Real Estate Rescue: How America Leaves Billions Behind in Residential Real Estate and How to Maximize Your Home's Value

Copyright © 2020 Tracy McLaughlin

Published by Mango Publishing Group, a division of Mango Media Inc.

Cover: © Jennifer K. Beal Davis

Layout & Design: Morgane Leoni

Illustrations: © Laura Baran

Photo page 136: © Judy Meuschke Compass

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Real Estate Rescue: How America Leaves Billions Behind in Residential Real Estate and How to Maximize Your Home’s Value

Library of Congress Cataloging-in-Publication number: 2019954731

ISBN: (print) 978-1-64250-195-7, (ebook) 978-1-64250-196-4

BISAC category code BUS054010—BUSINESS & ECONOMICS / Real Estate / Buying & Selling Homes

Printed in the United States of America

For Lorna Hines, one of the truly great real estate minds in the country, and my three children, Ross, Whitney, and Grace.

Contents

Introduction

Wake Up America!

Trust Is Earned

The Bind

Chapter 1

There Are No Picassos in Real Estate—Valuing a Home

The Mechanics of Home Valuation

The Art of Home Valuation

An Appraisal of the Appraisal

Chapter 2

The Price Better Be Right

Going, Going, Gone

The Golden Days

Price Reductions—Don’t Burn the Clock

The Anchor Bias

Winter, Spring, Summer, or Fall: When to Sell Your Home

Chapter 3

Preparing a Home for Sale

The Times They Are a-Changin’

Home Sweet Home

Feeling Misunderstood and Depreciated

A Broken Clock Is Right Twice a Day: Timing the Market

Condition of the Home

Know Thy Market

Detailing Design Changes for a Seller

Time for The Talk

Staging—Showing Buyers How to Live in a Home

Chapter 4

Two Pictures (Before & After) Say a Thousand Words

Case Study 1: Get Creative

Case Study 2: Empty Homes Are Houses

Case Study 3: Shingle-Style Residence

Case Study 4: Waterfront Residence

Case Study 5: Repositioning an East Coast Home on the West Coast

Case Study 6: San Francisco Townhome

Chapter 5

Disclose, Permit, Inspect

In the Interest of Full Disclosure

Permits

Pre-Listing Inspections

Chapter 6

Marketing and Branding a Home

Storytelling

I Feel Therefore I Buy: Emotions Drive Decision-Making

Branding Tools

Social Media and Property Voyeurism

Chapter 7

Buyer Be Aware

The Neighbors, Not the Numbers, Tell the Story

The Good, the Bad, and the Ugly

Yabba Dabba Don’t

The Titanic Was Unsinkable: Prepare for the Unexpected

Your Home Is Not an ATM

Chapter 8

Didn’t Aunt Louise Just Get Licensed? Finding the Right Agent

Driving Away with Tears in My Eyes

VCRs, Pay Phones, Real Estate Agents?

Do Due Diligence

Go Local

I Hope the Friendship Was Worth Half a Million Dollars

Buying a Listing

A Punch List: Questions to Ask a Prospective Agent

Chapter 9

Buying and Selling Homes: What the Future Looks Like

Money Talks

Artificial Intelligence

The Millennial Mindset

The Traditional Brokerage—Calling a Taxi to Take You to Blockbuster

The Brokerage of the Future

About the Author

Endnotes

Introduction

Wake Up America!

If you’ve ever bought or sold a home, you likely left money on the table. And I don’t mean that the escrow company left you with the FedEx bill for the closing papers. In almost every real estate sale, buyers and sellers leave behind thousands or hundreds of thousands of dollars in the process, depending on the home values in your market. Given that the typical American homeowner has 40 percent of their wealth tied up in their home,¹ the financial consequences can impact you for decades to come.

The good news? You will never know how much money you left on the table. If ignorance is bliss, American home buyers and sellers should be in a state of rapture. Every day, I watch buyers and sellers make well-intentioned but ill-informed decisions that undermine the monetization of their asset. Their decision-making processes are guided by a vague understanding of the real estate business, gut instinct, and, to varying degrees, the advice of their representatives. They have little awareness that their seemingly innocuous choices ripple out into all aspects of the sales process with extraordinary costs to them.

Residential real estate commands a great deal of attention in our culture, yet there has been no clear road map for buyers and sellers to maximize the value of the sale and purchase of homes—until now. This book will change your understanding of how to buy and sell a home. I’m going to show you, step by step, a strategic and comprehensive approach to buying and selling homes that guarantees you will NOT leave money on the table.

I’ve been the number-one producer in residential sales in Marin County, California, every year since 2005. After growing a boutique brokerage in Marin, I purchased Pacific Union residential brokerage in 2009, which was branded and grown to the fifth largest residential brokerage in the country. In 2018, Compass bought the company for a record price. Out of two million actively licensed real estate agents in the United States, I’m currently ranked fifty-first in sales by the Wall Street Journal.² For the past ten years, I’ve been consistently ranked among the top seventy-five performers in the country. I thoroughly understand my craft. I love what I do. Yet every day I’m pleading with clients about the essential steps they need to take get the most value out of the purchase or sale of their home. Why?

Trust.

Trust Is Earned

Buyers and sellers don’t trust real estate agents. They hire someone to effectively manage what is likely their biggest asset, but they are reluctant to place their faith in what he or she says. An agent is the public face of real estate and exerts the biggest influence on the sale of a home, but it’s not a face the public trusts. Buyers and sellers enter with a well-founded degree of skepticism.

Real estate agents don’t command the same respect as other professionals because the educational, regulatory, and qualitative standards are abysmal. If you are having a midlife crisis and want to switch careers, go get your real estate license. If your husband traded you in for a younger model and you have to generate income, become a real estate agent. If you’re a bored socialite and want to dabble, hang your shingle. Community college didn’t work out? There’s always real estate.

Residential real estate comprises roughly 30 percent of our nation’s wealth.³ The market collapsed in 2008–09 and the real estate industry has gone through extensive regulatory reform, yet the real estate sales community and their performance standards have remained relatively untouched.

The requirements to get a real estate license are less than rigorous. The time commitment sits somewhere between traffic school and getting an online minister’s license; you must be eighteen years of age, complete 135 hours of education, get a background check, and pass an exam. No minimum hours of working experience or any sort of apprenticeship are required. All you need is a heartbeat, the right birth date, and less than four weeks of education, and you can get a license to represent buyers and sellers making what could be their biggest financial decision ever.

Real estate sales are essentially an investment advisory business, but it’s not held to the same level of standards as, for example, the industry that sells and manages people’s other primary asset class: securities. Most brokerage firms require that securities traders have a college education. Brokers must pass the Series 7 and Series 64 exams to buy and sell stocks, bonds, and mutual funds—and they must be sponsored by a legitimate brokerage firm to take the exams. On-the-job training prepares a broker to work with clients before taking on the responsibility of representing clients. If the real estate industry had more rigorous requirements for agents, buyers and sellers would likely be more inclined to accept the feedback they are given about their homes.

Real estate’s low standards open the door for opportunistic agents who prey upon naïve, uninformed, or trusting clients. They don’t last in the real estate business, but their behaviors undermine the public’s trust. They say whatever serves their self-interest and are rarely held accountable. Their misrepresentations don’t necessarily come in the form of bald-faced lies, but they just as effectively manipulate the truth—and their clients.

Unethical agents tell clients what they want to hear, rather than what they should hear, to get their business. "Your house is an invaluable work of art and should be priced higher than any comp in the market."

They pressure buyers into making offers by exaggerating competition. "I hear two parties are going to be writing offers" (though the house hasn’t had any showings in six months).

They speak without knowing. "I doubt that wall is load-bearing."

They withhold essential information. "It’s a quiet family neighborhood" (without mentioning that the street is a popular Waze detour during rush hour).

Though unscrupulous agents are in the minority, they cast a long shadow. They are why 67.5 percent of Americans polled in an online Google Consumer Survey do not trust real estate agents.⁴

The Gatekeeper Is Gone

Technology is transforming the real estate business, and buyers and sellers are now awash in information, raising the question of whether they are equipped to represent themselves. Websites like Zillow, Trulia, Realtor.com, and Redfin empower consumers with data and knowledge about every corner of the real estate market. Survey findings show that 68 percent of Americans now start the home search on their own.⁵ Buyers have apps that allow them to search for homes by street and neighborhood. They can drive around target areas and see what’s for sale and the listing prices. Price history and tax information are readily available. Mortgage calculators are at their fingertips. Virtual tours take viewers inside homes. Online listings enable people to compare and contrast features of homes, winnowing down their search before they walk into a home. Home buyers and sellers are more educated about the market than ever before.

Technology’s disruption creates much-needed transparency and efficiency in the real estate market, but there’s a wide chasm between having information and expertise.

I’m an Expert on the Dunning-Kruger Effect

Psychological research suggests that we are not great at evaluating ourselves accurately, and we frequently overestimate our own abilities. In 1999, two Cornell psychologists, David Dunning and Justin Kruger, coined the term Dunning-Kruger effect to describe a cognitive bias whereby people who are incompetent at something fail to recognize their own incompetence.⁶ They don’t know enough to realize what they don’t know. Dunning’s later research showed that people who have just a little bit of knowledge or success in a field tend to massively overestimate their abilities and get trapped in a beginner’s bubble of inaccurate self-perception. Not only are they unable to see their incompetence, they’re also likely to feel confident that they are competent.

Perhaps no industry is more susceptible to the Dunning-Kruger Effect then residential real estate—and that further complicates the problem of agent credibility. People routinely overestimate their own real estate expertise when buying and selling a home. Homes are unusual assets because we live in them. We fall in love with homes in ways that we never do with our securities portfolio. Home is where we eat, sleep, raise children, open Christmas gifts, and celebrate Bar Mitzvahs, birthdays, and other rites of passage. It reflects our identity and tastes, and serves as a veritable memory bank. We think we know our homes inside and out, what they are worth, and how they would