It just takes longer for real market value to catch up to expectations - but in the end the vendor gets their money, and everyone moves on. Unfortunately, nobody knows when a rising market will run out of steam.
It’s in a flat to declining market where the real damage is done. If the property is overpriced, it can sit and sit for a long time. Eventually you might decide to drop the price and “meet the market” but sadly it’s moved on (often lower) so you are continually chasing it down. Inevitably you reach a point where the agents lose interest, you’re tired of hosting open homes, the presentation has deteriorated, and you’re altogether frustrated that your plans have stalled for so long. You’ll quite likely accept the best offer presented at that time which is often well below what it might have been if the property was correctly priced in the first place. The agent has done you a huge disservice, yet the only who pays for it is you.
Again, not all agents do this, but some do and the industry as a whole is well aware of it. Please take care and be on guard. It is extremely hard to turn down the promise of more money - but if it sounds too good to be true… well it most probably is.
Until next time.
Scott Morison, Registered Valuer