Apparently from the posts that I've read today there was a 60 minutes segment aired the other day that has a lot
of agents in a tizzy. I can't really speak to the segment itself because I haven't seen it, but I can speak to the issue of discount real estate companies in general because I own one the country's oldest ones.
I started ValueList in 1995 as a St. Louis discount real estate company. The reason that I developed my concept was because of my experience at a mid-sized mortgage company that I worked at. Part of my job was to fix any transaction that ran into problems. Instead of having processors and closers tied up with problem files, we bounced these deals out and they landed on my desk to figure out (1) what was wrong and (2) how do we fix it.
Now, what I'm going to say next is going to probably hurt a lot of people's feelings and for that, I'm sorry. But, it's the truth and lays at the foot of one of the reasons that there is a discount real estate industry now.
When I went to figure out what had gone wrong, most of the time, I could trace it back to one of the two real estate agents involved. Somebody had spoken out of turn or made a promise that they couldn't keep or neglected a detail or worse yet, had lied to somebody. It quickly became evident that there were far too many real estate agents who simply didn't know what they were doing or were doing it badly, sometimes even fraudulently.
Whatever the case, I would go to work on fixing the problem. In doing this you would be amazed at how many times I would have agents, sometimes the very agents who had caused the problem, yelling and cursing at me. I even had one agent who threatened to beat me up and felt strongly enough about it to drive down to my office. He didn't change his mind until he saw that I was a pretty big guy. My point here is that a lot of these agents were some what less than, shall we say, professional?
Many times it would have been easy to simply reject the loan and move on, but I couldn't do that. Just because somebody's agent was a you know what, didn't mean that I could forget about the people who were trying to buy or sell a home. Also, during these battles, I met some very professional, wonderful agents who are still my friends to this day. So, I would figure out what was wrong and then fix the problem and off to closing we would go.
And that is when I saw something that would change my life. It was a transaction where the agent had been particularly nasty with me. He was working both sides of a $650,000 transaction and had forgotten to order the occupancy inspection. The loan was approved contingent upon the property passing the inspection and the permit being issued. My closer brought me the file and told me what was up and that the agent was on the phone screaming. Would I talk to him?
I picked up the phone and he immediately started yelling at me, "WHY CAN'T WE JUST CLOSE? SO AND SO
LENDER NEVER REQUIRES THIS! SO FORTH AND SO ON!! (Most loan officers reading this are smiling because they know exactly what I'm talking about here)
In all the yelling I managed to ask the agent if he had tried talking to the inspector to see when he would be able to get into the property. It turned out that he hadn't made that call yet (I guess that he was too busy yelling) I suggested that he make that call and then call me back.
When he called he went right into yelling again...."THE INSPECTOR IS ON VACATION AND WON'T BE BACK UNTIL NEXT WEEK!!! YOU HAD BETTER CLOSE THIS LOAN OR YOU'LL NEVER DO ANOTHER LOAN OUT OF MY 
OFFICE...yadedadeda....so forth and so on".
I called the inspector's office and talked with the secretary who scheduled the appointments for the inspector and she told me that she had talked to the agent but that he wouldn't stop yelling long enough for her to suggest that he call the inspector from another township who was covering for the guy on vacation. I made the call and the guy went out the next day. Property passed, faxed the permit up, got the clear to close and boom! We closed.
Then I saw the HUD-1. The prick made something like $44,000 dollars!
That's the day that I decided to start a discount real estate company. After having dealt with this prick and far too many agents like him, I knew that it could be done better. After seeing what this guy made on what should have been a simple transaction, I knew that it could be done less expensively. Sounds like a niche, doesn't it?
My points are:
1) Real Estate needs to clean up it's act. There are far too many agents out there who damage the reputation of the industry as a whole. Real estate has a bad reputation because of these agents. Because of the public's perception of the industry, they don't see the value in what it is that you do. I've had ValueList going on 12 years now and it's as bad now as it's ever been.
2) There is way too much dead weight in the business. Most agents don't make a living wage, not because they aren't charging enough, it's because you guys aren't doing enough transactions. The reason that you're not doing enough transactions is because there are far too many of you. The pie is being split too many ways. Read my post "Ship Us All Out To Sea" to see how the glut of agents hurts the industry and the public.
3) Traditional real estate companies do charge too much. The rise of us discounters is proof that the public is
seeing this. I went to school for economics and any economist examining this situation objectivity will tell you, short of legislation to stymie the invisible hand of the market, any time there are excess profits being had that competition will move in until there is equilibrium in the market.
On that last note, I realize that a lot of you reading this are wondering what the hell I'm talking about "excess profits? I haven't seen any excess profits". Well, they are there. There is a reason why there are so many big corporations in the real estate industry. While the individual agent isn't making a lot of money, when was the last time you saw a big real estate company fail?
The fact of the matter is that most real estate agents won't renew their licenses when they come due. I'm not sure of the exact percentage, but I've read that only something like 5% of agents stay in the business more than 10 years (I would love it if anybody knows that exact percentage...please comment on that)
This post is getting long. If anybody cares, I would be happy to spout off on what I think that conventional agents can do to take advantage of the economics of where our industry is heading. Please feel free to comment or to drop me an email.
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Bob Mitchell
ValueList Real Estate Services, Inc.
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