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Op/Ed

Brokers, agents taking on too many listings and hurting homeowners

With technology connecting agents and consumers in new ways, the industry has responded by taking on more and more listings, but who really pays the price? Homeowners. Let’s look at a new study on the topic.

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It stands to reason that with a finite number of work hours a week, agents, no matter how efficient or technologically empowered they might be, can handle a limited number of listings successfully at any given time.

Yet some brokers and business models today—and agents themselves–are flirting with disaster by taking on too many listings to reap rewards from a system built upon commission-based compensation. The emergence of discount models that seek to increase agent productivity with technology based tools may be making the problem worse.

It stands to reason that if this hamster wheel keeps spinning out of control, somebody is going to lose. Now there’s proof. The big loser is the home seller, but it stands to reason their disappointment will rub off on the agencies and agents that that push too hard for profits.

A new study published in the current issue of the Journal of Housing Economics, How Many Listings Are Too Many? Agent Inventory Externalities and the Residential Housing Market, was conducted by Scott A. Wentland, Xun Bian and Bennie D. Waller of Longwood University in Farmville, VA and Geoffrey K. Turnbull of the University of Central Florida in Orlando.

It found that agents who take on too many listings (15 or more) will end up selling them for 3.0 percent less and will take significantly longer to sell them (129 percent more time) than agents with modest listing inventories (2 to 7 listings).

Moreover, they found that home sellers are the victims of a system that rewards agents with inventories that are too large

Too Many Clients, Too Little Time

“Agents representing 15 or more listings may be trying to represent ‘too many’ clients at one time, resulting in a substantially longer marketing duration and an important source of illiquidity for numerous homes in this market…The compensation structure in the real estate brokerage industry constantly puts agents in situations where they must balance their own interests with various clients’ interests. Agents are rewarded only if the property sells, as traditional full service broker compensation does not take into account the effort exerted to sell a particular property,” the authors concluded.

The study looked at whether agents have an incentive to take on too many listings—at least from the point of view of their clients. Additional listings may represent additional broker commissions, but they also place greater claims on the broker’s time and energy, which in turn can have adverse sales performance consequences for their clients. The dilution of agent effort and agency costs by very large numbers of listings adversely affects home prices and liquidity, the study found.

The study consisted of 21,450 properties residential properties obtained from a Virginia multiple listing service (MLS) for the period April 1999 through June 2009. Roughly half of all listings were represented by agents with medium inventory, where the agent is representing anywhere from two to seven additional listings. Nearly 10 percent of listings were represented by agents with very high inventory where agent inventory exceeded 15 or more additional listings. Nearly 17 percent of listings in the data set were represented by agents with a high or above average number of listings, from 8 to 14 additional listings. Nearly 20 percent of homes sold with listing agents who had one or zero additional inventory on the market. The bulk of the low listings were likely represented by agents who work part-time.

Baseline results showed that a small increase in agent inventory is associated with a slight discount in price and a substantial increase in time on market. The magnitude of the marginal effects are small, which is consistent with the expectation that one additional listing may not impose a very high marginal cost. An increase in agent inventory (9 listings) reduces the sale price by only 0.6 percent and increases marketing time by 13.6 percent, or approximately $1,000 and 15 days on average, respectively.

However, if the listing agent representing a seller had a very high number of other listings (i.e., 15+), that home generally sold for approximately 3 percent less and remained on the market for 129 percent longer than a home listed with an agent with a more modest inventory (i.e., 2 to 7 listings). This amounted to 142 days compared to the reference group whose time on market was on average 110 days. Despite the fact that this group represented only 10 percent of their sample, the result was still striking.

Greater Inventory = Lower Price, Longer DOM

“It is clear from the results that there is a relationship between agent inventory and sales outcomes that sellers care most about: selling price and time on market. Greater agent inventory is associated with a slightly lower price and a significantly higher time on market,” wrote the authors.

The study also compared sales of agent-owned homes with homes owned by clients and found that agents generally sell their homes for approximately 1.6 percent more than client properties. Inventory competition increases the time on market by 26 percent for clients, but only 12 percent for agents. In sum, agent-owned homes still take longer to sell with additional inventory, but not as long as client properties. This supports the theory that the inventory effect is driven primarily by agent incentives.

In the end, the authors place blame on agents, not their brokers or business models. “The results imply that agent incentives to secure additional contracts and potential commissions generate negative externalities for other properties in their inventory. Greater inventory diverts selling effort from existing inventory, resulting in longer time on market for all houses in the inventory. Agent effort to list properties has a direct effect on selling effort itself—a relationship previously overlooked. Further, the effect appears to be causal as well, in light of the identification strategy of employing an owner-agent interaction. It is clear than agent incentives drive this effect,” they said.

This story was originally published on June 08, 2015.

Steve Cook is editor and co-publisher of Real Estate Economy Watch, which has been recognized as one of the two best real estate news sites in the nation by the National Association of Real Estate Editors. Before he co-founded REEW in 2007, Cook was vice president of public affairs for the National Association of Realtors.

Op/Ed

Morning rituals of highly successful people – do you have one?

(EDITORIAL) From start to finish, the daily life of each successful person is very much dictated by their family and job. But there are definitely some patterns that we can all incorporate into our own morning rituals to achieve higher success and order.

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realtor working

Fleximize took a look at the morning habits of 26 of the country’s most successful individuals to include the President of the United States Barrack Obama, Arnold Schwarzenegger, Steve Jobs and even Oprah Winfrey.

What was discovered? Well, each of the men and women on their chart start their day early with time blocked out for exercise and meditation, breakfast and family. In short, things that are important!

Someone, somewhere coined it best: “If it has to happen, then it has to happen first!” Everyone has an “it.” Anyone who has managed to find professional success is surely embracing this philosophy. The first hour(s) of the day are used doing whatever is one’s top-priority activity. And no sooner do you start you risk the priorities of everyone else creeping in.

Interestingly enough, exercising in the morning is one of the group’s top priorities. It’s been said many times that exercise helps keep productivity and energy levels up and better prepares us for the everyday challenge of achieving all we can.

From start to finish, the daily life of each successful person is very much dictated by their family and job. But there are definitely some patterns that we can all incorporate into our own lives to achieve higher success and order.

An Insider article found that “the most productive people understand how important the first meal of the day is in determining their energy levels for the rest of the day. Most stick to the same light, daily breakfast because it works, it’s healthy for them and they know how the meal will make their mind and body feel.”

The Fleximize chart demonstrates that successful people consider the quiet hours of the morning an ideal time to focus on any number of things: important work projects, checking email, meditation. And what’s more, spending time on it at the beginning of the day ensures that it gets complete attention before others chime in.

So check the chart and find someone you can relate to.

BI points out that planning the day, week, or month ahead is a crucial time management tool designed to keep you on track when you’re in the thick of it. Using the mornings to do big-picture thinking helps you prioritize and set the trajectory of the day!

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Op/Ed

Security of client information is important, so change the process

(EDITORIAL) Too many companies have had security breaches, which is bad enough, but is the process for insuring client information safety too old to secure?

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security too old to function

While it’s clear companies seem to get hacked regularly, the steps taken to keep users safe are a joke. Companies still rely on asking personal questions in an effort to make users feel safe, but those attempts are laughable.

I wasn’t laughing earlier this week as I was setting up a few new accounts.

As anyone knows, creating accounts can be a real pain in the buttocks. But, since I’m kind of a geek, I would sometimes find the humor in choosing and answering my three security questions. (Wondering if I’d remember the answers.)

What band was your first concert?
What was your favorite dog’s name?
Where were your parents married?
What model was your first car?
Who was your childhood bff?

Cool.

I never thought much about the security questions until the last few times when I encountered a few like this:

In which city were you married?

What is the name of your eldest child?

At what time of day was your oldest child born?

How old was your father when you were born?

What?

I felt I had taken a step back in time.

Sure, these questions might be ok, if there were a lot of options, but these were four of the seven provided.

I’m not a super touchy person who gets triggered easily or angered at the drop of a hat. But, these questions made me question this process and its security.

Whether you’re a man or a woman, in this day and age, it’s quite possible you’ve never been married or had a kid. It’s also possible for some folks, they didn’t know their dad. Or, if they do, maybe they don’t want their security question asking how old he was when they were born.

But, the bigger question: Why so very personal? And, from a woman’s perspective, why so presumptive. It made me wonder: are the questions the same for a man or a woman of any age?

I can’t imagine a 22-year-old being asked about the birth of their eldest child. Or, where they were married.

These questions had to be options based on my age and gender.

I chose the questions I could answer like, where was my elementary school located.

But, I didn’t feel safer for answering. Somehow I felt like the company asking them was 1) Prying to gather personal data 2) Not concerned about safety 3) Was sexist.

As many others have argued, it’s time to shut this process down, if only for the fact that it doesn’t make us safer online. This is a practice that should be relegated to the past, just like the presumptive questions being asked.

Seems no matter where you look online, banks, retailers and even medical providers are hacked. Our information is floating in space on the interwebs.

Obviously, security is a top concern. Who wants to sign up for a service only to find out later, “OOPS, our bad, your information was hacked. Here, we will give you free credit monitoring for a month.”

Doesn’t cut it.

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Op/Ed

How we can prepare to slowly start going back into our offices

(EDITORIAL) At some point a supervisor, or manager may tell you to come back into the office. Are you dreading that call? If so, what can you do to prepare for it?

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Office return

Returning to the office is an inevitability for most of us. So how can we prepare to go back to work in a not-yet post-pandemic world?

Harvard Business Review (HBR) has some great feel good ideas about how you can return to the office. According to their article, you should “be a source of joy,” and “stock up on patience.” I’d love to live in a world where our situations allowed endless accommodations, but this is real life and as independent contractors, any broker can cut any agent at any time, so we have to seriously keep up and serve clients despite this chaos.

1. Assess your own risk.

Managers will have to work with every team member to assess their own risk and vulnerability. There’s a lot of unknowns at this point, including how schools will work and whether childcare is available. People who feel more vulnerable because of other health risks may need accommodations. I would like to think that workplaces should help to make accommodations as much as possible, but I realize that for some businesses, that may not be possible. Everyone will have to consider their own situation and advocate for their own needs.

2. Prepare for change.

Humans don’t always adapt to change very well. It’s time to start thinking about how the office will change when you return. You may be more isolated due to distancing protocols. There may be schedule changes to prevent too many people in the building at one time. The office may feel unfamiliar for quite some time, which is understandable. You may also find yourself responsible for cleaning your space more often. Expect to have many different emotions as you go through the next few months.

3. Realize that there are things out of your control

Returning to the office is going to be a transition. Focus on what you can control. Manage your stress. In an ideal world, your work would be proactive and provide honest responses to your concerns, but we all know those jobs are few and far between. Don’t expect the problems you had in your job pre-COVID to change. You’re just going to have to adapt to a post-COVID work environment. Only you can measure whether the benefits of your job outweigh the problems. Realize that there are many forces that you can’t change. Your broker or manager may not even be in control of some of those forces and has to adapt the same as you.

4. It’s not your place to change your company’s culture (unless you’re the broker)

HBR asks, “What part will you play in making (the transition back to the office) mean something extraordinary?” I’d like to posit that the transition back to the office doesn’t need to be anything special. It’s just part of the normal routine. Instead, I’d ask, “how can you deal with change while protecting your health and your family?” If your company is putting profits ahead of people, maybe it’s time to polish off that resume and look for a place with some decency.

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