Part 2 of Tales of a Mortgage: Realtors Bite!

Last October, I mentioned that I had finally hit a net worth of zero, celebrating the occasion of being officially worthless. At that point I mentioned that my next step was to buy a house. I can now say that I finally did get down and buy a house, closing a few months ago on June 13th. I started looking in November just to see what was out there but didn’t seriously crack down and take it seriously until about April. I plan on writing a four-part series about my experience with the mortgage process and  some of the hilarious and depressing encounters with the various people along the way.

Part 1: How I Learned to Stop Worrying and Love the ARM

Part 2: Realtors Bite

Part 3: The Long and Winding Road

Part 4: Thank You for Selling

There are a lot of people involved in the mortgage process. There are inspectors, appraisers, underwriters, closers, notaries, realtors, sellers, agents, mortgage consultants, escrow agents and let’s not forget buyers. The various responsibilities that these entities have with each other are complex and varied but, besides those who go unrepresented, the most trusted relationship exists between realtors and the seller or buyer they represent. I ended up using RedFin for my home purchase and I can say that they were a breath of fresh air compared to all the other agents I dealt with or discussed during the process. The refund on closing costs I received wasn’t bad either.

“I love these drapes!”

As mentioned above, I began looking in November to get a feel for the homes that were in my area as well as to gauge what I want to specifically look for and ask for when I purchase a home. I hadn’t completely built up a down payment and wasn’t ready to go through the process for another few months. I went mostly to open houses and had to deal with all the lovely realtors greeting me. Small kitchens were ‘cozy’. Busted furnaces were ‘rustic’. Unmowed lawns and saggy gutters were ‘colorful’. Outdated carpets were ‘retro’. And god-awful bathrooms were ‘polarizing’. I am used to flowery language to put a better face on undesirable features but this seemed excessive. It was impossible to get a straight answer out of anybody.

“It mentions here that this house is actually put in the other worse school district.”

“Yes, but they are spending a lot of money refurbishing their gym!”

“That sounds like a useful use of taxpayer money.”

Do you think the market is going up or down?

I signed into most of the open houses with nothing but my naivete and e-mail address. I received weekly e-mails from about 30 realtors for the following 6 months. I am still trying to get off all of their mailing lists, some of whom don’t have working ‘Unsubscribe’ buttons in their e-mails (which forces me to e-mail the sender directly, leading inevitably to the ‘fill out this survey please’). After a while, upset with the apparent chicanery, I started to play a game with the realtors I attended. Anybody can play this game and I think you will thoroughly enjoy it:

When you first enter a house, the realtor tries to gauge where you are in the housebuying process: with a pre-qual or without, just looking or ready to move, from the area or moving and, especially, do you currently own a home or not. Realtors want the ability to represent a seller and buyer because very often it means a more lucrative fee for themselves, even if they offer a slight discount. It also lets them know your relative wealth so they can try to upsell you or if there will be issues at funding because you are waiting on selling your house.

Anyway, play this game if you are ever looking to buy a house. You need a sample size of about 10 test subjects for the effect to be emphasized but when the realtor asks if you currently own, pick randomly ‘Yes’ or ‘No’. Mention that you are excited that housing prices are going to go up if you are willing to buy or mention that you are ready to cash in on the housing price increases (what?) if you are planning to sell. Try to find a disagreeing realtor. Rarer than a sober Irishman. Very often you can back them into contradictions or fun wordplay games without them even knowing it. This gives you bonus points in my game.

Me: “I own a house and am excited about being able to cash in on the equity of all the gains in the market.”

Realtor Bob: “Well, it is a great time to sell. Housing prices have skyrocketed in the past year.”

Me: “So, you’re saying that I shouldn’t also buy a house? I don’t want to overpay 6% for a house if it just skyrocketed recently.”

Realtor Bob: “No, no, no. You have me wrong. I still expect real estate to be a great investment, Firm XYZ projected over a 7% increase in home prices next year!”

Me: “So, you’re saying that I shouldn’t sell my house? Bob, you are quite candid.”

However you lead in, the realtor will agree with you: great time to buy, great time to sell. Perhaps it is just the nature of selling in general that suggests agreement fosters trust faster than disagreement. I have found quite the opposite. If somebody is agreeing with me over and over again, I must be saying something wrong. Nobody agrees with me that much.

Ethical Gray Black Area

Although much of what I have said so far is more a critique of competence, there were also run-ins with clear ethical violations. Not once, not twice, but three times did I have to force a buyer’s realtor to admit that they would have a dual agency conflict of interest in a house they were trying to peddle *cough* sell. I can only imagine the sap that would find this out after the purchase contract has been signed. There were realtors suggesting and promoting various contractors whose services were rated poorly by the BBB and prices were well above par. Reading through the reviews on Yelp! and Google, it was clear the only positive reviews were from other realtors. I cannot say for sure (frankly, I don’t care enough) but I think it’s safe to assume that the realtors received a portion of the fee for the contractors.

I live in a very low-cost area (shout-out DFW) where $/sqft very often is around $90/sqft or lower in some parts. Comparing my experience resisting against paying 6% to the realtor monopoly, I can only imagine somebody like my colleague who lives in an area where $500+/sqft is the norm. It takes the same amount of paperwork to sell a house in Bay Area as it does in Texas. What makes it worthwhile to be paid $30,000 commissions in California but only $6,000 commissions in Texas. Is there anyway around this? I have heard Bay Area writers try to rebel against this pricing scheme to little avail.

There is no industry or service more overpriced than 6% fees to realtors.

Stay tuned for the rest of this four-part series!

Cheers,

Cameron Daniels

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Comments

  1. says

    “It’s not a bug, it’s a feature!”

    I think we lucked out with realtors in that we were buying when the market was crashing and the realtors that were left in the market were willing to take on smaller deals than in the past. Our realtor took a bet on Mr PoP that his little search in 2008 was worth her time, and though that search fell through, we ended up buying 3 places through her (or realtors under her after she became broker I record) and my in laws also bought 2 places under her. So she made up in volume what we lacked in deal size.

  2. says

    I used the same realtor for all three of my transactions (buying and selling my former place, and buying our current place) and he was really good. He was referred by a family friend and I think did well for us. He even advised us to offer $5k less than the sellers supposed final offer, and they accepted. Truthfully I’d been willing to pay the extra $5k believing that it was their final offer, so as he pointed out to me, that basically covered a good chunk of his commission…and out of someone elses pocket.

  3. says

    “Try to find a disagreeing realtor. Rarer than a sober Irishman.” -Well done. Now into the Paddy Wagon with the rest of us.

    “I have heard Bay Area writers try to rebel against this pricing scheme to little avail.” We try, but closest I came was Redfin. Hilariously enough, our real estate friends were united in their opposition to it – “Well, have you considered blah, blah, blah?”. Yes, I have, and I probably have a better handle on it than you, my friend.

  4. krantcents says

    One of my friends suggested selling at the bottom of the market was the best time to buy and sell! His reasoning was you were trading equities and the real estate taxes would be the lowest (California uses sale price for R.E. taxes). If you have a lot of equity, it would be a great time to move up to a larger or better home. Unfortunately, there were other factors that hurt the market.

  5. says

    What do Realtors and financial planners who charge assets under management fees have in common? They charge you the same percentage no matter how much (or little) work they do!

  6. Andy Hough says

    That is pretty funny that you were able to get them to contradict themselves. I was just reading in “Freakonomics” last week how the realtors’ motivations aren’t really aligned with their customers’.

  7. CollegeMomCFu says

    Our real estate broker did a decent job getting people to look at our house, but did refer us to a contractor who cheated the daylights out of us. When I told her that she forced them to refund our money. (She made it up in the fee!)

    Both real estate brokers we worked with on each of our houses tried to convince us to sell for much less than we actually sold the house for. I stuck to my guns (and my prices) and the first house sold in 30 days and the second in 8. Listen to them…but do your own research.

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