Realtors, Chauffeurs, & Investment Bankers

What Do Realtors Really Get Paid For?

[Note: this post is a companion to "Do Realtors Really Add Value?]

If all realtors did was chauffeur clients around, realtors should -- and would -- make what chauffeurs do: about $20 an hour.

But what realtors really do -- at least in their capacity as listing agents representing Sellers -- is actually much more strategic, and therefore valuable: they position the Seller's home in the marketplace, suggesting how to look at it, and yes, what to pay for it.

In politics, it's called defining your opponent before they define you. In real estate, it's about maximizing each home's potential, then presenting it to prospective Buyers in the most flattering (yet truthful) light.

Every house, even the most impressive, has warts and blemishes; likewise, even the humblest home has hidden virtues and at least a few redeeming features.

Price Imprimatur

Kim Pease, one of the best realtors in the Twin Cities (and a competitor), once advised me to think twice about holding price opinions (price opinions are a popular way for realtors to solicit input from colleagues on a house whose "comp's" (comparable sold homes) are tricky or unclear). If the realtor does their job correctly, according to Kim, realtors (and prospective Buyers) don't give the listing price a second thought, or if they do, it's an almost subconscious, "oh, yes, it's priced right."

By contrast, if you put a spotlight on price, you invite scrutiny and second-guessing. That's one of the reasons why homes that languish on the market forever get especially beat up on price.

Where the Freakonomics authors (realtor-scorners both) get it wrong is that they assume houses are widgets: fungible, interchangeable, homogeneous. In other words, a commodity.

To a talented realtor, homes are very much malleable and unique.

I like to tell clients that a listing is like an iceberg: the part below the surface is what happens before the first prospect walks through. It's not unusual for me to spend months working with a client getting their home ready for sale, directing value-adding home improvements, orchestrating the staging, working with my photographer and desktop publisher to get the marketing materials -- online and print -- just right.

Identifying and unlocking potential value, then correctly pricing and selling it isn't what chauffeurs do. It's what *investment bankers -- er, venture capitalists do.

*While it's true that underwriting a new stock issue typically involves a lot more zeroes than selling the average home, as a percentage of the entity value, home selling is much higher. How so? IPO's typically involve selling just a fraction of the company to the public; the "public slice" then establishes the value for all the rest. By contrast, there's no way I'm aware of to sell just 10% of a single family home.