Is a discount real estate company a better deal?

By Joel Persinger
YourRealEstateDude.com

In the last couple of weeks I haven’t been able to go anywhere without a “news” story about discount real estate companies hitting me squarely in the face. It seems that after many years the world has discovered this “new” thing called a discount real estate broker. Even 60 Minutes got into the act with a story touting the virtues of using a discount Realtor. I found the 60 Minutes piece very interesting. In fact, by the time I got done watching the thing, I was convinced that real estate was an antiquated business and that any realtor other than an internet discounter ought to be run out of town on a rail. But that would mean I would be run out of town myself.

The truth is, there have been discount real estate companies of one sort or another for quite some time. The internet has simply provided a way for inventive folks to repackage an old idea: if you do a lot of the work and only have the professionals do the minimum needed, you get to pay less for the service. It’s a good idea and it works for many people, but trying to make an "apples to apples" comparison between a discount broker and a full service one is a little like comparing a fast food joint with a high dollar steak house.

So what exactly are the pros and cons of using one type of brokerage or the other? If you listen to the folks on 60 Minutes you might be convinced that the entire thing revolves around what real estate agents do. To some degree this is true and the simple difference between a full service shop and a discounter is that with the full service brokerage the agent does the work and with the discounter the client does a lot of it. But I submit that the true story is centered more around what real estate agents know or in some cases don’t.

We may not think about it much, but the main reason most of us choose a particular professional is to benefit from what he or she knows. We know that the doctor will treat what ails us and that the CPA will do our taxes, but in large part we go to the doctor to find out what ails us in the first place and to the CPA to get help in our effort to pay less to Uncle Sam. The same is true with a Realtor. We know that a Realtor will help us buy or sell a house, but it is the expertise and advise we take advantage of along the way that really counts.

While a doctor, lawyer or CPA must attend specialized school for long periods in order to join their chosen profession, a real estate agent has no such lofty barrier to overcome. The majority of a real estate agent’s knowledge is gained through continuing education and experience. The more experience an agent acquires, the larger the client base he or she builds and the more likely that agent is to work at a brokerage where more autonomy and higher pay are available. Almost without exception this means a full service brokerage. By contrast, the newer the agent, the less experience acquired and the greater the need for the brokerage to provide sales leads and hand holding. Discount brokers pay their agents less per home sold than does a full service brokerage. In order to attract agents, discounters promise to provide the agents with lots of sales leads and hand holding. Consequently, they tend to attract new and inexperienced Realtors. Once these agents have gained some experience and built a following, they generally leave and work for a full service shop where they can make more money. Thus, the discount broker is constantly plagued with turnover, losing the experienced agents and hiring the new and inexperienced ones.

So, which is better for you; to save some money, do a lot of the work yourself and have an inexperienced agent working for you, or spend some money, let the agent do the work and have an experienced and knowledgeable Realtor in your corner?

Are prices going up or down or what?

By Joel Persinger
YourRealEstateDude.com

In spite of what most real estate gurus might say, it is quite common for real estate prognosticators to oversimplify complicated things, over-complicate simple things and sensationalize just about everything. Every day seems to bring another article or TV news story proclaiming that home prices are dropping, going up or staying about the same. Hence, the almost total confusion expressed on the faces of many clients who ask me the age old question, “So, are home prices going up or down or what?”

While such a question may seem simple on the surface, the answer is actually somewhat complicated, once you dig a little deeper into the various layers of the market. Real estate “educators” like to say that the real estate market is stratified. This is “big speak” that simply means that the market is made up of many parts or segments that don’t all act or look alike. The condo market is very different from the single family home market. Similarly, the market in my East County neighborhood is very different from the market in La Jolla or Del Mar. There are even segments within segments. New condos are an entirely different market than condo conversions or even resale condos.

The other day, my marketing manager brought a newspaper article for me to review. The article claimed a value for a median priced home in San Diego as being quite different from what he is experiencing in his day to day work in my office. He was quite surprised and was opening the article to tell me about it, when he suddenly realized that it was focused on the market for new homes rather than resale homes. Just as with the other examples I mentioned, the new home and resale home markets are completely different and the news media moguls, whose job it is to sell news, seize upon whichever numbers are more sensational at the moment and, “Bam!” a news story is born.

With all these parts and pieces responding differently in the current marketplace and the media reporting numbers that, by in large, are useful to nobody, how does the average person ever get a handle on which way the prices are going? The answer lies in recognizing the media hype for what it is, and in being more specific with the questions you ask your real estate broker. It has been my experience that most people who ask me about market prices are wondering what has happened to the price of their property. Others are attempting to gauge whether prices have become favorable enough for them to buy property somewhere down the line. In each case, knowing the specifics allows me to provide an answer that has some value.

So, if you ask your neighborhood real estate professional, “Are the prices going up or down?” the answer is likely to be, “Both”. However, if you ask, “What’s happening to the value of my house?” or “Have the prices of duplexes in El Cajon come down?” the answer you get will be a lot more valuable.

In a buyer’s market, price is king

By Joel Persinger
YourRealEstateDude.com

The real estate market is like the tide in that it ebbs and flows. For a time, the market may be hopping with homes selling like hotcakes and people from every walk of life jumping into the market, hoping to make a quick buck. Then the tide will go out and the market will change. Soon homes are for sale at every turn and buyers are so scarce it’s almost as if they’ve jumped on the nearest space ship and left the planet all together.

The one constant in all of this is that the vast majority of sellers try to ring every dime out of the sale and have an almost mythical distaste for agents who urge them to drop their asking price in order to get a sale going in the first place. This can leave the agents frustrated, the sellers angry and the houses sitting on the market for long periods unsold.

Since I’m representing a number of sellers at the moment, I’ve had the opportunity recently to visit various regional boards of Realtors during their weekly “pitch sessions.” These are rather large meetings of local agents who come to present their clients’ properties to other agents in the area in hopes of generating interest or getting feedback which they can share with their clients at a later time. Obviously, I attend these meetings in order to promote properties owned by my clients. But, I stay through the entire meeting anyway to be polite. In the process, I get to hear the other agents “pitch” their clients’ properties to the group and sometimes observe some very interesting trends.

Most recently I attended meeting at various real estate boards where it seemed that agent after agent displayed enormous frustration at having been placed in the same impossible situation. Even though the meetings were in different parts of the county, the experience was roughly the same. An agent would walk up to the podium and say, “I know you’re probably tired of my pitching this same property over and over again, but none of you ever send me an offer. Why don’t you send me an offer?” To which someone will invariably retort, “Lower the price.” The speaker will then respond with the most outlandish of statements, “My seller has agreed to lower the price if he gets an offer.” The audience will respond with a mixture of giggles and stunned silence as the presenter leaves the podium and is replaced by the next agent to present. Now here’s where it gets interesting. Almost without exception, the next agent will pitch the property and then announce that his seller too has agreed to lower the price after receiving an offer. Not long after that another agent or two will share the same thing about their seller’s mindset.

While it may seem sensible to a seller to keep the price high in order to haggle with the buyer once an offer is made, in actual practice, keeping the price high has the simple and predictable effect of keeping an offer from ever being made in the first place. This is particularly true in a buyers’ market such as the one we are currently experiencing. The bottom line is that it’s darn difficult to haggle with a buyer that you haven’t got. Still, sellers will cling to that high price like a drowning man clinging to a leaky life preserver. But, when the air leaks out, no matter how hard he clings, the drowning man drowns. The same is true of sellers who cling to a high price while the equity in their home is leaking out in a declining market.

So, as your real estate dude, I’m here to tell you the hard truth. In a buyers’ market, price is king. It’s a hard pill to swallow, but it’s the truth just the same. If your home isn’t selling and you want to get it sold there is only one way to do it in this market: Lower the price.