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In Defense of Buyers’ Agents

This came into the comments section of this post yesterday, from Joshua Ferris:

What type of services do you expect a buyer’s agent to offer in order to create a “real value”?

Thank you, Joshua, for the set up! Timing couldn’t be better; there seems to be a confluence of events. Redfin has apparently duped a new round of investors (“Honest! It’s the last time I’ll ever need funding!” is the fourth great lie); Redfin is capitalizing on what seems to be an emerging anti-realtor trend; and I had more conversations with local realtors yesterday who are getting “I’ll only deal with the listing agent!” sign calls.

I wondered if there was anything that was helping drive it, so I just Googled “How to buy a house” and found this site:

“Real Estate Agent” Is Just Another Name For “Salesperson”
Don’t ever lose sight of that fact. Their only mission is to sell, sell, sell to YOU. Don’t ever let on that you are in a desperate situation, or that you need to sell a house fast to pay for emergency bills, or that you are in a desperate crunch to buy this house now, because you are being transferred into town this week. It’s simply none of their business and as far as they are concerned, you are not in a rush to buy a house.

Excellent. What good could possibly come from telling your agent how quickly you need to buy or sell?

HouseBuyingTips.com Buyers Warning
One of the biggest mistakes many home buyers make is assuming that their “buyers agent” is working for them. They could not be more wrong. Also, never let a real estate agent choose your attorney. You must choose your own attorney, not one with a cushy relationship to the salesperson who is trying to sell you a home.

Punctuation is oversold, and non sequiturs simply don’t deserve that negative reputation…

If you are buying a house instead of selling a house, you really don’t need a real estate agent.

When the Carnival of Praetorian Cranks Posing as Something They’re Not is launched, this guy — Jeff Ostroff — will win every week. He’s apparently an engineer by training, is an affiliate marketer who owns eight other ‘how to’ sites, makes his money here by driving clients to homegain.com, couldn’t land a gig writing for a middle school yearbook, and certainly couldn’t effect a successful real estate transaction. A consummate fraud.

But he Googles number four.

So, Joshua, in answer to your question; for the benefit of Redfin idolaters, for anyone silly enough to buy into this, and in the off chance that this is helping drive buyers to assume buyers’ agents are worthless, let’s put some nonsense to rest.

The fundamentals:

  1. The free market rests on the capitalization of self-interest. Every business decision an agent makes takes into consideration his or her interest above all others.

    That, of course, is the point at which superficial thinking stops. I do what’s best for me, ergo whatever brings immediate gratification. But:

  2. Good agents know their greatest long term interest, by far, is in serving the interests of their clients. Not just because fiduciary responsibility is codified in the rules of agency, code of ethics and statute — and certainly not because of any altruistic bent — but because taking excellent care of customers means more customers.

With that in mind, here’s what to expect from a good buyers’ agent:

  • Knowledge. An agent is paid not just for what he does, but for what he knows. About the market, the neighborhood, potential local problems, financing, people, construction, the law.

    And it’s not just in the knowing, it’s knowing how to apply it.

  • Duties:
    • Education. Good agents don’t sell, they inform. With every buyer — first time or tenth time or investor — I sit down and go over the entire process, from pre-approval to close, outlining our respective roles so he or she knows what to expect before it happens. I subscribe to a map-based listing service that will email specific neighborhood listings to buyers each day, or narrowed listings within an hour of their going into the MLS; they’ll have a good idea of the market before we ever get in the car. I’ll give them any and all information they want, including commission splits. Educated buyers make their own best decisions.

    • Observation. Listening is nice, watching is better, both ideal. I get more information in ten minutes face to face than a year of emails and questionnaires. What people say they want and what they end up buying are often far apart. When we tour, instead of puffing the color of the carpet, I’ll follow, watch and listen. Usually by the end of the fifth house, always by the end of the tenth, I can be their eyes; like most agents, I often know it’s the right home before they do.
    • Negotiation and the writing of an acceptable, binding contract. Redfin’s claim to the contrary, good agents know what will work, what won’t work, and how to make what won’t work, work. Contingencies are balanced against price, motivations are weighed, the contract is written, then the agent will present the offer to the seller in person. If necessary, there can be lengthy negotiations through counter-offers. The result is not only better contract terms for the buyer — or the fact that there’s a contract at all if there are competing buyers — but, done right, there’s a sense of cooperation and a smoother transaction to close.
    • Hands on during escrow. Especially in this market, finessing to close is the biggest job an agent has. Setting up and interpreting the inspection, then negotiating terms; constant communication with the buyer, who can otherwise be an emotional wreck; constant communication with the mortgage broker, some of whose lenders don’t seem to understand the concept of “time is of the essence”. Problem solving, both small — I just spent a half hour on the phone trying to track down the account number of a line of credit my buyer had never used — and large — the lender who folds two days before closing. My bet is every agent here could write a book on the hurdles he or she has had to engage to get a buyer through a transaction intact.

Note: There is no financial quid pro quo in the hiring of a buyer’s agent. While the agent may save a buyer enough to pay his or her own commission, and while settling of home prices will be reflected once commissions are divorced, the buyer is still paying as for the purchase of any professional service: the saving of time, anxiety, and a de facto policy against future liability. Not everyone needs that service, but most do and the cost is well, well worth it.

Incidentally, with the sudden enormous increase in buyers demanding to work only with the listing agent, I’ve yet to hear of one who’s actually bought anything…

Related posts:
  • Time Really is Money
  • A premium appeal for Vlad Zablotskyy: If you’ll give $200 to his defense fund, we’ll give you a set of BloodhoundBlog Unchained DVDs
  • The seller really pays for the buyer’s agent? Definitely not when the buyer pays out of pocket. But what if the buyer really did pay for the buyer’s agent from the buyer’s side of the HUD-1?

  • 11 comments

    11 Comments so far

    1. Chris July 19th, 2007 6:36 pm

      This article is timely because I was just having a conversation about this today. In my city FSBO’s are listing with agents in droves, and it seems like every buyer that walks into one of my open houses is in a buyer broker contract. Not to mention that commisions are going up, 6% is becoming far more commen place.

      SO what gives?

      I think people are realizing that in this market you actualy have to work to sell a house. You can’t stick a sign in your front yard and sell it for some crazy price the next day. Buyers are a bit different, I think most are confused. There is a lot of inventory and it seems some just get overwhelmed. They try to look at everything and you just can’t do that. Others are scared of paying to much and want to be assured they are not.

      I don’t know if its just me, but thats what I am noticing. I’m not to worried about these discount guys, they have been around in one form or another for a very long time. But one thing is constant they are always broke.

    2. J. Ferris July 19th, 2007 8:27 pm

      Look at that… my name up in lights. Imagine my surprise when I opened my RSS reader today. :P

      Jeff, I agree with everything you’ve written but I think it warrants noting that buyer’s agency itself is still in it’s infancy and is still tethered to it’s origins of subagency with the sellers paying the commission to the buyer’s agent.

      Shortly after I first started reading BloodhoundBlog I read one of Greg’s posts about divorcing the commissions and I didn’t agree with it right off the bat. It may have been fear or insecurity about presenting a buyer with the fact that if they wanted representation then they would need to pay a commission or just the plain fact that any change, let alone commission reform, is uncomfortable in the beginning.

      I don’t know why I hated it initially but the more I read about it the more I’ve grown to like the idea. There would be a tremendous amount of benefits for buyers paying the commission including an outline of services and competing with other buyer’s agents to offer a superior service. Right now there is no incentive to be a better buyer’s agent nor is there a basis for comparison as to what one SHOULD be. That is the inherent value of “free”! It’s no wonder people are seeking out listing agents.

      But a las, even if it did become a possibility NAR would certainly wet it’s diaper if the buyers in control of the market opened up their eyes because it would shake a lot of wannabe agents out of the tree and cut down on their profits which means I sincerely doubt they would support it. Otherwise who would give money to NAR so they can spin off Home Store/Move.com into a mega corporation that we never see profit sharing from to help reduce our already outrageous Realtor fees? A topic for another post I guess.

      To support my own theory consider this: If Jack and Diane Buyers wanted to purchase their first home and had to pay a buyer’s agent for representation I don’t think they’d be so willing to use Aunt Joanie who does one or two sales a year.

      The biggest concern I’d have (which may or may not have been addressed so feel free to link me in the right direction if it has) is the listing agents baiting the buyers into “paying less commission” by utilizing dual agency. I don’t think the listing agent would represent the buyer for free however so I could see them charging 1% – 2% for buyer representation + the 2% – 3% charged to the seller for representation all the while enjoying the liabilities and lack of fiduciary duties in dual agency. How would you stop it? I can only imagine how well outlawing dual agency would go over!

      P.S. – Is anyone else now thinking of ways to outrank this guy on “How to buy a home”?

    3. Cave Spot July 20th, 2007 4:19 am

      Many home buyers have been convinced that they need to use a buyer’s agent to purchase a home. If you are somewhat comfortable in the home buying process, purchasing without a buyer’s agent is a viable option that can save you thousands of dollars. Here is an article on saving thousands of dollars to purchase without a buyer’s agent.

      http://www.cavespot.com/forum/viewtopic.php?t=389

    4. Eric Ransom July 20th, 2007 7:48 am

      Kudos for your comments. I work with both Buyers and Sellers and know what it takes to be a true real estate professional. How could you expect to generate long term referral business if you looked out only for your own interests? Our business is about relationships and being a true fiduciary for our clients. Our experience, education and market knowledge is of huge value and we must not forget that. You really do get what you pay for and we have a list of people whe have happily paid our fee and would do so again for the services we provide.

    5. Jeff Kempe July 20th, 2007 8:08 am

      >I don’t know why I hated it [divorced commissions] initially but the more I read about it the more I’ve grown to like the idea.

      That typifies the reaction I’ve heard, Joshua, the reason I think it’s going to happen, likely sooner than anyone anticipates. We ARE still living under the vestige of sub-agency, and that opens the entire industry to valid criticism.

    6. Kris Berg July 20th, 2007 8:23 am

      >The biggest concern I’d have (which may or may not have been addressed so feel free to link me in the right direction if it has) is the listing agents baiting the buyers into “paying less commission” by utilizing dual agency.

      Baiting the poor buyers? Please! Our workload has increased five-fold due to the time we spend letting the poor, unrepresented buyers into our listings. Their first question before we have passed the threshold? “How much will you give me?” In my market, I do not see any dual agency scheming going on. On the contrary, we are practically begging buyers to get their own representation. But, from their perspective, where’s the fun (and the money) in that?

      Jeff – Your link to this most helpful consumer site was just the icing on my cake this week. I’m speechless.

    7. Jeff Kempe July 20th, 2007 8:43 am

      Cave …

      There’s no question that some people are capable of representing themselves when buying real estate, but your advice is nearly as bad as the site I linked.

      The notion, for instance, that the sold/listed ratio of any given MLS is indicative of an agent’s ability to negotiate is absolute nonsense. It likely doesn’t take into account homes that have been relisted at a lower price, certainly doesn’t take into account negotiated seller-paid closing costs, and is averaged in with homes that sell OVER list.

      To wit: I worked with buyers who, after a year, found a home they loved. It had begun life at $412k, was relisted at $399k, the buyer said she wouldn’t pay a dime over $385k, the comps came in at $375k. It took three weeks of negotiation and walking away from one seller counter, but it closed last week for $370k with $5000 in seller paid costs, net $365k. Note that shows up in the numbers as 7.5% off list, when in fact it’s 11.4%.

      Incidentally, NEVER did the amount of my commission factor into the equation. The $500 I could have made by writing the offer for what the buyer wanted to pay is more than made up in their condo that I just listed (and sold)…

    8. Jim Duncan July 20th, 2007 8:48 am

      Excellent post, Jeff. You’ve hit all the salient points for buyer-brokerage, divorcing the commission and the need for true professionals and professionalism.

      More agents need to recognize and explain their value to clients rather than copping out with “the seller pays!” We have a long way to go.

    9. Charleston Real Estate Blog July 20th, 2007 8:50 am

      In defense of buyers’ agents, choose wisely…

      Jeff Kempe, winner of last week's Carnival of Real Estate with his thoughtful post on Divorced Commissions,…

    10. J. Ferris July 20th, 2007 7:32 pm

      Baiting the poor buyers? Please! Our workload has increased five-fold due to the time we spend letting the poor, unrepresented buyers into our listings. Their first question before we have passed the threshold? “How much will you give me?” In my market, I do not see any dual agency scheming going on. On the contrary, we are practically begging buyers to get their own representation. But, from their perspective, where’s the fun (and the money) in that?

      Jeff – Your link to this most helpful consumer site was just the icing on my cake this week. I’m speechless.

      What I’m saying is that buyers, no matter how much of a pain in the ass they may be, will haphazardly go with a listing agent who offers them $500 or 1% off if they don’t use a buyer’s agent. It’s for their own benefit that they have a buyer’s agent which you agree with but if they see that they have to pay 2% – 3% to use one will they still make the right decision? I don’t doubt for a second that listing agents would charge to enter dual agency and I’m surprised that you were up in arms over the idea of baiting buyers. I agree that they are a pain but if you’re double ending a deal and getting paid the full commission then isn’t it worth it?

    11. Frank Borges LL0SA- BLOG.FranklyRealty.com July 23rd, 2007 10:40 am

      That site you linked too… did you know that you will be helping them get MORE traffic because Google will count that as a link, and give that site MORE exposure. Maybe link to it like this: “Remove the spaces: ‘house buying tips’ and add: ‘com’”