A discount broker is expanding their footprint!

Let me start by saying that Real Estate is truly a “you get what you pay for” proposition. Is an advertised fee “too good to be true”? Perhaps (ALWAYS know exactly what you are paying for!) but there is more to representing a client than the fee itself and I respectfully suggest that sellers look at the “big picture” rather than hiring an agent based solely on their fee.

As an experienced agent and Realtor, I respect that there are different business models. “One size” does not fit all!  There are certainly quality brokerages offering a variety of different fee structures but consumers, many of whom have trouble objectively pricing their own properties, need to seriously evaluate what level of service they really NEED and are WILLING to pay for (also consider the TRUE cost of not selling if your plan does not work).

I know from experience that many alternative models promise low fees to attract prospects and this strategy works because humans are natural “shoppers” looking to save money. There is no doubt that buying and selling Real Estate costs money but the seller’s costs are already factored into most sales used for pricing a property. The REAL question is what does the consumer get for that cost or, possibly, risk losing in the process of trying to “save money”? Which services are they willing to forego to cut costs? Obviously if competing agents all have the same capabilities, their fee may be the deciding factor but too often the fee is given more consideration than warranted because too many consumers think we are all the same.

Unfortunately, I see quite a number of so-called limited service/ low fee listings expire unsold and I do not blame the brokerages or the agents. There is so much more to selling Real Estate than getting showings which is where many of these companies stop working with sellers (once a property is listed online, many agents have completed what they were paid for so the relationship ends), leaving sellers to take “buyer interest” to “closing” with little or no representation. The selling process really starts once there is “interest” in buying and that is where we earn our fee. The REAL question is what does the consumer get for the fee they agree to pay or, possibly, risk losing in the process of “saving money”?

I read an article about such a company in the Sunday paper and, respectfully, was left with a few questions. Perhaps they are misconceptions related to the person who wrote the article. First, they seem to use their low-fee approach as a “loss” leader, meaning that they expect a certain amount of residual business to accrue, specifically mentioning helping their low-fee-paying sellers to buy for which they will be paid a competitive fee. If that strategy works, they win; otherwise, they may be hard pressed to survive since their model includes providing a salary to their agents. Second and most striking to me, was what I consider to be a flaw in their thinking. They seem to want to correlate their fee with what they think is a reasonable cost to “promote” a listing as if that were the only true agent expense and a measure of our “value” to a transaction. Granted, if you compare the fee mentioned in the article with what most associate with Real Estate sales, there is a substantial difference. Also, there is no doubt that the advent of the Internet, as well as the Multiple Listing Service, has greatly reduced the cost we bear to advertise and promote our property listings (remember what agents had to do before the Internet and MLS? Unless a property was on a busy street, there was no guarantee that anyone would know it was available). That being said, there is so much more to a transaction that getting a property noticed or even scheduling a showing.

I would respectfully offer two opposing arguments. First, prior to the Internet, there were more sales where the listing agent represented the buyer. In fact, for years there was no “buyer agency” so having one agent in a transaction was quite normal. While you may or may not be a fan of what we now call “dual agency” (it may or not be legal in your area), it was a nice benefit which the Internet has helped to keep to a minimum by promoting agents (for hefty fees!) on their sites as much as the property listings they use to lure buyers to use the agents who pay fees to be promoted. Second, advertising and promotion are part of any sales scenario. However, how well the public receives that effort is largely dependent on how realistic a seller’s asking price is. We can spend little to promote a well-priced property and never spend enough to sell an over-priced one. I tell my seller-clients that if they price their properties really low, they will not need me; if they price them too high, I may not be able to help them. We can advise on price but not set the price and price is the #1 variable that determines our eventual success.

The larger issue is that our actual costs are so much more than “advertising and promotion” so I wonder why any reputable service would use that as a benchmark to evaluate our fee? Some call the commission a “marketing fee” which may add to any confusion. In reality, we are paid for two things: our time and our knowledge. Some sales are easier than others. When I receive my fee after settlement there are times when I know I was paid well for what I did; there are also times where the actual fee does not come close to covering my time and effort. Of course there are times when my listings do not sell and I incurred unpaid expenses which I fully accept as part of my profession.

If you really want to assess the “value” that we add to a real estate transaction, I respectfully suggest two possible points of reference. One is to compare agent-assisted sales with “private” or “unrepresented” sales. I know that is a challenge for many but there is data out there that suggests that the difference in results is well above our fee. For example, if I can get you an extra $10,000, how does that impact your perception of my value and how much of that amount am I worth? If advertising and promotion were the only relevant expenses, everyone should be able to successfully sell privately but that is far from true judging by all of the unsold/ expired/ withdrawn listings I see each and every day! Another measure is to actually look at how many hours an agent is engaged in a sale. Obviously if you hired an unresponsive, poorly- trained or unmotivated agent, your effort to sell will not succeed.

Good agents facilitate the process and nurture it until it succeeds or fails, neither of which my be totally dependent on us. Does a flat fee offer reasonable compensation? Perhaps; perhaps not. What if we charged hourly so that your cost would better relate to how much you needed us? Some may think that punitive. How about our collecting a retainer up front that would be refunded if there is a settlement? If you want to seriously look at what happens after someone expresses interest in selling a house, here are some questions to ponder.

After hiring an agent, how much time is involved in doing the legwork to prepare to market the house (this includes completing the paperwork, creating a property description, taking pictures and/ or videos, staging, etc)? How long does it take to upload a listing to the MLS and then look at how the major internet sites display the house? How much time is spent fielding inquiries (if a house is properly priced, this will be more involved than when a house is over-priced or condition-challenged)? Answering the seller’s questions (some know more than others; some consume a lot of time which is fine but time-consuming)? How much time is spent keeping the seller informed about the evolving market and discussing, what, if anything, needs to be done to meet any challenges? How about explaining and negotiating offers (this increases when seller expectations do not match the buyer’s as it may take multiple offers over time to sell a house)? Scheduling appointments, getting, relaying and discussing feedback? Scheduling inspections, discussing and negotiating the results? Scheduling municipal inspections and resolving any issues? Scheduling the lender’s appraisal and following up after that if there are issues? Reviewing the title report and helping the seller address any issues? Working through issues with the buyer’s financing? How much time is spent when the buyer’s agent is not as well-trained or as diligent as the sale requires? How about preparing the seller for closing which might include helping to arrange for movers and whatever else is needed? Are there any issues with the buyer’s final walk-through or on the day of settlement? There are others depending on the type of house, location and market conditions but these are the “most likely” to occur. Still want to focus on advertising and promotion? I tell sellers that they have more to do with getting us to the point of generating an offer than I do. I know how to market; do they know how to price their house? How realistic are they going to be? Frankly, if an agent is so willing to cut their fee, how hard should they be expected to negotiate the highest selling price?

Interestingly enough, it “appears” that most low-fee agencies understand that what they offer the buyer agent “must be competitive“. That being said, if they are paid up-front and not engaged beyond that, they have no vested interest in what happens. That can create added work for a buyer’s agent as they may be expected to work with the seller to ensure that the process moves along.

I think that too many consumers (and perhaps some agents) look at listing houses as being reducible to installing a sign, putting the information in the MLS and Internet and then waiting for a line to form. While blatantly false in the majority of sales, I find it a shame that anyone would think that little of the process and this profession. I encourage those who feel this way to do to try it themselves. That would certainly form a line of people apologizing and looking for our help. Remember what happened to the guy who ran a well-known web site for “unrepresented sellers”? He had to list with an agent to get the job done!

HIRE WISELY!

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The psychology behind the initial offer

Many, many books and articles have been written and many discussions had over the age-old question:  how much should I offer on a proposed purchase of Real Estate? Years ago I actually had what seemed to be a young prospective buyer call me to discuss a property and, during the conversation, he asked if there were some customary percentage off the asking price that a buyer would typically offer. There have been times in my life where I could not control my laughter and this was one of them. I gathered myself and explained that if there were some such guidance, the process of selling Real Estate would be like reading from a script and that both parties simply had to rehearse their parts. I never got to meet or work with that person but have met many others looking for some rationale behind how to construct their initial offer, including the price, on a piece of Real Estate. Of course, “initial” implies that they would consider “improving” their offer and that a seller would give them that opportunity.

Let me start by  saying that sellers come in all types, ranging from “realistic” to completely “unrealistic”, each having their own thinking behind their expectations. Some care about their local market and what an appraiser and buyer might think, others not so much. Buyers can try to figure out what a seller is thinking but, unlike most “sales”, buyers and sellers rarely meet until the end and they generally do not interact directly, instead using surrogates called “agents”.  That alone can create issues unless a client and their surrogate/ agent are “on the same page.

I believe that an offer has to be somewhat coherent, meaning that there should be some relationship between the amount of the offer and the hoops you expect a seller to jump  through if you expect there to be any chance of acceptance let alone a reply.  Offer little and demand a lot and that is a recipe for frustration. Some sellers will not respond at all.

Agents can help their buyer-clients by supplying market data that may give some insight into what a property might achieve including the history of the property itself (has it been on the market before?, how long has it been on the market?, what is the pricing history?). Armed with these details, a buyer still has to guess what the seller is thinking, wonder if there is any competition and, perhaps most importantly, determine how much they really want to own the property in question. Urgency or a lack thereof may tell you a great deal.

Buyers tend to buy for one of three reasons, each with their own general guiding principles.  If they are going to “flip” a property, they must be able to size-up its potential future selling price and what it may cost, including acquisition and renovation, to get there. Over-estimate (meaning you expect more than what happens) and you may achieve less than expected or even lose money.  If it is going to be an investment property, the “sizing up” includes considering how easy it will be to find tenants (such as whether there competition for tenants, does the building and/ or neighborhood offer amenities that will attract interest?) and what they may be willing to pay. Many “gurus” suggest that an investment is good if the tenants pay the mortgage for you. Presumably, or should I say hopefully, the rents will rise over time while the mortgage stays flat and, equally importantly, vacancies will not be an issue (expect there to be some but keep in mind that you will never recover lost rent!) and repairs will be at a minimum (frequent tenant changes generally add to this expense).

The third reason is to buy a home to live in. While the process may differ depending on a number of factors (such as how long will you stay?, will the size of your family grow?, what is your employment status?), buying a home to live in is quite different from the other “reasons” and, assuming a buyer is financially “qualified” and personally invested/ engaged in a logical process to determine which house(s) should be the main focus, buyers need to understand that they may well have competition and that may mean they get ONE CHANCE to make a serious, perhaps even their “highest and best”, offer.

Most humans find negotiating awkward, difficult and confusing. Couple that with their wanting a “bargain”and you have a potential dilemma. Buyers will do what they will do. Even if the terms and conditions of an offer are consistent with the price they are offering, I encourage my clients to make an offer that will allow them to sleep soundly that night, knowing that they did what they were comfortable doing as they may not get a chance to “improve” their offer. Do they listen? Most do but they need to know that I am looking out for them, not trying to work for the seller or to increase my fee. It is not fun telling a buyer that they did not get the house. It is even harder when they did not think another offer could be better than theirs.

HIRE WISELY!

 

Time is of the essence in practice

The PAR Standard Agreement for the Sale of Real Estate uses the phrase “time is of the essence” in paragraph #5, line #50, to reinforce the fact that the dates and time frames agreed upon in writing by a seller and a buyer are the essence of the agreement and are binding unless and until both parties modify any specific terms.  Simply stated, this means that a party either has an “option” OR a requirement, depending on the task involved, to do something within a certain time, regardless of whether the “end point” or “due date” is expressed as a specific date (such as June 16, 2017) or as a number of days (such as “within 10 days ….).  Failure to meet the due date could result in that party losing the option (such as the right to inspect) OR being held in default (such as when failing to provide a deposit or to get the property to settlement).

The term “time is of the essence” also generally applies to most events involving decision-making.  In other words, many situations involving two (or, in theory, more) parties reaching an agreement about something rests on the factor of time.  Whenever we are faced with or pursue a decision, we need to understand that the scenario is not on-hold, frozen in time, waiting for us to satisfy ourselves before moving ahead.  Those of us who tend to be very analytical may too easily drift into what some refer to as “paralysis by analysis”:  we wait for yet another indication of whether we should move forward or not and, if so, how quickly and by how much.

Years ago I started using the phrase “not to decide is to decide”.  Frankly I am not sure whether I invented it or I picked it up along my travels but it is so true.  If we wait long enough to make a decision we may find that whatever it is that we were thinking about is no longer the case.  Fortunately, my life experience also tells me that some of the best decisions are the ones we do not make.  “If only I had done that” sounds like words of regret but can actually be very positive.

We have to understand that like is a complex amalgamation of many moving parts and that many wheels are turning at the same time.  When faced with a decision, we need to fully understand whether it is important or urgent, determine what we need to know before committing ourselves and, ultimately, what the cost might be for making the wrong decision or losing the opportunity to decide because others took action before we did.  No one will get it right 100% of the time and being decisive is not always best.  Perhaps all we can do is learn from our mistakes.  That is smart but not so easy to do.  Ask anyone who bailed out on Microsoft!

HIRE WISELY!

 

 

Selling a vacant house? Read this

People sell houses for a variety of reasons; some are occupied by the owners or tenants while others are vacant or become.  In the “good old days” a vacant house may not have been so obvious!  In my market (southeastern PA) the MLS used to allow ONE picture of a house and it was typically an exterior shot.  Then the number grew to 6, then 12 and now 25.  Along the way we started using “virtual tours”.  This was all done to “better promote” our “product” AND because the public wanted to save time that might have been spent touring “mystery” houses:  the ones you would not want to see but had no way to evaluate without actually going inside.

Frankly, I did not adjust well to showing interior pictures of my listings.  I spent a few years working in the security industry (the rent-a-cop version, respectfully, NOT the financial) and was struck by what I considered an invasion of privacy coupled with a feeling that you really had to walk the house to evaluate it rather than reducing the buying process to a passive one like e-Bay or Amazon (there is a reason there is no “shopping cart” in Real Estate!).  I had an epiphany one day when a fellow agent said she had someone who might be a “match” for one of my listings but they wondered if the interior showed so poorly that I did not post pictures.  Knowing I had to relent, I started to take interior photos (I still think “virtual tours” are better suited to larger houses as they make “average” or smaller ones look like phone booths (how many even know what they are?)) although I am conscious of what I am displaying and generally avoid showing interior views when a property is tenant-occupied.  The bottom-line is that most sellers prefer a buyer to be “pre-qualified” before being shown their house but we have no control over who is looking online and whether they are prospective buyers or have other things in mind.  Selling a house is NOT the same as living in it!

I have listed and sold a number of vacant properties and I am usually asked if that will help or hurt their prospects for selling.  There have been times when my clients owned two houses or had recently purchased their next house and they wondered if they should wait to move.  The irony is that one house or the other will most likely be vacant.  Some have moved and left some furniture in the house to be sold.  Does a vacancy help or hurt?

As an aside to avoid the issue, some like to rent furniture (“staging”) to make a vacant house look occupied/ “show better”.  Staging can also be done to occupied houses as well as being done virtually with vacant houses.  I respect staging professionals but there is a cost which some will not consider.  As far as houses that are marketed as vacant, here is a brief breakdown of both sides.

The “positive“:

• some people need to move quickly.  Sellers looking for a new house need time;
• a vacant house hides little.  Occupied houses may look worse on settlement day when seen empty for the first time.  The pristeen carpet that sat under furniture makes traveled areas look terrible.  What sits behind the pictures on the walls?

The “negative“:

• some may try to take advantage thinking your “urgency level” higher.  I am a firm believer that nothing sells until people start talking so this can be positive;
• owners have to maintain their vacant houses and that is the point of this post.

Vacant houses pose two concerns.  The primary one is that it is easy to neglect them.  I will get around to it!  Cutting the lawn/ shoveling the snow are likely to get less attention than they should.  What about those nasty circulars that can pile up telling the world that a house is vacant?  You cannot stop online lurkers but it is very important that you take care of your property so that it shows as best as possible and to minimize the chances of it becoming obvious that it is vacant.  I encourage absentee owners to visit regularly to see what is going on, to make sure that the doors and windows are locked, to make sure the lights are off (if they decide to leave some “on”, they should check that) and to stay on top of any required maintenance.

Equally if not more important, vacant houses pose two primary risks:  theft and attracting squatters.  Even if a house has nothing to steal, someone may break in to take a look.  I have had two serious issues in the past few years with people trying to steal the copper pipes.  How pathetic and how costly!  I also had a squatter in a house.  While the easiest answer may be simply staying on top of your vacant house, perhaps an alarm system can provide added security.  On a related note, does your homeowner’s provider know that the house is vacant?  I have been told that some will not insure a vacant house while others will raise the premium.  Whatever they do, there are those who will insure a vacant house but I do not know if an insurer will pay a claim when they learn that a house was vacant without their knowledge.

My last point is this.  I have worked with a number of sellers who lived out of state.  At the very least I ask for a spare key.  Keys get lost and sometimes they get locked in a house.  Ideally, the seller has a family member or friend in the area who has a key and is willing to stop over periodically.  Of course, the better a house is priced and marketed, the more likely it is to sell quickly and minimize some of the challenges!

HIRE WISELY!

 

Days on the Market: What do they mean?

As with many things in life, Real Estate has its own language, often expressed in acronyms (DOM) or words that most “normal” people do not use regularly (contingency). Ideally this language enables agents to communicate meaningful concepts more quickly although I often find that fellow agents do not have the same “understanding” that I have and that many agents use these terms with the public without explaining what they really mean.  DOM is one such term.

Days On the Market technically shows how many calendar days a house has been available for sale without being sold.  Ok, so that means what?  In theory it should have some relevance as far as how saleable a house is:  higher DOM seems to indicate a problem with a house.  I have blogged on this subject before, expressing my opinion that an unsold house typically indicates a problem with marketing (can consumers and agents actually find a house in their searches?  If not, DOM may not reflect a price issue) OR pricing (can consumers buy what you have for less of their hard-earned money or can they acquire a better location/ more features/ better condition at the same price?).

The problem is that DOM can easily be manipulated and that may be a violation of Article 1 of the Realtor Code of Ethics because doing so distorts a statistic that many rely on when evaluating properties.  Simply stated:  it is clearly dishonest.  Please read my articles on the Code of Ethics and Professional Standards.

Manipulated how?  Let me list a few ways:

• in  the old days some agents would constantly withdraw and re-list houses as if they were “fresh”.  Some still do this but to a lesser extent than in the past.  People who paid attention knew what was happening and any good agent would review the property history if they had an interested client. Unfortunately, many agents do not do this;
• some agents misuse/ abuse the property status indicator to suppress the DOM or to hide activity such as when a property is under contract.  The rationale:  should a sale fall through, no one will know what happened so they will not inquire, possibly avoiding needing to disclose “material” information that might dampen interest;
• some agents withdraw and relist a property and then quickly change the status to reflect a sale.  The only reason I can imagine that someone would do this is to make it look like they sold a house quickly so they can falsely brag about that.

My MLS, Trend/ Bright, created a way to minimize DOM manipulation.  While it is not perfect, the PMP (Property Marketing Period) does continue to accumulate unless a property is taken off the active market for at least 30 consecutive days.  Here is an example:

• two properties enter the market on January 1.  They both expire unsold (this means that term of the listing contract ran out/ expired before a property is sold, leaving the seller options as far as what to do next) on June 30 showing 181 DOM.  One seller decides to hire a new agent and put their house back-on-the-market on July 1, starting with a refreshed 1 DOM but with a 182-day PMP.  The other seller is told to wait 30 days to reset the PMP so they put their house back on the market on August 1, showing 1 DOM and a 1-day PMP.  Is there really a difference?  If July was slow as far as Real Estate sales, does the added PMP really indicate a problem with the house?

I work with many sellers who had their properties on the market previously with another agent who did not sell it.  More and more of them seem to understand the PMP calculation and ask me if I think they should wait to put their house back on the market.  I tell them that any good agent will look at the property history and quickly see what happened so waiting to re-list will not fool many people.  More importantly, while I do not think there is a possible Code of Ethics violation in waiting (there is no actual manipulation), I question why a serious seller would forfeit 30 days of activity?  While this may not matter during off-peak times, it makes no sense if the time of year is conducive to activity and the simple fact is that (here is one of my Real Estate truths!), while I cannot guarantee that I can sell your house if it is on the market, I am fairly confident that it will NOT sell if it is off the market.  There are times where I suggest “taking a break”, especially if a house needs some attention or if the seller needs a mental break.

In conclusion, DOM is what it is.  It is a tool but it is not perfect!  Serious sellers and buyers need more than acronyms and Real Estate terminology to make smart decisions.  They need a real, live professional to help them navigate the too-often confusing flood of information, both good and bad.  Good agents will look at the history and provide professional advice to their clients.  Frankly, I am more interested at the pricing history than how long a house has remained on the market, especially if I see that the marketing failed.  For example, I met a seller this week whose property listing recently expired.  The MLS (Multiple Listing Service) information described his house as offering 4 bedrooms and a 1-car garage.  There were other concerns but these were the most glaring.  The house actually has 5 bedrooms and a 2-car garage!  I can only wonder how many possible buyers never even knew that the house was available for sale?  Sadly, the agent requested and was given price reductions when the marketing was clearly poor!

As far as the history, a house that goes from agent-to-agent-to-agent with little to no change in price may indicate a seller attached to an unreasonable price and that may suggest that they have a low level of urgency.  If you have a buyer whose house is under contract, can they risk getting involved with a “low urgency” seller, given that they need a place to live in a few weeks?

HIRE WISELY!

Filing an Ethics Complaint Explained! Part 3.

You got the news today.  Oh boy!  The Grievance Committee has moved your complaint forward to a full hearing and a hearing panel is being put together.  The date is set and you are scheduled to appear with or without witnesses or an attorney in front of five Realtors (plus an “alternate” in case someone has to leave) and the person against whom you filed the complaint.  They may or may not have witnesses or an attorney.

The panel Chairperson reads a statement describing the process, swears you in and then you start the process by presenting your case.  The testimony is recorded (sound only) in case there is a later question about the “process”.  The burden of proof is on you, the complainant, and the panel is told to evaluate the hearing using one simple standard:  did the complainant offer “clear, strong and convincing evidence” that a violation of the Code of Ethics occurred?  The other way to explain this is “preponderance of the evidence”.  The standard is NOT “guilty beyond a reasonable doubt”!

After the complainant speaks the respondent may either ask questions or make their statement.  If either side has one or more witnesses, they will be seated in a separate room until their testimony is needed and then they will be excused after testifying.  Each side gets to state their case and ask questions of the other party.  Civility is expected!  Direct testimony is expected, not “hearsay”, and, if mediation took place previously, what happened there is to be kept confidential and not brought into the hearing.

After both sides have concluded their statements and questions the panel members are allowed to ask questions.  Some prefer to remain quiet; I am typically the Chairperson and I let my panel members ask their questions before I ask mine.  The questions are meant to clarify testimony, not to lead the conversation into unspoken areas as we are not there to assist either side in making their case.

The process ends with the Chairperson reading another statement which includes asking the parties to affirm that the hearing allowed them the opportunity to make their case.  The parties are then advised that their part is over and that they will be advised of the panel’s decision once approved by the Board of Directors.  There is an appeal process which I will not discuss.

The panel members then discuss what they heard.  The 6th member/ alternate is not permitted to ask questions or to be involved in the discussion after the hearing concludes.  In some cases I have seen the alternate stay to observe; in others they have left.

As with the questioning, when I am the Chairperson, I let the panel members discuss their thoughts first and that starts with a vote to see where the group stands.  As with my experience on Grievance, most votes are 4 to 1 or 5 to 0.  Even when an initial vote appears conclusive, I like the panel members to convince each other that the vote should stand.  There are times where a member may change their opinion and that usually results from their hearing others say something they may have missed or not understood or because they viewed something differently than the rest of the group.  We do not need a unanimous decision but we do need to openly talk about what happened and what we think so that we can render the best possible decision.

Once a decision is reached, if we find that a violation of the Code of Ethics occurred, we need to consider the penalty/ sanction to be imposed on the respondent.  There is a format for doing that and the Board of Directors will decide whether the penalty is consistent with what happened.  Then we write a “findings of facts” to submit to the Board of Directors.  The purpose is to provide the relevant facts in logical detail to support our conclusion and the penalty assessed.  The “findings of facts” is the only reference the Board of Directors will have to accept or refute the outcome.

I would like to conclude with two specific points.  First, each case is decided on its own merits.  Unlike the American legal system, we do not use prior cases/ precedents to determine a decision:  the facts presented determine THE outcome.  What happened before is unknown to the panel and irrelevant with the exception of cases where a respondent has a history of being found to have conducted themselves unethically.  That will impact the severity of the penalty/ sanction imposed (there is “progressive discipline”).

Second, I personally feel that some people (agents and consumers) do not file complaints to avoid the process of facing another human being with whom they have a problem and to avoid having to testify in front of a panel.  Trust me when I tell you that NO ONE is comfortable sitting in a hearing as a complainant or a respondent.  I would add that their level of comfort is NOT a basis for any decision.

While I empathize with people who want to avoid any aspect of public speaking, I highly value the fact that we “police ourselves”.  I trust what we do far more than I could ever trust our having to do this in front of non-Realtors no matter how well versed they may be in the law.  Regardless, as long as people take action to “make things right”, whether they pursue our formal process or do it quietly, the important thing is that it get done.  I agree with others who believe that most performance issues are accidental and unintentional, more rooted in poor training and poor follow-through than a conscious effort to do wrong.  I am concerned about new agents left on their own or any agent who is poorly supervised!  Unless someone learns that what they did was wrong, especially if it were unethical, they are likely to continue to repeat the behavior and eventually someone will be harmed.

The reputation of the Realtor community is built on the collective experiences and interactions we have with our clients and customers and, while it is all too easy to offend someone, it is very difficult to regain their trust and respect.  Our process can minimize the problems if we do as we should.

There is so much more to this process.  Most agents and most consumers will never need to know more; some may seek answers just to increase their own awareness; others will be forced to learn when they become involved in a complaint.

Which best describes you?

HIRE WISELY!

 

 

 

Filing an Ethics Complaint Explained! Part 2.

Something happened.  It may or may not have involved you directly; you may or may not have felt comfortable looking into it on your own; you want to do something!  There are several options to pursue but let’s focus on filing a formal complaint or grievance.

The process starts with your contacting an Association administrator who sends you paperwork.  Whatever the communication with them, you get the paperwork and decide whether to move forward with the process of filing a formal complaint.  As I mentioned above, whatever happened may not have happened to you and that is fine but you should, respectfully, keep in mind that you will need to prove that a violation of the Code of Ethics took place.  Otherwise, the process may well move forward but not reach the conclusion you expect.

The “complaint” should relate what happened (the complaint is the only reference for the Grievance Committee to consider) as well as which specific articles of the Code of Ethics the complainant feels were violated.  While the panel may add or remove articles based on what is presented, it serves no purpose to cite more articles than those that are relevant.

Complaints are screened by an administrator before moving on.  In addition to making sure a complaint is complete, the administrator needs to verify the timeliness of the filing.  Complaints, generally speaking, must be filed within 180 calendar days of the complainant knowing or when they should have known that a possible violation of the Code of Ethics occurred.  If the complaint involves a sale in process, the sale is allowed to conclude to avoid interfering with the process.  The administrator will provide the details of the process.  The rules are contained in a rather large binder well beyond the scope of these posts.

Once a complaint is received, a Grievance Panel is created consisting of 5 members.  One of them is the Chairperson who runs the meeting which may involve reviewing more than one complaint.  To avoid any potential conflict of interest, panel members are screened to avoid having anyone hear a complaint that is affiliated with any Real Estate office involved.  In addition, the names of the people and firm(s) involved are not revealed to the panel members.  The panel is assigned a simple task:  each member is given a copy of the complaint, asked to read it, asked to assume it is true (unless there is an obvious detail showing the complaint does not involve a question of ethics) and then, vote on one question:  if the complaint is true, is it possible that a violation of the Code of Ethics took place?  If a majority votes “NO”, the process stops and the decision is referred to the Board of Directors who may see things differently.  The complainant also has a right to appeal.  If the panel votes “YES”, the complaint is moved forward to a full hearing panel to allow both sides to present their side of what happened and ultimately determine whether there was a violation or not.

I served several years on our Grievance Committee including time as a Co-Chairperson.  During that time a number of complaints were dismissed because they were not filed in a timely manner, some did not show that a possible violation occurred and many raised questions which we were not in a position to answer.  The panel’s job is NOT to “try the case” but only to react to what is written.  Panel members are not allowed to be involved in the formal hearing and we are never told the outcome.  Each case is considered on its own merits.

In my experience, most complaints that are moved forward did so based on votes of 4 to 1 or 5 to 0.  While there may be some discussion about the complaint (opinions may change as a result) and which articles were cited from the Code of Ethic, there are not many 3 to 2 decisions.  Most panels I have served on were unified.  That being said, while you do not want to waste anyone’s time, it may be preferable to move a complaint forward so that it can be fully considered rather than having it appear that we protect our own.  In fact, a primary reason for our Professional Standards process is to “police ourselves”.  Who should know better whether a Realtor complied with our Code of Ethics than volunteers trained in ethics?

The actual process may vary between Associations so, if anyone in another area sees this post, they need to familiarize themselves with their local process although the major components will be the same.  We have ONE Code of Ethics although some “practices” may vary depending on location.

I will discuss the Hearing Panel next.

HIRE WISELY!

 

Filing an Ethics Complaint Explained! Part 1.

There are many, many, many licensed Real Estate agents in the United States.  Most of us know quite a few even if we are not licensed.  Many licensees but not all join the National Association of Realtors (NAR) which affiliates them with their state and local associations. For example, I am a member of PAR (the PA Association of Realtors) and SWRA (Suburban West Realtors Association).  You cannot just join one.

While the same laws and licensing act govern agents within a state, only Realtors subscribe to a Code of Ethics and we have done so since 1913.  What exactly does that mean?  Generally speaking, it means we are held to a higher standard than a typical licensee and that there is a system in place to ensure that we comply with the Code of Ethics.  The folks that oversee this function form the Professional Standards Committee and there are various levels of these groups.  The one I want to focus on operates at the local level.

From time to time a member of the public, either a customer or a client (the latter either has a formal representation contract or came to believe that an agent represented them, meaning that they worked for them rather than with them) or another Realtor has reason to believe that a Realtor possibly violated the Code of Ethics.  I say “reason to believe” because the burden to prove that a violation actually occurred rests with them (the “complainant“) and I say possibly because the accused (the “respondent” ) has the right to a full hearing (“due process”) after which a “hearing panel” is responsible for deciding whether what happened was a violation or not.  If so, they can assess a penalty based on established guidelines.

Let me draw a very important distinction.  People often confuse two words:  professional and ethical.  While it is easy to see how that happens, they are vastly different.  Our Code of Ethics provides the underlying “why” as far as what we do whereas the concept of professionalism relates to “how” we do our job.  Simply stated, you could argue that being unethical is unprofessional but the converse is not true:  being unprofessional is NOT inherently unethical meaning that there is no violation of the Code of Ethics.

So, what happens when someone is faced with something that causes them to question an agent’s conduct?  What are the options?  Hopefully they can discuss the situation with the agent or, if necessary, their, manager or Broker.  I have found that open communication usually resolves most problems although there are times when people are not comfortable asking questions, they want to avoid any confrontation and too many may assume that they know what happened when they do not.

If they elect to do so.  There is a process in place to help them resolve their concern.  I will discuss that next.

HIRE WISELY!

Absorption Rate and Inventory Levels

Like most things in life, Real Estate has its own “language”. Some of it is expressed as an acronym like DOM or “days on the market” whereas some is unique language like “absorption rate” which sounds obvious until you ask a few people what it means.

We all hear about “inventory” level which, presumably we all know, means the number of houses available on the market in a defined area. But, is that relevant? What does it measure? If I told you that one area had 50 houses on the market while another had 75 what would you derive from those numbers? You might think there were more choices.

A key statistic is “absorption rate” which tells you something about how fast the buying public is consuming the available inventory. Days on the market will tell you how long the houses have sat on the market and, hopefully, the listing “status” will tell you whether a house is really available to see and buy.

Absorption rate can be expressed both in terms of how many houses are selling per month (I mean settled or closed, not just placed under contract) and in terms of how many months of supply are available. The nuance is how you “do the math”.  I recently taught an SRS (Seller Representative Specialist) designation course and explained the technical definition, got it affirmed by the class, and then told them my version. Hmmm. Realistically, both have their limitations!

Technically you need to start by looking at how many sales you had over a given period of time. The time frame has to be long enough to be statistically significant. Looking back one month is meaningless as is not knowing the time of year, the weather or if a national event has impacted the market. Just ask anyone who sold Real Estate around 9-11 or in 2008. Many of us tried to grasp what was happening. Then you need to do the math to see how many sold per month and then compare that number to how many houses are presently on the market.

For example, let’s say that 48 houses sold during the past 6 months.  That means that, on average, 8 houses sold per month. You can look at the settled dates to see the trends if you want. Then suppose there are 24 houses on the market. That would mean that you have roughly a 3-month supply of houses on the market. But do you?

First, what is an “active” listing? In my area we have houses that are technically “under contract” where the seller is still showing the house. Are they really available to buy? We also have some shrewd practitioners who do not change the listing status at all until after inspections so are they really active? There is no easy answer so I will stipulate that you will always have some aberrations within the statuses and there is no way to know all of the details. Also, my MLS allows us 3-business days to change statuses anyway so even the best of intentions muddies the water.

What about “pending” properties? The technical definition ignores them as if they are a “gray” area. Are they? I guess that depends on the ratio of pending properties that settle compared to those sales that fall through. Either way, since I look at absorption rate as a measure of “turnover”, I count pending properties as settled since they went under contract. If a sale falls through so be it. I just cannot ignore them completely.

Back to my example above, it is my humble opinion that a market selling an average of 6 houses each month is vastly different from one which is doing the same but has 12 pending properties. In the latter example, the 48 settled combined with 12 pending means that 60 properties came off the market during the prior 6 months which in turn means that 10 are removed on average each month. In that case, having 24 available houses means that there is only a 2.4 months supply of available houses. That may or may not appear significant but it is different.

During the SRS class we also discussed the technical definition of a buyer’s vs. a seller’s market. I subscribe to the thought that a 3-month supply is a “normal” or balanced market, again depending on time of year, etc. Less than that is a seller’s market; more is a buyer’s market.

So, how do you use this information? First, there is no guarantee that every house will sell but, by doing the math, listing agents can better “position” their seller-clients to know what to expect. Same goes for buyer agents. Knowing market statistics and how they relate to reality will help. Of course there are other issues like pricing and marketing but it helps to know if a market, generally speaking, is moving fast or slow so that you can react accordingly when looking at specific listings. If a market is moving fast and you are not generating interest, your underlying problem may be quite different if your market was moving slowly. Some markets seem to defy adjustments to pricing and marketing. In those cases, you need a good rapport with your client because you may be working together longer than expected.

HIRE WISELY!

 

Mediation Explained!

I have been a Dispute Resolution System (DRS) Mediator since 2002. I “mediate” disputes between buyers and sellers (typically involving disagreements regarding how to handle deposits when a sale falls through or how to resolve a post-settlement problem) and between agents (to resolve allegations that one violated our Code of Ethics or to see if they can resolve issues regarding payment of a commission before heading to “arbitration”). I greatly enjoy doing this and decided to write this post because so many seem uncertain about the process. I guess that could be a good thing if it means you never had a situation that caused you to reread paragraph 27 of the PAR Standard Agreement for the Sake of Real Estate. There have been a number of times where fellow agents and members of the public have asked me to explain the process to them. I hope this will make the process better understood but I am sure it will lead to more questions.

Let me start by saying what “mediation” is and what it is NOT:  it is a voluntary process where  two parties have an opportunity to sit down with a trained person so discuss whatever concerns them in the hopes of reaching a voluntary and binding solution. It is NOT “arbitration” which involves disagreeing parties making their case to someone who will make THE decision which may not be good for either side. The best analogy I can use is baseball. Often a player and their team have a disagreement over salary. Typically the player may place a higher “value” on their services than their team does and the team wants to pay as little as possible. While they may have had a pleasant experience together up to this point, they proceed to arbitration with their attorneys and whatever facts and figures they deem necessary to “prove their case” even though doing so may offend the other party. Many of these disagreements are resolved before the formal process starts as each side fears damaging the relationship and the arbitrated outcome which is an “either/ or” decision made by a third party. When a dispute is solved through arbitration the relationship between the parties is likely to have suffered.

In buyer/ seller disputes, the path to mediation starts when one party comes to believe they have an issue with another. Hopefully the unhappy party contacts the other (this may be done through their agents depending on when the situation arises) and they try to work things out before committing to starting the formal mediation process. Sometimes people start at the court level and my understanding is that they will be told to “mediate” the dispute if that was part of their agreement. If the mediation clause is struck out, the parties may have no choice but to pursue a more expensive and more complicated legal process which will land them in front of a third party who has the power to render a decision.

For mediation, paperwork is filed which leads to the selection of a mediator, the determination of a date and time to meet and then to the meeting. Both parties are asked to bring anything they need to present their side of the story with them and they are allowed to bring an attorney as long as that is known ahead of time to allow the other party to know that before coming to the meeting. The process is less formal than it sounds because there is no courtroom but civility it expected and the details of the meeting are confidential, meaning that they cannot be used in a legal proceeding.

The party who filed for mediation presents their story, telling what happened and what they are asking of the other party. If it is a dispute over the return of deposits, they person who terminated the sale generally seeks to justify why they should be entitled to keep or receive the amount held in escrow. If it involves a post-settlement issue, typically involving an allegation that the seller failed to properly disclose something about the property, the buyer/ new owner will try to prove that the seller/ former owner knew or should have known about the issue and disclosed it. This type of mediation is complicated by what may have happened during a home inspection and the simple fact that there are things that happen after settlement that just happen. Our society tends to want to find blame for everything that happens.

Regardless of the specific nature of the dispute, these can be very emotional proceedings. Attorneys may be involved and, in my opinion, they can be a real asset as legal questions often arise. I am not at attorney so I cannot address them. If an attorney is not helping the process, the mediator has to take charge as the parties have “hired” them for a specified period of time and are entitled to get what they paid for.

Agents may or may not be involved depending on whether their client asked them to attend, whether the agent’s office allows them to attend and, frankly, whether an agent wishes to be involved. Again, in my experience, most instances where agents attend they are helpful in providing documentation and establishing a timeline as far as what happened when. If both parties bring their agents, the agents can best explain details often unknown or unfamiliar to their clients, However, there are situations where the agent is part of the reason there is an issue and that becomes apparent as testimony is presented.

After the initial/ opening statement, one of two paths is selected. I offer the parties the opportunity to do whichever makes them more comfortable. The other party can ask questions based on the opening testimony or they can present their side of the story. My role is to get both parties engaged in the process by having them talk. This is especially critical when there has been little to no prior conversation so neither really knows what the other has to say. There are often simple explanations; other times emotions take over.

Ideally both parties will communicate, agree to some of what was said (common ground) and perhaps be able and willing to try to find a mutually beneficial solution. If that happens, a statement is prepared and signed by both parties making it binding.

There are times where both parties finish talking and then stare at me. I have to make it clear that I am NOT there to make a decision. I can answer questions and I can ask questions but I am not there to render a decision. Frequently when we reach this point one party or the other wishes to talk to me in private to further the conversation before saying more to the other party. This is called a “caucus”. If one or both parties has brought an attorney it is likely that they will want to talk privately with them. If both parties have attorneys it is likely that the attorneys will want to talk with each other. The format is free-flowing and the goal is to openly discuss everything important to the parties to see if they can reach a solution.

During my private meetings with either party, they will typically tell me more than what they have said in front of the other person. What I hear is confidential but often important enough for me to suggest that they repeat it to the other party. They may also ask me how to put forward what they want from the other party. While I want to be helpful, I have to always keep in mind that the process is about them and their best interests are what matters. That being said, I am often asked my opinion and I will tell them if they affirm that they want to hear it.

For example, I have conducted mediations concerning deposit disputes and it is often fairly easy to see when a party did not fulfill their obligations included in their purchase agreement. In that case, it may be reasonable to assume that if they go to court, they will forfeit their entire deposit. That being the case, they may want to be able to reach a better outcome. I understand that that is complicated. When I am involved in mediations involving allegations of ethical misconduct or commission disputes, the facts are also often obvious. The bottom line is that I want to be fair and honest, I want to avoid making it appear that I am seeking a certain outcome and I want the parties to understand their options. I am a guide through the process.

There are times when the parties will not get back into the same room, times where an agreement is prepared but one or both parties want to think about it or need someone else to sign the form who was not present at the time and there are times where they agree to keep talking after our conference ends. I have no control over what happens after they leave but I like to believe that my training allowed me to help them fully explore the situation and consider their voluntary alternatives before possibly moving forward.

To conclude, mediation is a valuable process. At best, it allows two disagreeing parties the opportunity to express their thoughts and emotions in a non-binding setting. That in and of itself often works wonders. What is said is confidential and may not be used in a legal setting. At worst, many of the disputes that I have seen should have or could have been avoided through better training, the proper use of our standard forms or simply by communicating better.

Too often when people have disputes they adopt a “take it or leave it” attitude/ approach and that is usually not productive. Even if one side has leverage over the other, human beings tend to often react in unpredictable ways and many disputes appear worse than they are. They only deteriorate over time.

Hopefully this post makes the process more understandable and a little less daunting but I will tell you that most people dislike the thought of entering a room to discuss a problem as much as the dislike public speaking. That alone should make them less likely to want to go to arbitration where a “better” speaker may tilt the process. A trained mediator should not concern someone as long as they have the facts on their side. That and a little preparation will go a long way!