As with any profession, recognition and deference should be given to those who study and become versed in their field. We hire people for that very reason. Otherwise, we would handle our own divorces and plumbing.
But what happens when our trusted professionals fail us and erode confidence by steering us in the wrong direction?
We watched as Bernie Madoff led thousands of people down the path of smoke and mirrors, taking their money and losing it through lies and deceit. Willingly, people handed over their life savings, thinking if such smart people are investing and doing well, why shouldn’t I?
Madoff was running a sham business that seemed too big to fail. The more success he amassed, the more people wanted to take part.
In fact, he turned hopeful customers away, which attracted even more investors. This idea of exclusivity, of rarified networks, created the illusion that only the best of the best could gain access. It was a profitable — and dangerous — formula.
Along the way, questions about Madoff’s practices were asked, concerns were voiced, and there were even cries of fraud. However, these were all overlooked because some of the smartest people in the world were signing on. Mob mentality shut out any modicum of common sense, and the problem continued to grow.
Until, overnight, Madoff’s fast-moving money train crashed and left no financial survivors. It was an expensive lesson in more ways than one.
I bet each and every Madoff victim wishes they had pressed harder. I have a friend whose father met with Bernie to consider investing with him. He asked to see more information and Bernie got mad and basically told him either he could invest or get lost. My friend’s Dad walked straight out the door, recognizing that Bernie was a fraud.
Fear, intimidation and real estate trust
Big egos rule with fear and intimidation tactics, and we are seeing that on full display now in real estate. The entire industry, the trust we’ve worked decades to build, is being knocked down one domino at a time by big companies with massive scale and capital.
Take private listings for example. Off-market sales have always existed as an option for sellers, but companies like Compass are pushing to make them the default marketing strategy. This accomplishes several things at once:
- It keeps listings within their own network for longer
- Compass agents are more likely to be on both sides of the transaction, which boosts commission for Compass.
- Compass also incentivizes double-ending deals through a 10 percent in-house referral fee.
This is all done under the guise of seller choice, but sellers have always had the choice.
As a licensee, real estate agents have fiduciary requirements as well as fair housing rules they must adhere to, regardless of brokerage policy. The golden rule for being a real estate professional is to put the client’s needs first above all else, especially your own.
Unless otherwise requested because of very special circumstances such as divorce, celebrity or security, a homeseller almost always wants to maximize the real estate market by offering their property to the total open market. This has been the common-sense way to do things for decades.
It is easy to understand that by getting as many eyeballs as possible, you will maximize your chances of getting a buyer for the best price.
However, the new narrative that was manufactured by Compass encourages its sellers to list their homes privately within Compass for the first 90 days. It’s become part of their nomenclature. In fact, it is written into their exclusive agreement as part of the regular course of business. They have made the exceptions their rule.
Sellers are going to be gobsmacked when they start to understand that systematic manipulation encourages them to accept a price that is less than what the full market may have offered. Unfortunately, they will never know what the market would have yielded, and despite signing disclosures, they have been misled in hoards and should be furious.
The reality is that very smart people can have very selfish ideas.
If everyone would zoom out, they would see that Compass has billions of dollars in debt, their stock is nowhere near where they need it to be to satisfy debtors, and their only chance of survival is becoming the only site in town that sells homes. As they have said: “We want to be the Amazon of real estate.”
I don’t begrudge a business for trying to make money. By all means, build, grow and prosper, but not at the expense of the consumer. With private listings, the means do not justify the end. In fact, Compass is in breach of its fiduciary duty by building this private network that obscures transparency and hides metrics like days on market.
Things are starting to unravel as the New York attorney general opened an investigation, and they face myriad lawsuits, while peddling a false narrative that governments are now fighting at the state level. New York just passed the Free and Fair Listings Act, restricting private listings, which awaits the Governor’s signature.
Compass spins this as a triumph for seller choice, but the legislation wasn’t written to codify seller choice; it’s intended to protect homeowners from predatory practices and financial risk, plain and simple.
My one hope is that consumers don’t get tangled in the web of lies that smart people make sound attractive. As we enter a very unaffordable real estate market for most Americans, where inventory is tight, and prices are out of reach, the absolute worst death blow is to hide inventory through a private listing network and make the American dream virtually impossible.
Be like my friend’s dad, and when you sense a Madoff-style ripoff, be smart enough to walk away.
Editor’s note: A previous version of the story said that the Department of Justice is investigating Compass; it’s the New York attorney general.
Bess Freedman is the CEO of Brown Harris Stevens in New York City.
