Financial

How Bad Real Estate Agents Can Cost Sellers A Lot Of Money

As a buyer, you love bad real estate agents because you can take advantage of them to get better pricing. As a seller, you obviously want a good real estate agent so you can maximize your profits.

According to the National Association Of Realtors, there are supposedly around 1.5 million real estate agents today. However, there are way less than 1.5 million homes for sale in America. As a result, competition to make money as a real estate agent is fierce. The top producers consistently get the lion’s share of the transactions.

Let me be clear. Most real estate agents are not bad. Further, using the word “bad” is just a catchall term to include “inexperienced,” “disorganized,” “out-of-town,” or “aloof.”

Identifying bad real estate agents will help other buyers and sellers in the long run.

How Bad Real Estate Agents Can Cost Home Sellers A Fortune

I’m currently witnessing two examples of piss-poor listings that will cost two different sellers at least $100,000 each if they finally sell their homes. It saddens me how much money they will lose by going with their current real estate agents.

Somehow, the sellers got sold into going with them when these two real estate agents are not qualified. Not only will the sellers lose out on a lot of money, so will the existing homeowners in the neighborhood.

Therefore, I’d like to warn prospective home sellers what to look for in a listing agent. Selling a home is an already stressful process. Having the wrong listing agent makes the process that much worse.

Signs Of A Bad Real Estate Agent

Here are some immediate red flags that stood out based on these two real estate agents as well as my experience using one years ago.

1) Insisting on listing during an inopportune time.

Let’s say the Fed is about to announce its rate-hike cycle after three years and a nuclear powerhouse decides to invade a sovereign nation. Deciding to proceed with a listing instead of waiting may prove to be terrible timing. At the margin, homebuyers would rather wait and see what the Fed has to say and wait until there is a de-escalation of World War III before bidding on a house.

But because a bad real estate agent is inexperienced or anxious to move forward to make some money, they recommend listing anyway. Going ahead with a listing during an inopportune time can often backfire because a house will sometimes end up sitting on the market. Once a listing becomes “stale-fish” the vultures start swarming.

As a buyer, you want to look for properties that have listed during times of extreme uncertainty. Some other examples include the onset of a pandemic, after a natural disaster, during a military coup, following a terrorist attack, or during the winter holiday season. I love looking for properties during the winter.

2) Not knowing the basic details of the property.

I cannot tell you how many times I’ve gone to an open house and the real estate agent doesn’t know the basic details of the property. Not knowing is such an insult to the sellers who are paying a large commission.

The following details about the property need to be known:

  • Square footage
  • Lot size
  • Type of electrical wiring
  • Whether the sellers got permits for any remodeling
  • What was done during the previous remodel
  • When were the roof, water heater, and windows last replaced
  • Are there any liens on the property

If a real estate agent doesn’t know the basic information of the property they are trying to sell, they probably don’t know the comps or what’s in the 3R report either. Further, they probably cannot eloquently sell with conviction because they lack information. Huge red flag!

The more opaque the real estate agent, the more you may want to consider hiring a real estate lawyer if you really want to proceed.

3) Mispricing the property.

Yes, there is both an art and a science to pricing a property. However, bad real estate agents significantly overprice properties to their sellers’ detriment. Severely underpricing a property is less of a problem because it often creates bidding wars.

Overpricing a property occurs when you don’t know the neighborhood and don’t know existing and previously sold comps. Unfortunately, mispricing also occurs because the real estate agent so badly wants to win the listing. As a result, some real estate agents will overpromise on the selling price.

If you’ve never sold a property before or haven’t sold a property in many years, you may be more easily swayed by a real estate agent’s sales pitch to list your property. Therefore, it’s up to sellers to do their due diligence about the market and the real estate agent before awarding their listing.

A good real estate agent will know the past 5-10 recent comparable sales. They will also price the property at or slightly below market value to generate as much demand as possible. It is better to entice more buyers to bid with a slightly lower market price than shoot for a new record-high price. A good real estate agent will also follow the local pricing culture.

4) Not being familiar with the neighborhood

One of the mispriced listings I’m observing is a single-family home on the west side of San Francisco. It is a fixer that needs $400,000+ in work. That’s fine if the property was priced below $1,000 a square foot. However, the property is priced at $1,244 a square foot. Only remodeled properties are trading at over $1,200 a square foot in this neighborhood.

So why is the listing agent so clueless with her pricing? The listing agent specializes in selling luxury condos in downtown San Francisco. As a result, she has mistakenly transferred her expertise about one type of property in a completely different market to this one.

The other mispriced listing I’m observing is also a single-family home on the west side of San Francisco. Instead of pricing the property at a more reasonable $2,399,000 for a 5-bedroom, 4-bedroom, 2,432 square foot home, they decided to list it for $2,750,000. The agents are young and also based in Marin,n not San Francisco.

When I spoke to them about the neighborhood, they had no idea about the nearest bus stop, grocery store, or playground. These are important things to know for the target demographic buyers, which are mostly families. I asked them how they came up with the price and they showed me unreasonable comps they had clearly never seen in person.

Hire a real estate agent that knows your neighborhood inside and out. This way, they know what the true comps are because they’ve actually been inside them all.

Part of the reason why Zillow lost a fortune in their iBuying program is that they simply relied on public data. But as any experienced real estate investor knows, properties are often not what they seem online.

5) Not willing to be flexible with commission or come up with a creative idea to sell a property.

Selling a property is much more stressful than buying a property. I know because I’ve done both and wrote about my selling process here. Transactions fall through all the time. A bad real estate agent usually isn’t willing to come up with creative solutions in order to get a deal done.

Here are some things a good real estate agent could do to complete a transaction:

  • Reduce their commission to get a reluctant seller over the hill
  • Lower the commission for the seller, lower the purchase price for the buyer, and still make more overall as the real estate agent as a dual agent
  • Negotiate a rent-back agreement to give the seller more time to move out or find a 1031 Exchange property
  • Convince the buyers to pay some or all of the seller’s closing costs
  • Offer special concessions, like free lodging at the seller’s vacation property for four nights every month for one year
  • Skillfully create FOMO in the buyers by scheduling a private showing right in between two other private showings so everybody sees each other walk in and out of the property

Reducing Commissions Is The Easiest Move

The easiest thing a real estate agent can do is cut their commission to help the seller save. Let’s say the listing agent gets a 2.5% commission on a $2 million house. That’s $50,000. Meanwhile, the seller also has to pay a 2.5% commission to the buyer’s agent for another $50,000. Ugh.

Let’s also assume the offers came in relatively quickly in this strong housing market. The seller is having second thoughts. The seller also feels stupid for paying $100,000 in commissions when the buyers came so easily. Both real estate agents could agree to cut their commission by 0.5% each, resulting in a $20,000 savings to the seller.

A bad real estate agent would stand strong on 2.5% and let the deal expire instead of compromise and get a successfully sold listing on their resume. The excuses are always “I can’t charge less because my brokerage house prohibits it.” This is such stubborn and ridiculous short-term thinking for the sake of collusion. $80,000 in commission is better than $0. The cost to sell a property is still so high despite so much technological innovation.

6) Not looking presentable to prospective buyers.

If you plan to sell a big-ticket item like a house, you had better look presentable. When I tried to list my house back in 2012, my listing agent showed up to a private showing in a t-shirt and shorts. He was a friend who had just finished playing a tennis match. Come on buddy! Good real estate agents are respectful to potential clients by dressing well.

Another wrinkle to being respectable nowadays involves mask culture. When I visited the $2,750,000 open house hosted by the out-of-town Marin real estate agents, none of them wore masks indoors, presumably because Marin had already dropped their mask mandate. However, San Francisco had not yet dropped its indoor mask mandate. Therefore, many of the prospective buyers thought they were rude and clueless.

Properly reading the room is important in every social and business function. When in doubt, good real estate agents are more conservative with their appearance and mannerisms. They will dress professionally and treat people with great respect.

7) Not turning over every rock to find a potential buyer

A bad real estate agent is reactive instead of proactive. A great real estate agent will make sure to jot down the contact information from every person who inquires or visits. They will then methodically fellow up with every potential lead to try and illicit an offer.

A bad real estate is lazy and will think the property will sell itself. A great real estate agent takes nothing for granted and will try and get the maximum price possible for the seller.

Take Advantage Of Bad Real Estate Agents

Given commission rates are similar no matter which quality of real estate agent you go with, you might as well hire the most experienced real estate agent who has done the most number of deals in your neighborhood. They will have the credibility, the marketing skills, and the connections to get you the best price possible.

As a buyer, you need to take advantage of bad real estate agents. Go through listings that have been sitting for a while. Look up the listing agent’s sales history and see if there’s a big mismatch. Out-of-town agents and inexperienced agents are the best for getting great deals.

After a certain number of days on the market, the listing agent will start feeling a tremendous amount of pressure. This is when you should come in and try and get yourself a deal.

How Some Real Estate Agents Have Helped Me Save

Looking back at my purchase history, I clearly see how some suboptimal real estate agents have helped me get better pricing. They might not have been the best agents for the seller, but they still got the job done, which is what matters most in the end.

2004: Listing agent was an out-of-town agent who listed the property during a wet December. As a result, the listing sat and I was able to get $30,000 off the asking price. However, I also screwed up by letting an agent represent me and get a big commission, even though he did zero work because he was on vacation and I found the property. It was my second property purchase, so I didn’t have the confidence to buy on my own yet. If I was smarter, I could have saved another $10,000 – $20,000 no problem.

2014: A 72-year-old part-time real estate agent from out of town got the listing because he grew up next door to the sellers. He cut me a deal and shunned a higher offer due to our handshake agreement. He was an honorable man who also lowered his commission to the seller because he also represented me. Savings: ~$50,000.

2019: A 55-year-old out-of-town real estate agent from Petaluma had no understanding of the neighborhood. She was able to convince the sellers to go with me after only five days on the MLS. She was a crafty veteran so I had to watch out. But because she didn’t know the area and I did, she panicked at the thought of me walking. Savings: $150,000 – $200,000.

2020: A relatively inexperienced real estate agent decided to list the property in April 2020, a month after lockdowns. We developed a good relationship after hours of discussions during thew weirdest time ever. Ultimately, he convinced the seller to forgo a higher offer and go with me. As a result, we bought our forever home. I appreciate the agent’s willingness to work with us, which is why he’s my top pick if I were to sell. With two more years of selling experience under his belt, I’m confident he is a better agent today. Savings: $80,000 – $100,000.

Time To Buy More Real Estate?

One of the reasons why I like real estate investing so much is due to the inefficiencies. If you’re a savvy enough buyer, you’ll be able to take advantage of the kinks and save. If you’re a seller, you really should go with the most experienced real estate agent in your neighborhood.

The war in Ukraine has created a temporary dip in demand. As a result, I believe there is a mini-opportunity to get a better real estate deal today. If there is a peaceful resolution to the war, demand will come back, especially since the Fed has already provided clarity on their rate-hike plans.

I would try to pick off some poorly-marketed real estate listings right now. Unfortunately, I don’t have a spare $300,000 – $600,000 lying around for a down payment. Therefore, I’m simply going to buy the dips in real ETFs and continue to add more to my private real estate funds.

The reality is, we won’t be in the market until 2025 at the earliest because we like to live in our houses for at least five years before considering a nicer home. Moving is a a major pain. Ideally, we’ll appreciate what we have forever and never move.

Readers, have you had any experiences with bad real estate agents? If so, I’d love to hear how you were able to take advantage of the situation. Or maybe you were hurt by a bad real estate agent? What are some other red flags to look out for?

Source
How Bad Real Estate Agents Can Cost Sellers A Lot Of Money is written by Financial Samurai for www.financialsamurai.com

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