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1. Crime and Demographics

There are some things that real estate agents in the United States are not legally allowed to tell you, even if they wanted to. This first one on our list falls into that bucket. The Fair Housing Act of 1968 was written into law to try and stop discrimination in housing and lending based on race, color, national origin, religion, sex, disability, or family status. Essentially, real estate agents are prohibited from steering clients away from or to different areas because of any of the protected classes mentioned above. Because opinions (or even facts) on crime and demographics could be interpreted as an opinion regarding one of these protected classes, it is a violation of federal law for your agent to mention either of these things when representing a buyer or seller.

2. About the NAR

You’ve heard of the NRA, but have you heard of the NAR? According to OpenSecrets.org, the National Association of Realtors is the 3rd most powerful lobbying organization in the US, spending approximately $42,000,000 on lobbying in 2019 alone. With just under 600,000 members in the US, and 1.4 million members worldwide, NAR is a political force to be reckoned with, advocating for pro-real estate, homeownership, and business causes at the federal, state, and local levels. Some of NAR’s 2019-2020 lobbying has been focused on:

• Continuing SALT deductions
• Easing cannabis banking rules (sounds fun!)
• Reauthorization of the National Flood Insurance Program
• Extending real estate tax deductions
• Easing condo lending rules

3. Secret Secrets

Did you know that there is a “secret” information section that is only viewable by real estate agents on all properties listed on the MLS (Multiple Listing Service)? There are often some very vanilla things that get posted in this section, like commission amounts, agent contact info, property tax and listing histories, and HOA info, and sometimes agents don’t post anything to this section at all, but there are also some juicier things that get posted more often than you’d expect. Now, these things aren’t said in plain English, of course, because agents would be in trouble if they were. Further, some multiple listing service (MLS) offices are better about policing their agents than others, so this definitely varies from location to location. So to get around the law, their code of ethics, and the MLS office police, some agents use code. Seller wants a quick sale? Might be there…in coded language. A request for a specific title company (like a seller actually cares–this will be addressed later)…maybe. Seller willing to negotiate heavily? Might be there also, and as you guessed it, in coded language… Some more bits of agent speak are described here, straight from the agent’s mouth.     

4. Incentives Matter

The way your real estate agent is paid matters. According to the New York Times bestselling authors of the Freakonomics book series, Steven D. Levitt and Stephen J. Dubner, all other factors being equal, real estate agents sell their own homes for more money than their clients. This is because real estate agents are incentivized to churn deals to maximize their revenue stream while minimizing effort expended.

5. Title insurance is a scam, your real estate agent is benefiting from it, and it costs the average consumer thousands of dollars on each transaction

First of all, the current title insurance scheme was created in the 1800’s to provide buyers security in knowing that they were actually buying the property they thought they were, and that the seller actually owned that property. Fast forward to today, in almost all states, title insurance rates are set by the state, by statute, so there is no competition or reason for different title insurance companies to try and provide a better good or service than the other hundreds of companies operating around the state. All title companies are charging the same amounts. You can go on your state insurance website, search for the insured value, and know immediately what the title insurance rate will be. For example, as of today, in Texas, a title policy of $350,000 would cost the consumer $2,260 per the Texas Department of Insurance (TDI).  

So how could a system like this possibly go wrong? First, what large group of businesses might be highly incentivized to lobby their state legislatures to set title insurance rates that are EXTREMELY favorable to them? You are so smart–you guessed it. Next, as we mentioned above, there is no free market at work, so the consumer gets what the consumer gets–hope you like it. Next, even in the very unlikely event that there is a valid claim, you will need to prove that claim, potentially in court, at your own cost, in order for the title insurance company to pay out on that claim. The burden of proof is on you–good luck! And finally, we get to the juicy part. Your agent is not going to tell you this, but they are benefiting from this whole scheme. How, you might ask? If title insurance rates are set by law, then how can title insurance companies compete for your business? Kickbacks for real estate agents.  

Because the average consumer buys and sells just a few times in their lives, they usually don’t care which title insurance company they use if all rates are the same, so for this reason, title insurance companies market directly to real estate agents instead of to consumers. And title insurance companies can’t just walk around handing out bribes or cash incentives to real estate agents, so what do they do instead? Well, they host lavish parties and events, give away tickets to sporting events, and sometimes host trips that their top referring agents just happen to get invited to attend.   

A possible solution?  Blockchain.  

We aren’t the only ones that feel this way…   

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Thanks again to #amtrusttitledreamteam for their hosting of our team. Greatly value the relationship!

A post shared by CohnReznick Capital (@cohnreznick_capital) on Oct 2, 2017 at 4:24pm PDT

6. About their Ownership in a Title Insurance Companies

Would it surprise you to hear that many nationally recognized real estate brokerage franchises are also part owners in title companies, whom they then refer clients to use in their transactions? Maybe these really are great title companies, but this one stinks of shenanigans, and in many states, Texas included, there is no requirement to disclose this broker/title company relationship.  

7. The 80/20 Rule Applies to Real Estate Agents Too

According to Salary.com, the average realtor makes just over $42,400 per year, and does 12 deals per Realtor.com. Most agents aren’t going to tell you this, but roughly 80% of deals are done by 20% of agents, who are typically referred to as “Top Producers” within the industry. If a large number of agents are dragging down the average number of deals to 12, what you might see, given these numbers, is four different agents, each doing 2 deals per year, and one “Top Producer” who does over 50 deals per year. And those five agents, combined, average 12 deals per year each. So what this all means is that if you are looking to buy or sell in the future, it’s in your best interest to seek out a real estate agent who is experienced, is familiar with the market and current market trends, and will put that expertise to work for you.  If you don’t, you might not get the best deal possible given your situation.

8. A Death on the Property

While several more items are not specifically made illegal for your real estate agent to mention, disclosing these will not make most buyers jump to sign, most agents are not going to tell you about these. In fact, there is not even a place on the Seller’s Disclosure Notice, which is promulgated by the Texas Real Estate Commission (TREC), for a seller to tell you about any of these next few items even if the seller or real estate agent wanted to disclose it. So, a death on the property, as long as the death was natural, does not have to be disclosed to a potential buyer. According to the Texas Property Code, Chapter 5.008(c), 

A seller or seller’s agent shall have no duty to make a disclosure or release information related to whether a death by natural causes, suicide, or accident unrelated to the condition of the property occurred on the property…. 

You can also visit DiedInHouse.com and run a comprehensive search to see if someone has died in a home you are interested in buying or selling.

9. Texas law goes above and beyond federal law in protecting certain people

That same chapter of Texas law goes on to say that real estate agents are not required to mention if a previous owner or occupant had or may have HIV, AIDS, or a related illness:

…or whether a previous occupant had, may have had, has, or may have AIDS, HIV related illnesses, or HIV infection.

There was a time when not a lot was known about these illnesses, and people behaved differently (and shamefully) because of it. When Princess Diana shook the hand of an AIDS patient barehanded back in 1987, it was groundbreaking. It is pretty interesting that the Texas legislature chose to go above and beyond the protections provided by federal law.

10. Murder

Because it isn’t specifically mentioned by the Texas Property Code, this one has caused a lot of debate among legal and real estate experts alike. Some legal experts have argued that it is implied, while others argue that because it is specifically not mentioned, and therefore should be disclosed. We do find it odd that this debate has gone on for years and the Texas legislature has, to this point, failed to address it one way or another. But here’s the final word on murder…Disclosing it, even if permissible, isn’t going to help sell a home, so the likelihood is that you probably aren’t going to find out about it from an agent.

These last three are fairly heavily discussed and debated among real estate agent circles. You can catch a glimpse into the various arguments for and against each side on this TAR Q&A comment section.