Pitfalls of online agent ratings
Originally appeared in Bay Area News Group publications on August 8, 2014
“The greatest deception men suffer is from their own opinions.”
– Leonardo da Vinci
According to a National Association of Realtors survey, 90 per cent of real estate home buyers search online during the purchasing process. Those who do not have a relationship with a real estate professional may browse sites that rate agents. Regardless of the specific verbiage, online portals that evaluate licensees are asking, “Did your agent do a good job for you?” This seemingly simple question is actually much more complex than many realize.
Number of sales
A major problem with judging agents is that real estate buyers and sellers frequently have less than a full understanding of the process. Compounding this is the common, but incorrect, belief that nearly everything you need to know can be learned on the Internet.
Surveys tend to focus on the amount of “selling” an agent has done, more being better, and not on the amount of “representing,” which can often be difficult to quantify. The greatest false assumption is that agents who make the most sales should have the highest rankings. Ask yourself, is the dentist who treats the most patients the one you should choose? Maybe yes, maybe no, but do not confuse quantity with quality.
As I have said in numerous articles, an agent’s primary job is to stand in your shoes and represent your best interests. Do not assume all agents do this.
Seller rating the result
A seller whose home sold for well over asking price is usually happy with the result and will generally recommend his agent and rate him highly. Nonetheless, this seller might not be aware of some specific facts. For example, in today’s local market, almost any listing in a desirable location that is not overpriced will sell for higher than list price. Only the most incompetent salespeople can mess this up.
Let’s say there were 20 offers on a property and the two highest were at least $200,000 more than asking. At the time of the bids, the seller is probably not thinking about what could happen if he accepts an offer and, ten days later, that sale falls apart. There are numerous reasons why, when re-marketed, his house may not see nearly that number of competing contracts or that high a price. The seller could lose well over $100,000 in this scenario.
His agent may know this and, consequently, suggest to the seller that he include certain clauses in a counteroffer to maximize the likelihood the sale will close. These might include an initial buyer deposit of $50,000 instead of the $24,000 the buyer offered. Further, the contract could be changed from a limit on the buyer’s liability to significant liability for the buyer if he defaulted after waiving all his contingencies.
Knowledgeable listing agents who care enough to take these extra steps are worthy of the higher ratings. Not all are and few sellers recognize these nuances.
Buyer rating the result
After having failed in nine previous offers, a buyer is now thrilled to have finally prevailed in competition. He rates his agent highly for helping him beat out the crowd. Unfortunately, his euphoria may not last long.
What happens when this buyer realizes that, in order to ostensibly improve the bid, his agent’s advice to not include an inspection contingency in the contract eliminated an essential protection for him? Now, three months later, the buyer has expensive estimates for problems he never knew were so serious. At this point, his agent may no longer be viewed in the same positive light.
And worse, when the market shifts from favoring sellers to buyers, as it inevitably does, how will the buyer feel about the fact his agent never explained that his price was a new high for a two-bedroom home in that neighborhood? The point is that consumers commonly do not comprehend the value of excellent representation until something goes wrong.
A 2014 survey for a well-known real estate firm found that, nationally, 25% of homeowners would not buy their home again if given a “do-over.” Although there are many possible reasons for this “buyer’s remorse,” how many of these buyers would still recommend their agent?
The wrong survey questions
How long a home takes to sell is market-dependent and, therefore not a very useful rating question. In our market, homes sell almost immediately unless they are overpriced.
A similarly poor question is how much over or under asking was the sales price. A better question would be if the asking price allowed the seller to maximize his return.
What is the sales-to-listing ratio for a particular agent? This is an irrelevant question in any market. It does not provide any information about exceptional representation.
How many sales has an agent closed with buyers in a defined location? Not useful for the same reasons as above.
A rarely asked question is how long you worked with your agent before you purchased your home. In this case, a long period, sometimes over a year, can be an indication of an agent who was discouraging his buyer from homes that were overpriced, had condition problems, and/or were in a questionable area. In other words, he was protecting his client, not his commission. This might be someone you want as your agent.
Companies rank agents to bring in business for themselves and make money, not necessarily to help buyers and sellers make the most informed choices.
Referrals from friends, relatives, neighbors or other agents and repeat business with previous clients are still the predominant way most home buyers and sellers find their agent. Committing to the right agent is one of the most important real estate decisions you can make. Choose wisely.