Rebecca Jarvis: Got Evidence?

So this morning, I do something completely unusual for me: I turn on the TV and watch one of the morning shows while sipping coffee.  I normally never turn the TV on except for NFL games, maybe ESPN, or something special I really have to see.  But I did today, and happened to catch a segment on CBS Early Show where a Rebecca Jarvis, on how to avoid common real estate mistakes.  This is the associated web story (I am looking for the video of that segment right now).

In that segment, and the associated story, Jarvis brought up some good solid advice as well as a couple of points that I found… shall we say, “interesting”.

First, she thinks the #1 mistake that sellers make is that they pick “bad agents”.  The advice, then, is as follows (from the web article linked to above):

Find someone who has successfully sold similar homes in your area. When you’re selecting an agent, ask them to show you three recent sales of homes comparable to yours in price and location. You may also want to look at their asking price-to-selling price ratio.

Hmm.

Second, she advises buyers to retain a real estate attorney:

You may want to consider hiring a lawyer. It’s the only person in a transaction that’s not incentivized to get a deal done. A real estate attorney will charge flat fees and offer objective advice.

Uh-huh.

Some questions and thoughts from yours truly follow.

First, Rebecca Jarvis is Smart

Before we get into this, it’s probably worth noting that Rebecca Jarvis isn’t exactly an airhead.  She’s pretty damn smart:

Previously, Jarvis wrote for numerous publications, including Crain’s Chicago Business and Business 2.0. She also has worked in investment banking and foreign currency trading.

Jarvis graduated from the University of Chicago with a degree in Economics and Constitutional Law. A recipient of the University of Chicago Dean’s Grant, she studied European banking and financial markets and the formation of the European Union at the Université Sciences Po in Paris, France. Jarvis has received national recognition for her work with Colin Powell to empower children and improve communities. She was named “One of Twenty Teens Who Will Change the World” by Teen People magazine, and named a “National Point of Light,” receiving accolades from Presidents Bill Clinton and George Bush, Sr.

So we have a law and economics trained journalist who used to work as an investment banker, studied abroad in Paris, is likely fluent in multiple languages, and is a “National Point of Light”.  Let’s not knock her opinion as someone who is uneducated or ignorant; this is a quality journalist, insofar as such a thing actually exists.

Good Agents and Bad

In the broadcast segment, Jarvis made it clear that the biggest mistake a seller makes is hiring “bad agents”.  But the definition of good agent is implicitly “someone who has sold similar homes in the neighborhood”.

As the RE.net is well aware, there is raging debate and questions about what constitutes quality in a real estate agent.  And there is a substantial base of opinion that production alone does not constitute quality.  So what does Jarvis base this claim on?  After all, she’s a former investment banker, a scholar of economics and finance, and reports on financial markets all the time.  Surely, she wouldn’t just invent an opinion without backup?

For Jarvis’s claim to be legitimate, she should be able to produce some evidence that agents who have a track record of selling similar priced homes in the neighborhood in question deliver some sort of value to the seller: money, time, and/or convenience.

Money: Does the agent who sells more homes in an area get higher price-to-list ratios than an agent who sells fewer (or no previous) homes in that area?

Time: Does the agent who sells more homes in an area get lower DOM (Days On Market) numbers than one who sells fewer?

Convenience:  Does the agent who sells more homes in an area deliver some intangible convenience benefit to the seller over one who sells fewer homes?  How we measure this is a question (perhaps consumer surveys? time elapsed between contract date and closing date?) but some sort of evidence must exist, no?

So a threshold question for Jarvis and the layers of editors and fact-checkers over at CBS is, “Got evidence?”

And Now, the Devilish Details

The above are just basics.  As an accomplished reporter, Jarvis probably could have called the local MLS for some data, or called a local broker or an agent to get some of this data, in order to form an opinion.  This assumes, of course, that she didn’t already have the narrative in mind as she set out to report on the “biggest mistakes” that consumers make in real estate.  Let us assume for her sake and the sake of American journalism that such was not the case, that she drew conclusions from some sort of evidence.

The next level of inquiry should have been:

In addition to the Price-to-List ratio, how many price reductions did the agent’s listings take on average?  Was this because of the agent or because of the seller?

If you ask most experienced listing agents what a top mistake a seller makes in real estate is, inflating the value of their own home has to be one of the top answers.  Homeowners become emotionally attached to their 3BR/2BA ranch in which they raised their two kids, planted gardens, had backyard picnics galore, and so on.  They all think their house is special, that it’s got some redeeming feature that should make it go for far more than what the market will actually pay for it.

Is an agent good or bad if she takes a listing knowing that the seller has unrealistic expectations, but hoping to convince the seller into price reductions over the period of months?

Is an agent good or bad if she takes a listing, and motivated solely by the desire to move the property as quickly as possible to generate a commission, prices it way below market?  The latter would show up as many successful sales in a neighborhood, but one could argue that such an agent’s clients got screwed.

This is but one example.  Other relevant details might be the transaction history of a particular agent on the difficulty of those transactions.  Did the agent work through tough situations with banks, mortgage applications, inspection issues, weird situations, and ultimately deliver a market-price result to the seller after weeks and weeks of working through barrier after another?  Or did the agent simply put on a yard sign, put the listing in the MLS, did minimal negotiations, and collect a fat commission?  Which is good and which is bad?

Jarvis’s simplistic formula of “production = better” ignores all of the details that go into a real estate transaction, and may end up harming the consumer rather than helping.

Finally, On the Public Perception of Realtors

We come, at last, to the most interesting observation that Jarvis sort of casually throws out there as if it’s the most obvious thing in the world:

You may want to consider hiring a lawyer. It’s the only person in a transaction that’s not incentivized to get a deal done. A real estate attorney will charge flat fees and offer objective advice.

Did you get that, all you incentivized realtors?  The real estate attorney for your client is the only person in the transaction who isn’t biased or incentivized.  The attorney will offer objective advice, while you apparently offer logic-twisting sales pitches because you want to cash commission checks.

What’s that about fiduciary responsibility?  Why are you paying all that liability insurance?  According to the Business and Economics Correspondent for CBS News, you all are commissioned salespeople out to make a buck.  A couple million consumers, as I understand it, tune into that show every morning.  And that’s what they think of you.

And the reason is because you’re paid on commission.  Apparently, if you charge a flat fee like a real estate attorney, your advice might be seen as objective whether or not said advice is actually objective.

It’s something to think about.  Hard.  And often.

A final observation: Given the above… is now really the best time for the industry to be spending millions advertising how now is a great time to buy a house?

Your thoughts are welcome, as always.

-rsh