I’m not a fan of the real estate selling business. First of all almost every time I’ve been ripped off in business it’s a real estate agent or former real estate agent. Even real estate agents don’t trust real estate agents.
Yet their sales success depends entirely on being able to get you to trust them.
They are masters of projecting the illusion of success. So the ones to be the most careful of are the “successful” ones. God help the new investor who trusts their agent to guide them in buying an investment property. They’ll sell you a fig and call it an apple if they can get away with it long enough to collect their commission. They don’t care. That’s the truth.
Here’s more truth… the entire real estate business is a giant multi-level marketing scheme. Here’s the link to the Wikipedia entry on Multi-Level Marketing and here’s part of what they say about the subject.
MLM companies have been a frequent subject of controversy as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company’s products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members’ enthusiasm and devotion. Not all MLM companies operate the same way, and MLM groups have persistently denied that their techniques are anything but legitimate business practices.
Pretty strong wording isn’t it? So lets go through the points mentioned in this article.
Price Fixing of Products
Let’s start with commission I did an article about the Canadian Real Estate Association & The Competition Commissioner. During my reading for that article I found an interesting tidbit on how CREA had sent a notice to all it’s members telling them to show houses from low commission brokers as well as high commission ones. Clearly if such a missive was sent out it illustrates part of the problem.
High Initial Start Up Costs
Every agent must first take a real estate course to trade in real estate. The cost of the materials for these courses is probably $50 per course. Then there’s all the membership fees, licensing fees, desk fees etc.
Emphasis On Recruitment
This is a selection of two ads posted on Craigslist in the last few days. The theme is the same and they outnumber any other real estate job postings.
Ad: BUSY TEAM NEEDS MORE AGENTS! GET 8 TO 12 CLIENTS PER MONTH! (GTA, CLIENTS WAITING)
Date: 2010-06-19, 10:39AM EDT
We need few more good agents to help us with the flow of new clients! If you know how to sell but you have no clients than this maybe the perfect match! We give you 8 to 12 clients per month and you close 2 to 4 deals a month or more! Must be able to start immediatly! Must have a valid Ontario real estate license! Email your credentials today!
Location: GTA, CLIENTS WAITING
Compensation: commission, we provide all the clients
Ad: New or Experienced Agents Join Our Team and Close 3 to 4 Deals a Month (We Give You Pre-Qualified Clients)
Date: 2010-06-19, 10:54AM EDT
FREE Information Session on How to Become a Real Estate Agent with Our Team
Real Estate Agents Needed for Busy REAL ESTATE Team
We work with #1 Real Estate Office in Canada
IF YOU DO NOT HAVE A REAL ESTATE LICENSE
We will Help you Get your Real Estate License
We work with First Time Home Buyers $300,000 to $400,000 Homes to High End
$$$Million Dollar Residential & Commercial Properties
We will Give you Pre-Qualified Clients
We work with First Time Home Buyers purchasing $250,000 to $300,000 Homes
Move up Buyers – You would Sell their Home ($300,000 to $400,000) and Help them Buy a $500,000 to $1,000,000 Home
First Time Investors from a $200,000 Condo to $500,000 Multi-Unit
Experienced Investors from $500,000 Homes to over $1,000,000 Investment Properties
We will Train You
New Agents Welcomed
Experienced Agents with Less than 5 Years of Experience (If you have more than 5 Years of Experience we may make an exception
We work with #1 Real Estate Office in Canada
We work all across the Greater Toronto Area
We have Clients in Toronto, North York, Etobicoke, Mississauga, Brampton, Oakville, Richmond Hill, Vaughan, Newmarket, Scarborough, Pickering, Ajax, Whitby, & Oshawa You can work in 1 of these Areas or in multiple areas across Toronto
Email us for More Details to Attend this FREE Information Sessions on How to Become a Real Estate Agent with Our Team
Location: We Give You Pre-Qualified Clients
Compensation: Earn $100,000+ Per Year
Complex and Exaggerated Compensation Schemes
Wow $100,000 per year that’s amazing!
Where can I sign up? How many other jobs earning $100,000 per year do you find posted 100 times a week on Craigslist?
If you want complex you can have that too.The average real estate transaction works like this for the agent.Agent sells house, splits commission with the other agent then each agent splits the commission with their broker.Then the agent pays desk fees, phone fees, signs, business cards and all the other professional membership fees out of the commission left over after all the splitting.
The agent is just the victim of being caught up in the largest multi-level marketing job there is. It’s a scam for 90% of agents. They will work their ass off for peanuts thinking that if only they were better they would get ahead. No wonder they’ll rip you off in a heartbeat! They’re all starving to death because a full 50% of the money usually goes to the broker. This is an industry that eats it’s young.
The Humongous Skim
It’s the biggest scam of all is for Canadian homeowners. 80% – 90% of all house sold are sold by real estate agents. They skim off homeowner’s hard earned equity. That’s a ton of dough my friends and it’s way too much. At the same time as we are being ripped off, we are being fed worse information today with all the technological advances available. There is absolutely no excuse for their horrible new public website replete with outdated information and restricted information. The purpose of this is to force you to hire a buyer’s agent. It’s not acceptable.
Believe me nothing is going to change because I said so. I just think people should know. If you want to know more about Why You Can’t Trust a Real Estate Agent go check out my friend Mike’s Money Smarts Blog. To find out more about how to sell your own house check out one of my previous posts with resources listed about How To Save Money on Real Estate Commissions. Then you can also check out The Financial Blogger’s post about 6 Reasons He won’t use An Agent to Sell His House and how much money it saved him.
Happy Buying!