Teton Realty Blog

Teton Region Real Estate Market Stats, Articles & News

Will real estate agents become obsolete in the future?

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I think there are a couple of important elements associated with this question.

1) the online effect – AKA eBay

2) the for-sale-by-owner effect

3) government regulations

4) convenience

5) local understanding and expertise

6) market trends

Alright – in no particular order:

I’m going to go after local understanding and expertise as well as market trends first. If you have researched this topic online, there are arguments on both sides of the field. Obviously, most real estate agents would argue that their service is needed, and the real estate agent will never become obsolete. If you have a burning hatred for real estate agents (some people do) the information sways the opposite direction. With regards to these two elements, I think there are arguments on both sides of the fence. Starting with market trends, I believe that market trend information is available to those who are not market professionals, it is just a matter of whether that person is able to interpret the information and take the time to research it. With regards to this argument, I think it comes down to whether or not you want to spend the time researching it, or rely on a local professional. As long as it’s someone you can trust, I would personally choose the agent in this regard, but it doesn’t mean everybody should. I personally have better things to do, and frankly don’t have the time to take on any further responsibility or research. Local expertise, however, is something that only exists if you are a local. Presumably, real estate agents our local experts in their local market. I think this can also go both ways. If you are local, you understand local construction methods, background, and history, you might not need an agent for this particular element. If you aren’t local, a good agent is indispensable in this regard.

I touched on convenience a bit with regards to time. Whether it’s something you don’t want to take on because you’re busy making money doing what you do, perhaps you are retired and would rather leave the paperwork to the professional, or maybe you just aren’t experienced and don’t want to take on the liability and responsibility associated with negotiating a real estate transaction, I think there will always be an audience that will work with an agent for these reasons alone. Here again, it doesn’t mean they have to.

Government regulations have always been the “Ace in the Hole” for most arguments I read in favor of the agent never going away. Governments protect consumers with regards to professionals in many ways that you may not realize. For example, an esthetician or hair stylist is required to take the number of education courses to maintain their license to conduct business. Further, they are required to uphold a lifestyle free of unlawful activities, and in many cases they are required to complete ongoing education classes. Real estate licenses are no different, and most governments monitor real estate activities very closely, especially when it comes to protecting the public which is the primary goal. With this comes several requirements including disclosures with regards to agency and real estate itself. Sellers are required (in most cases) to disclose pertinent information about the property being sold, and the agent acts as a liaison to properly communicate this information to any prospective buyer. It’s not just a rubber stamp or signature either. Real estate agents are trained to specifically communicate all elements of real estate to any potential buyer or seller in ways that they can clearly understand, not just signing off on a document that may not be communicated properly. For these reasons, the industry is very intertwined with government regulation, and in many cases they intend to keep it that way. There’s another effect that is closely related to the industry when it comes to other practices historically completed by a professional. Uber and Airbnb are good examples. Trusting some guy with a Honda Civic to take you from Joe’s Seafood Palace to taking your chances on a place to sleep near downtown is a bit different than purchasing a home, but the analogy is still one that comes up frequently.

The last paragraph lends itself to the biggest opportunity for a major shake-up in the industry. That is online retail. This is an area where many sales outlets or even representatives have, or are, becoming obsolete. There are very few things in this world apart from a [new] quality Stihl chainsaw or a Kirby vacuum cleaner that cannot be purchased online. People buy cars and real estate without the help of a professional or even a human online. Online Auctions are a good example. However, While most people are comfortable buying a used camera online and willing to take the risk that the battery isn’t fried, it’s a bit different, again, for most people when comparing the $18.64 camera to the biggest investment of their lives.

So. If you are a savvy investor familiar with local markets and have done your due diligence with regards to local market trends, are comfortable making a major purchase without any human interaction, can find a property of interest of which the owner of said property is not already represented by a professional, is also a local expert familiar with market trends and comfortable selling a property without the assistance of a professional, I would advise the both of you save a few thousand bucks and complete the transaction.

The art of the Referral

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It’s funny that I reference art in the same sentence as something that I’m not very good at. That is, the referral.

Oftentimes agents refer to the customers they are working for with different names. The one that gets me is “the client”. Agents will refer to the person they are working with as their client, regardless of whether or not the person may or may not actually be his or her client… “Oh yes, that’s Bob, he’s my client.” Sometimes I wonder if it’s a protective measure for real estate agents marking their territory when speaking to other agents about a person that might be working with either, or both…

I’ve gone way off track here. When it comes to making money in the real estate industry, we usually do so by providing a service within a State of which we are licensed. There is one exception, the referral. If I have “a client” working with me in Idaho or Wyoming, and they decide they would rather purchase in Arizona, they can do their homework and choose

 

an agent to work with in that State. OR, an agent the client knows or is comfortable with can vet out agents in Arizona and refer them to the agent in Arizona. When doing so, they would ask the Arizona agent for compensation in return for the referral, but usually only if the ­client completes the purchase in Arizona. In most cases, the agent in Arizona, or the receiving agent will compensate the broker who provided the referral a portion of the compensation they receive. It doesn’t cost the client anything.

While a referral is more accurately described as an act of referring someone for a specific service, you can now see in the real estate industry a referral often time represents a person such as a client or a customer.

So why aren’t I good at referrals? I don’t suppose it’s something that one can really be bad at, I just feel that sometimes it’s not appropriate. With regards to the

 

circumstance above, sure. There are however a number of agents who ask for referrals when in my opinion, it isn’t appropriate. For example, advertising real estate in an area you are not familiar with then simply referring the client to a local professional is not appropriate in most circumstances, at least in my opinion. There are unfortunately a number of brokerages whose services are dedicated to this sort of tactic. Usually a website will funnel potential buyers and sellers into a location where they receive a recommendation for an agent, even though they know nothing about the agent they are referring. In some cases the receiving agent might just be paying for the service. In this scenario, there’s no research going into the recommendation. Another example would be real estate agents themselves. Real estate agents are notorious for shopping for real estate in areas where they are not licensed, locating an agent, and asking for a referral fee when the transaction closes. I’m probably going to get some flak for this, but in many circumstances I don’t think it’s appropriate.

 

I believe agents need to be transparent when working with other professionals. If they expect a fee, they need to make that clear before enlisting the services of another professional.

A final note about referrals, they are ONLY paid by brokers to those with a real estate license. Agents can NOT compensate anyone directly, and Brokers can NOT compensate someone who does not hold a real estate license.

So, maybe I just need to get better about asking for a referral. Remember it’s not all about asking another agent for a fee, but it’s broaching the issue with the potential client. The referral can be a useful tool, and a helpful service to the public, as long as they are aware of the situation. I think it would be relatively difficult to refer someone to another agent without them being aware of the situation. So, how would you feel if your agent asked if they could locate another agent for you in hopes of receiving a fee from the receiving agent?

Homeowner’s Association Interpretation

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Homeowner’s Associations and CC&R’s seem to be one of the Hot Topics in real estate, especially over the past couple of years. I don’t want to wear out the topic, but it is important to address some of the questions that people have, especially locally.

For the record, I am for Homeowner’s Associations in most circumstances and agree that in some situations they don’t belong. Many people buy property within existing developments because of the covenants, rules & regulations in place. While it may not be expressly stated that the covenants are the reason for the purchase, it is usually as a result of those within a community abiding by the requirements set forth in these documents. Uniformity, style, there are a dozen reasons why these covenants makes sense.

On the flip side, there are communities in areas that have not had, and likely never will have CC&R’s or development restrictions. Usually, if it’s not within a development such as the core towns like as Driggs and Victor, it can be part of the appeal for some. I always chuckle hearing the sounds of clucking chickens in town, and seeing the great diversity in construction style in these “downtowns”, but it’s also what makes these towns charming.

So, getting back to the topic here. I’ve run into a few circumstances lately where even though I thought understood how the CC&R’s were written, I learned that many Homeowner’s Associations had interpreted these documents differently. While I think there may be an argument in many of these cases, some potential buyers don’t want to argue with the Associations regardless of whether or not they think, or anyone else thinks that they’re interpreting them incorrectly.

One of the most popular examples would be short-term rentals. Most CC&R’s do state that homes shall be used for residential purposes only. There are few exceptions that state home businesses can operate with conditional-use permits from the County, but again, most of them have this generic language. Most case law, (from what I understand many in Idaho) suggests that short-term rentals are not considered commercial businesses. Unless these documents specifically state that short-term rentals are not allowed, it is my opinion that Idaho would rule in favor of allowing rental types, both long-term and short-term.

Another example I ran into recently would be livestock and horses. The CC&R’s in this particular case stated that livestock would be allowed as long as it did not create a nuisance, but after contacting and understanding the Homeowner’s Associations interpretation, I was informed that livestock, nor horses would be allowed. I think there may be an argument here, but I’m not sure this would hold up in court. Here again, unless someone already owns the property and wants to argue, most buyers don’t want to prematurely go down this road, they would rather just find something else.

The second example might be a little bit harder to argue in the case of the association or the potential buyer, but much information I reviewed suggests that homeowners associations should specifically state what is NOT allowed as opposed to stating what is, or at least in my opinion.

As tensions rise over some of these issues in the future, I believe that homeowners association should take an active role in reviewing their CC&R’s and perhaps a mending some of the language so that it it is ambiguous while it is still relatively easy to amend these documents. Mini development today have owners of multiple lots, and very few homes in them. It’s easier to address some of these issues today as opposed to arguing with homeowners and buyers down the road, especially as population grows.

Transactions and Utilities

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Fall River Electric

Here in Teton County Idaho, closing a transaction is a bit more complex due to the proration of utilities at closing. A couple of things need to be taken into consideration. Those items typically include property taxes, electricity, liquid propane or oil, water and sewer bills, local improvement district assessments, and so on.

Most of the above items will be addressed in any real estate transaction in most every state. Here in Idaho, taxes are assessed in arrears. I have written a few different articles on how property taxes work, I’m happy to provide that link. If anyone has pre paid their taxes, they will get a credit at closing. Otherwise the seller might have a deduction on their closing statement. In this scenario, the buyer would be responsible for the entire tax bill when it comes due.

Things I would like to focus on would be electricity, liquid fuel, and Municipal Water and Sewer bills.

When it comes to electricity in Teton County Idaho, the provider is Fall River Electric. Fall River Electric is actually a co-op with over 13,000 members in three states and eight counties. The co-op owns and manages several hydro-electric stations in the region. The co-op operates on a non-profit basis with a primary goal to deliver safe and reliable electricity to it’s owners. Revenue that exceeds the cost of delivering this service is allocated back to the owners in the form of capital. This capital is distributed approximately every 20 years. Over time this Capital accumulates. So, what happens if you sell your property prior to receiving your funds whereas co-op only distributes every two decades? The answer is that you are still entitled to these accumulated funds, but you can’t receive payment until distributions are made. With that being said, if you’ve owned the property here in Teton County for any significant amount of time, it’s a good idea to make sure you continue to keep your account address updated with Fall River Electric. In the short-term, you will be working with prorating electricity charges through the date of closing. Fall River is extremely efficient when it comes to keeping track of member accounts. It is a good idea for a new buyer to set up an account prior to taking possession, and providing the exact date of closing. If the seller also provides the exact date of closing, Fall River Electric can bill accordingly. For this reason, we usually don’t see any prorations on a closing statement when working with your real estate agent and Title Company. It’s also important to remember that Fall River ties the bill to the property, not the owner. Even if the owner leaves an unpaid balance, it will run with the property and the new owner will be responsible to make that payment. Most of the title companies are very good about making sure balances are current prior to closing.

Liquid propane and fuel oil or diesel fuel is a different story. Idaho’s contract provides for a section that describes who is ultimately responsible to receive, or pay for any fuel left in a tank upon closing. Since we don’t have natural gas piped and metered in the area, and very few Community Propane systems with meters, this comes up frequently. If the contract states that the buyer is responsible to reimburse the seller at closing for fuel remaining in the tank, a representative from the title company who acts as a third-party will usually get a reading on the tank or a percentage level and to multiply that by the size of the tank and at the current rate. In this circumstance, you will see a proration or a credit or a debit on the closing statement. Build is less common, fuel oil is something that comes up periodically. If the buyer is not responsible to reimburse the seller at closing they are entitled to any remaining fuel in the tank. In this scenario, it’s easy peasy. If the buyer is required to reimburse the seller for the fuel remaining in the tank, it gets a little complicated without a gauge present to provide information as to how much fuel is left in the tank. The basic process for testing how much fuel remains in a fuel oil tank is basically a dipstick similar to you are car oil. Oftentimes The seller might top off the tank so that they can calculate based on a full tank. Alternatively, the buyer can top off the tank and deduct that amount from the total tank volume. There a few other moving factors with all of this, usually comma and more specifically with liquid propane, the tanks are never filled to 100%.
Water and Sewer is also a bit peculiar when it comes to the way things operate in Teton County Idaho. In most cases, the cities do not want to try to prorate to the day any bills as it complicates their Billing System. In most cases the buyer and the seller are able to come to an amicable agreement as to who will pay for it, or how they will split the difference. If a tenant resides in the property it can further complicate things as the city’s generally require owners to keep the city water and sewer Billings in their name since the owner is tied to the property and the Tenant is not. This allows the city to have better control with regards to who is using the service comma and who the owner is. If a tenant moves out of the property, they would rather be able to communicate with the owner as opposed to keeping track of the different residents or tenants in each property.

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