Leveling the ol' playing field.
The conventional wisdom among real estate pundits and academics is that the Internet has replaced the agent as the source of consumer information. In this brave new scenario, the much-touted "Internet-savvy" buyer arrives at her agent's doorstep fully-briefed on the buying process. The agent need do nothing more than scribble an offer, doze off during escrow and wake up just in time to pick up his commission check.
So why should a buyer pay full price for this?
Why indeed, if it were true. But anyone who's looked at Internet real estate content with a critical or even just knowledgeable eye won't be too surprised to learn that all too often the 'net's "buyer education" is little more than quackery and folk lore. Exhibit A in this one-room Alabama schoolhouse approach to consumer education is an "educational" article I discovered a few years ago.
This online article epitomizes the shrillness and nonsense you can find and often can't avoid on the Internet, even on supposedly credible sites. The article was for a brief time offered for your edification and amusement on the Wells Fargo Web site when you clicked the “buyer education” link. Yes, that's right, it was on the Web site of one of the biggest lenders in the country, at least until a storm of protest from un-amused agents, who apparently account for 70 percent of Wells’ referral business, prompted its hasty removal. Hey, nothing like mauling the hand that feeds you. “We’ll alienate your clients from you and alienate you from us.” Had someone in upper management been aware of this unusual agent outreach program, they doubtless would have wondered what was in it for Wells, but apparently in those days no one who ran Wells read their Web site.
The article infuriated agents because it’s one-sided and mostly wrong-headed and, when posted on the Web site of a major financial institution, undermines the agent-client relationship. It also got under their skin because it talks about things agents don’t want to talk about. But guys, the toothpaste is out of the tube. I ran across something very much like this on another major Web site way back in 1998, and it may be the same article. This stuff is out there. It’s just what some or even much of the public thinks and sometimes says.
So let’s clear the air. Let’s look at both sides: first I'll quote the article, then respond. The article's theme is that old chestnut, “What your agent won’t tell you.”
1. "My Commission Is Negotiable." When real estate agents tell you that the "customary" commission in your area is between 5% and 8% of the sale price, they expect you to fork it over without a fight. Don't. Before signing a listing contract, try to negotiate a lower fee with your broker. You'll be surprised at how easily you can knock off a percentage point or two if you hold your ground. (Your bargaining stance is measurably enhanced when you are both buying and selling a home. Then, a negotiated commission is an expected part of the deal.) "It's not something we like to tout," says a former Connecticut real estate agent who asked not to be named. "But it does happen."
Response: There’s no harm in asking for a discount. Even the best agents may give you a token discount to make you feel good. Just don’t expect a good agent to give you a whopping discount, especially if you’re in the low end of the price range, or your house needs lots of work to sell, or you have a disfunctional relative who’ll drag everyone through hell. And if you’re selling and buying, you should certainly get a discount on the second transaction.
Just don’t choose your agent based on the size of their discount. Not all agents are the same. Some are so spineless and desperate that they’ll give their money away. You might think that's their problem, not yours, but they can easily make it your problem. Remember, you’re hiring an advocate, the man or woman who’s going to stand up for you—or not—under the intense pressure of a transaction. You don’t want someone who'll fold at the knees the first time he gets a stiff jab. That’ll cost you money and more. You want someone who’s tough and willing to walk away from a bad deal.
2. "I'll Chip In to Make the Deal Go Through." Agents not only will negotiate their commission upfront but also may take a further cut later if it means saving a deal that is on the verge of breaking up over minor details. Who will pay the points on the mortgage? Why shouldn't the seller have to replace the broken dishwasher? When these skirmishes arise, feel free to ask your agent to pitch in. Most will usually agree rather than see the sale—and their entire commission—disappear.
Response #1: “Let’s see, Mr. Buyer. You’re willing to walk away from a $1,000,000 house over a $500 dishwasher? Then this isn’t the house for you. Here’s a list of ten houses we should see right now. I’ll bet at least one of them has a working dishwasher.”
Response #2: “Let’s see, Mr. Buyer. You’re asking me to pitch in .0005 of the purchase price. Be glad to. Just give me a .0005 ownership interest in your house.”
Response #3: “No.”
3. "You're the Only Bidder on This House." When you express an interest in a house, the agent will often tell you that you'd better hurry because there are other bidders even when there aren't. If you suspect your agent is pressuring you to make an offer by exaggerating the activity on a certain house, ask to see the other bids. That information is supposed to be confidential, but one former real estate broker says that if another offer really exists, in some cases the agent will show it to you.
Response: Get the feeling this article is written by “a former real estate broker” in Connecticut who “asked not to be named”? Again, there’s nothing wrong with this strategy. Just don’t expect it to work. In California, only the seller has the authority to show you any competing offers, and she isn’t likely to think that’s in her best interest. It’s also an ethical gray area; how would you like the seller showing your competition your offer?
4. "You Should Be Using More Than One Agent." Agents will often pressure you to work exclusively with them. If they spend a lot of time getting to know what type of house you want and driving you around to see different properties, they figure you owe it to them to buy a house through them. But there's nothing to stop you from seeing homes with more than one agent. Checking in with a few of the best salespeople in each area is a good way to keep your finger on the pulse of the market. Many times an aggressive agent will show you a home before it appears on the multiple-listing service. And if you're looking in a large geographic area, you'll need more than one agent to make sure that you have access to all of the multiple-listing services in those places.
Response: Well, let’s just forget the ol’ Golden Rule (“Hey, we loved your article, but we had another writer working for us too and we bought his article instead”) because the great thing about demonizing real estate agents is that by doing so they’re no longer people. Mighty convenient. “But they deserve it”, you say. Funny, every demonizer says that.
But let’s also look at this advice pragmatically. “Checking in with a few of the best salespeople in each area is a good way to” make yourself persona non grata among the best salespeople in that area. What, you don’t think they talk to each other? Even if they don't, they’ll figure out what you’re up to soon enough. The antennae of the “best salespeople” are finely attuned to users.
If an “aggressive agent” can show you a listing before it goes on the MLS, it’s probably his own listing and he wants to double-end it. The problem with this is that the listing agent is also the seller’s agent. Seller’s agent, as in “agent who has a pre-existing relationship with the seller”. Sellers don't usually find their agents in the phone book. Maybe the seller is a friend of the listing agent or a repeat client. Or the seller is a referral from a friend, client or relative of the listing agent. Whatever, you’re the latecomer in any of these scenarios. Think the listing agent will go up against the seller and fight for you?
And if you’re looking in an area that covers more than one MLS, what are you looking for, a home or the Northwest Passage? Put that dog sled away, get real and refine your search. That’s way too much ground for you to cover.
5. "Here's What You Need to Know About This House." Because real estate agents are, in most cases, paid by the seller, they have a legal obligation to protect any confidential information shared with them, like the seller's absolute lowest price, or the fact that the couple selling the house might be going through a divorce and thus may be looking for a quick deal. Furthermore, while brokers are required by federal law to tell prospective buyers about any structural problems in the house, they won't always tell you about other mitigating factors—for instance, that a murder was committed there. As a buyer's broker, John Arends, of REMAX Properties North in Colorado Springs, Colo., says he seeks out the owners of properties his clients are interested in so he can find out about any hidden factors that would affect the sale. "We seek out owners now," says Arends. "But when I was a seller's broker, we used to avoid them at any cost."
Response: Here the article refers to “sub-agency”, which means that the cooperating (buyer's) broker automatically becomes the agent of the seller, not the buyer, when he or she accepts the seller's offer of a commission. Yes, that’s certainly something to clarify: is your agent really your agent? But sub-agency isn’t found in every area—it’s not in my area, Silicon Valley. That’s the problem with trying to give specific buying advice on a national Web site or in a book. It can be wrong, very wrong.
I’m not sure what “federal law” they’re referring to, but it’s certainly California law that both listing and selling agents disclose anything they know, or should know, that would materially affect the value of the property, structural or otherwise. This includes a murder committed on the property within the last three years. But an agent who goes the "extra step" and discloses a murder committed three years and one day ago can be sued by the seller for damaging the value of her home.
The quote from buyer's broker John Arends confuses me, perhaps he works in a state with different rules or perhaps because something got lost in translation. I'm not sure how Mr. Arends could avoid talking to owners "at any cost" when he was a seller's broker, since those owners were his clients. I can't believe that Mr. Arends doesn’t know it’s against the Realtor Code of Ethics for a buyer’s agent to “seek out” the seller directly if the seller is represented by an agent. I understand that Colorado is one of many states that doesn't mandate a seller disclosure form, unlike California, a pro-buyer state with a seller disclosure form for every need and occasion. Again, this points up the real problem a national Web site has when giving advice on real estate custom, which varies by state and even locale. It also points up the real problem consumers have when they rely on the Internet.
6. "I Might Use Whatever You Tell Me Against You." Because the brokers and agents are usually being paid by the seller, you have to remember that when you are buying a house, your interest in the deal is not the one being protected. So if you happen to mention to the agent the highest price you will actually pay on a house or that your company will pay closing costs as part of your transfer package, those are details that the agent must disclose to the person selling the house, thereby weakening your bargaining stance. Despite tougher laws in many states demanding that agents disclose their ties to sellers, many people still don't understand how the agent-buyer relationship typically works.
Response: Again, they’re talking about sub-agency (see #5, above). Don’t assume that sub-agency exists in your area. Don’t assume it’s doesn't. As for the "many people (who) still don't understand how the agent-buyer relationship typically works", we can number among them the writer of this article, once she's outside the state where I suspect she once sold real estate.
7. "This House Is Functionally Obsolete." Agents have little phrases they share among themselves to classify houses that might be tough sales. This is one of them. Your agent may gush that the house you are looking at is a great deal—maybe even $10,000 under the market price—but what he or she probably won't volunteer is that as a three-bedroom home with only 1 1/2 baths, it's an outdated dinosaur in an area where most comparable homes routinely include two full baths. Older homes with closed-off kitchens are also a drag on the market these days; homes where the owner has knocked down a wall and added an island in the kitchen sell better. And when your agent mentions that the house you're about to see is a "handyman special," understand that it may take more than just one pair of handy hands to get this place into shape. This is often real estate code for a money pit. Expect anything from a leaky roof to a shifting foundation.
Response: It’s true that agents have their own vocabulary, just as every profession does. “Cozy” always means tiny. “Panoramic” sometimes means “I think I see some hills way over there”, and “fixer” can mean “bring your bulldozer”. But while this vocabulary comes from the mouths and word processors of agents, it’s also driven by sellers who would probably stretch those handy euphemisms even further if it was up to them. And yes, this practice is even driven by buyers themselves. Would you go see a house advertised as “cramped and decrepit, no potential”? Yet someone will buy that house because it works for them, and it might be you.
“Euphemism” doesn’t necessarily mean “rip-off”. You should be looking at a functionally obsolete house only because it’s the only house you can afford in the neighborhood you want. If this is the case, it probably won’t kill you to live in a place that hasn’t been updated since Ike and Mamie were in the White House. Really. And because it is the worst house on the block, it may have the most upside potential—but at a cost to your wallet and sanity.
It’s the same with “handyman special”. “Flippers” (resellers) look for a house that needs mostly “cosmetics” (appearance upgrades) because those upgrades are the easiest way to make a quick buck on a house. Even if the house needs more than cosmetics, it may still be worth the risk if you know what you’re getting into. Don’t commit to any house until you see the seller’s reports if any and, ideally, get your own inspections plus reliable estimates from trades people. But you’ll never know everything about a house, fixer or otherwise, before you buy. That’s especially true of a house with lots of deferred maintenance, because one obvious problem can lead to less-obvious problems that don’t appear until you're well into your renovation. Either accept this as a necessary risk that’s built into the price, or start looking in less-desirable areas that offer better homes for the same money. Or sit on your couch until prices go down.
Quick story: Some of the best deals I’ve ever gotten for my clients were fixers. One couple was ready to walk away from a house that fit them perfectly but had what looked like a serious foundation problem. I’m not a foundation expert but my gut told me it wasn’t as bad as it looked. I encouraged them to tie up the house, at no risk, long enough to get a foundation inspection and estimate. They did, discovered the repairs were minimal, and went through with the transaction. Five years later their house has gone up almost 50 percent in value and, more important, they live in a house they love.
8. "I'm Pushing My Own Listings" In most home sales, the listing agent splits his or her commission with another agent who saw the house in the multiple-listing service and brought it to the attention of a willing buyer. But an agent who finds a buyer for his or her own listing stands to rake in the full commission. With a windfall like that, you can see why some agents steer buyers toward their own listings, sometimes excluding more appropriate homes. If you're wasting a lot of time seeing homes that you don't like but that the agent is pushing, switch agents. If you are a seller, you'll want to make it clear upfront that you expect the listing agent to accept less than the full commission if you find the buyer. Agree on a discount before you sign the listing agreement and make sure the amount is included in that document.
Response: Right on brother. Better yet, tell your agent you don't want him double-ending. The smart ones will tell you they don't.
9. "This Is the True Value of Your House." In order to get a listing, a broker will often give you a price that is well above the market. You put the "for sale" sign up, expecting to make a killing, but the offers never materialize. After a while, the broker says the market has softened and you need his or her expertise more than ever to get the house sold—even at a lower price. The danger is, the original high price tag often means a house stays on the market for months, getting a reputation as a dud.
Response: Right on again, except that instead of that “a broker will often” blanket condemnation, I’d substitute “watch out for a broker whose recommended list price is substantially higher than anyone else’s”. It’s called “buying the listing”, and it can’t be done without you, the seller, as a willing accomplice. An unscrupulous agent knows that the best way to deal with a greedy, credulous or unsophisticated seller is to over-promise and under-deliver. A few make careers out of it. Or maybe the agent just doesn’t know the value of your house. Neither reason makes him the agent you’ll want to work with.
10. "I'll Do the Footwork for You." It's mandatory that you thoroughly check out the neighborhoods and houses you like yourself so you know exactly what you're getting into. But there's no reason why your agent shouldn't help. Ask your agent for recent clippings from a local paper that illustrate market prices. What about SAT scores and other school-district information? Any zoning skirmishes that may affect home values in the future? If an agent balks at these requests, find another, more aggressive one. When you do get this information from agents, however, keep in mind that they have their own agenda. It's not in their interest to tell you all the bad news about a place. But they can provide some leads that should make your own investigation easier.
Response: “It’s not in their interest to tell you all the bad news” unless they know that you’ll inevitably find out any bad news anyway, either before or after close of escrow, most likely from a neighbor welcoming you to the neighborhood, and that you're likely to sue if it’s after the close. Just don’t expect your agent to go down to the Planning Department and do your research for you. Why not? Because you may not understand everything your agent passes on to you, and some vital piece of information may get lost in translation. Your agent can’t read your mind and ask the questions you might ask the planner as the conversation unfolds. And not every planner has the right information, or will interpret that information correctly. That's a fact.
But you know what? You can’t sue a planner. You can sue your agent.
Incomplete, inaccurate or misunderstood information from source to agent to client will always be laid at the agent’s doorstep. But certainly, your agent should be able to spot a property's potential red flags and point you in the right direction. True, not all can or want to. But like I keep saying, not all agents are the same. It’s your responsibility to screen your agent carefully. Don’t just fall for a flashy presentation and big promises. You're not buying laundry detergent. Don’t be lazy or emotional, or you may well end up a victim.
Well now, that article was a little grim: a lot one-sided, a lot misguided and a lot just plain wrong for my area and perhaps for any area. There’s an agenda—perhaps a failed real estate agent striking back against her former industry to make a quick buck.
Any "Internet-savvy" buyer or seller who takes this kind of "education" seriously isn't starting out ahead of the game. She's starting out down three runs in the first inning. And so is the one person who really can educate her, her agent.