What if I told you that an Edmonton Real Estate company charged its clients over $1 Million in fees and provided no results?
"It’s the scam of the century!" many of you would tell me. "Crooks and cheats" many have howled for less. How could this happen in the most regulated real estate environment in North America?
First of all you’d have to operate outside the jurisdiction of the Real Estate Council of Alberta and from there it’s easy. In the regulated world of Alberta real estate, when I tell you that the average time on market for 2007 for one of my properties is 8.5 days as opposed to the industry average of 22 days, and that our little company (I haven’t seen better yet) has an average list to sale price ratio of 105%, it had better be accurate. If I give you these stats inaccurately my butt’s in a sling (a very painful sling) – but if you aren’t licensed by RECA it looks like you can publish whatever you want.
So back to the $1 million fees paid (according to my estimates) with no results.
A well known unlicensed real estate marketing company in Edmonton started publishing some of their statistics on their web site for all to see some time ago. We’ve always found some of the numbers a little fishy, and with no third party auditing their stats I’d say it’s safe to call them unreliable at best, especially since there is no requirement, process or penalty for failure to report accurately.
So we got our sharpest pencils out and we crunched the numbers. I’m seriously laughing right now because it was almost impossible to get their numbers to add up, but at the end of the day – and I mean the end – we found some very interesting stuff.
Listing to Sales Ratio
The correct way to calculate this number is to take the total number of sales for the month, and divide that by the number of new listings for that same month. This statistic helps identify whether we are in a seller’s market, a balanced market, or a buyer’s market.
When you go through the stats from this particular company and follow this formula, you don’t get anything close to the numbers they’ve published. For example, for April 2007 they claim to have had 505 sales, and 788 new listings. They claim their sales to listing ratio is 78% for April (while the real estate board reported a 76% ratio – a strong seller’s market). Do the math, and you’ll find that 505/788 is 64% – which puts their clients just a notch away from a balanced market and at a serious disadvantage to those represented by licensed professionals! It also means that 34% percent of their properties did not sell in April.
My personal favourite is October ‘06 when they claimed an 85% ratio when the formula gives you 57%. Hmmmmm….I wonder if they "forgot" to include some of the canceled listings in their numbers (i.e. the people that didn’t sell on their own and decided to list with an Realtor® – did they include those as sales?). To be honest, I don’t know where they got the numbers from, I’ve tried numerous methods of calculating this data from their stats and I can’t get a 78% or 85% ratio out of any of their numbers.
One point of clarification – you can’t "list" your home with a marketing company as that would make them trading in real estate which would mean they’d fall under the same regulations that licensed real estate brokerages fall under. They should probably consider refraining from using the word listing for their own protection.
Market Share
How about the claim they’ve made a number of times over the past year: "we have a 30% market share in Edmonton." While it may be true that at one point this company had almost 1/4 the number of active listings that the Cooperative Listing Bureau (a.k.a. the Edmonton Real Estate Board) had, that does not mean they had 30% or even 25% market share.
Market share in every industry is based on the number sales, not the amount of product available for sale. If I produced more running shoes than Nike, without selling a single pair, does that mean I have a greater market share than Nike? Not on your life!
In May ‘06 (one of the times they claimed a 30% share) this company reported just under 500 sales, while the cooperative reported 2565 sales, accounting for 84% of the market, assuming that the market only includes the cooperative, and one FSBO marketing company. Don’t forget, there are plenty of choices out there for sell-it-yourselfers, and these companies eat away at each other’s market share.
Commissions Saved?
I’m sure you’ve figured out who this company is by now, but here is the biggest hint: the stat they love to throw around the most is the amount of commission saved by their clients. For one thing, we all know that different agents charge different amounts, and everything is up for negotiation. Their "commission saved" number is based on the fiction that every single transaction had a fixed amount.
It looks to me like they are saying their clients are saving commissions even when a fee was paid to real estate agents representing buyers that purchased homes marketed with this company. I wonder if they deduct those fees from their "commission saved" tally? I doubt it, even though it happens on a regular basis.
So who is this mystery marketing company, and how did I arrive at $1 million in fees paid by home sellers for no results?
It’s a little complicated but here goes… I added up the total number of "listings," and the total number of sales reported on this marketing company’s site since March 2006 (as far back as their stats go). Turns out there have been 7518 homes marketed through this company, and 5708 homes sold, which leaves 1810 homes unsold!
Maybe they should post a "money wasted instead of commission saved" column for all the people who paid the currently advertised rate of $699 up front and in the end didn’t sell. My quick calculations show that to be more than $1.25 million, and that’s assuming none of these clients paid any up charges for larger ads or virtual tours. So in the end its probably more than 1.25 million. If my guess is correct there are actually more than 1810 of them that paid upfront, were unsuccessful, then listed and sold with a Realtor, especially since all their other stats have proven to be so accurate.
To be honest, I could keep going on and on here, but I think you get the point. Don’t believe everything an unregulated company with a million dollar agenda tells you. And before many of you get your knickers in a knot spouting you hate Realtors® (to be honest some of you have earned that right the hard way) check the math out yourself – someone tell me I’m wrong.
Why do they do it?
Possibly to create the impression that they have larger market share then they do. They also play to our fear of paying money to sell our homes, and in the end it doesn’t matter to them if you sell or not because they get paid either way. Hence the $1 million or more in fees paid by sellers who never sold.
All this doesn’t even include the seller’s time, lost opportunities, or any economic distress a seller would have endured because they didn’t sell. And how many of these sales have ended up in court for misrepresentations by the sellers, or failures to disclose latent defects or personality disagreements between the parties?
However, it’s what they do – they are a marketing company period. I’m just a little guy that gets phenomenal results for my clients. On average I’ve made my clients $12,122 over THEIR list prices this year. In many cases I’ve made my clients well over my fee and the buyer agent’s fee, while handling the sale of their property professionally. So you’re right, I have an agenda too. I want to properly inform people and I want people to check into the fuzzy math I find floating around out there.
I’m not saying that everyone should list with a brokerage, I do feel that companies should be honest when they report statistics, or don’t report them at all. Our little company gets results.
Quite frankly if you use them you lose, especially when you compare their results to our little company.
