“How is the Klu Klux Klan
Like a Group of Real Estate Agents?”

[Note: this post is a follow-up to to two, earlier posts discussing the best-selling 2005 book, Freakonomics: “Do Realtors Really Add Value,” and What Do Realtors Really Get Paid For?”]

You’d guess that any book with a chapter by that title — as Freakonomics, Chapter 2 has — would not exactly be a fan of Realtors.

And you’d be right.

The two authors of Freakonomics, economists Steven Levitt and Stephen Dubner, waste no time trashing Realtors as self-interested weasels who prey on vulnerable clients (it doesn’t help that they each appear to have been victims at one time or another).

But are their criticisms fair?

To pick just one example, Levitt and Dubner make much of the fact that listing agents (who represent Sellers) only make a few more pennies in commission for every extra dollar their client’s home fetches. Therefore, according to the authors, Realtors will invariably sell out their client’s interests and push for quick sales, at less than top dollar.

Their evidence? Some thin, not-so-current data that purports to show that Realtors take slightly longer to sell their own homes than homes they’re hired to sell.

Rebutting Levitt and Dubner’s argument are these three facts:

One. Good Realtors typically engage colleagues to sell their own homes. Not only isn’t it professional to sell your own home (it’s too personal, emotional, etc.), it’s also risky: if you make a mistake or get sued, you’re likely not covered by insurance (the liability policies at brokers like Edina Realty specifically exclude Realtors who are acting as their own agent).

Two. There is an inverse relationship between time on the market and selling price. Translation: homes that sell quickly get top dollar, while homes that languish get discounted — sometimes A LOT.

Is it possible for an unethical Realtor to convince an ignorant Seller to list for too little?

Unfortunately, I can’t say that I’ve never seen that happen.

However, when it does, the market invariably steps in, and drives up the price (the one conspicuous exception to this is when the listing agent also represents the Buyer — a practice sometimes called “single-agent” dual agency. It’s banned in 43 states, and it’s time Minnesota did, too).

Three. A Realtor who puts their self-interest ahead of their client’s isn’t just a lousy Realtor. They’re violating their fiduciary duty to their client.

That’s at the core of the relationship between a Realtor, whose job — acting as an “agent” — is to serve and advance the best interests of their client, legally known as the “principal.”

Too lawyerly?

Try this: ‘Good Realtors know not to scr-w their clients.’

For one thing, such clients tend not to refer business to you. For another, they tend to get mad and do things like fire or sue you.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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