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Tips for Buyers
Interesting times here is St. Paul, it really is a buyers market. Over the past two weeks I have gotten many inquiries from people who want to buy homes. Most are just getting started.
If you go to the National Association of Realtors web site or to the St. Paul Area association of Realtors web site they have articles on the value of working with a Realtor and how to interview an agent. Most consumers don't really understand the whole Realtor thing so I am going to explain some of it.
There are a lot of "unrepresented" buyers out there who go from agent to agent. They call the number on the sign. There are a couple of pit falls to that approach for the buyer.
a. Dual agency - instead of having their own agent who is contractually bound to look out for the best interests of the buyer, these buyers end up being represented by the same agent who is already representing the seller.
b. Agent loyalty - we work on 100% commission and don't make a dime when we show houses. If I find a good deal my clients get informed first. If it is very cold out like it was this weekend I won't drop what I am doing to show a home to an unrepresented buyer or a buyer who is working with multiple agents but will show houses to my own buyers. I ticked a potential home buyer off this weekend. He was working with multiple agents and asked to see a home that is not one of my listings.
He had to see the home at exactly a certain time after I had most of my day booked. I suggested he call the agent who had agreed to show him another home and explained that the agent can show him both. After talking with him I don't think he is the type of client that I want to work with, and I don't think he will have any trouble finding an agent with time to do a last minuet showing in double degree below zero weather. Most agents don't have enough business right now and will accommodating. I don't have any problem admitting publicly that I do have a schedule and appointments and can be difficult when a total stranger calls and wants to see a property now. If the home is one of my listings that is a different matter.
This blog is a free public service, and it is packed with information and links for buyers and sellers. I am not a free public service. I am a small business owner, and real estate is my job. I am very good at what I do and expect to get paid for my services just like everyone out there who has a traditional job. They go to work each day and they get paid so they can buy food and make their house payments. The seller is the one who pays the buyers agent through the listing agent, it is called broker reciprocity. Buyers do not directly pay a buyers agent. It does not cost buyers more money to work with a buyers agent but may cost them more money to go it alone.
Realtors have experience buying homes. Most people only buy a few of them in their life time. I write many purchase agreements each year and work for buyers so they can get the best price and terms. I do it for a living. I do the best job that I can because I care and because the success of my business depends upon repeat clients and referrals. My reputation is my greatest single asset and one dissatisfied client can ruin it in a heart beat.
Some buyers that I work with end up not buying a home. They usually have a good reason and I respect that. Even though I don't get paid for my hard work in those cases I don't have a problem with it. Buying a home is a huge expense and I would never want someone to make a mistake and end up in foreclosure a few years later. I consider these "non-buyers" and acceptable risk and factor them in as part of my job. I guess my point here is that making a commitment to an agent does not force a buyer to buy a home.
Serious home buyers talk to a lender before they get started. A pre-approval letter from a lender is needed in order to make an offer on a home. Talking with a lender also helps buyers determine how much they can afford and what their mortgage payments will be. Having information about financing takes a lot of the worry out of home buying. Most Realtors will not show buyers homes unless the buyer has talked to a lender. There really isn't any point in just showing homes, we need to work with people who at least can buy a home and we don't know if they can until they talk to a lender.
I know that some fear Realtors and that there is distrust out there. For what it is worth the feeling is mutual. There have been times when I have been taken advantage and even lied to. I won't work with everyone who contacts me no matter how slow business is. I need to trust the buyer or seller just like they need to trust me. I recently "fired" a buyer that I didn't trust and have been known to cancel listings when sellers won't cooperate. I don't list houses just to list them, it is too expensive. I need to sell my listings and if the seller gets in the way of that I need to move on.
In general my job is misunderstood. it is a shame that the national association spends so much money marketing the idea that Realtors are better than real estate agents and on the proper pronunciation of the word Realtor while consumers remain clueless about what an agent does and how they work.
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I started out with a really long intense post, but let me summarize it thusly:
Mentioning the letters NAR in front of me is like waving a red flag in front of a bull.
I dislike the NAR more that words can express.
BUT: That does not mean I don't think agents are great people and professionals. I just really, really, really don't like the NAR.
Mostly because they pay Lawrence Yun to lie, er' I mean "make forecasts" about house prices.
HE HAS BEEN WRONG ever since his appointment.
He's a shill, let's just admit it.
The NAR is not doing good agents any favors.
PB
PB - you may find this hard to imagine but there are a lot of Realtors, including me, who are less than thrilled with NAR. The truth is that joining is optional but if we don't belong we can't use the MLS for listing properties which pretty much puts us out of business. There are some things I like about NAR too. They do support and lobby for some health insurance reforms that we need. Health insurance is a huge issue and expense for small business owners. More people would start small businesses if health insurance for the self employed was more affordable. Small businesses are good for the economy becasue they create jobs. A small business like mine puts money back into the community in so many places. I goods and services to run my business from other small businesses often located in my own nieghborhood and when ever possible in St. Paul . . . guess you put a quarter in me this morning. :) Got health insurance? If you do I suspect it costs you a lot less than I pay and your employer is picking up part of the tab.
Brilliant.
Chris - i like to think of it as my annual crabby rant. Once I write it I can pretty much move on. Think I write something similar once a year. Thanks.
Teresa, your post is neither crabby or a rant, just a great explanation badly needed for the real estate consumer.
I believe you. I used to have membership in a professional association that I was less than thrilled with.
Like you, my affiliation with my organization brought benefits and some much needed support for the individual. But our PR arm often stuck foot in mouth. Gotta take the good with the bad.
I'll declare a truce with the NAR when their forecasting department cools it a bit.
Again, this was NOT a criticism of real estate agents, their profession, or their decision to belong to the NAR. I'm sure I would be a member if I was in real estate.
No offense intended to any party whatsever, except Mr. Yun.
I should have made that more clear.
PB
No offense taken. I did get what you are saying. The NAR predictions have been way off. I write them down and at the end of the year I usually have a good laugh. They are trying to promote the idea of buying real estate and so I think they make overly optimistic projections because it might help members. Bad strategy it just makes them less credible.
Dear Ms. Boardman: Your statement that "It does not cost buyers more money to work with a buyers agent but may cost them more money to go it alone," isn't necessarily true, because in this market, self- sufficient buyers often CAN save money by going it alone.
Normally, listing agreements are written so that if a sale is made to an unrepresented buyer, the seller’s agent receives the entire commission. But, many sellers’ brokers now are willing to have a colleague serve as the buyers’-side broker solely for purposes of writing up the transaction, then have that colleague rebate a portion of the commission directly to the buyer. Many sellers' brokers also will agree to rework their listing agreement with the seller to reduce what would be an undivided commission by a couple of points in exchange for a corresponding reduction in sale price.
Although unrepresented buyers typically don't have to make an out-of-pocket cash payment to their buyers'-side broker, it nevertheless still may cost the buyers money to work with that broker, in the form of paying a higher-than-necessary price for their house.
Bubble_Up
Bubble_up - I did use the word "may" when I suggested it could cost more and I have seen cases where the sellers agent did represent the buyers and did discount the seller but the buyer still ended up paying more than he or she should have for the property.
I have been known to "re-work" my listing contract to save the seller some money when I am also handling the buyer side, it is not an unusual practice. I don't give rebates, but I do save my buyers money and time just the same.
You are correct in that buyers do pay indirectly in the cost of the house. I always find it facinating that for sale by owners charge just as much for their homes as agents would instead often don't pass the savings on to buyers. Buyers always think the home will be cheaper when they buy it directly from the owner. It makes for an interesting kind of tug of war.
But when you say, "it may cost them more money to go it alone," the clear implication is that you and other brokers can prevent a buyer from paying too much. The problem, though, is that brokers are not appraisers, and any time a broker opines about what a particular home is, or is not, worth, she runs the risk of getting sued, as this NYT article notes: http://preview.tinyurl.com/2v7ynj.
In my experience, backed up by your post, most brokers believe that offering opinions about asking price is part of the value they add for a prospective purchaser, when in fact such opinions create big risks for both the broker and the buyer.
The real problem, of course, is that brokers don't get paid unless a transaction occurs, and so the temptation to say things like "This is a good price for this place," is too great for virtually all brokers to resist.
Teresa - great post.
Two questions with the seller paying the buyer-agent fee -
1) How do you deal with unrepresented sellers or seller offering a lesser amount than you are accustomed to? They set your fee rather than what you and your buyer have agreed?
2) What about the scenarios (which I am seeing more of) whereby the seller is bringing money to the table?
3) Is there no conflict of interest when the seller is paying the buyer's agent?
(full disclosure: I have advocated against cooperative compensation for some time. http://www.realcentralva.com/2007/05/21/a-call-for-an-end-cooperative-compensation/
bubble_up - I am not agreeing with you on this one. Not tempted to say a home is at a good price if it is not. I don't agree that an appraisers can determine value better than an agent can. Not afraid to give a "price opinion"
Jim - I don't see it as a conflict of interest but I understand where you are coming from and respect your opinion.
As for sellers offering a lessor amount than acceptable I don't really have an opinion on it. My broker sets the policy on what is an acceptable compensation rate and so far I have never had to accept less.
I am also seeing sellers brining money to the table. I guess I don't understand your question on this one. Some home owners can't afford to sell because they won't have enough money to cover the mortgage and other costs.
Teresa -
On the sellers bringing money to the table, my opinion is that it would be cleaner and better if the buyers were the ones paying the buyers agent directly, rather than shuffling it around on the HUD. Lenders already finance commissions, so why not let the buyers pay the buyers agent and the seller pay the sellers agent. Then, the sellers' ability to pay is removed from the equation.
I think that an EXTREMELY well-educated consumer with access to an RE attorney, and other professionals on a per-hour basis, MIGHT be able to do a little better that they could with a buyer's agent. And that would also depend on the market conditions.
But you will not escape the seller's agent unless you are aware of a property before it is listed.
BUT - a really good agent will be a better deal than a marginally educated consumer that is learning as they go.
Now if you get a bad agent, well, all bets are off.
There is a built-in conflict of interest in the system due to a commission basis for buyer's agents. That is not true for seller's agents. But that is even oversimplifying things since if an agent was dishonest, there are many motivations that could run counter to the client's.
Since it is impossible to invent a system that is devoid of such conflicts, and even more impossible to enforce such rules, then all there is left is personal integrity.
Frankly, I think the world has become TOO SAFE. What?
The ever-increasing levels of consumer protection has created a generation of consumers that think that they are not in the slightest responsible for becoming educated.
The system is SUPPOSED to allow you to make good decisions in a fair environment.
It was never designed to make it impossible to make bad decisions, but that nanny-state situation is getting closer every year when foolish consumers run screaming to their elected officials demanding to be protected from themselves.
They should be careful what they wish for.
PB
PB - I have no idea why you would think that an educated re attorney and others would do a better job for you than a realtor.
I agree with what you are saying about consumers feeling protected and like they don't have to watch out for them selves. sometimes they even sign contracts with out understanding them. Some times I have to read contracts out loud and see if the light goes on. People like that are a risk for me. They can come back and say the bad Realtor tricked me.
I think you missed what I said.
I said it is POSSIBLE that you could do better alone, but if you look back at my post I think you'll see that I am saying that the vast majority are better off with professional help (a real estate agent). That includes me.
In other words, only the sharpest (or luckiest) of educated consumers can hope to avoid the pitalls of going it alone.
I think that 3% (my "1/2" of RE fees) is cheap insurance to know that the transaction is being handled by someone who is looking out for my interests.
My mention of other professionals was to illustrate that even if you go it "alone", you STILL will have to obtain some professional services, and hence incur out-of-pocket costs.
And as to your second point, I think that we are rapidly reaching the point where professionals will need to be protected from the consumers. Consumer advocacy may have jumped the shark in recent years.
PB
I get you PB, My response maybe was not clear. You did say possible and I have to agree. I think I did misunderstand what you meant when you referred to the other professionals. thanks for clarifying it. It is more than consumer education. Some of it is experience. I was pretty well educated when I got my real estate license and even had the experience of buying a home but I found that after I had 50 or so transactions behind me I became a better agent.
Jim,
A seller does not offer the buyer's agent the commission, the listing agent/broker does. The MLS is set up as an agreement between brokers... each broker is able to offer whatever commission they want to a buyer's agent, as long as all compensation being offered is disclosed to the seller.
As a buyer's agent I'm guaranteed a commission on every property in the MLS, so I don't care about making a specific sale go through as much as I care about keeping the client. In fact, if things are not going well I'd rather pull out than force a bad deal through and have to deal with an upset buyer after closing.
Consequently, I don't see a conflict of interest by my commission coming from the seller's side of the table.
Bubble Up-
Buyers and Sellers had found reasons to sue agents and brokers long ago as everything we saw and do can and will be used against us if they think they've been wronged.
If you look at that complaint, there are allegations of deception as well as simply being wrong on price, so it's a little more complicated than simply an agent stating their opinion.
At the end of the day, appraisers and REALTORS alike use methodologies to determine their opinion of value, but there is no perfect correct answer.
In many disputes about something of value, the parties involved get 2 or even 3 opinions and then negotiate it between them. It goes without saying that a single opinion of valuation by ANY party on ANYTHING may not be 100% accurate.
Aaron - you got me thinking about the fact that people love to sue Realtors. I have heard of some cases that were kind of unbelievable. A lawyer once told me that the reason we are so litigious is because we have too many lawyers.