What value do real estate agents add?

by Alistair Helm in

Agent with cash in pocket iStock_000016530240XSmall.jpg

There is a great line in the excellent book "What Would Google Do?" by insightful author and Professor of Entrepreneurial Journalism at City University of New York - Jeff Jarvis; in reference to how Google might reinvent real estate. He states his "enmity for agents and their oligopolistic fee structure .. it's not personal its financial!", he then goes on to say "I just don't understand the value they bring, but if you must explain your value, its not as great as you think!"

This line has resonated with me for many years. Value in any business needs to be highly visible, not something that needs explaining. Sadly real estate seems to need to justify its value-add rather than having open public advocacy of it. 

So it was with little surprise that I heard this story recounted by a friend last weekend regarding their recent personal experience of real estate service which only added to this questionable view of the value provided by real estate agents.

I do not propose to identify the agent or the company they work for. They know who they are and sadly I fear there may be other agents who may quake a little in their respective boots thinking it is them given the commonality of just such a situation.

My friend owns two properties, both within a small geographical area. They are not a seasoned property investor, merely an ordinary person who for personal circumstances recently down-sized and invested in a rental unit about 6 months ago. With the recent sale and subsequent purchase they had had contact with a few local agents in the area.

Units for Sale - Realestate.co.nz.jpg

Due to a change in circumstances in the past month they thought about selling the unit which they bought for around $500,000. As one might well do, they decided to contact the agent who facilitated the purchase of the unit for them to see what the market might be for such a unit and whether they would be able to sell quickly. A reasonable request and a useful opportunity for an agent to build a prospective business opportunity.

The agent gave a verbal response and then asked if my friend wanted a full appraisal on the property so as to be ready to market the property, my friend declined as they were unsure if they wanted to sell, it was at this stage just information.

A couple of days later the agent contacted them and said they had a buyer who had written up a conditional offer to buy the unit with the only condition being the desire to physically inspect the property. The price was good and the offer had no other conditions - seems great. However the stinger was the agent fee!

The agent wanted my friend to sign a listing agreement for the full fee of c. $20,000 before they would present the offer.

Now there is nothing wrong in the process undertaken by this agent, they have a willing buyer who they want to introduce to a vendor for which they wish to be compensated, that is fair - but the fee! The commission of c. $20,000 is the full fee - the fee typical of a full service listing with all attendant services of listing, marketing, facilitation, negotiation and completion. A process of upwards of 6 weeks worth of work.

My friend questioned quite rightly how an agent could conceive of charging c. $20,000 for providing so little of value - the response was somewhat as expected "I have to charge what our company stipulates as a fee for successfully selling a property"!

I find this situation (which I know is not uncommon) to be unbelievable on a number of levels.

1. Real estate agents regard themselves as professionals providing a service - the fee should be commensurate with the service - c. $20,000 for even a full days work is not commensurate.

2. My friend had a prior relationship with the agent and the agent knew my friend owned another property surely prospective future business opportunity would have been recognised and reflected in a realistic fee.

3. Does the agent not think that my friend would not share this experience with their friends, acquaintances and colleagues? - as they say you tend to tell one person of a good experience and 10 people of a bad experience.

4. Would not the agent have raised their professional standing and reputation if rather than going back with this one offer, instead gone to my friend with a proposal saying that they had this strong offer and recommending two options. Firstly consider this offer seriously as timing may be of priority, but also secondly why not consider marketing the property given this level of interest. The agent could have presented a full service marketing campaign together with a full appraisal of the property - very easy considering they only sold the self same property barely 6 months ago.

Real estate agents business is based on relationship and reputation and largely relies on referrals. How could anyone consider that proposing such a fee for such little work be conducive to building future relationship and business?

Needless to say my friend chose to decline the offer - their comment to me was that the experience had actually dissuaded them from even selling the property, it had left a bitter taste in their mouth - sadly "tarring all agents with the same brush".