It's been 3 years since I posted about the #1 Myth About Selling Your Home. Time flies. I shouldn't have waited so long to get around to the #2 myth, which is that you need a "neighborhood expert" to sell your home. On the surface it sounds like an obvious requirement, right? Kind of like that rental car insurance that they try to convince you to buy. But if you dig down just a little bit you'll see that this notion is just another convenient myth perpetrated by the real estate industry to keep competition down and commissions high. And home owners are just all to willing to buy into it because they desperately want to believe that the right realtor is going to help them get more money for their home.
How do I know that the whole neighborhood expert concept is bogus? Let me count the many ways.
What Possible Advantage Could The Neighborhood Expert Have?
If you go back 20 years I think neighborhood experts added a lot of value because important data was hard to come by. But the Internet has changed all that. Using Chicago as an example, what's the really important data that is readily available today?
- School boundaries
- Community area and neighborhood boundaries
- Crime statistics (which would be inadvisable for a realtor to interpret for a client)
- Neighborhood development
- Neighborhood inventory and market time trends
- School quality (another topic that shouldn't be interpreted by a realtor)
- Comparable properties
- Access to transportation options
- Access to amenities
- Valuation boundaries (streets where the values of homes go up or down just because)
Have I left out anything important? Doesn't matter. It's all on the Internet and it doesn't take that long for a smart realtor (that's a different issue) to get up to speed.
What Experience Tells Us
But let's say I missed something in my list above and the so-called neighborhood expert really does have some mysterious advantage. How is that going to manifest itself? Well, we should see 1) a difference in the way homes are marketed by neighborhood experts vs. non-experts and 2) a difference in the way homes are marketed from one neighborhood to the to the other. But we are involved with hundreds of properties each year on either the buy side or the sell side and I can tell you unequivocally that 1) the neighborhood expert markets their properties the exact same way that that the non-experts do and 2) properties are marketed the exact same way all across the Chicago area - except with the use of lock-boxes, which varies between the suburbs and the city.
So where exactly do we see the advantage that the neighborhood expert brings to the table? The real difference in agents, and one that matters tremendously and may often be confused with being a neighborhood expert, is in their professionalism, intelligence, and responsiveness, but that's another blog post someday.
What The Data Says
The other way a neighborhood expert advantage might be noticeable is in the data - maybe they sell homes faster and/or at higher prices. But, alas, no such data exists. In fact, such data CAN'T exist because it would require the exact same home to be sold at the exact same time by two different agents.
However, don't be confused by "neighborhood experts" presenting you with bogus real estate data about market times and sales to list ratios. Sooooo many realtors are impressed with themselves (I listen to this crap all the time) that they sell the homes in their hood in 3 days with multiple offers near or above list price but you shouldn't be. In case the reason is not obvious I'd be happy (not really) to list your home for $10,000 and make the same claim.
The Difference Between Buying And Selling A Home
In light of this discussion it's interesting to note a dichotomy that exists between the home buyer and the home seller when it comes to seeking the help of a so-called neighborhood expert. Basically home buyers don't usually care that much but home sellers really do care. In reality it should be just the opposite.
In order to sell a home all a realtor really needs to know are the key selling features of that one property, the neighborhood characteristics being one set of features. Believe me that's not hard to do and that is why we don't see any tangible differences between so-called neighborhood experts and non-experts. However, when buying a home the buyers want and need to know the neighborhood characteristics of any area they are considering if they are not already familiar with them. So in theory they would need to work with a different neighborhood expert in each of those different areas, which really isn't practical. But again, with the online resources today, it's not that hard for one smart realtor to get up to speed on any given neighborhood.
Now it turns out that there is another reason for this dichotomy between buyers and sellers and it has to do with the emotional and psychological shenanigans that go on within the brains of humans when they buy or sell something. The next section covers this and explains how the real estate industry is able to take advantage of this weakness.
Why Do Home Owners Buy Into This Nonsense?
Humans are so irrational that there is an entire branch of economics, called behavioral economics, that studies how psychological and emotional factors distort economic decision making. When it comes to selling something humans fall prey to the endowment effect and loss aversion. The endowment effect is the phenomenon that anything a human owns is automatically more valuable to them simply because they own it - even if it's not worth that much money and even if they just got it a couple of minutes ago. Loss aversion is the phenomenon that humans are more concerned with avoiding losses than with acquiring gains and it's believed to play a role in the endowment effect. I'm not making this up. I mean they have quantified this stuff in laboratory settings with shocking results.
Obviously, when someone sells their house they want to make sure they are going to get what they think it's worth. But what they think it's worth is higher than the market value on average and it's going to take a premium to get them to part with it because they are averse to "losing" the home. The thought of getting one penny less than what they think it's worth is so terrifying to them that they want desperately to believe that if they can just hire the right realtor they can get more money for their home.
Of course, the real estate industry learned long ago to prey on the insecurities of home sellers and buyers so enter the neighborhood expert. This post has gotten way too long so I'm going to save the best for next time when I cover: How Realtors Try To Convince You That They Are Neighborhood Experts.
If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think I'm the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.