Pretending the Service Equation is Simpler Than It Is
Way back when I was just out of high school, I was doing a lot of things with my time. Working, dating, competing on the fencing team, gaming of various sorts. But every once in a while, I dropped in on one of those math courses I was registered for at UCSD. One of those courses was Math 110, "Introduction to Partial Differential Equations and Boundary Value Problems" Bozemoi. That was the course that convinced me that I was not, after all, cut out for a career as a mathematician. All the other undergraduate courses, I got a handle on fairly quickly, but the way my mind works made that one course something like having those alleged brains pounded out between two large gold bricks wrapped in lemon.
I eventually got through it. But one thing I took out of that class in no uncertain terms is the form a real solution to those equations took, and the fact that if you were missing terms ("parts of the answer" for those less mathematically inclined), your answer was wrong. Not incomplete. wrong.
One of the standard ideas of internet commerce is "cut out the middleman and their fees." You can find this in lots of fields. Some of them begin far earlier than the world wide web. "Discount" brokers have been going for decades, for both stocks and real estate. The internet certainly helped them, however. Loan quote services were probably one of the first ten business ideas on the world wide web. On-line this, on-line that. Do business with the faceless on-line corporation with cheaper fees (or none!) and you can't help but be better off, right? It's easy to illustrate that difference to just about anyone. There's money they're not spending, that anybody can point to as a savings earned by doing business in that fashion. But is that the whole story?
Indeed the whole discount proposition cannot succeed without an implicit or explicit assumption that the value you receive from having paid that fee is zero. But if that were the case, these professions would never have gotten going in the first place. Who wants to pay money you don't need to? Anybody want to raise your hand? I certainly don't. The world, humankind, and even our financial markets survived for millennia without stockbrokers, real estate agents, travel agents, or any other sort of business that is now being subjected to disintermediation. Why did these professions come about? It wasn't because our great grandparents were stupid, uninformed of the alternatives, or had no choice. They could and did buy and sell stock and real estate directly. The reason these professions, and others (such as journalism) arose is because they added value to the entire process. The people who made use of these professions profited by their choice. Not necessarily directly in dollars with every transaction, but statistically, the people who spent that money emerged notably better off in one or more important respects, and therefore, our predecessors made a choice to do so until essentially everyone did so.
There you have it: An explicit refutation of the assumption underlying the entire discounter promise. It neglects an essential term in the answer as to whether you end up better off. Was the money you didn't spend really the whole answer? What if by spending that money, you end up better off?
Suppose you save three percent by not having a real estate agent sell your property. Seems like a great idea on the surface, doesn't it? On a half million dollar property, $15,000 in your pocket for what you think is a few hours of work. I'll even start by granting you the same ability to market that an agent has, which isn't the case for the vast majority. But what happens if the price you pick isn't right for your market? I've gone over that. What happens if you don't disclose everything you need to? Then let's consider negotiations. Trying to match wits against a buyer's agent whose been in everything that sold in your neighborhood in the last six months is a guaranteed lose for a seller who hasn't seen any of it. That agent's got permission to visit other stuff in MLS. Owners trying to sell their own property don't. . Do you know what's appropriate for contingent sales? What about negotiating repairs disclosed by inspection? These and many other things need to be negotiated, and just telling the other side to do it your way will result in a failed transaction. Do you know how to find out if a buyer is qualified? The two months you spend waiting to find out that your prospective buyer can't qualify costs you roughly six thousand dollars all by itself. I could go on and on.
The same applies on the buyer's side. In the current environment, any decent buyer's agent who tries can make at least a ten percent difference by suggesting the correct property, negotiating to their clients' strengths, and using the seller's weaknesses against them. Usually it's more than that. My average was running about twenty percent when I originally wrote this. Even when the market turned crazy for about nine months it stayed about 10% - when everyone else was having appraisal problems due to Home Valuation Code of Conduct, I didn't have a single property that failed to appraise for value. Sound like a good bargain to you? Spend ten to twenty percent to save three? If so, come on into my office, and I'll give you $30 for $100 until you're broke. Or you can come into my office and agree to spend that $30 in order to have a very good chance of making well over $100.
The intelligent question is: Does spending that money save you more than it costs? Most people will spend $10 to save $100. That's rational. Most people will spend $90 to save $100. That's still rational. Some people will spend more than a hundred dollars to save $100, though, and that's not rational. Not spending the $10 or even $90 to save $100 isn't rational either. Nor are all of the costs in money. How do you quantify not making a mistake that most people don't know is there until and unless it bites them, after the purchase?
That's really the whole question, isn't it? Furthermore, it has to be answered individually, because few situations really subject themselves to this kind of analysis Admittedly, with the internet, it's gotten easier for consumers and more difficult for members of those professions. But the internet can only help you with questions you actually think to ask, and you still have to do the work to make certain you debunk wrong answers to find out where the truth really lies. It's not going to tell you any of dozens of reasons why this freshly remodeled home of your dreams is going to turn into a nightmare.
When I originally wrote this, I was closing on a property where the folks contacted me with information from a popular discount model brokerage in their hand, and those were the first properties they wanted me to look at (which I did). The difference in value they are receiving for their money is such that they never went back to that discounter, because I went out and looked at properties, I gave them reasons why this property was or was not one that they were going to be happy in, I gave them reasons why this property was a Vampire while that property was not. I explained to them how the surrounding environment was going to impact them in the property. I showed them what needed to be fixed, and gave them an idea what was involved. When I found an especially good value for their money, I got them out there and told them to act fast if they wanted it - if I hadn't, it would have been gone by the weekend. I'm not going to talk about why, but I can truthfully say that I wrote an offer that the seller chose to accept even though it wasn't the highest offer they had, and the difference was a lot more than my company's three percent commission. If those kinds of services aren't worth money to you, then you're not a good candidate for my services anyway. But all that discounter had to offer was how cheap they were, while I gave my clients more value than they would have saved before they put the offer that was accepted in, and they knew it. Once the clients started thinking in terms of what they were receiving by giving up that discounter's commission rebate, the discounter never had a chance. By CMA of all comparable properties in the area at that time, my buyers saved over thirty percent, and that's just by square footage - not including all of the amenities the property had that the competing ones don't.
I'm not going to pretend this one isn't an above average bargain, even for me. I'm not going to pretend that every full service agent can make that kind of difference on every transaction, because I know it isn't true. The best agent in the world strikes out occasionally - in which case you are still no worse off than without them. But making more of a difference to the client than the three percent a full service agent makes around here is an awfully easy mark to beat for the agent who tries.
Caveat Emptor
Original article here
Categories
Buying and SellingThe Book on Mortgages Everyone Should Have
What Consumers Need To Know About Mortgages
The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
Buy My Science Fiction and Fantasy Novels!
Dan Melson Amazon Author Page
Dan Melson Author Page Books2Read
Links to free samples here
The Man From Empire
Man From Empire Books2Read link
A Guardian From Earth
Guardian From Earth Books2Read link
Empire and Earth
Empire and Earth Books2Read link
Working The Trenches
Working the Trenches Books2Read link
Rediscovery 4 novel set
Rediscovery 4 novel set Books2Read link
Preparing The Ground
Preparing the Ground Books2Read link
Building the People
Building the People Books2Read link
Setting The Board
Setting The Board Books2Read link
Moving The Pieces
Moving The Pieces Books2Read link
The Invention of Motherhood
Invention of Motherhood Books2Read link
The Price of Power
Price of Power Books2Read link
The End Of Childhood
The End of Childhood Books2Read link
Measure Of Adulthood
Measure Of Adulthood Books2Read link
The Fountains of Aescalon
The Fountains of Aescalon Books2Read link
The Monad Trap
The Monad Trap Books2Read link
The Gates To Faerie
The Gates To Faerie Books2Read link
Gifts Of The Mother
Gifts Of The Mother Books2Read link
C'mon! I need to pay for this website! If you want to buy or sell Real Estate in San Diego County, or get a loan anywhere in California, contact me! I cover San Diego County in person and all of California via internet, phone, fax, and overnight mail. If you want a loan or need a real estate agent
Professional Contact Information
Questions regarding this website:
dm (at) searchlight crusade (dot) net
(Eliminate the spaces and change parentheticals to the symbols, of course)
Essay Requests
If you don't see an answer to your question, please consider asking me via email. I'll bet money you're not the only one who wants to know!
Requests for reprint rights, same email: dm (at) searchlight crusade (dot) net!
Add this site to Technorati Favorites
Subscribe to Searchlight Crusade
My Links
-
Heavy Lifters
- Instapundit
- Hot Air
- Wizbang
- Victor Davis Hanson
- Q and O L Places I get to as often as I can
- Soldier's Angels
- The Anchoress
- Argghhh!
- Armies of Liberation R
- Asymmetrical Information
- Belmont Club
- Tim Blair
- Eject! Eject! Eject!
- Jihad Watch
- Michelle Malkin
- Neo-neocon
- Powerline
- Protein Wisdom
- Real Clear Politics
- Mark Steyn
- Strategy Page
- Vodkapundit
- Volokh Conspiracy Personal Finance, Economics and Business Sites
- Bloodhound Blog
- Financial Rounds
- Free Money Financea> Other sites I've linked and visit
- Ace of Spades
- Ann Althouse
- The Anti Idiotarian Rottweiler
- Atlas Shrugs
- Professor Bainbridge
- Baldilocks
- Beldar
- Blackfive
- Classical Values
- Coyote Blog
- Daily Pundit
- Drudge Report
- IMAO
- The Jawa Report
- Just One Minute
- Libertarian Leanings
- Liberty Papers
- Normblog
- Patterico's Pontifications
- Right Wing Nut House
- Samizdata
- SCOTUS Blog
- Stop the ACLU
- Unalienable Right Consumer and Research Sites
- Better Business Bureau
- Consumer Reports
- NASD Home
- California Department of Real Estate
- California Licensee Lookup
- California Department of Insurance
- National Association of Insurance Commissioners (NAIC)
- Do Not Call Homepage
- IRS Charities Search
- Internet Fraud Complaint Center
- SEC Home Page
- Stop Mortgage Fraud
- Report Mortgage Fraud Debunking Many so-called Real Estate Gurus
- John T. Reed Worthwhile Web Comics
- Sluggy Freelance
- Day by Day It is site policy to list the main page of every site I reference. Sometimes the real world intervenes and I haven't gotten to it yet, or one falls through the cracks on a long post with multiple references. It is also site policy to list the main page of every site that lists this one on their equivalent roll, as well as the main page of all sites that are members of any of the same groups this site is a member of. Please send me an email with a link to the main page of your site if I've overlooked you (dm at the domain name). For the clue-challenged, note that it is a requirement for your link to appear on every page of your site, just like mine does, and I will not link to spam sites.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.
Leave a comment