Wednesday, April 27, 2011

What Do You Save By Not Having A Buyer's Agent?

This ties nicely with each of the last three posts to this BLOG. It was a post to the Berkley Parents Network forum, and begs the question of why people begrudge the commission earned by real estate agents, when they know so little about even the most basic aspects of the business.

We could save $45,000 by not having an agent

May 2010 

My husband and I own a home in Oakland and we are moving to Lamorinda soon. We are looking at homes priced around $1.5m. My husband recently read an article on buying a home without an agent and is now very interested to do so (we would hire an attorney to represent our legal interests in this case). With commissions to the buying agent at 3%, we could potentially save $45,000 by not having an agent. 

We don't need many of the services that an agent can offer as we can find our own home, we can attend our own open houses, we don't need handholding, etc. Paying someone $45,000 simply to present our offer and negotiate the deal/paperwork seems ridiculous. Has anyone gone this route and how did it work out? Alternatively, are there any agents who work on a flat fee or who work for, say, a 1% commission (that's still $15,000 in our scenario)? We're open to paying an agent or attorney a reasonable fee, but would like to get away from the traditional compensation model. Any tips and advice would be greatly appreciated! Thank you! 

Just as an aside, we are planning to use an agent to sell our home in Oakland. I can see the benefit of using an agent on the sell side of the transaction more than the other way around. East Bay Mom 

The next question is how much more can East Bay Mom's (EBM) husband (H) be earning than he deserves if he is so unaware as to believe he will save money just to negotiate a sales price and shuffle a few papers.

First, the seller pays the commission. EBM & H would therefore have to look only at FSBOs to deny an agent the commission. How then would EBM & H know whether the asking price was in line with the property's value? It's not uncommon for FSBOs to price property 30% or more above their value. Then too, they would be limiting their search to 11% of the available properties on the market.

What if EBM & H do look at agency listed properties? The agent they contact will represent the seller, and get the whole $90,000 commission without doing more than making sure the seller gets the best end of the bargain and shuffling the paperwork—and without even holding her hand. Is that "fair?"

In the decade (plus) that I have been in the business, I have encountered numerous professionals with decades of experience who seem not to know what they are doing. Nonetheless, EBM & H would do well to follow the advice the respondents posted to her post, and find a buyer's agent—and find one who has earned the ABR® designation.

Tuesday, April 26, 2011

How To Sell Your Home Without a REALTOR®!

Our times, as Dickens put it, "was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness. . . ." Even in the best of times, it was difficult to fault a home owner for wanting to sell their home without a REALTOR®. Today, many home owners find it necessary to do so just to cut their losses. Few know what is in store for them though, and fewer still will succeed.

The reasons so few owners successfully sell their home are manifold. The reasons begin with owners not realizing that they are in the business of selling real estate, and that it is as competitive a business as any they can imagine. The next reason is that they go into business without a workable plan, which is to say that they plan to fail. There are also at least 15 pitfalls that they fall into, and even the difference between success and failure is not cut and dried. Even the 20% of sellers who succeed in selling their home by owner very often net less than they would had they used and agent.

Many believe that the Internet is the ultimate source for information, and place their faith in being able to learn how to sell their homes by owner by searching for information online. They will certainly find a lot of free information. As good as the advice they find may be, none of it will help, because none of it includes a marketing plan.

The available advice comes primarily from three sources, real estate professionals who hope to ingratiate sellers who will list with them when they fail, out-of-their-element journalists who seem to get their advice from the agents, and the FSBO dot coms—which have a laundry list of ulterior motives for wanting sellers to believe that their Web site is the silver bullet that will slay the werewolf of failure.

If you are interested in selling your home without a REALTOR®, does it make sense to go into the real estate business without a well thought out plan? Today's market is the most competitive in history, and especially so for the luxury home market.

Selling Your Home By Owner is a proven marketing plan that could well reverse the stats for owners who want to sell a home without a REALTOR®. This eBooklet provides everything you need to know about selling your home by owner, and the tools you need to do it:
  • Marketing advice to help you maximize exposure of your home to the market.
  • A marketing plan that can help overcome the odds against success.
  • A marketing strategy to help you maximize your net proceeds.
  • In-depth tips for successful selling.
  • Industry insight to the FSBO dot com marketplace.
  • A title Insurance rate chart.
  • The required legal disclosure forms.
  • Spreadsheets for calculating seller net proceeds and buyer closing costs.
Go for it—and good luck!

Monday, April 11, 2011

Internet Searches for Homes for Sale

The Internet is the ultimate source for information, right? Well, not if you heed the warnings. Whether you get your news, history or political information online, Internet experts all caution that the volume of information does not equate with quality, and searching for homes for sale online is no exception.

Useful though it may be, the Internet super highway just provides another street for buyers to cruise down, and some are dead end streets. I make contact with at least one buyer each week who found a property listed on Zillow, Trulia or some other popular Internet search site—and discovered that the property was sold, expired or withdrawn from the MLS. From time to time, I have also had to tell buyers that the home they found on was no longer available.

The reasons that the information is out of date is simple. MLS listings are syndicated to these various Web sites, or they are IDX feeds and each is updated only periodically. Even the San Antonio board of REALTORS® MLS Search is not updated in real time. It's updated only every three days, and the current status of listings that are new or have expired will not show in the search results.

There is however one online search for consumers that has real-time access to the most current information in the San Antonio MLS. That would of course be the search available to member agents. Our search also includes over 160 parameters for the search, which can whittle down that list of 60+ properties that may turn up in another search by finding only the properties that have precisely the features a buyer wants.

Internet searches give consumers a false sense of empowerment, and real time results is only one of the advantages of having an agent who is working to meet your wants and needs. In addition to freeing up the time spent searching on your own, not seeing those properties that went on the market two or more days ago, and following up on those that are no longer available, there is another advantage you may not have considered. When you contact the listing agent for a property, that agent represents the seller. Agents in states that allow buyer representation will be working for you, and representing you in the negotiations, not the seller.

Not only is a buyer's representative the best source for real time information, but also for other information that a seller's agent cannot provide. Critical information, like days on the market, an opinion of value, a negotiating strategy and insights to a seller's vulnerabilities that only an agent is likely to be aware of is available only through your buyer's agent.

Wednesday, April 6, 2011

How to Find a Good Buyer's Agent

Real estate agents come in all sizes, shapes and levels of competence, and a truly good agent is the most valuable resource a buyer has. Most answers to how to find a real estate agent can lead you far afield from what really matters. Little about real estate companies differentiates one agent from another, and there is no "department of real estate" that rates agents. Knowing what differentiates a truly good agent from the rest is something of a mystery, and there is no good advice online that will help, unless you found this.

The advice typically comes from two kinds of sources: Advice from agents whose advice addresses their strengths, and; Advice from well meaning "authorities" with little real understanding of the business. One of the later group is posted on the Freddie Mac (acronym for Federal Home Loan Mortgage Corporation (FHLMC), a secondary mortgage market participant) Web site. Let's deconstruct their advice to see just how comprehensive it is:

  • How long has the real estate agent been in the real estate business? —Most agents who cannot make a success of the real estate business spend less than two years in it. Most of the rest are at least successful enough to have stayed with it. Most real estate agents who make a success of the business are personable and have social networks that have sustained them, or work hard at prospecting. Neither of these makes their experience a measure of competence. In fact, many never learn more than the agents who got out of the business within their first two years. In example, in just the past year:
    • My buyer's were able to renegotiate a contract when the inspection revealed that the seller, a licensed agent with 7 years experience, neglected to reveal having made repairs to the roof, and treating the property for termite infestation. In addition to a hefty price reduction and buyer incentives, my buyers got a new roof, termite treatment and repair to the foundation (there had been some settlement.)
    • A listing agent for a short sale property with 14 years experience asked whether my client would like to purchase any of the furnishings in the home—after the seller had agreed to the offer, and the contract had been submitted to the lender for final approval. When my buyer expressed an interest in some of the items, the agent insisted on adding the furnishings to the contract. This position was potentially disastrous for both my buyer and her seller. The short sale period was to expire in under 30 days, and renegotiating the contract risked both my buyer's position and that of the seller. My buyer had the cash, but was buying up to her qualifying limit, and we risked having the loan disapproved. Also, adding the cost of the furnishings to the contract would likely have meant that the listing agent's seller would not receive any of the funds paid for the furnishings. The agent ignored my objections, and argued for a good five minutes—pointing out her vast experience several times.
    • Another buyer was able to renegotiate a contract and get a new roof in addition to a significant seller contribution to her closing costs when the listing broker (with over 30 years in the business) revealed that the seller had had an inspection on the roof at the time it was listed—but had failed to disclose the inspection.
Experience matters, but it is not always a good measure of competence—virtually everyone knows someone with years of experience who still does everything wrong.
  • Is this person a full-time agent? 
This may be some of the best advice Freddie has to offer, but the experienced agents mentioned in the preceding remarks were full-time agents.
  • Is the real estate agent familiar with your preferred community?
Agents who have been in the business will likely be familiar enough with the communities in their market area to serve buyer/clients well. It is far more important that the agent not be so complacent about their knowledge of a community that they not research a chosen community for each individual client.
  • How many homes has the real estate agent sold in the past year?
An agent who has sold 20 homes in the past year, but never quite got it right will not serve a buyer any better than an agent who sold five homes and got it right. Many agents also specialize in listing homes for sale, but also take on buyers. Assume that one such agent sold 15 of their listings, helped three sellers find their next home and served two more buyers who had come to an open house. Should their "sales" count? See the remarks for the question, "Does the real estate agent usually work with sellers or buyers? "
  • What's the average sale price of those homes?
This question is not likely to be helpful. Averages make interesting statistical measures, and can be useful for some applications, but not for selecting an agent. Consider the following scenario: An agent who sold 11 luxury homes priced over $500,000, and five investment properties priced between $35,000 and $80,000. How would  this agent's average sales price of $533,000 disqualify them from any price bracket?
  • Does the real estate agent specialize in homes in your price range?
This is a rephrasing of the last absurd question.
  • Does the real estate agent usually work with sellers or buyers?
There is something to be said for specialization, but not as specialization relates to an agent's suitability to serve a buyer. Good agents will have learned something from both sides of the transaction that will be useful to serving the needs of buyers very well. The relevant exception is a listing agent. Listing agents need a special set of marketing skills that the majority of agents lack, which likely makes them better buyer's agents as well.
  • How many buyers is the real estate agent presently working with?
This is another valid question, but, like the rest, needs context. The context would be the buyer's time-table. Out of town buyers shopping in advance or someone who has a lease expiring in a month or two would need an agent who can help them now.
  • Is the real estate agent acting as an exclusive "buyer's agent, meaning that they work exclusively with people like you who are interested in purchasing a home, as opposed to property owners who are selling a home.
Here's another question that just rephrases the preceding question about whether the agent usually works with sellers or buyers.
  • How many sellers is the real estate agent presently working with?
This question asks about the other side of a preceding question, and crosses over into two other questions. The author must really have been trying to compile an impressive list of questions. It also lacks context, and no valid context that would be helpful to a buyer comes to mind.
  • What are the real estate agent's strengths?
This question really needs context, but also needs guidance about how to determine what those strengths may be. Buyers need an agent who is detail oriented enough to identify anything that might provide them with an advantage in the negotiations, and who has well honed negotiating skills.
  • Will the real estate agent offer you 3 homebuyer references?
This question is not likely to be very helpful. Most of the testimonials an agent may receive from buyers address relatively superficial aspects of their relationship, and few buyers are qualified judges of an agent's expertise, or likely to be aware of any deficit in the agent's competence.
  • For how long will the agent's contract with you be valid?
This question needs context, badly. For how long a term should it be valid? I'd suggest that buyers negotiate the term if they are not comfortable with what the agent offers.

Some online advice stresses the importance of personality on the premise that a buyer will be spending significant time with the agent. This is not bad advice, but it has limited value. Buyers should of coourse not select an agent with whom they form an immediate dislike, but factors related to competence are much more important.

What Questions Should A Buyer Ask?

The following questions address my strengths, like the online advice of other agents, will likely be more helpful in determining an agent's competence.
  • Have you earned the Accredited Buyer Representative Designation (ABR®)?—The ABR® designation is among the most difficult to attain. It requires both coursework and proven performance, and is held by fewer than 10% of agents. The coursework includes procedural details and strategies not taught in other courses, and no other professional designation is a better indicator of competence as a buyer's agent.
  • Do you provide an initial counseling session?—Whether a first time buyer or an old hand at buying and selling real estate, this is important. Well informed buyer make better decisions. The market is in constant flux or may differ in significant ways from markets with which an old hand is familiar. buyers should look for agents who recommend earmarking at least two hours for this initial counseling session. The session should cover routine and legally required advice and warnings, the market, financing, the buying process, buyer expectations, post-contract process and time-table, and the closing. This is also the time for buyers to ask any questions they want answered before looking for a home.
  • Do you recommend a mortgage lender?—Most agents have a mortgage loan officer they like to work with. The lender is usually competitive, and the loan officer knows that any future referrals from the agent will hinge in the quality of service they provide for that agent's clients. The agent should however recommend that the buyer shop around for financing on their own.
  • How has your attention to detail benefited your clients?—Like the examples in the comments about experience (above), an agent should be able to relate how they were able to leverage the negotiations in their client's favor.
  • Do you specialize in serving buyers or sellers?—This is a trick question. If the agent answers, "buyers," without addressing how their experience with sellers has helped them become a better buyer agent, I'd hold the answer suspect. Specialization is generally more important to the agent's business development than to the interests of their clients.
  • How many years have you been a real estate agent?—You should want to find an agent with at least two years experience and who has earned their ABR®, but not dismiss an agent with less experience who has earned their ABR®.
Regardless of the size, shape, personality, experience or any referral by a friend or acquaintance, competence is the criteria a buyer should look for in an agent who will represent them. In the end, you may never know just how competent your agent was. Hopefully, it will be because everything went so well that nothing about the transaction seemed to go badly. Still, it will be unlikely that anyone, even a good agent, would know that anything could not have worked out better. Armed with the right questions, a buyer can at least expect things to go as well as possible.