Real estate illusion and reality.
If there’s one thread running through virtually all criticism of the mainstream real estate industry, it’s that the industry is an artificial construct, a foreign body injected into the otherwise healthy bloodstream of American society against its will.
That’s the message from industry critics both scurrilous and reasoned. It appears in lowly blogs and in high-falutin academic papers. Nothing proves better how little-understood the industry is. Because nothing is further from the truth.
Outsiders don't sell real estate, at least not much and not for long. Artificial constructs don't do billions of dollars of business.
With its promise of freedom and security, based solidly on reality yet obscured by the illusion of celebrity, the real estate industry is a quintessentially American institution, one shaped and constantly re-shaped by consumers. Deeply rooted yet continuously renewed, it's especially ironic that the real estate industry is the all-so-American institution America loves to hate.
Reality and illusion are both the industry’s strength and weakness. From this comes the hopes and fears, the promises kept and not kept, that define the uneasy relationship between industry and consumers.
The promise the industry sells is built on solid bedrock: your home is usually your best-performing asset. Even when it’s not, your home is the only asset that offers the comforts of home.
But the industry that sells the promise is sometimes more Madison Avenue than Main Street, more Oz than Kansas. That’s not by accident. That’s by popular demand.
Consumers who too often lack the experience and sophistication to evaluate agents—or any other service provider—choose them based on their car, their appearance, their personality and bonding skills—in short, on their ability to make a good impression in thirty seconds or less.
Sound harsh? Of the hundreds, perhaps thousands, of potential clients who’ve interviewed me formally or informally, on the phone, across a conference room table or at an open house, only three have asked for references. You'll find more rigorous due diligence done at singles bars. Agents are the brand and, in the American consumer economy, brand image is king. Brand credibility can be bought quickly and easily with the nothing-down, easy-payments illusion of success.
In a country obsessed by celebrity, agents are small-time celebs. Their headshots appear in local newspapers and on mailings, in magazines and on business cards, on bus-stop benches and grocery store dividers. Their names are plastered across real estate signs and A-frames. When I first got into real estate, I was so in awe of the big names I was meeting that it’s a wonder I didn’t ask them for their autographs.
This cult of personality can breed agents more like game-show hosts than analysts and advocates. You need Alan Greenspan (well, maybe not) and Perry Mason. You get Vanna White and Pat Sajak. Prefer the white-haired Alex Trebek look? We got that too. Is this a rip-off? Not when consumers ask for it.
We love celebrities but envy them their fame. We ask the press to build them up to tear them down, which may explain the National Enquirer-level of discourse on the real estate industry.
In a country that celebrates democracy, your agent is probably nothing more than the boy or girl next door, maybe with a little more style and chutzpah and certainly a lot more native optimism. He or she may be older than you, and more likely to be a she than a he. But your agent probably looks like you, or at least shares a similar background, lives in the same city and perhaps even the same neighborhood. Familiarity breeds comfort, and comfort is what the real estate consumer wants above all.
And because we’re a democracy, we believe in making the good life accessible. Owning real estate is part of that good life. It’s a right not always found in other countries, and rarely to the extent it's found here. Because economic opportunity and years of social engineering encourage home-ownership, the roots of home-buying run wide and deep here. And because real estate is such a visible and accessible symbol of belonging and success to so many here, it’s a pervasive and emotional part of our society.
And because our passion for real estate runs wide and deep, it takes on mythic proportions. Stir in our optimism and fascination with the next social trend, and people who can’t afford to buy a home hit the open houses every week-end. People who can afford a home, but not the one they want, drive around with agents looking for homes that don’t exist. The barriers to homeownership are so low, and the access to real estate services so unlimited, that home-buying becomes a mass movement, a nation-wide be-in where even the unqualified and unrealistic get to sit at the fire and toast marshmallows.
In a country that celebrates rags to riches, selling real estate is one of the few legal ways that someone lacking the right education or connections can make good money. But maybe we value boot-strap economics more in theory than practice. The self-made man or woman is usually a hustler, and hustlers make us edgy. They’re always trying to sell us something, even as we’re always trying to buy something. They can be bold and brassy, bigger than life, P.T. Barnum spectacle that instinctively attracts us even as it consciously repels, a caricature of success, excess unaware and unembarrassed.
Perhaps the most pervasive and harmful illusion about real estate is that it's an easy way to make a quick buck. Real estate is easy only if working day and night, six or seven days a week, is easy. And if working weeks, months or even years for each commission check is a quick buck, then glaciers should be pulled over for speeding.
But because real estate sales is “easy” it’s often seen as illegitimate, as an industry of parasites instead of professionals. And if agents aren’t professionals, then if follows that they’re all snake-oil salesmen. And if all agents are snake-oil salesmen, then there’s no point in paying one agent more than another, because no agent adds more value than another. It’s here, at the end of this chain of wishful thinking, that the illusion of the “free lunch” discount becomes attractive to the credulous and unsophisticated.
Here’s one of real estate’s biggest illusions: that it’s an orderly, rational marketplace driven by orderly, rational people. To an extent it is; buyers are remarkably unanimous in what they want and in what they’ll pay for it. They’re also far more independent, skeptical and fiscally conservative than the “herd of lemmings” theorists find it handy to believe. But all but the most level-headed of consumers can be undone by the stress of high prices and emotional baggage of “home”. (And yet, I've found that successful buyers invariably have their heads screwed on straighter than the people who mock them.)
And now we've come full circle. Remember what I said about real estate often being the most productive asset we own? That’s true, but even here there’s illusion: that real estate is the newest sure-fire get-rich-quick scheme. It can be, sometimes and for some people, but usually you have to hold real estate over the long term to get a significant return.
Which brings us to yet another of real estate’s biggest illusions, that its greatest weakness is illiquidity, the relative difficulty and expense of converting real estate to cash. But illiquidity is, in fact, real estate’s greatest strength, because it saves the typical homeowner from one more illusion, that he or she knows markets well enough to enter and exit them at exactly the right moment. Illiquidity encourages the homeowner to be that paragon of prudence, the buy-and-hold investor.
With all this talk of illusion, you may be thinking that I'm cynical about the benefits of real estate. On the contrary. I'm a passionate believer in the all-around goodness of owner-occupied real estate: the homes you and I own, or aspire to own, and live in.
No, I'll save my cynicism for the biggest illusion of all: that people outside the industry—the hobbyists, the academics, the journalists—can comprehend the reality of the real estate marketplace and explain it.
Next, Real estate boiled down to its fundamentals.