There was an article in the Globe & Mail’s “Life” section this week that caused a big stir in the real estate industry.
But I’m here to tell you that there’s a reason this was in the “Life” section and not Business. It’s just blather, written by somebody with no idea what he’s talking about…
There are important differences between “journalists” and “writers.”
A journalist is someone that collects and distributes news and primarily works with factual information.
A writer is something entirely different. When I think of a writer, I think of somebody who has more creative control over the content that he or she produces, and thus the result can be a complete work of fiction, or something in between.
In Tuesday’s Globe & Mail, an article called “How To Find The Right Real Estate Agent” ran in the Life section.
It was, in my mind, an opinion piece, and nothing more.
Don’t get me wrong – I respect writers, because I am one, myself. And before you point out that my blog contains more opinion than any newspaper, I’ll beat you to the punch and say that I agree.
But I write about real estate because I am a real estate agent, and I’m a real estate expert. I talk and opine about the field that I specialize in.
Writers and journalists, on the other hand, might not be experts, but often they pass themselves off as exactly that.
Fabrice Taylor, who I respect as a writer, penned a highly opinionated, and highly inaccurate “story” about real estate this week that caused about ten of my clients to email me and suggest a Friday Rant. I didn’t want to touch it at first, but as more and more friends, family members, and colleagues asked me about it, the more it began to fester.
Mr. Taylor’s article, which can be read HERE, starts out well; he suggests “Don’t hire a friend” to be your Realtor, and I agree. One of the biggest problems with our industry is that everybody and their mother (and their mother’s mother…) is working in real estate. Every weekend, I go out for dinner or drinks and get talking to strangers and when I mention I’m in real estate, somebody is bound to say, “Oh yeah? I’m thinking about getting into real estate myself!”
Mr. Taylor is correct – you shouldn’t use your friend, who has been in the business for six months, simply because he or she is your friend. One of the largest problems in the real estate industry in 2012 is that there are scores of 20-something Realtors who, after having failed or grown tired of their previous “careers,” work ten hours per week from their couches and continuously misrepresent properties and will eventually be sued to high Heaven.
But after Mr. Taylor makes his first point, his article becomes nothing more than a “how-to guide” written by a jaded, once-burned home-seller who is simply trying to cash-in on a hot topic by writing about real estate; and I say this with the utmost respect for Mr. Taylor as a writer.
My issue with this article is that it’s written from the perspective of an expert, when in fact, it’s not.
Mr. Taylor says “you have to understand the agent’s incentives,” when in fact, he is not an agent, nor does he work in the industry. What does he know about the agent’s incentives? How much research has he put into this?
Mr. Taylor describes, “how the realty industry operates,” but what does he know about it?
If a reporter were to say, “Let me tell you how Occupy Toronto really went down,” and he went on to describe that he had slept in a tent for three weeks while posing as a protestor, then I would say, “Okay, I’m all ears.”
But Mr. Taylor is giving “inside information” for an industry he knows nothing about, and his advice is tragically flawed.
Mr. Taylor surmises, “A quick sale benefits the agent,” and goes on to describe his one tragic tale of selling his own house. He paints the entire industry with the same brush, which is incredibly irresponsible.
I’m here to tell you that the big money comes from a quick sale, not leaving your property on the market to rot for three months.
Mr. Taylor says, “Don’t get rushed into the bidding war,” and this is quite possibly the worst advice I have ever heard.
Under-pricing your home and soliciting multiple offers is a time-tested technique, and like it or not (I’ve shared my mixed views…) this is the best way – nay, the only way to obtain more than fair market value in today’s market. Buyers will buy with emotion, and being caught up in a frenzy on offer night usually pushes one or more buyers to give way to logic and pay more than you might have expected the property to sell for.
How can you advise against this?
I’m not going to re-hash the way to list real estate in Toronto in 2012, but if all goes well, and you’ve spent weeks getting your property for sale, and you’ve priced it so that hundreds of potential buyers come through the door and several of them make offers, then you’re going to get maximum value for your home.
What’s the alternative, Mr. Taylor? Price the property at 130% of fair market value and gradually decrease the price over the coming months?
Mr. Taylor, advising – as a writer, and not a Realtor, that sellers “Don’t get rushed into a bidding war,” is like a writer suggesting that you shouldn’t “rush to the doctor to get that pre-cancer screening.”
Speaking of which – I’ve been in and out of hospitals all my life with sports injuries, but that doesn’t make me a doctor. I don’t give medical advice. So why is Mr. Taylor qualified to give real estate advice because he’s sold one house, as per his article, and because he’s good with a typewriter and/or a pen?
Mr. Taylor doesn’t offer any research of his own – he’s just a writer. The only “research” he’s offered is quoting the infamous Freakonomics hypothesis that Realtors don’t care about what a house sells for because they don’t make much more of a commission. That hypothesis was linked together with the evidence that Realtors leave their houses on the market longer than the general public, however that study was based in America, not Canada, and it was conducted years and years ago under different market conditions, and in a different system. I can tell you that most Realtors in Toronto will list their houses, on average, for eight days. Because if they’re smart, they’ll list on a Tuesday, take offers the following Wednesday, and set it up for a bidding war – exactly what Mr. Taylor suggests that people do NOT do.
Mr. Taylor’s inaccuracies continue with the article, as he begins to explain “how the realty industry operates,” as if he has a clue.
He explains that “agents who work for big-name firms have to charge a lot because they’re charged big fees, as much as $2,000 a month.”
Really? What is this statement based on?
I work for a big-name firm: Bosley Real Estate. They charge me less than $2,000 a month. How much less? Well, about $2,000 less…
Some of the franchises charge “desk fees” to their agents, but those agents are receiving far better commission splits. It all evens out over time.
Mr. Taylor should have interviewed ten firms, posing as a new agent (isn’t this what journalists do?) like a writer presumably would post as an Occupy Toronto protestor, and actually asked these firms what they charge.
I don’t know of a firm in Toronto that charges its agents $2,000 per month in fees.
Mr. Taylor continues his advice down the page, this time as a Dear Abby soothsayer, and offers, “You should always negotiate the commission. Before you even let an agent in the door, ask them what they charge.”
I’ve made no bones about it: I have a fixed commission rate for every transaction I do. I work for a full service brokerage, and I am a full service agent. I am also in the top 1% of all agents in Toronto, and I believe I work harder and longer hours than any other agent that I know of. I don’t represent the entire industry, but rather I represent myself. If somebody wants me to list their property for a reduced rate and simply “cut out all the extras,” then they’re asking me to sell them a Lexus with no engine, no wheels, and no roof.
How can you ask somebody to negotiate on their commission “before you let them through the door” when you have no clue who they are, what they do, what services they offer, etc.?
Make no mistake – there are thousands of agents in Toronto who will work for less than the traditional rate, but that doesn’t make them good at what they do. I encourage sellers to explore all their options and decide on the value for themselves. If somebody wants to take a risk on the disposition of their largest asset, then that is entirely up to them. But Mr. Taylor acts as if a seller is getting a raw deal if they spend money to hire a top agent.
I remember two years ago when I sold my brother and his wife a house, and then sold their condo. My brother never asked me about my commission; he just signed the papers, and I got him seven offers and set a record for the price in his building.
Months later, somebody made a remark about me not “charging my own brother,” and my brother defended me. He said, “Dave is a top agent, he’s the best at what he does, and I trust that he’ll get me top dollar for my property. I work 70 hours per week, and I don’t have the luxury of doing any of this myself.” But he added more to the argument when he compared my value to that of what he sees in his own industry. My brother works for a pension plan, and he said, “When we buy a billion-dollar piece of infrastructure – you don’t think we’re going to pay somebody tens of millions of dollars to consult on the purchase? How irresponsible would we be if we went ahead with that purchase without using the services of an expert?”
Mr. Taylor concedes, “the cheapest agent is not necessarily the best, neither is the most expensive one.” Oh, well that’s helpful. So pick somebody in the muddled-middle, and aspire to mediocrity.
One of the myths that Mr. Taylor offers up is something I know to be absolutely true: “You get what you pay for.”
There are always exceptions to the rule, but nine times out of ten, you do, in fact, get what you pay for. And that’s why full-service brokerages in Toronto continue to flourish, and why Realty Sellers is more focused on their $540 Million lawsuit against CREA and dozens of individiuals than actually selling real estate. Realty Sellers is a bit of an misnomer, no?
But perhaps that’s a topic for another day. And I don’t want my name added to that list of people being sued, but I think the list includes the Pope, Bill Clinton, and Veronica from the “Archie” comics, so perhaps it really doesn’t matter anyways…
BillyO
at 8:05 am
Glad you addressed the Freakanomics thing. Missed that Globe article, but this was an excellent rebuttal. The only thing the writer was right about was ‘don’t hire a friend/cheapest agent”
Speaking of agents, so what’s the deal with you vs Condo Shill, er I mean Condo Man? I’m guessing he takes issue with you crapping on his beloved CityPlace? Whatever the case, we want to hear it! Maybe a 2pac style ‘Hit ‘Em Up’ diss track (or in your case, YouTube video)?
Moonbeam!
at 8:59 am
Glad to see you discussing this article, because I nearly choked on my coffee when it read it while out of town! The writing so obviously lacked depth, and the points & takeaway tips are so superficial, he could’ve been sitting in his bathtub making it all up…
I’ve seen better-researched articles from my Gr.6 students.
As a retired teacher, I give his essay an F.
I understand your reluctance to address this article at all — why give the writer any credibility? I despair that any of his readers would pay any attention to this article. It should’ve been a throwaway in the 24 or Metro….
Ralph Cramdown
at 10:11 am
So how did you decide what rate to charge? Did you charge your sellers less and rebate commissions to your buyers when you were a new, inexperienced agent, and gradually raise your rates as you gained experience and (hopefully) skill?
Gerrit4
at 10:21 am
Interesting article David, I’m glad to see your opinion on this.
I would be curious to see an article about the pros’s and cons of selling privately vs. with a broker, and if you have any stats or examples. I guess on a home that sells for $500,000, approximately $12,500 would be going to the selling agent/agency. Would a private seller generally only find their unit selling for $487,500? Or would a private seller run a higher risk of making their property sit on the market and become unsellable?
I certainly don’t mean this as a challenge, but I am curious of your opinion on it. I know it’s a lot of work to sell a home, but is it worth $10,000* to the seller? I’m sure it’s more work for the seller, but that’s a lot of money. I feel that selling privately is a better option than going with a poor selling agent, almost undeniably. But what return does a great selling agent get you for $10,000?
I know that your home is your biggest investment and is worth spending the extra money on. But what’s the return on the $10,000? That’s still money out of the seller’s pocket – at the end of the day spending an extra $10,000 on selling your home has the exact same effect as spending and $10,001 on a coffee – they both leave you ten grand poorer.
* Number changed to $10,000 as I believe private MLS listings cost about $2,000
Scott
at 8:36 pm
Gerrit4, have you not heard of the principle of spending money to make money?
Or, put another way, if a top-flight agent can get you an additional $50,000 for your house (as I thought David explained quite clearly in his post), is it not worth $10,000 to obtain that service?
To paraphrase your final paragraph above, spending $10,000 to make $50,000 is the same as making an investment with a $40,000 return — they both leave you forty grand richer.
Gord Martin
at 12:33 pm
Well done. Here was my blog rebuttal: http://ow.ly/9HxAH Seems I may have gotten the gender wrong — hey, apologies to all the Fabrices out there but I thought it was a female name — but otherwise we’re pretty much on the same page. I referred to the insider claim as “insider-out”. To get really upset, start reading the comments on the article online at the Globe. Sigh.
Gord
Kyle
at 1:24 pm
@ David
After reading Mr Taylor’s article i agree, that his advice is terrible. In some cases his penny wise pound foolish advice will cost sellers much more than it will save them.
When you’re selling, there’s no point saving 0.5-2% percent on commissions if you’re leaving 5-15% on the table. There are agents who specialize in a property type or a specific neighbourhood, who consistently get more for properties than mere mortal agents could. I am convinced in many cases it is the marketing and buzz that these specialist agents create, that in a lot of cases have made some neighbourhoods so hot. They don’t put houses on the market until they are completely ready and look their best, they market the hell out of their listings and they promote the communities they work in. Often the result is a new record eveytime they sell another house, which consequently raises the profile of the entire neighbourhood.
Kyle
at 1:34 pm
I’d be interested to see what a real expert’s advice is on How to Hire an Agent.
Johnny
at 4:30 pm
Here is an expert’s advice on How to Hire an Agent: http://www.getwhatyouwant.ca/2012/02/10/how-to-pick-a-great-realtor/
TG
at 2:44 pm
Hi David (and Gord from the above comment)
Very interesting reading your blog posts. Here’s a question I’ve always had and would love to hear your thoughts.
If my house sells in a day, or two days at a price way over list, why should the realtors benefit from that enormous upside? Surely it’s the market doing most of the selling, not the skills of the realtor.
What I would like to find is a realtor whose commission was capped at the list price – but I can’t see many of you going for that. Why not?
jeff316
at 9:13 pm
And I’d love to find a flat-fee plumber.
TG
at 12:15 am
@jeff316 – it must be fun to write cryptic comments on a blog, chuckling in your basement at your clever wit. I’d probably be chuckling too if I knew what your comment meant. How about we try writing in complete sentences and elaborating on your thoughts?
jeff316
at 11:58 am
I’m sorry the fact you didn’t understand my comment made you feel insecure about your post.
“What I would like to find is a realtor whose commission was capped at the list price – but I can’t see many of you going for that. Why not?” Expecting someone to value their own services so obviously against their own self-interest is utterly irrational.
You want a realtor whose commission goes down if the house gets under list, but doesn’t rise if the house gets above list?
I want to live in that world too. I want a plumber that will price me a job with a discount if he finishes early, but also a flat fee incase it takes five days and my basement floods.
(Even if that were remotely sensical, think of the implications of that for a second. Everything would be over-rpiced up the yazoo in about five seconds.)
jeff316
at 12:10 pm
…and I’ll be a lot closer to being able to post comments from my basement once I find this plumber.
Darren
at 1:19 pm
It’s easy. If you have a specific job find one that will quote you based on the job rather than by the hour.
jeff316
at 12:00 pm
If you have a plumber that will guarantee a flat-fee a basement washroom rough-in and a sump pump installation you’d make my year.
jeff316
at 12:01 pm
Oops forgot my email is jcr316@live.com
Darren
at 4:15 pm
You don’t need my help. You get quotes and you put it into a contract. It’s not difficult. I’m an electrician and I can work by the hour or I can work from a quoted price. The extra costs are almost always incurred when people change their minds or sometimes when unexpected complications come up. Comparing selling a static object to hiring a tradesman is silly.
Chuck
at 7:50 pm
Bravo Sir David!
Well done!
By the way Gord needs to stop hijacking traffic from this blog to his own. Just sayin’!
JC
at 1:16 pm
Everyone makes such noise about commissions.
What they don’t seem to realize is that you DO get what you pay for. Often, its the little things that make it easy for other Realtors to SEE your property that make the difference. Like having the intelligence to tape a business card to your lockbox that is piled on top of 50 others on a stripper pole outside a new condo that won’t allow lockboxes inside the property. Hell, even a bright pink ribbon would help.
The other night I was trying to show on Bruyeres Mews (wth?). Lockboxes on the construction fence across the street, about 20 of them. Couldn’t find the right one. Called the listing brokers office and the Agent says theres no card or identifying mark on hers. Great. So I’m out there in the rain trying anything not marked. No luck. I spoke to her again today to try showing it again and she said she checked and it’s there. But someones moved the box. I asked if it was now marked with a card or something. She answered like I was the crazy one for asking.
I don’t know what she’s earning, but it’s too much.
Gerrit4
at 9:55 am
“You DO get what you pay for”
“I don’t know what she’s getting but it’s too much”
Those two statements heavily contradict each other. If you got what you paid for, it would be impossible to pay her too much.
I have no doubts that by underpaying an agent, you run the risk of lesser service. But the reality is that as a buyer or seller you are paying the agent/agency in the area of 12,000 to 25,000 dollars. Is a good agent 10,000 better than a bad agent? Is it $20,000 better than no agent at all? If a selling agent costs 20,000, wouldn’t most people be better off taking a 2-month leave of absence from working and selling their home full time?
There was a burger place downtown that sold a $100 burger. I have no doubt that it was a better quality and tastier burger than something from a fast food joint. But is it 20x as good? Would I get twenty times the satisfaction as a greasy spoon burger? Not even close.
The thing I’m still not sure of is what the return on investment is with a good selling agent. What does a selling agent get you for $10,000 that you don’t get selling a place privately.
Paully
at 3:35 pm
If you underprice a property substantially and successfully induce a bidding war that brings a crazy high price, shouldn’t the sticker that you slap onto your sign the next day say “Bought” instead of “Sold?” It seems to me that in this market, “Bought” is the far more accurate verb.
JP
at 3:52 pm
I don’t disagree that the article is largely worthless, but the author states don’t “get rushed in a bidding war” not “into a bidding war” as you state. The author is simply saying you should work the bidding parties as much as possible and not settle immediately. The author is not saying don’t set up or use the bidding war method.
Cathy
at 8:12 am
I agree, that the number of real estate agents and salespersons is one of the reasons why this career has such a bad reputation. Maybe, it’s time to look closer at real estate education in Toronto. After reading Mr Taylor’s article, I also bet that such advice would rather lead to harm to whole sector. Yes, sometimes it’s good to label article by either “journalism” or “fiction”.