Five Invisible Events That Can Cost Home Sellers a Bundle

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Dear Monty: We recently sold our home. We were planning on using an agent we knew. He worked for one of the large companies in our city. He came and looked at our home and took many photos and notes. He also measured the house. We felt he was very thorough. A few days later, he returned with his analysis and gave us a comfortable range. We were ready to list with him, but my sister knew of another company she thought was reliable. She said we should always get two or three opinions. We got in touch, and they went through the same process as the agent we knew. But, when they returned with their analysis, their top end was $70,000 higher. We were skeptical but decided we were going to try it. They had a few showings right away, and then it went quiet. Two weeks went by, and another showing. This buyer bought the house and paid very near the asking price. It would have cost us almost $70,000 had we not listened to my sister. How often does something like this happen?

Monty’s Answer: Unfortunately, I am unaware of any data company or real estate company that tracks how often they underprice a home. In the described situation, the agent you knew that predicted a much lower price likely watched for the sales and knew what happened. I suspect he will not return to his manager and share the story. The moral of this story is that even if you have an agent friend, you run this risk without a second or even a third opinion. According to the Mortgage Reports research, four out of five home sellers only talk to one to two agents. This valuation flaw was occurring when I started working in real estate in 1966. If home sellers see your story, they may change their minds.

What Could Have Happened

• The agent made a mistake. We are all human.
• The agent may have had a friend or relative who wanted help. This is an ethical problem.
• The agent may be incompetent. Many agents’ weakness is evaluating homes.
• The agent may be a strawman. This is a felony, but again, an invisible crime, so hard to catch.
• The agent may have wanted it for themselves. Another ethical and illegal problem.

Epilogue

The real estate industry has excellent agents. The problem the industry has is that it doesn’t know how many. The problem that the consumer has is that they will never know. Suppose Mortgage Reports is correct that many home sellers only talk to one agent, and 5 or 6 million homes are sold annually for all the above-mentioned possibilities. In that case, substantial numbers of these invisible incidents are likely happening. Seniors and owners with a free and clear property are vulnerable. Another common scheme is that the strawman has an industry partner, such as a home inspector or appraiser. Six months after the closing, the strawman deeds an interest to the partner. If all these possibilities combined only happen 1% of the time on 5 million homes sold, they happen 50,000 times yearly. Get at least two opinions.