Roberta's Las Vegas Real Estate Blog: Real Estate Agent Scam Revealed!

Real Estate Agent Scam Revealed!

Yes, there's another fine example of the biased media out, this one attacking real estate agents. Let me begin by saying that reporting 'news' has gone from presenting facts to allow readers or viewers to form their own opinion, to that of tunnel vision to influence opinion and create drama. REALTOR® Aaron Auxier has written about the trend called 'News Framing' I've shown examples of how the mainstream media often conveniently reports selected information, and failing to add crucial details from their own sources.

The media thrives on ratings, or hit counts on the Internet. It's how they generate their income, by selling advertising. The higher their body count, the more they can charge for their space. These costs of advertising are passed onto consumers as 'hidden fees', tacked onto the price of consumer goods that we all pay. It appears that the media's focus has been to do whatever it takes to attract a larger audience to boost these numbers, enticing advertisers to bolster income, and the quality of their information can be given up as a sacrifice to achieve their goals. Misery, disaster, fear, sells newspapers. Real, twisted, or fabricated, they're like a car wreck where many will just have to stop for a look.

One could easily assume MSNBC's 'Red Tape Chronicles' are written to inform consumers. Here's one of their reports on Real Estate.

Sneaky Fee Alert: Agents Ding Home Buyers

Mr. Sullivan's story, that could have been a service to consumers, turns into another example of News Framing. The first rule of Professional Journalism get's thrown away... TRUTH. Presenting only half of it is a distortion, only both sides together can give a clear understanding.

It appears Mr. Sullivan holds claim to being an Investigative Reporter. Unfortunately his investigative skills for this article appear to be limited to one vision. He restricts his sources of information to individuals that support his slant on these supposed 'sneaky fees', offers nothing in the form of substantiation to confirm or deny their position, or their legitimate relevance.

I'll be the first to tell you I hate sneaky fees, so on that much I can agree. I've walked out of a car dealership that tried to slip them in after the fact. No one likes to be decieved or taken advantage of, and prefers honesty. Had the car been advertised with these fees included, I most likely still would have still purchased, and the dealership not lost a customer.

Personally as a REALTOR®, and licensed Broker / Salesperson, I also haven't charged any document or other fees. I had been with a broker that began charging them to the agent, leaving the agent to either pass them on to seller, buyer, or pay the amount themselves. While at first that may sound dastardly, I can easily understand situations where they can be appropriate. So let me do what should have been done, offer what has been left out to give a fair, balanced look at the issue in the article. Then decide for yourself after seeing the whole picture.

Mr. Sullivan starts by stating that real estate agents are paid 'Steep Commissions of 6%' from sellers. Is that a factual statement? 6% on every sale, all sales, the national average of commissions paid? Is that steep, and by what standards?

It appears that the United States Government Accountability Office would offer contradictory information in from reports available from 2005. According to their Investigative Reporting on this Real Estate issue, commissions had been at 7% and 6% up and to the end of the 1980's - very early 1990's. They go on to include information that the largest 500+ US brokerage firm's commissions dropped to an estimated 5.5 percent by 1998 and further to an estimated 5.0 percent by 2005. The USGAO report includes that while there are varying commissions, discount brokers, and deeper discount brokers that charge for unbundled fees...

"While the residential real estate brokerage industry has competitive attributes-such as a large number of relatively small firms and ease of entry-competition in this industry appears to be based more on nonprice factors, such as reputation or level of service, than on price."

In spite of technological and Internet advances, it would appear from that discovery that most people are willing to pay for better and knowledgeable service. This is true in a number of professional fields, such as accounting where demand and wages are on the rise in spite of computers and software. It became more evident in real estate as the market declined, that complexity requiring more need of the expertise of real estate agents, and commissions began to grow slightly. They were up to 5.18% in 2006 and were expected to creep upward again in 2007. That easily found in this CNN article.

I can agree that adding fees during a period of rising income would seem improper, but that isn't the condition of the last few years. In case Mr. Sullivan hasn't noticed, there has been a sharp decline in home prices and home sales, and in many markets that continues to present day. Perhaps he has heard mention of the national rise in foreclosures, or that also during this time, oil, and in turn gasoline prices have risen. This causing a rippling effect that has increased prices on everything from energy, to all types of goods that can effect agent's or broker's expenses. This was covered in that same CNN article I've posted above.

Mr. Sullivan must not realize any of this is happening today, with all his research. He uses a $250,000 home value in his story, a figure that would be close to the peak of US median home values, well above the current $200,000 nationwide median. Using today's average value, even with his 6% commission figure, that would be a $3,000 reduction. A drop of $1,500 to both seller and buyer agent and their brokers, for theoretically selling the very same home. The fees quoted would not offset those reductions directly, let alone in real dollars with consumer prices on the rise. Hardly the 'sizable tack on' claimed. To the contrary, it doesn't begin to offset the decline for the same amount of effort and expense. This is also implied to be an add on bonus to the agent, when in fact they are typically fees charged by, and paid to, the broker. The only advantage to an agent is that they don't have to subtract this additional expense from their already reduced income.

Let's examine Mr. Sullivan's sources. First a real estate broker in VA, 'who exposes real estate agent dirty tricks'. That makes it very clear where he stands. No rebuttal position is offered. I first have to question how well a lone broker in VA represents the entire US real estate market. Then find it unusual that Mr. Sullivan starts with 'some' charging fees, that shifts to 'commonplace', based on this broker's 'perhaps 40%' charge them. Is a 'perhaps', now some form of factual number to determine 'commonplace'? Last time I checked, 40% or 4 out of 10 wouldn't be a majority, especially when made on a vague presumption. The fact is there is no data kept on any percentages of buyers that are charged fees, and this figure is nothing more than pure speculation and apparently from a limited area.

Then something else that is contradictory. A quote that these fees become "even more disturbing when they are not properly disclosed." So is the writer implying that disclosed fees are somehow 'Sneaky', the subject in his title? That an agreed upon price, however it is structured, is sneaky? Or is it now spun to be 'Junk'? What percentage of the mythical 40%, now become disclosed fees, and exactly how many are sneakily slipped in at the last moment?

I find something interesting with the next source, a New York real estate attorney, apparently also against charging fees. This is a quote from Mr. Sullivan's article.

"The services of a real estate broker are those of a professional, and they agree to be compensated for providing a bundle of services and that bundle is reflected in commissions," he said. "I think administrative fees are inappropriate, but that’s my opinion. I come from the school of thought that if you are a professional you deal with (consumers) as a professional and you don't nickel and dime them."

Looking at something factual, apparently most professional lawyers do not follow his creed. A professional agent also doesn't charge an hourly rate, isn't paid up front in the form of a retainer or flat fee that may not cover services all performed and require extra charges billed, or charging at a rate anywhere near an attorney's average 30% commission on contingency. Of course it's also the norm for those various billing methods used by the legal profession to be 'plus expenses'. I can only imagine a real estate agent submitting theirs. "You looked at 20 homes, exceeding the 3 home bundled limit, and we traveled above the estimated 5 miles included. For your convenience, I worked evening and weekends, beyond normal business hours and that time is billable. You had me prepare 5 - 11 page contract offers, when only 1 included, and then all those document copies and faxes. Then use of my cell minutes and the pro rated wireless broadband." I could see where there could become a sizable expense, but not fee, of course.

In the middle of these comments there's a link to a lawsuit filed by a home buyer, contesting $149 in fees and seeking class action status. Mr. Sullivan goes on to say that their are laws protecting consumers against 'junk fees', which is true. He seems to suggest that this case somehow proves that all these real estate fees are 'junk fees' and illegal. The link he provides is to an unsettled case that was denied by a District Court, was then returned by an appellate ruling of that stated to the effect...

"The appeals court ruled that the lower court had erred in not considering the factual issue -- was any specific work done to justify the extra charge?"

It appears that the only legal question is was there work performed for these fees, not that any broad determination has been made that all are illegal. Strangely enough, there is another recent article from Mr. Sullivan's same attorney source, Jeff Arouh, on that very subject and involving this same lawsuit. In the June 24, 2008 article he wrote...

"In my view, a broker can charge an administrative brokerage commission in connection with a real estate transaction-but, the broker must be careful about how it is done and who is impacted.

It is clear that a real estate broker is permitted to charge his/her client a real estate brokerage commission. Typically, this arises in the context of negotiating the listing agreement. The commission may be stated as a percentage amount, as a fixed fee or as a combination of the two. The amount that is charged is, presumably, for a multitude of services. These may run the gamut from listing and selling the home, to advertising, document preparation, maintenance assistance, closing assistance, etc., just to name a few. So long as the real estate broker is providing services in return for the amount charged, it is unlikely that HUD would contest those charges."

As for Mr. Sullivan's bold open ended question... "Against the Law?"... I think it would be safe to say that even his own source is saying that he feels it is legal for a broker to charge these fees, as long as services are rendered, and that the quote Mr. Sullivan's used for his story is a personal, not professional legal opinion.

This story ends with 'tips', that again attempt to portray agents as untrustworthy, and only one offering something that is nothing more than obvious.

"If you feel the agent was deceptive in communicating the fee to you -- you have the sense that her or she tried to sneak it by you while signing other papers, for example -- give that some thought. If your agent operates with that m/o, what else might he or she hide from you? Consider changing agents."

Really? Don't do business with anyone you don't trust? Astoundingly deep thought, with a hint of more one sidedness, just look at the next one..

Buyers should keep an arms-distance.

My Tip: I don't think it's unusual to keep your distance when first shopping for an agent, but when an agent earns your trust, maintaining a barrier is counterproductive and most likely one party or the other will trip over it. An agent acts in their client's behalf for a major purchase that can have a long term effect on the client and their family's life.

Open and honest communication needs to flow both ways, the best for any business, or personal relationships for that matter. As Mr. Sullivan stated in his 'm/o warning', creating a feeling of distrust, wondering what else they may be hiding, can also cause an agent to consider changing clients. Yes, there are two sides to everything.

Caution - Agents have a strong incentive to sell you something - anything.

My Tip: Buyer's Agents have an incentive to assist their clients in finding the best choices available that suits their needs, at the best possible price and affordability. Seller's Agents have an incentive to present and market a clients home to the best of their ability. In both cases they are rewarded for doing a good job, knowing their market and their client, and using their many resources. An agent is compensated for their client satisfied with their efforts, the results of their work selling themselves. An added incentive is that a satisfied customer, and their recommendations, are the best sources of future business. A recent NAR study showed that 78% of clients had used the same agent for their next transaction.

Keep 'Free Agency' It's better to be shopping without an agreement.

My Tip: A level of 'free agency' can be kept while having an agreement. They can be property specific, or time limited from a day to months. This does a number of things. One, it removes any pressure from discussing fees when a client is waiting until 'under the gun' to make an offer. Why intenionally create an awkward situation? A client can simply ask up front about any fees and get them in writing, or chose to find another agent without creating any bad blood or wasting of time. These also offer a level of protection from any 'sneaky buyers' that may use an agent's time, knowledge, resources, and expenses, then go out and cut their own deal with someone else. While an agent has no guarantees that a client will purchase, it's unfair for them not to receive payment for services performed when they do. I don't know of many that go to work, do the job, and not expect their agreed compensation. Simply put, it creates a level of mutual respect and working together comfortably.

The only thing I can agree with from this story is that undisclosed fees are improper, and those would be sneaky in my opinion. Buyers and sellers should be aware of the possibility of them, or any other fees that they don't understand, and not hesitate to question them should they arise. The "preliminary HUD-1" of this article is actually called an estimated HUD-1, and is just that, an estimate. They are provided by the title company performing the closing, and I've received them within 2 hours of signing. An agent will request them, but the time they are actually provided is out of their control. Even with reviewing the estimate, final figures at time of signing are what really matter and require the most scrutiny, as estimates can change.

 

If you are interested in relocating to Las Vegas or would like information on Las Vegas real estate, please email me roberta@search4lasvegashomes.com or call me at 702-354-8988. I look forward to hearing from you!

 

 

Roberta's Las Vegas Real Estate Blog

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Comment balloon 9 commentsRoberta LaRocca • July 16 2008 10:13PM

Comments

Wow Roberta, great points and way to break the story down. Glad you took the time to do this to educate everyone.

Posted by Mike Wong, Realtor: Commercial, Residential, Leasing, Invest (Keller Williams Realty Southwest) about 11 years ago

There are always going to be people who bad mouth any profession.  What goes around, comes around.

Posted by Angelia Garcia (Pure Realtors) about 11 years ago

Hi Roberta... This is a GREAT post and desrves to be featured.  You make your points in a clear and rational manner that sheds light on the story.  I agree... I have no issues with fees that are mutually agreed upon in writing at the outset, but undisclosed fees are definitely not acceptable.  Tell Sparky I say hi!

Posted by Steve Shatsky about 11 years ago

Roberta

Great post..I did read the article, then broke my own rule and just spent 25 minutes of my life reading the comments attached to it. Now I'm so mad I wont be able to sleep for 2 hours. Unfortunately your intelligent rebuttal to his article will probably never make it's way to him.

Posted by Terry Lynch (LAR Notary and Closing Services) about 11 years ago

Mike: Thanks! Seemed only right to give the rest of this story. An awful lot was missing, just wanted to fill in the gaps

Angelia: True, but it seems so much of the news has turned to this 'style'. You really can't believe much of what you read anymore, and it really harms the public.

Steve: Thanks for the compliment! Yes, I think if you agree to a price this isn't an issue. Some people got to Ruth's Chris for a steak dinner, others to Denny's. As long as you know what you're paying for and happy with that decision, an individual choice. I'll pass your Hi to Sparky!

Terry: I glanced at a few myself. I guess some people don't care what kind of advice they give. It may not get back, but at least has a shot at being seen by some on the net, would have got lost in the shuffle there.

Posted by Roberta LaRocca, REALTOR®, Broker, Salesperson, Property Management (Simply Vegas Real Estate) about 11 years ago

Thank you, Roberta.  A lot of time and thought went into writing this, and it needs to be said.

Posted by Janice Ridge about 11 years ago

Forgot to indicate my affiliation: Director, Membership, Who's Who in Luxury Real Estate and LuxuryRealEstate.com. 

Roberta, may I blog about this on our own website on LuxuryRealEstate.com, or better yet, I invite you to blog about it.  It would reach thousands of consumers and brokers in the luxury market.  Thanks.

Posted by Janice Ridge about 11 years ago

I am featuring this in Las Vegas Area Real Estate Professionals and flagging this for a feature.  Great Article Roberta!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) about 11 years ago

Aaron: Thanks! The sad thing is this really wasn't all that difficult, and should be easy for a 'professional' to find, if he wanted to. "The Truth is out There" :-)

I will confess that 'consultant guy' sharing my office is walking encyclopedia, and when hooked into the net, what he can dig up is amazing. He's taught me a lot of his tricks, and if I ever do draw a blank he can point me in the right direction. He also knocked out the graphic.

Janice: You're quite welcome! Please feel free to blog about it, whatever works for you. I appreciate the blog invite, but right at the moment it would be a bit before I could get to it. Clients sometimes take away from my blogging time, and now is one of those times.

Renee: Thanks! Appreciate the feature and the flag.

Posted by Roberta LaRocca, REALTOR®, Broker, Salesperson, Property Management (Simply Vegas Real Estate) about 11 years ago

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