60 Minutes—A big disappointment

I’ve always been a fan of 60 Minutes on CBS. Their stories are usually interesting and they usually bring to light facts that one doesn’t usually hear on the nightly news shows.

But a week ago, the piece they did about real estate was a big disappointment, to say the least. It was extremely slanted and wasn’t even accurate. There are many objections I could talk about, but I will focus on only a couple of the more important issues raised.

The introduction to the segment began: "For realtors, the six percent commission is sacrosanct. It's remained in place, even as the price of homes has quadrupled over the past 25 years," goes the set-up. "But as correspondent Lesley Stahl reports, things are beginning to change. What happened to travel agents, stock brokers and book sellers -- the encroachment of the Internet -- is beginning to affect real estate agents. And the sacred six percent is under assault from online discounters."

As Blanche Evans of the Realty Times notes: “the six percent commission is not sacrosanct. In some areas it's seven percent, but in most areas it's less, because competition -- brought on by the swelling of agents into an already highly competitive business -- has reduced commissions and gross incomes for most Realtors.”

She goes on to refer to an internal report from the National Association of Realtors® (NAR), which found that commissions typically range from 4.3% and 5.3% as of 2005. And income for real estate agents generally has steadily declined as membership in NAR has skyrocketed during the past couple of boom years. According to NAR’s 2007 member profile, the median gross income for all Realtors in 2006 was $47,700, down slightly from 2004 when median gross income was $49,300. And that’s before expenses, which are significant

These are hardly incomes to write home about as the cost of living has increased. Many students just graduating from college are offered jobs with higher starting salaries than that and the only deductions they have are taxes--not business expenses, such as advertising for listings, internet websites, MLS dues, license fees, gasoline for showing properties, increased FICA deductions for being self-employed, to mention just a few.

In addition, the average agent does not receive the entire commission. Whatever commission the seller is paying is divided 4 ways—listing agent and listing company, selling agent and selling company. The result is that the agent usually gets about 1.5% or less of the sales price of any property, unless the listing agent sells the home. The implicit theme in the 60 Minutes story of Realtors gouging the public is just not accurate.

Another topic alluded to was the fact that many states have minimum service laws. Stahl’s interpretation of these laws was that they constituted a restraint of trade and prevented discount brokerages from existing in the states where they exist. What is not mentioned is that these laws were put into place to protect the public after many complaints from the public to licensing entities in the states where they exist.

Allyson Hoffman, a Realtor in Illinois, explains in her blog response to the 60 Minutes segment that the minimum service law in her state was one such law—there were so many complaints that legislators felt that consumers needed an assurance that at least basic real estate services were being provided by the discounters. In addition, Hoffman notes that full service real estate firms provided their sellers with more money in their pockets than did discount firms and sold their homes in less time, another fact that Stahl ignored. The issue is not really whether there is a 6% commission or something less, but rather what puts more money in the consumer’s pocket at the end of the transaction. Studies from NAR have supported Hoffman’s assertion.

A major problem with the 60 Minutes piece is that it was totally one-sided. Most of the people interviewed were from high-tech companies or discount brokerages. NAR worked with the producers of the piece for almost a year, and yet they declined to interview anyone from the organization to provide a balanced report. Instead NAR got the so-called “empty chair” treatment, a throw-away line that NAR disputed some of the claims of those interviewed. The absence of a NAR spokesperson gave the opposing views presented more weight to further the biased point of view of the piece. And the real estate agent they did interview was not articulate or capable of speaking to the issues raised.

I could go on and on. Ultimately the piece was a promotion for discount and internet companies who provide little or no fiduciary counsel to their clients and fed the current realtor-bashing debate. The bottom line for me is that I really don’t understand why people think that Realtors make too much money for what they do. I guess it’s because most people don’t really understand what we do.

How many people would work hours and hours without being paid for it? Real estate agents do it all the time—the sale that doesn’t close because of unresolvable problems or because the buyer was not approved for the loan, buyers who occupy hours (even days) of an agent’s time (and gasoline) and then go purchase a “for sale by owner”, sellers who change to a different agent when the listing period is up because they priced their home too high (contrary to the advice of their agent) after the agent has spent hours and hours on the sellers’ behalf and paid for numerous newspaper and magazine ads, internet advertising, etc.

The current commission system is antiquated, based on a system where the real estate agent takes all of the risk and assumes all of the expenses with the hope that the transaction will close so that the agent will finally get paid for all of the work he or she has done. Some of these tasks can indeed be done by the home seller (i.e. flyers, open houses, etc.). However, the most important services of real estate agents are to provide fiduciary advice and counsel to their clients, based on their experience and expertise, as well as to trouble-shoot problems that may arise in a transaction, provide a “buffer” between buyer and seller, and negotiate on behalf of their client. These are services which merit payment whether there is a sale or not.

There are new models being developed for payment of real estate agents, but they are not yet widely used in the industry. One is a consultant model, whereby Realtors would be paid by the hour or by the job, much like lawyers, doctors and others. The goal is to provide choices based on the client’s needs and actually get paid for the services provided, whether there is a sale or not—a much more logical approach. More on this in a future post.

Yes, Stahl was right on one thing--technology is assuming more importance in the industry, but there is no substitute for an experienced professional. I provide MLS listings and other on-line services to assist my clients and potential customers and provide better service. But the internet is just one of many tools in my toolbox. Real estate is still about relationships and people-to-people contact, so I value my clients, especially those who wish to have me serve them in the sale of the property I helped them buy and those who thought I did a good job for them and recommend me to their friends and colleagues. As Mollie Wasserman, an agent in Massachusetts, states in her internet warning:

REAL ESTATE INTERNET WARNING: Despite advertising claims to the contrary, the internet is not an experienced Real Estate Professional. It cannot consult, counsel, advise, have knowledge of local laws and market conditions, make judgments, “own” the result, or most importantly, understand your individual goals and needs and care about you as a Client.

I work hard for my money, and I strive to provide the best service possible to help my clients either buy or sell what is (for most folks) the largest purchase they will ever make. Buying or selling a home is not a simple thing that can be done on the internet. And I’m sick and tired of the general public’s perception that I don’t DO anything to earn my paychecks. Realtor bashing may be in style, but it’s not fair to hard-working agents all over the country who put clients’ needs above their own, solve innumerable problems, and work long hours (including evenings and weekends) to assure that the transaction will close, just so we can finally take home a paycheck. We deserve to earn a living wage too.

To view the NAR response:

http://www.realtor.org/about_nar/60_minutes/NARRespondsToSixtyMinutesMain.html

For additional commentary about the program and the issues:

http://realtytimes.com/rtapages/20070515_sixtybiased.htm

http://realtytimes.com/rtapages/20070518_narresponds.htm

http://tinyurl.com/2cz22o

http://www.realestatenorthernillinois.com/blog_post.asp?post=2182

http://realtytimes.com/rtapages/20060621_banksnewspapers.htm

http://www.realtor.org/home_buyers_and_sellers/nar_works_for_you.html

Fayetteville and One Developer Cooperating to Offer Affordable Housing for City Employees

I want to commend the City of Fayetteville and developer Hank Broyles and his partners, John Nock and Lex Broyles, for their cooperative efforts to create affordable housing for city employees. As you know affordable housing is one of my "pet" subjects in this blog.

Some expensive road realignments were called for at Broyles’ new Holcomb Heights subdivision of 105 homes. The city agreed to pay up to $50,000 towards the costs if Broyles would agree to lower the price on some of the homes.

The least expensive homes in the subdivision were expected to cost $131,000. With the city’s financial help on the road expenses, Broyles said he would be able to lower the cost to $120,000 on six homes. Broyles said he would market the homes directly to city employees because the average city worker would be able to quality for a mortgage on a $120,000 home.

It is important to note, however, buyers do not have to be employed by the city. The homes will be sold to anyone who qualifies.

We all know that municipal workers are needed and appreciated. Police officers, firefighters, office staff, meter readers, park workers, sewer maintenance people - none are over paid by any standard. Without these workers, the city would be a disaster.

Currently more than 50% of the city’s employees live outside the Fayetteville city limits. It is generally believed they cannot afford to live in the city.

It’s refreshing to see what can be accomplished when all parties cooperate. While this innovative cooperation between a developer and the city will lower the cost on only six homes, it is a beginning. It is also a clear example of what might be accomplished in the future.

For more information:

http://www.nwanews.com/nwat/News/52303/