(Insert Any Common Misconception About Real Estate)?
^ Me, when someone starts lecturing me on my industry solely because their Aunt Shelia got her real estate license after her Mary Kay aspirations ran their course
Professions are weird in that the minutiae of your job takes up at least 8 hours of your day, minimum 5 days a week, yet outside of your colleagues, your closest friends and most of your family have no idea what you do on a daily basis. If you’re lucky, they may be able to regurgitate a hazy summary of your Linkedin. Beyond your job title, in the eyes of most, what you do is often reduced to what movies and television have popularized as your day-to-day operations.
Some professions are meant to be completely misunderstood. For example, I have candidly no idea what the cast of the Broadway musical Cats does during the day. I will never fully grasp the supply chain that keeps the Trader Joe’s at 72nd and Broadway stocked. The amount of times I’ve said someone I know very well is “in finance” followed by a pregnant pause, a half-open smile, and dead eyes is enough to warrant a professional guardian over my own finances. However, having been in this field for 10 years, I am always aghast about how most people’s perception of how the real estate industry works is so horrifically off the mark.
If I could add up the hours I’ve spent at what was supposed to be a relaxing social event or a romantic date thinking about putting someone in a choke hold after they said “why don’t you just ask your manager for a big sale listing?”, I would be in a theoretical maximum security prison. You’re obsessed with Selling Sunset and have questions? Joy.
Since real estate will be important to you at multiple points in your life – as a renter, landlord, buyer, seller, or investor – today we’re going to cover it all, some notable ones being:
Did you know that real estate agents are independent contractors and our brokerages don’t give us leads or listings, all business must be self generated?
Do you know that Streeteasy is profiting hugely on matching you with inexperienced agents with zero business of their own whose only shot at paying their bills that month is to fork over a hefty fee to have their credentials placed over that of the listing agent and there’s no disclosure of this to the consumer?
Do you know that calling every agent a broker is actually grossly incorrect and licensed brokers have to be accredited by the state, have a certain number of transactions, and pass course and state exams? So many salespeople say they’re a broker because it makes them come across more senior but they are in no way allowed to be crowing themselves with that title.
^ Anyone reading this, realizing that Streeteasy has been scamming them this whole time
This time we’re going to cover all the things I have overheard or have been told directly that are so wildly off that all they command is a heavy sigh and accompanying shake of the head.
How Streeteasy is scamming you and ruining the industry
If you are a consumer of New York real estate, you will know that Streeteasy is your main resource for publicly viewing properties, unless you have an agent who is sourcing you properties directly from their Multiple Listing Server. Have you ever inquired about a property and then been linked to an agent who then says they’ll show you this property (and possibly others). You then go see the property and realize this person isn’t the listing agent but a random agent off Streeteasy claiming to be your representative without your knowledge?
Agents can purchase what is called “StreetEasy Premier Agent” for thousands of dollars a month to have their likeness and contact information put over the information of the listing agent, who is the person you are actually trying to get ahold of. These agents who spend this obscene money are usually inexperienced/inept and don’t have a business of their own (which should be a red flag as to the caliber of the agent they are) so they pay oodles of money just for leads. They are trying to dupe you into visiting the property with them so they can collect half the commission of the sale as your representation. You’re going into this thinking you’re reaching out directly to the seller’s representative, when really it’s a random person who is trying to trick you into using them as your agent without your knowledge or agreement.
Streeteasy doesn’t care about the safety of the consumer and does not advertise that this bait and switch is happening. They make obscene amounts of money off this scam and do not vet the agents for their aptitude before slapping their information over that of the listing agent, who worked very hard for this listing.
The amount of times that I, as a seller’s agent, have had buyers come with “their agent” only to find out in the apartment, that their agent is not the seller’s agent…which leads to me, like some dramatic TV reveal, bringing to light this entire scam in front of the buyer and this sheepish agent who never disclosed their trickery to them. It makes for a deliciously uncomfortable situation.
How to avoid this? Under the premier agent information, there is usually a prompt where you can select to see the listing agents information. It’s small and somewhat hidden, as Streeteasy wants you to use the agent it makes money off of, even if they have no experience, are bad people, or horrible professionals. Or the safest way around this is to work with an agent you know and trust. In 89% of transactions, buyers have their own representation (I’ll discuss more later), so instead of getting the run-around and potentially getting legally bound to a property with an imbecile as your agent, find an agent who has experience, you enjoy, and will work hard for you. Sadly Streeteasy is the only engine for unrepresented consumers to utilize, however it comes with countless traps to swindle consumers as they would rather make money than protect the safety of their users or maintain a high level of professionalism throughout the field.
Why you should not be calling every agent a Broker – it’s a hard earned title
The number of times I hear people assign the catch-all moniker “broker” is to every agent comical. When individuals first get their license, they are salespeople. They must work under a brokerage, which is headed by a Broker of record, and they cannot branch off by themselves as an independent agent or start their own brokerage. They renew their license every two year with required continuing education.
Salespeople, after time in the industry, can apply to become a broker. The requirements are at least two years of experience as a licensed real estate salesperson or at least three years of experience in the general real estate field or a combination of both; 152 hours of mandated education; passing the course exam; passing the state exam; surpassing a particular amount of sales transactions; and having your application approved. Once a salesperson becomes a broker, they can practice independently, employ salespeople under them and form a brokerage, or join a brokerage as an associate broker. Being a broker myself, the experience required and the amount and range of material covered for the state exam is so significant, that it’s a bold lie when a salesperson refers to themselves as a broker.
We are all agents, which is the proper catch-all. Brokers have proactively furthered their career both with their experience and great deal of effort and education to become true experts in the field.
How brokerages work
While only salespeople need to work at a brokerage, most agents work for brokerages because a brokerage affords us wonderful assets like knowledgeable managers, incredible marketing tools, brand name, benefits of having an office, umbrella of legal coverage, technology, etc that would be impossible to replicate as your own independent broker. However, brokerages do not give you leads, or listings, or clients. Your brokerage gives you zero business. If you work at a good agency, you’ll have staff to help you produce marketing materials, however your marketing is a product of your ideas, your consistency, and your effort. Your buyers and sellers only come from your network and the relationships you’ve maintained.
With regards to building a business, there is no handbook. Managers are there to help brainstorm and answer questions, but the impetus is only coming from you. Some brokerages are catered towards new agents who have no business and are supportive with their doing rentals to get their feet on the ground. The high-end brokerages require you to have a book of business, track record, and certain level of gross commission income to get in.
You pay between $1,000-2,000 a year to your brokerage for your desk and technology fee. You pay over $1,000 a year in Error and Omission fees for your legal coverage. You pay $500 for your REBNY association fee. On top of this, your brokerage takes a percentage off your commission. Depending on how productive you are, the percentage changes. Top producers at most agencies get to keep 70% of their commission but that drops dramatically if you aren’t hitting your certain gross commission incomes. All business expenses come out of your pocket and your brokerage does not reimburse for anything. You have to independently keep track of all business costs and deal with during tax season with your accountant.
In addition, you have to pay estimated taxes on your commission and then factor in that you’ll usually owe more at the end of the year.
Most sellers have agents they’ve used before or are referred by peers to agents – brokerages do not have a chest of leads they divvy out. Every agent is their own independent contractor who builds and sources their own business, using their brokerage as support for tech, marketing, and knowledge of managers to make their business better.
Who pays commission?
It is customary in real estate everywhere that the seller pays both the seller’s agent’s and the buyer’s agent’s commission. Buyers are not responsible for commission so do not need to consider this as a closing cost.
If something is listed by agent from a certain brokerage in the building it doesn’t mean the whole building is listed by that brokerage, or they have access to it
This is a funny one I get a lot. “I saw Compass had a listing at this building; can you get me into these other listings at this building since you have a connection through Compass?” Every agent is running their own business with their own clients. Some of us are under the same brokerage but that does not mean we share business. Every apartment is owned by an independent owner who can choose to list that apartment with any agent they want. That agent is the listing agent and exclusive agent for that seller and that property. To see the property, any interested buyer/agent needs to contact and arrange all showings through that agent exclusively.
Who the seller’s agent’s fiduciary duty is to and why no smart agent agrees to dual agency
The listing agent’s (seller’s agent) fiduciary duty is solely to the seller. Not to the buyer or any other party in the transaction. As an agent, who you are contractually obligated to (your client) is the person you owe fiduciary duty to. The other person in the transaction is a customer. For example: if your client is the seller, you are the listing agent and your fiduciary duty is to the seller. You owe the seller: loyalty, disclosure, confidentiality, obedience, accounting, and reasonable care and diligence. The buyer is the consumer, to which you owe no fiduciary duties besides disclosing important information about the property and being honest to the customer.
So as a buyer, if you go directly to the seller, their best interest is in the seller’s favor. Their top goal is to get a deal done for the highest price possible and they have no obligation to relay their true opinions about the property or fight for your wishes, as their professional acumen is reserved solely for their seller.
Also, people who think the seller is saving half of the commission on a direct – not the case. Typically instead of the seller paying 6% or 5% for commission with two agents, it will be knocked down to 5% or 4%, which will not translate to a meaningful savings, as most sellers prefer buyers with experienced agents so the transaction isn’t a potential nightmare. Like I said before, 89% of buyers have representation and direct buyers truly aren’t valued as a savings.
You’ve heard of dual agency where the seller represents both sides? Never, never agree to a dual agency situation. Theoretically, the agent must be impartial to both sides to legally see through the requirements for dual agency. This is nearly impossible and there always tends to be faults in judgement, leading to one side being favored. Any smart agent will refuse dual agency because they have their clients’ best intentions at heart and want the best for the transaction, which is nearly impossible to maintain in a dual agency scenario.
When you list with a “top agent” who has a big team, why you may be doing yourself a disservice
People who want to list with a big agent because of the social media and personality, here is a reality check as to why enlisting a big team with a big name producer isn’t the best idea. You think you’re going to have this charismatic top agent handling every showing – think again. They’ll pitch you that they will but they’re going to be handing off all showings to younger, less experienced agents on their team most likely. The most important thing for your home is its representation and with these large teams, you typically don’t know who the face is who will be showing your apartment at any given time.
Also, these team are made of countless people. Before you get wowed at the fact that they’ve grossed $50mm, take a look at how many people are on that team. If it’s 10 people, that’s $5mm per person, which all of a sudden makes that team look way less impressive. Individual agents report their numbers that they as an agent make; team sales can be gravely misleading to the talent of the team so look at how many individuals that gross number is representing to then assess how good that team really is.
You just open doors and collect a check
What a wonderful way to start a conversation off on a good foot with a real estate agent lol. Sadly, I’ve gotten this to my face more than once. Agents are all the pieces of a fully functioning business. Besides the usual showings, you’re managing countless clients at different stages of their searches, working on any number active deals (each coop deal is its own personal headache), property managing for owners, pitching properties, keeping up with regular marketing material, keeping in mind soon-to-be sellers and buyers whose schedules you have to premeditate, keeping all of your personal books organized for things like accounting and taxes, all while trying to keep your personal life healthy and not letting work absorb you entirely. We don’t usually have assistants or people doing all the little bits and pieces outside of the glamorous house tours. Agents are effectively running their own business all by themselves, opening the door is the easy top of the iceberg for us.
Any other questions? Please reach out – I would rather have people know how this industry works than deduce things from TV shows!