Way back when I was just out of high school, I was doing a lot of things with my time. Working, dating, competing on the fencing team, gaming of various sorts. But every once in a while, I dropped in on one of those math courses I was registered for at UCSD. One of those courses was Math 110, “Introduction to Partial Differential Equations and Boundary Value Problems” Bozemoi. That was the course that convinced me that I was not, after all, cut out for a career as a mathematician. All the other undergraduate courses, I got a handle on fairly quickly, but the way my mind works made that one course something like having those alleged brains pounded out between two large gold bricks wrapped in lemon.
I eventually got through it. But one thing I took out of that class in no uncertain terms is the form a real solution to those equations took, and the fact that if you were missing terms (“parts of the answer” for those less mathematically inclined), your answer was wrong. Not incomplete. wrong.
One of the standard ideas of internet commerce is “cut out the middleman and their fees.” You can find this in lots of fields. Some of them begin far earlier than the world wide web. “Discount” brokers have been going for decades, for both stocks and real estate. The internet certainly helped them, however. Loan quote services were probably one of the first ten business ideas on the world wide web. On-line this, on-line that. Do business with the faceless on-line corporation with cheaper fees (or none!) and you can’t help but be better off, right? It’s easy to illustrate that difference to just about anyone. There’s money they’re not spending, that anybody can point to as a savings earned by doing business in that fashion. But is that the whole story?
Indeed the whole discount proposition cannot succeed without an implicit or explicit assumption that the value you receive from having paid that fee is zero. But if that were the case, these professions would never have gotten going in the first place. Who wants to pay money you don’t need to? Anybody want to raise your hand? I certainly don’t. The world, humankind, and even our financial markets survived for millennia without stockbrokers, real estate agents, travel agents, or any other sort of business that is now being subjected to disintermediation. Why did these professions come about? It wasn’t because our great grandparents were stupid, uninformed of the alternatives, or had no choice. They could and did buy and sell stock and real estate directly. The reason these professions, and others (such as journalism) arose is because they added value to the entire process. The people who made use of these professions profited by their choice. Not necessarily directly in dollars with every transaction, but statistically, the people who spent that money emerged notably better off in one or more important respects, and therefore, our predecessors made a choice to do so until essentially everyone did so.
There you have it: An explicit refutation of the assumption underlying the entire discounter promise. It neglects an essential term in the answer as to whether you end up better off. Was the money you didn’t spend really the whole answer? What if by spending that money, you end up better off?
Suppose you save three percent by not having a real estate agent sell your property. Seems like a great idea on the surface, doesn’t it? On a half million dollar property, $15,000 in your pocket for what you think is a few hours of work. I’ll even start by granting you the same ability to market that an agent has, which isn’t the case for the vast majority. But what happens if the price you pick isn’t right for your market? I’ve gone over that. What happens if you don’t disclose everything you need to? Then let’s consider negotiations. Trying to match wits against a buyer’s agent whose been in everything that sold in your neighborhood in the last six months is a guaranteed lose. Do you know what’s appropriate for contingent sales? What about negotiating repairs disclosed by inspection? These and many other things need to be negotiated, and just telling the other side to do it your way will result in a failed transaction. Do you know how to find out if a buyer is qualified? The two months you spend waiting to find out that your prospective buyer can’t qualify costs you roughly six thousand dollars all by itself. I could go on and on.
The same applies on the buyer’s side. In the current environment, any decent buyer’s agent who tries can make at least a ten percent difference by suggesting the correct property, negotiating to their strengths, and using the seller’s weaknesses against them. Usually it’s more than that. My average was running about twenty percent when I originally wrote this. Even when the market turned crazy for about nine months it stayed about 10% – when everyone else was having appraisal problems due to Home Valuation Code of Conduct, I didn’t have a single property that failed to appraise for value. Sound like a good bargain to you? Spend ten to twenty percent to save three? If so, come on into my office, and I’ll give you $30 for $100 until you’re broke.
The intelligent question is: Does spending that money save you more than it costs? Most people will spend $10 to save $100. That’s rational. Most people will spend $90 to save $100. That’s still rational. Some people will spend more than a hundred dollars to save $100, though, and that’s not rational. Not spending the $10 or even $90 to save $100 isn’t rational either. Nor are all of the costs in money. How do you quantify not making a mistake that most people don’t know is there until and unless it bites them, after the purchase?
That’s really the whole question, isn’t it? Furthermore, it has to be answered individually, because few situations really subject themselves to this kind of analysis Admittedly, with the internet, it’s gotten easier for consumers and more difficult for members of those professions. But the internet can only help you with questions you actually think to ask, and you still have to do the work to make certain you debunk wrong answers to find out where the truth really lies. It’s not going to tell you any of dozens of reasons why this freshly remodeled home of your dreams is going to turn into a nightmare.
When I originally wrote this, I was closing on a property right now where the folks contacted me with information from a popular discount model brokerage in their hand, and those were the first properties they wanted me to look at (which I did). The difference in value they are receiving for their money is such that they never went back to that discounter, because I went out and looked at properties, I gave them reasons why this property was or was not one that they were going to be happy in, I gave them reasons why this property was a Vampire while that property was not. I explained to them how the surrounding environment was going to impact them in the property. I showed them what needed to be fixed, and gave them an idea what was involved. When I found an especially good value for their money, I got them out there and told them to act fast if they wanted it – if I hadn’t, it would have been gone by the weekend. I’m not going to talk about why, but I can truthfully say that I wrote an offer that the seller chose to accept even though it wasn’t the highest offer they had, and the difference was a lot more than my company’s three percent commission. If those kinds of services aren’t worth money to you, then you’re not a good candidate for my services anyway. But all that discounter had to offer was how cheap they were, while I gave my clients more value than they would have saved before they put the offer that was accepted in, and they knew it. Once the clients started thinking in terms of what they were receiving by giving up that discounter’s commission rebate, the discounter never had a chance. By CMA of all comparable properties in the area at that time, my buyers saved over thirty percent, and that’s just by square footage – not including all of the amenities the property had that the competing ones don’t.
I’m not going to pretend this one isn’t an above average bargain, even for me. I’m not going to pretend that every full service agent can make that kind of difference on every transaction, because I know it isn’t true. The best agent in the world strikes out occasionally – in which case you are still no worse off than without them. But making more of a difference to the client than the three percent a full service agent makes around here is an awfully easy mark to beat for the agent who tries.
Caveat Emptor
Original article here
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Or: Please don’t believe everything you read on the internet!
Rarely a week passes by that I don’t get a request from someone to link to their website or article. I’m happy to link to good sites and good articles with real consumer information. Unfortunately, this is not the majority of what’s out there.
I got three requests in the last day. Two were obvious spam sites, one didn’t even address me by name. The third was a little harder, an article that claimed to be written for consumer benefit. Unfortunately, its five main paragraphs were wrong on every point of substance, and so vague as to be useless on everything else. But when I sent them an e-mail suggesting they improve it, I got a three letter response: LOL.
For those of you who may not understand geek speak, this stands for “Laugh Out Loud.” In other words, my request was laughable to them. They wanted free links to the site, and were willing to research email addresses and such, but weren’t willing to produce actually informative correct content. My primary hypothesis, which I’m not going to bother to test as it involves motivations I don’t care about, is what they did write fit their own agenda better than something closer to verifiably correct. I see people writing – or who have written and are flogging – articles with similar points to that one every day.
Unfortunately, this attitude is far too common. People build these websites to optimize their chances of getting a relevant search term hit. None of the search engines tests any site for reliability of the information it contains. A search engine referral is not a guarantee or even indicator of reliability – it means they found the relevant search terms there. Testing the veracity, correctness, completeness, and usefulness of the information contained is left as an exercise for the potential reader.
I also get e-mail from consumers. One recently thanked me, saying it’s easy to find real estate information, but it’s difficult to find good loan information. Actually, it’s just as difficult to find correct real estate information. More of what’s out there is somewhere in the general vicinity, but just because it’s apparently closer to the truth does not mean it doesn’t contain deadly traps, made all the more plausible by association. When you’re talking about real estate and mortgage loans, there’s a lot of money at stake. This is all the reason necessary for some people to say whatever it takes. Remember, none of the search engines tests for reliability of the information, and failure to examine everything you read – particularly in an area where few people have competence but many people think they do – can often lead to a situation which appears to be successful until years later. Real Estate is one of those fields. When I originally wrote this, I was going through a transaction where it was more and more challenging not to speak ill of the listing brokerage as a whole. I’ve had the buyer’s end done and there was no termite clearance, no zone disclosure report, none of the other required disclosures, they took the lockbox off without informing me or my clients (itself a violation of MLS rules) so we couldn’t do our walk-through, and that’s not all by any means. That seller is sitting fat dumb and happy – and liable for basically everything in the known universe. Yes, it’s a discounter. Why do you ask? Oh, right. Because I’ve got to do their work so that my client is aware of what they need to know before we actually consummate the transaction. But I don’t have any legal liability to do so as the buyer’s agent. It’s simply my desire to prevent my client from unknowingly walking into a bad situation, and if I didn’t, it could be ten years from now when my client discovers something, and goes to court for a fat settlement from sellers and listing agency, or even forcing them to buy the property back. Apparently successful for years, but in the end a disaster. Not to mention a couple of things that I can’t talk about until the transaction records.
People have various reasons for building websites. In some cases, they’re trying to sell advertisements. In fact, there’s a lot of those sites, where the entire purpose of the website is to collect money from people clicking off of the site to one of their paid advertising links. I’ve got some of those; One direct, a couple more through AdSense and BlogAds. It pays my bandwidth charges, and usually some of my domain renewal. I’m far pickier than most about my ads, and I’d like to get to the point where I can tell AdSense to take a hike, because they don’t allow me any ability to reject individual ads that may be objectionable.
Other people build their website with the explicit intent of selling something specific. I’d like to sell something specific: My services as a real estate agent and loan officer. However, I’m nonetheless doing my best not to write anything that I could not defend in an academic thesis if I were a professor and tenure was at stake. I don’t get offended when people question what I write unless it’s in an obvious shill way. Furthermore, I’d like to think I’m as evenhanded and complete as possible in dealing with the pluses and minuses of everything. Everything I write is designed to be tested for its veracity. In other words, if you check out what I say, whether in an actual transaction or by checking with knowledgeable neutral parties, I would be very surprised if there were substantial points of disagreement. This isn’t to say I can’t make mistakes, but that I try very hard to make everything I say verifiable by independent test makes me highly unusual on the internet. Some people are every bit as careful as I try to be. Others are somewhat less careful. The vast majority do not care so long as it enables them to sell more of whatever they’re selling.
What I’m trying to say is that you should make every attempt to test everything you see on the internet, including my stuff, before you bet large amounts of money on whether we’re right by conducting a real estate transaction in accordance with what we say (Although if I’m your agent or loan officer I become responsible for what I say financially and professionally). That’s one of the reasons why I’m not hesitant to drag out a calculator or spreadsheet and show you the numbers. If it cannot be expressed in mathematics, it’s not fact – it’s opinion (Thank You Mr. Heinlein for teaching me that while I was still young enough to absorb it. This isn’t to say that if it can be or is expressed in mathematical terms that it is true. You’ve got to “crank the problem” and see if everything matches). Try to debunk it if you can. Does the evidence – independently gathered – confirm directly, confirm circumstantially or tangentially, confirm with exceptions, partially confirm, fail to confirm, contradict tangentially, contradict circumstantially, or contradict directly what is said? In the absence of substantial contradiction, is what we say at least internally consistent? If there is contradiction, how far does said contradiction unravel the claims? It’s very different if it contradicts the central point or points and causes everything to fall apart, versus if it only contradicts some tossed off side track. Logic and the scientific method are always your friends.
Another trick is to observe whether the source admits things that bolster an opposing case, or something against the point they’re trying to make. The more opposing viewpoints or evidence against their point they entertain, the more likely they’re honest. Especially if they’re scrupulous in the way they handle to evidence against them. None of this helps if the central tenet of what they’re telling you is flatly contradicted by a known and verified fact, but in the absence of such, honest treatment of the merits of alternate explanations is a very good sign.
The quality of the confirmation or contradiction – how credible and detailed the piece of information you use to check it – is also important. You could find yourself having to check out many different interpretations before you’re certain where the truth really lies.
Absolute truth can be a difficult thing to attain, there is often room for differences of opinion, and there are many logical fallacies to which even people of good intent can fall prey. The difference between a valid and invalid argument or statement can be very fine. Please, do not take anything you read on the internet as gospel truth without thoroughly vetting it for incorrect information, false premises, and false inferences. I don’t believe I’m infallible. I do see stuff on the internet every day which is thorough nonsense even though it may appear credible on the surface. Sometimes it’s with malice aforethought, sometimes it’s an honest mistake, sometimes it’s a simple misunderstanding of source material, and sometimes it’s even just viewing source material from a viewpoint that distorts the answer. For my part, I try very hard to get it right and to cover information that might disagree with what I’m saying, but there’s a reason why I end every single article here with
Caveat Emptor
Original article here
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