This is not to suggest that all Realtors are “professionals”

by Russell Shaw

Mega-Producing Realtor

Author website

The well informed and logical Kaye Thomas wrote:

It never ceases to amaze me that REALTORS are blamed for prices going up and down in the real estate market. Really, do you think if we had that type of power the market would be where it is now?

Here’s a secret known only to greedy, unscrupulous REALTORS we have nothing to do with the ups and downs in the real estate market. Buyers and Sellers are responsible. Buyers actually have more power then sellers. Basic market principles of supply and demand determine the market not agents. In the current market Buyers stopped buying when they determined that prices had gone too high. You can’t sell something if no one is buying. Sellers have two choices. Take their property off the market or reduce the price to a point that a Buyer finds value.

Believe me if I could “make” someone buy or sell real estate whenever I wanted I would make Bill Gates look like a pauper. I would be in my private jet somewhere between Maui and Hilton Head and would always be playing golf on the best courses in the world.

Then “Pop” rudely responded with the following:

Your statements are lies. Clients generally have day jobs, and rely on professionals for good advice when making a purchase. Realtors don’t disclose, and most clients don’t realize, that increases in transaction volume and transaction price are the realtors lifeblood.

Realtors generally are more than willing to recommend financing sources, especially for that sub-prime buyer.

Realtors also advised their clients during the multiple contracts spending spree of the past several years. Statements like, “Real estate never goes down.” or “You’d better get in before you get priced out” have strongly contributed to buyers decisions to over-extend themselves. After all, to the average schmuck, Realtors are the experts.

Realtors certainly know appraisers that will make sure the property meets or exceeds it’s finance target.

And, most importantly, Realtors (being in sales) certainly have a ripe understanding of the role that emotion and buyer psychology have in setting a price point. Appealing to greed and fear at the margins of the transaction have done wonders for price appreciation, haven’t they?

Sure, realtors don’t sign the forms. But, they (more than any other agent), control the transaction environment which directly affects pricing and volume.

Your deceitful comments are EXACTLY why Realtors are not generally thought of as professionals. you never hear of a Dr., Lawyer or engineer commenting that “It was their decision, I just made the recommendation.” Professionals are held accountable for their opinions; they don’t just attribute bad results to their clients dimwittedness.

Well, buyers are only human, and greed and fear work just as well on the way down (actually better).

I’m going to almost skip the part about, “you never hear of a Dr., Lawyer or engineer commenting that “It was their decision, I just made the recommendation.” — other than to comment that I do from time to time hear exactly that from other professionals, and so would anyone else who is observing the world we live in.

This is not to suggest that all Realtors are “professionals” – the point of criticism here being that the client’s interests are not being held above the agent’s interests.

Setting aside the prices of houses – as though anything but supply and demand directly set the market price of a home – I will give an example of a different sort, to show how, in a free society, NO ONE “sets the price” of anything. No person, no group, not even the federal government can “set the price” that consumers actually pay.

Take interest rates for example. Over the years it has always amused me to hear that (referring to long term, fixed rate mortgage money) that rates would be coming down after an election or going up after an election – as though the new president could directly control the direction or amount of interest that investors would be charging a borrower.

This viewpoint is a result of confusion between short term rates and long term rates. Short term rates are set by the FED and not by anyone at the White House.

The interest rate that the FED regulates is what is called the “Discount Rate” or the “overnight rate“. This is literally the rate at which banks can borrow – overnight – from the FED or each other. What will the interest rate be if a bank (with good credit) borrowed money and only kept it overnight? The rate could change the very next day.

Long term rates and short term rates do not move in tandem. Long term rates are set by “the market”. Long term rates are set by what investors (people with money to loan) think is going to happen with inflation and gets “checked” by what borrowers are willing to pay. The long term “rental rate” for money doesn’t just keep going up – as borrowers are only willing to pay so much, and then it isn’t worth it to them. Our industry, like the car business, is very interest rate sensitive. If you ever wanted to know what was happening with regard to long term rates (fixed rate loans) you could look to the bond market. What was happening with 10 year bonds would give you an excellent indicator of what was happening with mortgage loans.

The bond market is interesting in that it dwarfs the stock market in almost every way (the U.S. bond market is about TWICE the size of all U.S. stock markets combined). But it isn’t as “newsworthy” as the stock market and isn’t as easy to put into a newscast as “the DOW went up 10 points” or the “the S&P 500 moved down 35 points”. Not to suggest that the reporters really understand any of the things they are commenting on.

Now – why did I write all of this? Well, I can understand that “Pop” believes that Realtors somehow control the prices of housing (I secretly do it by telepathically & electronically beaming the price I want buyers to pay via my TV & radio ads) but except for my TV & radio ads – there is no evidence Realtors control prices at all – unless they are actual buyers and sellers in the market. Even then, their influence is not greater than any other buyer or seller. There is one study that shows Realtors sell their own homes for a higher average price than Realtors get for a client’s home. As much as I think that Freakonomics is a thought provoking book, on this point Levitt’s research (or thinking) is simply flawed. He made NO attempt to even look at the “investor factor”. It would seem far more likely to me that the bulk of those “Realtor sales” were also “investor sales”. We list and sell 30 to 50 homes a year for investors. The ones with money always list high and test the market for a bit before bringing their price down. It is pretty standard for our average time on the market to be longer for an investor sale.

To sum up this post: Kay Thomas is smart; Pop didn’t think things all the way through prior to posting; long term & short term rates do not move in tandem; the bond market is really really big; Steven Levitt is quite smart but sometimes wrong; I will most likely continue to use electronic mind control to sell my listings.