110: Do you need a Real Estate Agent to Sell or Buy a House with Jarred Kessler

On this episode of the InvestFourMore Podcast, I talk with Jarred Kessler, who is trying to start a company that would eliminate the need for real estate agents. As an agent myself, I’m a big proponent of using agents to make the most money when selling or buying houses. This podcast definitely had some tense moments and differing opinions! After working in the financial-services industry and believing current methods for selling and buying houses have become inefficient and outdated, Jarred started a company called Easy Knock. The idea is that buyers and sellers can use the website to complete transactions without the help of an agent. We go back and forth quite a bit while discussing the advantages of this idea and if it is really beneficial.

How did Jarred decide to start Easy Knock?

Jarred went to Tulane University and actually started out by writing television and movie scripts. He later moved to the financial-services industry after realizing he was not making a lot of money in the script business. Jarred rose quickly in the industry, managing over 500 people at one point. Jarred saw how brokers handled large stock and bond trades in the past but were being replaced by computers and websites. He decided the same opportunity was available to replace real estate brokers and agents. Jarred started Easy Knock with a partner who has been in the real estate industry.

How does Easy Knock work?

The company is set up so that sellers can claim their house on the site and list their selling price. The house can be listed indefinitely, and there is no listing agreement or expiration date. Buyers can search the site for a house, and if they are interested, contact the owners. Owners and buyers then set up showings, hire an attorney to complete paperwork, complete inspections, and hopefully complete the transaction.

Jarred says that Easy Knock would help people find title companies, attorneys, inspectors, lenders, and the other people needed to complete the transaction, but no real estate agents can be used. Jarred assumes this idea will save people 4.5 percent of the sale price because they are not using agents. Jarred says the average real estate commission in the United States is 5.4 percent, and Easy Knock will only charge 1 percent to help buyers and sellers come together.

How do Jarred and I disagree on the idea that people save money by avoiding using an agent?

In this podcast, Jarred and I do not agree with each other very often. We keep it civil, but I think he makes some untrue assumptions. Valuing houses isn’t easy. It’s also difficult to complete the transaction, figure out the marketing, work through inspections, deal with appraisals, determine repairs, handle negotiations, and more. I encourage you to listen to the podcast to hear the entire conversation, but you will find some of the points we argue below.

Why does avoiding agents reduce the selling price?

In most cases, buyers don’t pay for agents (the seller pays for their commission). Because they are free and because buying a house is extremely difficult, most buyers will use an agent. If a seller limits the buyer pool to only buyers who are not using agents, they are eliminating most of the market! The fewer buyers there are, the less your house will sell for. Jarred argues that most buyers won’t use agents if they do not have too, and buyers really are paying for agents because house prices increase to pay for the real estate agent commissions. I agree that for-sale-by-owner houses sell for much less than houses listed with an agent, but most buyers will not want to handle the buying process themselves. Jarred argues that buyers can use an attorney to write up the contract and help them with the process. However, the buyer must pay the attorney directly out of pocket and may not be getting as good of service from an attorney when agents are typically used for that service.

It is true that real estate agents push up the selling price, which is good for the seller! Why would a seller want use a website when they know they will get less money for their house, reduce the buyer pool greatly, have to handle all of the marketing themselves, hire an attorney to review or create documents, handle showings themselves, and price the house themselves? In the end, I think they will net less money than if they used an agent.

Why is pricing a property correctly so important?

Pricing a house is one of the most important things you can do when trying to sell it. If you price it too high, you won’t receive any offers, and the longer a house is on the market, the less it will sell for (property becomes stagnant and people wonder what is wrong with it). If you price it too low, you will sell if for less than it is worth. Some think that the price will increase when priced too low because buyers will pay more than asking price. However buyers usually base their offer on what the house is listed for, and even if they do offer more than list price, many times they pay less than if the house was priced correctly to begin with. If a seller uses a website with limited exposure to buyers, they would get even lower offers because fewer buyers know about the house.

Pricing a house incorrectly will usually cost the seller at least 5 percent of the sales price, if not much more. That means the seller doesn’t save any money by not using an agent but are still doing all the work. Jarred counters this argument with a couple points:

  • The sellers will know the value of their house. Jarred thinks that because people live in their neighborhood, they will know values, and it is not a big deal. I completely disagree with this point, as it is not easy to value houses since every house is different. Everyone knows what the going price is for a stock or bond, but every house is unique and in varying condition. In my experience, sellers rarely know exactly what their house is worth, but an agent can help tremendously. A seller could hire an appraiser, but they often value houses low, and the seller then pays another $500 to $1,000 out of pocket for something most agents will do for free.
  • Houses do not become stagnant on his website because they are always for sale. The premise of Easy Knock is that you will always have a price for your house on the site. Even if you are not actively selling, you would have a price you would sell for. This eliminates the idea of a house becoming stagnant because the houses are always for sale. I do not think this concept works either because that means sellers would always be getting calls and bothered buy buyers if their house was priced right. If homeowners don’t really want to sell, they need to price the house too high for the market. I think it would be really confusing determining who really wants to sell, who does not want to sell, and how motivated the seller is. Therefore, buyers would become very frustrated.

How hard is it to complete a real estate transaction?

Completing a real estate transaction is not easy, but Jarred thinks buyers and sellers will figure it out. He says that Easy Knock will help buyers find lenders, attorneys, inspectors, and title companies. Here are a few more things I think will hurt the buyer and seller when they do not use an agent:

  • The buyer and seller will not know what is typically done or paid for in a transaction. Every state has different laws and guidelines for how a transaction is handled. In New York, attorneys are used to close a deal, where in most other states, title companies are used. A buyer usually hires an inspector to look over a house, but when and how that works is different in every state. The seller usually pays for title insurance, but not always. The fees for the closing company and type of title insurance are also negotiable.
  • How does the buyer know what to ask for and what not to ask for after an inspection? How do they know how serious the problems are? Agents help walk a buyer through the inspection process.
  • The difference in lenders can make or break a deal. A bad lender can ruin a transaction and cost the buyer and seller a lot of money. Local agents usually know who the best lenders are.
  • Most buyers will need an appraisal, which can also cause problems. On one of my recent flips, the appraisal came in at $20,000 less than our contract price. That appraisal could have cost me as the seller $20,000! We were able to challenge the appraisal and get the value increased to the contract price.
  • The seller will also have to handle all of the showings and marketing. It is easier to market houses with today’s technology, but most buyers still use real estate agents to find properties for them.

In the end, I think sellers will net much less money using a site like this, and they will have more work to do. Buyers will have more costs as well (what if you need an attorney to write 10 offers for you on 10 different houses!), and they will have far fewer houses to choose from. Plus, buyers won’t really know what is for sale and what isn’t. If you are interested in checking out Easy Knock, they will be launching in New York on Labor Day. On a side note, their website now says they charge 1.5 percent for their services.