The average real estate agent has never worked harder than they have in this market.
That seems contrary to the public perception that rising prices and a “hot” market is when agents have it easy, but extreme conditions aren’t conducive to a leisurely business model.
For example, when an agent sells their new listing the first weekend that it’s active for more than asking, it not only doesn’t mean things are easier for them, it can have a deleterious effect on their bottom line.
Listing agent challenges include:
- More difficulty procuring the listings. Competition is higher for the listing, and many homeowners need a plan on where they’ll go once they sell because that’s the biggest challenge. You have to have a detailed plan in beyond the sale, which is unheard of in any market I’ve ever seen before this one. Before this market the plan was “find a place to buy/move to.”
- Bidding wars aren’t fun, and can get messy. The passions around housing are high enough, but try explaining to a colleague why their cash offer $50,000 over asking is in 3rd position. And there is no margin for error, as the devil is often in the details on offers, and missing a key term can cost. If you meet an agent with bags under their eyes, they were likely parsing the details of 6-10 offers with a nervous client to help them make a decision.
- Appraisals can be a nightmare. When prices spike dramatically, the 6 month lookback at comparable sales is at lower cost transactions. Buyers can offer cash protection, but it’s not automatic and an appraisal $25,000 under contract price can spark some serious buyer remorse that reverberates to all parties.
- Greed. Sellers view the current market as a once in a lifetime chance to ring the bell, but it can blur their common sense and cause them to have unrealistic expectations even if everything goes right. For example, suppose a listing goes active for $800,000 and sells for asking price within the first week. Great, right? But if the seller had a fantasy that they’d get $860,000 in a bidding war based on what they see on the news, they need to be talked off a ledge.
- Lack of professionalism. There are 1.5 million members of NAR right now, up 50% from the housing crash. That means hundreds of thousands of rookie agents who have no substantive experience. When the market gets hot, old failures take their licenses out of mothballs, and newbies jump in with deplorably sparse training. Doing business with a poorly trained agent on the other side of a deal is brutal.
- Loss of income. This is counterintuitive, but all too real. Less inventory spread over a dramatic increase in agents is bad enough, but the big aggregators are getting in on the commission via onerous referral fees. We used to pay for advertising on Zillow, Trulia, and Realtor.com. Now those companies take referral fees of 35% on a typical transaction, meaning that if you sell a $450,000 property your commission is more reflective of a $300,000 closing. So higher prices not only don’t mean more commission, they mean lower earnings spread over fewer transactions.
Other issues are more inside baseball, but the model of the industry has always been predicated on the longstanding idea that carrying a listing for any period of time will develop new prospective client relationships with inquiries on the listing. When the listing is gone the first weekend, that can’t happen. I understand this means little to the consumer, but it’s a factor that can’t be denied.
On the buying side, agents representing prospective purchasers are in trench warfare. Buyer agents in our firm have fewer properties to show their clients, and many of our successful buyers have not hit paydirt until their 4th or 7th attempt to buy. That’s madness. Worse, buyers are selling their souls to get accepted offers by waiving inspections, offering cash to make up for appraisal deficiencies, and in some cases even waiving mortgage contingencies. Surrendering your own security and exposing yourself to that kind of liability is not only stressful and risky, it can be destructive if everything doesn’t go perfectly.
In any industry, volatility is not a welcome thing. Stability, even if it’s considered boring, is a far better market condition. Give me boring any day. Leave the volatility for the Oscars.
Stay tuned for my next post on why this is brutal for consumers as well!