Friday, November 16, 2012

The Six Percent Solution

Alisha Braatz ruined my day. And the day was almost over.

What I wanted to do was write something about the Colorado sky. The sunrises and sunsets strike at your very existence in their awesomeness. But then, I read a post in Inman News, perhaps the premier real estate trade journal, by one Alisha Alway Braatz, and decided the heavens will have to wait.

Ms. Braatz recounted her early days as a real estate broker, in which she cold-called every builder in the Eugene, OR phone book, promising to sell their unwanted property within 90 days at an acceptable price. Of course, she failed.

In her sadder but wiser screed, she went on to say how honesty in listing presentations is really the way to go, how it's made her more successful and how it's filled her Gucci briefcase with whatever. Well, fuck all anyway. Being honest didn't occur to her in the first place?

The whole thing gets to my main beef with the way residential real estate sales are conducted in this country, namely, on the commission-based compensation system. Hear this, home buyers and sellers: As long as the broker who helps buy or sell your home isn't paid until--and unless--the transaction closes, that broker is representing her interests ahead of yours.

Hey there, buyer or seller. What do you do? Are you a teacher, administrative assistant, Starbucks barista, project manager, tinker, tailor, soldier, spy? Tell me: Would you work for free? 

Yes, said no one, ever. 

So, do you really expect a real estate broker works for free? Conducting endless home searches, driving all over Hell's Half Acre looking at houses, preparing pricing analyses, and so on and so on, for free? Come on.

They work for the six percent commission. The redoubtable Ms. Braatz had no problem whatsoever bullshitting builders that she could magically sell their properties in ninety days. Why did she say this? It's because, as Freakonmics has said, a commission at the close of a sale is so lucrative.

But the real morons in Braatz' situation are less her than the builders who bought her line. And so it is with the America public. All too many buyers and sellers buy into the commission-based compensation system, for whatever reason.

Maybe people think their real estate broker will work harder if he/she doesn't get paid until the house is sold. Oh, okay. But if the broker encourages the seller to "take this deal," is it because the broker wants to get paid, or because it's a good deal? If the broker wants the seller to lower the price, is it because the broker's light bill is due or his American express is late, or because of market conditions?

Fact is, Mr. Seller, you don't know. And you don't deserve to, because you got no skin in the game. You've bought into the Party Line of paying brokers when and if the sale closes, deluding yourself that it costs nothing.

Until you look at the HUD statement at closing.

Oh, and Ms. Buyer? I'll bet your broker told you that you don't have to pay him anything, that the seller takes care of the compensation. I know, because I've heard literally dozens of brokers say just that, both in private conversation and in public forums. And the public buys it.

Well, Jeez. Tell me, Sweetheart. Would that no-cost home purchase of yours close escrow if you didn't (a) agree to buy the place, and (b) take down a huge mortgage to do it? And doesn't the sales price include a commission?

Cost you nothing? Seriously. If you bought a $250,000 home, your loan paid both brokers twelve or fifteen thousand dollars. Think about that as you make your payment every month.

The best part about Alisha Alway Braatz is that she lives in Eugene, OR, a town which--as with the Galapagos--has taken its own evolutionary track. The worst part is that they might as well be manufacturing the real estate Kool Aid there for national distribution.

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