North Shore Real Estate Agents Get It All Wrong

In troubling times, when consumers need honest and knowledgeable real estate agents more than ever, most agents still distort facts in an effort to encourage transactions.

This article is a fantastic example of the nonsense that spews out of the mouths of most real estate agents.  Agents seem to  be excellent at propagating myths while ignoring (or at least not understanding the facts). 

Take for example the claim that buyers have an advantage  over sellers.  I take this statement to mean that buyers somehow have more negotiating leverage over sellers now than in the past.  If this were true one would expect to see the ratio of average sale price to list price increasing over time.  But if we look at some data, let’s say single family homes in Highland Park, we find that the sale price to list price ratio is virtually unchanged between Q1 2008 and Q1 2011 with only a 1% difference.  This suggests that buyers have no more and no less negotiating leverage than they did three years ago.  Not surprising when you also take into account that list prices have been largely falling at the same rate as sale prices.

Another act of misinformation perpetrated in the article is that there is a “surplus of houses but a dearth of buyers.”  If this were true one would expect the number of homes for sale to be increasing while the number of homes selling to be decreasing.  Yet if we look at our Highland Park sample again we find that between Q1 of 2008 and Q1 of 2011 the number of homes for sale fell 15%, the number of new listings fell 20% all while the number of homes that sold rose 14%.  Where is the surplus?

But my favorite worthless factoid in the article was the “important statistic: Of the homes that came on the market at a compelling rate, the average final sale price was 92.25 percent of the asking price. Those houses that needed one or more price adjustments? They sold for 76.81 percent of the readjusted asking price.”  This is NOT an important statistic, but it is an example of a type of logical fallacy real estate agents love to make.  In this particular non-sequitur the suggestion is made that if one makes a price adjustment, then one will sell the property for less than if no price adjustment is made.  NO connection has been made to the list price to sale price ratio and an effect on sale price.  In fact one can just as easily speculate that if an owner of a home lists at $100,000 and takes an 8% discount in sale price he will net less money than the owner of an identical home who lists at $140,000 then reduces to $130,000 and then takes a 23% discount.  This by the way describes the well know (although apparently not to real estate agents) economic principle of anchoring.  In reality however, no correlation has been shown between price reductions and an effect on sale price.

What buyers and sellers of real estate should know is that market factors don’t favor individuals; they put negative or positive pressure on prices.  My advice, find a real estate agent who understands this and is will defend your interest instead of industry interests.   

Comments

[Ari]

Thank you, Evan. You continue to illuminate psychological tactics some realtors employ to "prey" on their clients (on both sides) by taking advantage of their clients' relative ignorance. Your attitude toward these tactics and those who use them to manipulate their clients is why I follow your blog and recommend you as an agent.

I've hypothesized that the supposed "surplus" is possibly kept in check by potential sellers who have made the choice not list their homes in this market, instead opting to stick it out or perhaps find other uses for the home (ie. rental income).