The Difference Between a Functionary Agent and a Fiduciary Realtor

Every now and then I wander into some online Realtor Forums to share and trade ideas, see how markets are doing in other places, and see if I can answer questions or learn something new. The most disturbing thing I come across regularly is the misguided mindset of so many Realtors about their role as an agent. Most recently, this came up again around the issue of real estate inspections and whether or not we as agents should recommend specific inspectors to our buyers.

One agent posted “I offer them the Yellow Pages or to use a recommendation from a friend” to find an inspector. God help us all.

Why would a professional real estate agent hold this lame position? First, her Broker’s attorney may insist upon it. It’s a risk avoidance issue. Agents accept greater risk when we put ourselves on the line with specific recommendations for inspectors, lenders, vendors, etc. I understand that viewpoint, but I think it’s a copout. What it says is that the agent is more important than the client. That it’s more important for the agent to protect herself legally than to provide better than mediocre service. Whose interest is being served by that, and what does it say about the agent who follows this approach? It says that you the client are not very important.

Sylvia and I do recommend specific inspectors to our buyers, and we absolutely DON’T want our buyers randomly picking inspectors from the Yellow Pages. I also attend the inspection and estimate the repair costs of items noted on the inspection report. I then advise and educate the buyer about which items are normal and expected versus items for which we should seek remedy or cost offsets from the seller.

In other words, I’m in it up to my elbows with the buyer during the inspection process. What am I supposed to do – hide out in a coffee shop during the inspection and tell my buyer to call around for some bids if he wants to know how much a new water heater and a roof repair will cost?

Most competent real estate attorneys will tell me I shouldn’t be this involved. But I think the risk and liability in mine and Sylvia’s transactions is reduced by our greater involvement, not the other way around. So I don’t listen to the attorneys because I have no desire to be a “do nothing” Realtor who avoids questions and doesn’t provide information for fear of being sued. I instead choose to provide a high level of service to our clients. I choose to be a “Fiduciary” instead of a “Functionary”.

This difference between a Fiduciary and a Functionary is spelled out on pages 96 and 97 of The Millionaire Real Estate Agent book.

The chart below outlines the differences.

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Mortgage Rates Plunge Below 5% – But Does it Help Investors?

From my Daily Realtor news feed:

Mortgage rates declined Tuesday after the Federal Reserve said it would spend $600 billion to support the mortgage securities market.

Rates fell to 4 7/8 percent, a 1 1/8 percentage point decline. David Beadle, president of BestInfo, said it was the sharpest one-day decline since 1988.

“I hope that the effect is that it brings more investors home to investing in housing,” said Alfred DelliBovi, president of the Federal Home Loan Bank of New York. “[Investors] have had a sense in the markets that anything connected with a mortgage is bad” even though most people pay their home loans, he said.

This is great news for buyers, but I have a news flash for Albert, who says “I hope that the effect is that it brings more investors home to investing in housing”.

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Using Twitter as a Focusing and Productivity Tool

I wrote recently about Social Media tools and whether they can aid and assist Realtors in selling homes and acquiring leads. I am skeptical of whether these tools, such as Facebook and Twitter, provide a sufficient return relative to the time invested in using them.

Well, I had enough feedback and counter-points offered to me in the blog comments posted and also in discussing this further with some friends and other agents that I decided to give it a whirl. So, I’ve been Twittering everything I do all week (within reason). I have some initial observations about the experience.

First, and most unexpected, is that this ridiculously stupid activity has caused me to become more focused in my daily tasks. How’s that?

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Austin Rental Market Update – Oct 2008

At my monthly Property Manager’s luncheon yesterday in Austin, the general consensus among the 30+ property managers in attendence was that the leasing market has taken a nose dive since September. The number of renter calls has really slowed down. One manager remarked “I keep calling my own phone to make sure it’s working”.

Indeed, the Rental market seems to have slowed down, but the market stats don’t make that obvious. You’ll just have to take my word on it. So treat this prelude to the stats report as an asterik, noting that some homes are in fact leasing slower and for less money than a year ago, even if the general overall stats for October seem to be as good or better than a year ago.

So, let’s take a look at the October stats below, and notice that the average rents in Austin are up 3% over October last year. Median rents are the same, which is common for rentals, as the median doesn’t move often. Days on market look good at 31 average and 23 median. The average and median prices per square foot , however, are down. This is more in line with what the leasing agents and other property managers are reporting. The number of expired lease listings is up and the number of withdrawn listings has more than doubled from a year ago. See the chart below.

Austin Real Estate Rental Market Update
Homes only (condos, duplexes, etc. not included) compiled from Austin MLS data

Sept 2008 Oct 2008 Oct 2007 Yr % Change
# Rented 595 661 585 12.99%
Avg List $1,429 $1,396 $1,355 3.03%
Med List $1,250 $1,250 $1,250 0.00%
Avg Rent $1,412 $1,383 $1,339 3.29%
Med Rent $1,250 $1,245 $1,245 0.00%
Rent/List % 98.81% 99.07% 98.82% 0.25%
Avg SQFT 1917 1890 1926 -1.87%
Med SQFT 1800 1745 1827 -4.49%
Avg $ SQFT $0.74 $0.73 $0.70 5.25%
Avg DOM 32 38 31 22.58%
Median DOM 27 29 23 26.09%
# Expired 88 80 62 29.03%
# Withdrawn 131 178 81 119.75%
Not Rented 219 258 143 80.42%
Not Rented % 26.90% 28.07% 19.64% 42.92%


So in a market in which the phones are not ringing and inventory is building (from failed For Sale properties being converted to rentals), price drops and incentives are the only cure (assuming there are no condition issues). I had a house listed at $1,395 with ZERO showings for 1 month. We dropped it to $1,275 (for the first 6 months), which represents a $720 rent incentive, and it leased immediately thereafter. That $720 is equivilent to 16 days of vacancy at $1395, so as we approach the current tenant’s move-out date at the end of November, we had to get more agressive.

Below are the year to date leasing stats for Austin 2008 through October compared to 2007 Oct YTD.

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Austin Real Estate Market Update – Oct 2008 Sales

The number of residential single family home sales in Austin took a 28% dip for Oct 2008 compared to a year ago. The number of “Not Solds” (expired or withdrawn) took a big jump also, to 59% of all listings that departed the Austin MLS in October. These are grim numbers, but the remaining metrics that we track are again holding up pretty well nonetheless. In short, fewer homes are selling, but the ones that do sell are fetching prices near or or above last year’s sales. Most sales currently are for homes selling below $200K.

Let’s look at the breakdown:

• Number of homes sold is down 28% (was down 14% last month) from 1,717 Oct 2007 to 1,227 Oct 2008. Last month (Sept) saw a decrease in the slowing of sales, but this month (Oct) headed back the other way again. I think the remainder of this year is going to be very slow as well.
• Average list prices in Austin were up 1.16% over the same month last year to $259,128.
• Average sold prices in Austin were down 0.29% over the same month last year to $247,687.
• Median sold price was up 5.46% to $195,000.
• Average List to Sold price ratio is 95.58%, down from 96.42% the same month last year.
• Avg sold price per square foot is down 2.13% to $115 compared to $117 a year ago in October.
• Avg days on market is up 4 days (6.15%) from 65 last year to 69 this October.
• Median days on market is up 7 days (16%) from 43 days last year to 50 this year.
• Number of “Not Sold” (exp or withdrawn) is up 29% over the same month last year, to 59% of all removed listings compared to 46% for the same month last year.

The stats outlined above are shown in the chart below.


Austin Real Estate Sales Market Update October 2008
Homes only (condos, duplexes, etc. not included) compiled from Austin MLS data

Sep 2008 Oct 2008 Oct 2007 Yr % Change
# Sold 1512 1227 1717 -28.54%
Avg List $257,761 $259,128 $256,148 1.16%
Med List $189,900 $199,900 $189,900 5.27%
Avg Sold $248,026 $247,687 $246,978 0.29%
Med Sold $185,000 $195,000 $184,900 5.46%
Sold/List % 96.22% 95.58% 96.42% -0.87%
Avg SQFT 2131 2156 2104 2.47%
Med SQFT 1924 1986 1919 3.49%
Avg $ SQFT $116.39 $114.88 $117.38 -2.13%
Avg DOM 67 69 65 6.15%
Median DOM 48 50 43 16.28%
# Expired 797 666 628 6.05%
# Withdrawn 891 1070 806 32.75%
Not Sold 1688 1736 1434 21.06%
Not Sold % 52.75% 58.59% 45.51% 28.74%

 The Year-to-Date figures through Oct 2008 tell a similar story, though less pronounced than Oct. See the chart below:

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Redfin Abandoning Failed Model and Moving Toward Traditional Services

The discount Broker Redfin, which I follow with interest even though it doesn’t serve Austin, looks like it’s making yet another move toward traditional real estate services. Rather than facilitating the wholesale disintermediation of the traditional Realtor, Redfin instead continues to adopt more and more of the traditional Realtor approach and offer smaller rebates to its clients, while still bashing the old real estate business model that economic reality is pushing them toward.

What does this mean? If you want to list your house for sale in a Redfin city, the Redfin Agent will actually come view your home first. Pretty cool, I know. Turns out that seeing a house before you list it is helpful after all. But it gets better…if you are a buyer, and want to be shown a house, your Redfin agent will now actually set a time to meet you there and let you in. Are you feeling goose bumps yet? Again, this is nifty stuff, having an agent treat you like you are important.

The Redfin business model at first required buyers to figure out how to get inside homes themselves, either by waiting for an open house, or getting the listing agent to come show it, or more notoriously, duping a dumb unsuspecting agent into thinking they are going to work with them, and using that agent to see homes without disclosing that they are a Redfin client.

When that model ultimately proved less than ideal, the idea of “showing tours” was introduced, which allowed a buyer to purchase “a 3 hour tour, a 3 hour tour” of homes for $250 each. But the weather started getting rough, and that concept failed to vanquish the traditional Realtor as well. So now what?

A couple of days ago, I received the announcement that Redfin now offers “unlimited buyer tours”. Uh, that sounds like what we do as traditional Realtors. We show our buyers homes until the right one is located.

From the Redfin blog Nov 6, 2008.

Unlimited Tours, Agent Choice
To hit the mass market, we’re upgrading today our home-buying service to offer free unlimited tours, and a choice of agent, and support from that agent all along the way.

Sound familiar? Pick the agent you want, see as many homes as required before making a purchase decision, and have “support” from the agent involved in the process “all along the way”.

And do you still get rebated 2/3 of the buyer agent commission? Nope.

50% Commission Refund
And we’re raising prices. Tours are now free — we used to charge $250 per tour – but we’re changing the commission refund for buyers from 66% to 50% (existing customers relax, you pay the old price). The average refund should drop from $10,000+ to nearly $8,000. If people use Redfin to sell one house and buy another, the total savings should still in most cases be about $20,000.

Then, in true “me thinketh thou doth protest too much” fashion, we are reassured that vast differences remain between the new Redfin Services and the Old Realtor.

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