In writing the article "Why Didn't My House Sell" I neglected to mention another trend becoming more prevalent though it has no proven track record of success, and that is higher-than-average co-brokerage fees paid to the buyers' agent and other inducements to provoke a showing.

In culling the expired listings I ran across everything from a 6% co-broke fee to a drawing for a free week's vacation in a beachfront condo in the Caribbean. And, as previously noted, these listings all had expired.

Some argue that most agents will steer their clients toward the homes with these type of inducements without disclosing the extra payoff they will receive if their buyers purchase. While I can't say this never happens, the implication that a majority of real estate professionals would violate their ethical fiduciary responsibility to their client over a few hundred dollars is repugnant. And it's also untrue.

For all the discussion and hand-wringing among real estate professionals about disintermediation - the elimination of the so-called middle man in transactions (and the real estate agents in terms of real estate) - we as a whole seem slow to recognize that the rise of the Internet and buyers' increased use of the web in searching for real estate is making such buyers' agent bonuses irrelevant. It is not the agents driving the bus, so to speak. It is the consumers.

I send properties to my clients (regardless of the co-brokerage fee being offered, incidentally) and inevitably my clients will have selections of their own that they found either through the property search on Dalton's Arizona Homes or elsewhere. To believe that I am the sole selector of homes and therefore able to guarantee myself these bonuses is ludicrous. (It's equally ludicrous to believe the Internet will eliminate my role in a real estate transaction, which is at the heart of disintermediation theory. Change? Absolutely. Eliminate? Never.)

All these financial inducements cannot compensate for proper pricing and aggressive marketing. The rest is just fluff.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

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

As a journalism major you would think I would know the inventor of the "three-dot" column off the top of my head - Jimmy Breslin, perhaps? I'll have to look it up shortly. But I'd rather not let that detail get in the way of a few random thoughts in three-dot bandit style ...

Read yet another article this week encouraging buyers to negotiate the commissions their agents receive before beginning their working relationship. Two interesting sidelights - one, the agent writing this article suggested offering a $1,000 non-refundable retainer to the buyers' agent at the outset.  "Mr. and Mrs. Buyer, ready to buy? Great, make the check out to me and we'll get started." - a great setup for the agent, maybe not so great for the client. Two, the article said if your agent isn't willing to accept the flat rate suggested, move on to the next because there are many, many underemployed agents in the Valley right now. Absolutely correct ... and for the cost of helping a new agent learn from their mistakes on one of the biggest purchases you'll ever make, you too can sponsor a starving agent.

There are two reasons why agents are underemployed in the Phoenix market - they either are brand new and haven't built the business, or they haven't built the business over time and they deserve their underemployed status. Would I have made this argument when I got my license two-plus years ago? Of course not. But that also was $8MM in sales and three-dozen transactions ago.

Want to support an underemployed agent, many of whom double as friends and family? Take them to Oregano's for a slice and a pop ...

Spent most of yesterday preparing the initial mailing to Westbrook Village, with preparing defined as printing and sorting letters and stuffing envelopes. Today will be spent putting together the bulk of the content for the website. One of the group members, Gail McCarroll, had a great idea (later named by John Vescova in my office) of "Life After Westbrook." I think it's going to turn out pretty well ...

Speaking of the website, here's the world debut of the banner:

If all goes well, the website will be up and running by Halloween ...

There are no numbers to support this contention, but I'm seeing signs of the market picking up. Internet leads are on the rise, Tobey's ears are getting perky, and this week I received two offers on a property that had been on the market unloved since June. And another two calls came on the property after it came off the market. It's anecdotal, but I'll take it ...

Off to Ahwatukee tomorrow where I hope to see the Arizona Fury Boys 97 United's first-ever victory ... think good thoughts.

 

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

During my first year of college I enrolled in a class on logic, as I needed an "honors" course as it were as a term of the conditions of my scholarship. In short, the course was a linguistic equivalent to the joyous geometry classes I despised in high school - my thinking being, if Pythagoras says his theorem is correct, why do I need to prove it? I'll take his word.

One item that always stayed with me was the ad hominem argument, the last refuge of those with no other means of defending their point. It's also dear to my heart as my children are experts: "I know you are but what am I?"

I've learned to avoid most bubble blogs, and even a large portion of the bubble debate, because of the prevalence of the ad hominem argument. There's little interest in actual discourse. Rather, this crowd is interested solely in capitulation - confess your sins upon the altar of the Bubble Gods or else! Any attempt to discuss the issue in any rationale manner only proves your status as a heretic.

It was interesting to see the same logic has entered into the buyers' compensation debate. Either agree that flat-rate or fee-for-service compensation or face the withering bluster of an ad hominem attack.

Sadly, capitulation really isn't in our nature. Not this boy's. And certainly not in Tobey's.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes

This morning I crossed paths with the concept of procuring cause, the tenet by which real estate professionals earn their commissions. While it seems to be an agent-vs-agent issue, it also can have ramifications for the consumer.

In short, procuring cause is the action (or actions) which leads a prospective buyer to write an offer on a given piece of property. Simply sending automated listings, as I do to two dozen clients and prospects on a daily basis, generally would not be recognized as sufficient action; showing a property to a prospective buyer can elevate a burgeoning real estate level to the level where procuring cause can be shown. Other such actions are recommending lenders, other professionals related to the offer and, naturally writing the offer.

This morning I met with someone who had driven past a horse property in Avondale. Since he was not working with a buyers' agent, he called the listing agent and discussed the property. He set an appointment with the listing agent and met with her over a weekend to view the property. She even went so far as to recommend a lender to this prospective buyer.

Rather than use his lender, he called USAA Mortgage and was prequalified with the caveat that he sell his house. This set in motion of chain of events (USAA calling my company's relo department, as we're a preferred vendor; my relo folks calling me as I'm a USAA Certified Relocation Specialist; me calling the client yesterday to set an appointment) that led to me meeting with them at 7:30 a.m. The rush was needed because the listing agent had told the buyers that she was expecting another offer and they needed to hurry if they wanted to submit an offer. And having to submit their offer quickly and given they had to make the offer contingent upon the sale of their house, they needed to get them home on the market pronto, ready or not.

Nothing about the above scenario was particularly complicated except this ... along the way, the buyer decided they would prefer independent representation in negotiating the purchase of this horse property. And it was here that the challenges began to mount.

Legally, any licensed agent could write an offer on the buyers' behalf.  But since the listing agent clearly could show procuring cause, there was no guarantee this agent writing the offer would be paid in the transaction unless the listing agent were willing to make some sort of accomodation in the interest of selling the property. This agent was not so inclined. That left three possible scenarios:

1) The buyer pay for their own representation out-of-pocket. In what adds to the body of evidence suggesting that the idea of buyers paying for their own representation out of pocket isn't as cut and dried as some would have you think, requiring this of the buyers likely would have left them without enough of a down payment to purchase the new property.

2) The buyers make their offer contingent upon their agent being paid. This would be a delicate maneuver for two reasons: first, agents are not permitted to negotiate commissions in the contracts they write. But if the buyers are the ones making the request, welcome to the Grey Zone. Second, even if the sellers were willing to pay the buyers' agent, this doesn't lessen their financial responsibility to the listing agent - the commission is set in the Exclusive Right to Sell form and cannot be altered outside that agreement by anyone other than seller and listing agent/broker.

3) The agent could write the offer and not receive any compensation; the sole compensation would come with the listing. Idealistic, perhaps. Realistic, probably not - not for reasons of greed but for logistical and legal reasons. Once the offer is written, the agent has assumed responsibility on behalf of his brokerage and now becomes liable for a number of different items in the transaction. Liability without compensation is professional suicide.

In the end, the client elected to use the services of another agent to write the offer and cross swords with the listing agent. Again, legally, anyone can write the offer - not anyone can get paid. But these buyers also now will be dealing with a listing agent being forced to present an offer from clients (and a possible commission) she fully expected to have herself. Could that make for a less than ideal scenario when their offer is presented?

You can be the judge.

So how can this be avoided? In some cases, the urge to call on a property can be overwhelming for a prospective buyer, even one who had no intention of moving when they left the house in the morning. However, in their own best interest, it might be best to stifle the urge to schedule immediate appointments and instead come home and plan ... if you do not already have a real estate agent, find one. Independent representation always is the better course of action (though I'm not as manic about it as some anti-dual agency advocates.)

Call a family member, ask who they have used. Talk to a friend. Or jump on the Internet and e-mail or call the first guy you see with a really cute beagle - who also, coincidentally, knows the contract more thoroughly than a large percentage of his peers (the man, not the dog.)

Picking up the phone may seem harmless enough but it truly does have far-ranging ramifications.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes