Consumers of Residential Real Estate: Buyers Beware & Sellers are Clueless

For years the phrase “buyer beware” is a good mantra to heed. In fact, home and condo buyers today have access to lots of information that helps them make good decisions. One of the best decisions buyers can make is to work with an experienced buyer’s agent. Give home buyers a thumbs up for getting better at home purchasing process.

And now for you sellers, at least those of you who hire and contract licensed real estate agents and brokers to list and sell your home. You’re clueless. I am the first to admit and even advocate that the best chance to sell a home is by using a Realtor. So why am I slapping sellers in the chops?

Because sellers have no real understanding about the qualities of the Realtor who is going to list their home. Really, what criteria do sellers use when selecting a competent listing agent? What kind of clothes they wear, what country club they belong to, the resemblance of a distant relative? Bear in mind that 80% of all consumers who hire a real estate broker do so after speaking to only one agent. Eight out of ten.

Sellers have no real understanding when it comes to differentiating between listing agents.

But here is a fact: Sellers have the best chance to sell their home by using the top producing listing agents who work specific areas.  Sellers may see real estate signs, have friends who “know” other realtors, or just have one who lives across the street, but how does a seller know who is a good listing agent or a bad one? They simply don’t.  They are clueless. Questions like where they sell, how much they sell, how they market, what’s the average DOM? (days on market), what’s their average list to sales price? – these important questions are often left out of a seller’s dialogue.

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Home owners have their best chance to sell a home when using the top producing listing agents in the specific home area.

True story below.

Last year some friends of mine moved out of state. They had heard of the consulting concept, but brushed it off because they had befriended a Tucker agent who went to the same church. They felt comfortable with this agent and I guess it was the biblical setting that reassured them. (Part of the 80%, at this point).

Ok, I begged them to let me provide the agent statistics for their tony neighborhood in Carmel. I got my foot in the door when I offered to provide stats for the Tucker agent they felt so good about. After all, the consulting service is free, and the seller gets an advocate to help them during the entire pre-listing period. Sellers should beware that the motive of any listing agent is a contract signature.

I showed up in Carmel a few days later at their house with fresh agent data, including the sales production of the Tucker agent who sat next to them in church. I walked inside, greeted them then handed the stat page to the wife (who is a practicing attorney). Five seconds is all it took her to X-nay the Tucker agent. Yes, the nice one from church. Why? Sorry, but nice won’t cut it: the facts were that she had not sold any residential homes in the county where the sellers resided. What?  Plus, the last 6 months the agent had only 4 sales with two of them being commercial. “She’s out.” The wife said after looking at the recent production.

Then we sat down and I showed them the top listing agents in their area and price range and we compared agent to agent until we narrowed it down to three top agents. Yes, the seller has to listen to three extremely qualified listing agents who are proven sellers in this very area. After three good (and separate) interviews, sellers have a very good idea about their home value and what it will take to sell it.

After three separate interviews (no listing contract signed yet) sellers are no longer clueless. They are educated. For free.


How Good is Your Real Estate Transaction? As Good as Your Agent!

Do consumers really think that the logo on any Realtor’s jacket has anything to do the the quality of a real estate transaction? Frankly, the logo has zilch to do with the buyer or seller’s forthcoming experience.

Branding may influence consumer choices when it comes time to selecting an agent to represent them in a residential home transaction. But as the quality of the consumer experience goes, it really boils down to the competency of the Realtor they have working for them. The agency has very little to do with the ability of the Realtor.

An agent may have a nationwide or regional brokerage behind him, but that doesn’t necessarily mean that the consumer gets a quality agent for the transaction. This is the principal reason Errors and Omissions Insurance was created for the real estate industry.

Consumers do better with single agent representation - better than swimming of the deep end!

Consumers do better with single agent representation – better than swimming of the deep end!

Consumers rarely know anything about the agent they hire, unless it’s on a personal level. Realtors are some of the most personable people you will meet. But what does that tell you about their experience, savvy, due diligence, organization, attentiveness, or other traits that set good agents apart from poor ones? What tells the consumer they are getting a good agent?

Nearly all potential home buyers or sellers are at a distinct disadvantage when dealing with any Realtor. You are on their turf because of the complexity of any real estate transaction. They are still clueless when it comes to asking the right questions to find out about the experience and ability of the Realtor they have working for them.

So what should consumers do to make sure the agent working for them is any good? Answer: Ask the right questions.

Questions for a listing agent:
How many homes have you sold in the last 12 months? Where did you sell them? How many listings are you servicing now? What is your average days-on-market? What is your average list to sales price? Ideally, it is great when consumers can get the listing agents statistical data. This info is generally not available to the public so you have to ask for it.

Questions for a buyer’s agent:
How many buyers do you represent at a time? How many buyer transactions have you closed? How often are you available to your buyers? Do you list properties and if so, how many? (Listings take time and servicing them can put constraints on the availability of the agent)

There are other good questions to ask, but the point is for consumers to ask questions!

Dual Agency, Compromised Representation and Special Interest Groups

Dual agency, also called limited agency, is where one agent represents both the seller and buyer during a property transaction.

There's not much room to negotiate when one agent represents both buyer and seller.

There’s not much room to negotiate when one agent represents both buyer and seller.

A real estate agent compromises his or her ability to fully represent either client, when representing both simultaneously. In most states this practice is legal. If explained properly, no buyer would ever do it, but because additional disclosures required by dual agency are often explained poorly, a buyer’s perspective and understanding of this compromising relationship is not fully understood. Little do buyers realize that their agent can no longer give either client a “contractual advantage”. This can be huge. For example, if a listing agent has been instructed by the seller to list a home for $100,000, and the agent knows it is only worth $90,000, he can only say to his new buying client that the property (by fiduciary obligation to the seller) is for sale for $100,000 – and not one penny less. Sadly, many unknowing buyers paid $100,000.
The carrot for Realtors is that the projected commission can double when both parties are represented. This is just as bad as a couple using the same attorney for a divorce. But the unethical practice will continue in most states due to the strong real estate lobbies at the state and national level. Special interest groups protect the groups that pay them, not the consumers who utilize the real estate industry’s services – food for thought for consumers who are buying or selling a house.

Choosing the right doctor, I mean, real estate agent?

A man went in to have some foot surgery. His doctor was trustworthy, honest and professional. Two years later the same man needed brain surgery and insisted that his podiatrist do it because he trusted him so much. Of course, most of you would tell that guy to have a brain surgeon do the operation. We all know why.

Which brings me to this great analogy in real estate. A man, Mr. Buyer, bought a home and was represented by Realtor Bob. Bob did a great job representing Mr. Buyer. In fact, some years later, Mr. Buyer needed to move. And his automatic reaction was to call Realtor Bob. But Mr. Buyer is making the same mistake the guy in the first paragraph made. How could this be?

clay Make sure you hire the right agent, or it might be a long walk home.

As many of us know, the training for a foot surgeon and brain surgeon is very different. They are specialists in medicine. In real estate, real estate agents have only two jobs – representing buyers and sellers. But the skill set necessary to do either job is about as different as being a podiatrist or a brain surgeon.

So when Mr. Buyer bought his home, Realtor Bob functioned as a buyers agent. And years later, Mr. Buyer calls Realtor Bob to sell his home to work in the capacity of a listing agent. Does Mr. Buyer know anything about the different skills needed from an agent when they are acting as a listing agent? Probably not. Should he be concerned using an agent who may or may not have the skills to effectively market a home for sale? Well, he doesn’t have a clue. How would he know?

Too often, consumers wanting to buy or sell a home will choose an agent, based on trust. Trust has nothing to competence yet consumers make choices without getting any factual information. You don’t have to be a brain surgeon to figure this out. Of course, most Realtors don’t want you to know whether they are competent in both areas. But there are ways to find out.

How Realtors Should Do Their Business

There is a simple rule for any real estate agent to follow that will minimize mistakes, assumptions and lawsuits.

This simple rule applies to any agent – a brand new agent that has never sold even one house, all the way to those top-producing agents who perform hundreds of transactions annually. Also, and all experienced agents understand this – that the respective responsibilities of working as a buyer’s representative compared with those of working as a listing agent, are completely different. Furthermore, the dynamics of relationships between buyers and sellers is wholly different as well, from the agent perspective.

But the foundation of practice for a Realtor to avoid trouble is this: NEVER, I mean NEVER, tell a buyer or seller what to do. New Orleans 2013 045Unfortunately, once agents become successful, they feel more confident in their abilites to manage and negotiate transactions. Very often that experience begins to entice agents into this trap that can get any real estate agent in big trouble.

That doesn’t mean an agent’s experience is not valuable to a client, but it’s just a matter of the agent positioning that information.

As I said, a Realtor should NEVER tell a client what to do.

Rather, use that knowledge and experience in this manner:

Super fact finder! An agent’s job is to get all the pertinent information and facts that relate to his/her clients transaction. Once the information is gathered (and this a continual process) it is important for the agent to present that information to the client in a way that there is an understanding of how it affects or applies to the transaction. Although the agent may have an opinion about that information, it is critical that they refrain from instructing the client what to do.

Most home buyers and sellers are smart enough to make decisions on their own. Let the agent get the facts, present them in a clear manner, then let the client decide what to do. If a client is bashful, insecure or unsure of a decision, the agent may offer certain scenarios or suggestions, but make it clear that the client is making the decision on their own.

Once the agent begins to instruct a client on what to do, the problems can escalate all the way to the courtroom.

Like I said, it’s all about positioning, as illustrated in the example below.

An agent represents a buyer wanting to make an offer on a condo, and the buyer’s agent has recent comparable sales that have closed within the last 6 months. The buyer wants to write an offer but is unsure what the initial offer price should be. Below are two responses.

Agent: “Now that we have this information on the comparables, we can see what the average market value of the the condo is. With this information before us, what amount would you like to make your initial offer?”


Agent: “Now that we have this information on the comparables, we can see what the average market value of the the condo is. With this information before us, I think you should begin your offer at X amount.”

Imagine the client does not get the condo for whatever reason. In the first example, it will be the client that makes the decision and that

decision was made by the buyer. In the second example, the agent has told the client what offer to make and now the client is wondering  why the agent told him to offer that particular amount. Now, the buyer probably blames the agent for not offering enough, thus damaging the agent’s credibility.

Open Challenge to the Real Estate Community – Discussing Limited Agency and its inherent Conflict of Interest

The Fishy Side of Real Estate is a book that addresses an issue that very few people in the real estate industry will discuss – Limited Agency, or known in other states as Dual Agency. It is simply when one real estate agent represents both a buyer and seller in the same property transaction.

“Fishy”  deals with the reactions from individuals who work in various jobs in the real estate business. Nearly all of these characters who understand the inherent conflict of interest associated with Limited Agency, just don’t want to discuss it.

My question to all of you people in my line of work – why not?

There's not much room to negotiate when one agent represents both buyer and seller.

There’s not much room to negotiate when one agent represents both buyer and seller.

We are talking professionals that represent the real estate industry on a local and state level – mortgage VP’s, people in title companies, real estate brokers, and agents – all these individuals know that the level of service is potentially compromised when an agent engages in Limited Agency. All of the characters in the book and all the real agents who work out there in the market representing home buyers and sellers – just-don’t-want-to-talk-about-it.

The answer behind their reticence is really simple. Although they know there is a compromising of agency service to the client, they can’t give in to the double-dipping of income that accompanies a limited agency transaction. Rather than stand up and admit that we’d rather potentially screw clients instead of taking the high road, well, many take the low road. The money is worth far more than doing the right thing. That’s why they won’t discuss it. The dangling carrot of doubling your money is far more attractive than doing the more ethical route of single, or exclusive representation.

So I am issuing a challenge to you people at the Indiana Association of Realtors (IAR), MIBOR (Metropolitan Indianapolis Board of Realtors, the Attorney General of Indiana, any Indiana licensed broker or agent, any of you real estate industry people are being asked to sit down at a public forum and candidly discuss the details, the ramifications, the inherent conflict of interest that is associated with Limited Agency.

But to all you potential home buyers and sellers who would benefit from such a candid conversation, my guess is that you will never hear it. Why not? Because they don’t want to talk about it. They’d rather take your money instead.

Ain’t that right, Spike?