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Why "Top 1%" titles should mean NOTHING to buyers and sellers.

We often sort of move through life and simply absorb what comes our way. That’s natural. We don’t all have time to sit back and ponder what someone really means when they give us some statistic or number that is designed to convince us of one thing or another. In the world of sports, when someone claims to be in the “Top 1%”, we have a pretty good idea of what that means. In baseball it probably relates to how many homeruns they have hit. In tennis, games won. In golf, tournaments won. In real estate…. who knows?

What would come to mind if a real estate person approached you and told you that they were in the “Top 1%”? The truth is that I have yet to meet someone outside the business who knows. It really is a mystery for most. Some might simply say, “Well, it must mean that they are a good agent… right?” That really is the question. Are they a good agent? First, lets talk about what it actually means to be a “Top 1%” agent. Sadly, it is not as clear cut as you might like.

The Mover

This agent achieves “Top 1%” status by selling a large number homes. It does not say anything about how many homes he or she tried to sell, just how many they actually got sold.

The Shaker

This agent has sold a high dollar amount of homes. They may have only sold 1 $20,000,000 property, but they still make the “Top 1%”

The Scope

The next question to ask would be, who are these agents competing with? Well, that is a bit of a moving target. On a good day, when they are not trying to hard, these agents will be comparing themselves to agents in their own office, city, county, state or even with all the agents belonging to their franchise in the entire country. Most real estate offices routinely hand out awards for being the number 1 agent in various areas including homes sold and largest dollar amount sold. So when an agent talks about how great they are, they are not likely to be talking about being compared to a huge number of other agents.

The Stretch

But then there is another class of the “1%”. These are folks who pretty much just make it up as they go along. When asked what puts them in the “Top 1%” (and if they were honest), they might have to say things like:

“I am in the top 1% when judged by height.”

“I was in the top 1% of agents in my office who are under 27, went on the most listing appointments, in the month of June”

“I am in the top 1% of agents who spent time in the office.”

It really can get that ridiculous. Even when an agent really is in the “Top 1%” in sales or volume, you have to realize that in larger offices you can get into the top 1% simply by selling a few homes a year. Many offices carry inactive agents. These are folks who don’t want to give up their real estate license and just need to “park” it somewhere. Of course, when folks start calculating who the “Top 1%” is, they do not leave out these agents who are completely inactive. Finally, never forget that once an agent achieves that “Top 1%” status, it is not likely to ever go away. So if that agent got to be in the “Top 1%” in sales in April, 1999, you can bet your bottom dollar that the “Top 1%” logo is still on their business card in 2008.

Ok, so we have covered what being in the “Top 1%” is. But even if we pretend that none of the hanky panky with this number is going on, should buyers and sellers really be impressed? What does selling the most homes or the highest dollar amount of homes tell you about how well your agent is going to perform for you?

The REAL Numbers

If you wanted a real estate agent to sell widgets for you, then the first thing you would want to know is how many he you sell and how much cash flow can he generate? Sadly, that is not what real estate agents do for you. Frankly, the ONLY people who care about sales volume and total dollar sales are the brokers who have these agents working under them. At least, they are the only people that should care about these numbers.

When an agent advertises their “Top 1%” status, the ONLY people who should care are real estate offices. Sadly, the public has been sold the idea that it should matter to them as well.

If the reason everyone is focused on sales volume and dollars was because that was what best serves people buying and selling homes, then everythig would be dandy. But the bottom line is that these numbers mean absolutely nothing to buyers and sellers.

The real numbers that buyers and sellers should care about focus on the quality of what agents do, not the quantity. What is even more nuts is that these numbers are readily available. Every multiple listing system in the country tracks these numbers or records numbers that could be used to calculate them. Despite this, the data is kept secret, available only to those that have access to the MLS system – agents and brokers.

Sellers are in the best position to get a handle on how good an agent is at doing their job. Here is a rundown on the things that all sellers should be thinking about before they give one thought to the “Top 1%”:

  • Successful Listings – A successful listing is one that sells. So if you are a seller, you are going to want to know what the chances are that your home is going to sell with a particular agent. Well, if an agent takes 100 listings a year and only 50 of them sell, that means that you only have a 50% chance of selling your home with that agent. Just to calibrate you to reality, I have met “Top 1%” agents who only sell 20-30% of the homes that they list. Frankly, I think that this one statistic alone scares the crap out of agents more than any other. You would be amazed at how many agents take a listing knowing full well it will not sell. It happens so often it even has a name. They call these homes a “Lost Leader”. Why would they take such a listing? Lots of reasons, not the least of which is so that they can claim to be a “Top 1%” listing agent. Another common reason is so that they can use that lost leader as a marketing tool. They get to put their sign in your yard and advertise to your neighbors.
  • Days On Market – What is the average amount of time it takes the agent to sell a home. Is it above or below the average for the area? As a seller, you want to know how long it usually takes an agent to get your home sold.
  • How Close To Asking Price? – When an agent sells a home, how close was it to asking price? This is usually expressed as a percentage. This is another statistic you want to compare to the local market. If the average home in the area has been selling for 97% of asking price, what is the average for the agent your talking to? If this agents average for homes he lists is 88%, you are going to want to know why. From this number you can get an idea of how good a negotiator the agent is. You can also tell if they are any good at picking a sales price in the first place. If their clients keep having to take 12% below asking price, then the home must have been over priced to begin with. In these cases, you will usually find that if an agent is bad in this area, they will also not stack up in the “Days On Market” evaluation.

There is a little less data out there to help buyers, but here are some that can help you decide if this agent is good at working for your best interests as a buyer:

  • How Close To Asking Price? – Thats right, this number can work for you too. However, in this case, we look at the agents numbers for deals where he was on the buyers side. You want a low percentage number here. You also want to know what the average is for the area your buying in. If the average home sells for 95% of asking price and your agent, on average, gets a home for thier buyers at 89% of asking, then this agent is beating the average in the market.
  • Closed Escrows – This is one you would like to know but relies entirely on what the agent tells you. There is no independent source of data on this one. What you want to know is, how often does this agent successfully close an escrow he has started? Unfortunately, there is no central place that keeps track of how many escrows an agent opens. The only ones that get tracked are the closed escrows and a home is successfull purchased. An agent who closes nearly all escrows for their buyer is someone who solves problems and gets things done on time as required by the purchase agreement.

Why Is It Like This?

REASON 1: I think the first answer is that the primary thing agents learn is that “It’s a numbers game.” In order to get business going at all for a real estate agent, they need to get in front of as many people as possible. It is all about the volume, marketing and self promotion. After all, you are not going to get clients by sitting at a desk in a real estate office somewhere. So the public needs to understand that agents have to play the numbers game at this stage.

What is wrong is that agents never learn how to switch from high volume mode into quality service mode. We have all heard the horror stores of agents who list a house for someone and then the sellers never see them again. That is because the agent is playing the numbers game. They see their time as better spent rustling up the next listing rather than really servicing the one they have. If a few homes don’t sell, they don’t care because they are constantly adding to their listed homes. Agents relied on the power of the market to just sell the homes they were ignoring. At the time of this writing, those days are past. If an agent does not really work with their listings, their listings are not likely to sell.

REASON 2: Life is a whole lot easier when there are not real ways to measure the job your doing. In this case, there are plenty of ways to measure how good a job is being done, just no willingness to do so. Since real estate offices just want their piece of a deal, the idea of being focused on volume and sales amounts is fine for them. Since the public is mostly ignorant of the availability of this data, they never think to ask for it. The state licensing folks and the associations have no motivation to push for something like this. After all, if their were real measurable metrics for real estate agent performance, the number of folks becoming agents might drop. That would lower the license and membersip fees… and we can’t have that! The average agent would likely consider leaving the business if suddenly there was a publicly available way to really track how well they do. As long as they are wearing the right suit and driving the BMW, it seems everyone will assume they are good at what they do. And they like it that way.

But by now, YOU have the power to ask the questions that are going to scare the crap out of most of these agents. You now understand that the things that really matter to you as someone who is trying to buy or sell real estate has just about NOTHING to do with the things everyone is telling you are important.

You are now too well informed to fall for the “Top 1%” pitch.

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