Nov. 3, 2006 - Analyzing the Spoon |
A few days ago, the gentlemen at sellsius reminded us all that there is no spoon. As this was the last post I've seen out of them, they since may have fallen victim to Agent Smith (follow the white rabbit, Neo) but that's neither here not there. Most interesting about this post was the complete lack of context. All we know is Keanu Reeves is being told the key is understanding there is no spoon.
As I looked at the picture, I realized the concept applies to many of the hot topics in the real estate blogosphere today.
Take, for example, the quest for finding the true valuation of a property. Zillow has its zestimates and eppraisal.com has its range of values. Zillow trumpeted the accuracy of its estimates, at least until they were called on some of the more glaring inaccuracies, while the folks at Realty Thoughts are clear from the get-go that their range is only an estimate and not a replacement for the work of an appraiser or real estate agent.
Having said that, even a full-fledged appraisal is nothing more than an opinion (albeit a reasoned opinion) about the value of a property. It is based on recent sales in a given area and adjusted according to the merits (and challenges) of the subject property. Appraisers bend the numbers like Neo and the children bending the spoon, but the truth of the matter is ... say it with me ... there is no spoon. Three appraisers can look at the same property and assign three different values but which is the true value? All of them? None of them? Is an answer possible?
Now let's say we find three appraisers to all agree on a certain value. Does that mean this is the price the seller can expect to receive should they decide to sell? Absolutely not. Market factors, completely different than the factors used for appraisals, enter into this equation - where currently listed homes are prices, at what prices listings have expired, the amount of traffic through a house at a given price. Oh, and also the size of the house.
The size of the house, you ask? Absolutely. As a home's square footage grows, it's market value on a price per square foot basis falls. There are a number of reasons for this but human nature and market mechanics are the dominant two; demand is stronger for the smaller homes than the larger ones, creating a larger pool of buyers and more competitive prices while human nature is such that buyers get antsy if the list price creeps toward magic numbers (such as a half million, etc.)
Is there one set market value for a home? Well, eventually there will be - only after buyer and seller have agreed on a price. But for the agents trying to calculate what that price may be, we fall back to dealing with one person's opinion. Three different agents easily can lead to three different perceived market values.
(Circling back, once an offer has accepted and the buyer and seller set their market value, it's then up to the appraiser to determine if that figure is reasonable enough for a lender to finance the loan. Most often, the appraisal agrees with buyer and seller which then leads to the appraised value being adjusted to meet the market value even though appraisal and market value most likely were two different figures when the transaction started.)
Sound confusing? Convoluted? Just plain insane? You either can follow Jimmy Buffett's recent advice - Breathe In, Breathe Out, Move on - or accept the reality that ... yes ... there is no spoon.
The spoon test also can be applied to compensation for buyers' agents. Some will argue the buyers are paying for their representation because they bring all the money to the table and the compensation is priced into the home. Some will argue that the seller is paying the buyers' agent because the commission paid represents profit that has been surrendered in the name of making a deal. Without delving too deeply into the issue (for that, you can go here or here or even here), I'm absolutely confident in saying there is no spoon.
 There is a physical manifestation - the check the agent ultimately receives - but for the buyers and sellers plugged into the Matrix of Real Estate (not to be confused with the Matrix blog) the commission does not physically exist. Neither will see it. The buyers almost certainly will pay the same price regardless of the commission. The sellers already wrote off the additional money when they signed the listing agreement. We argue over possession of the spoon but there is no spoon.
Next topic: "Do you believe that is air you are breathing?"
(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes |
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View more entries tagged with: Commissions, Buyers, Sellers, Appraisals, Eppraisal, Zillow |
Nov. 5, 2006 - re: Analyzing the Spoon |
| Posted by Mary |
| Interesting analogy to one of my favorite films. |
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Nov. 6, 2006 - re: Analyzing the Spoon |
| Posted by jf.sellsius |
| You got it Jonathan. We hoped someone would. Congrats. Fantastic post BTW. |
| Permanent Link |
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