Exclusive Buyer Agent talks about negotiation
Exclusive Buyer Agent talks about negotiation
I came upon a blog discussing the topic of buyer agents charging retainer fees. While there are some that are totally against paying retainer fees to a buyer’s agent, there are others who understand the circumstances that would make the payment of a retainer fee valuable when it comes to retaining the services of a dedicated buyer’s advocate.
Here is my comment:
From a buyer’s perspective, I would want to know the buyer agent’s policy regarding retainer fees before passing judgment. How will the agent or broker treat the retainer fee? Will they be returning the fee at closing, or will they be keeping the fee no matter what?
The answer to this question–in addition to the agent or broker’s reputation–can determine whether a retainer fee is worth paying. Because, if a buyer’s agent makes it clear that the retainer fee will be returned at closing, applied towards an appraisal, credited towards closing costs, etc., then one can safely assume that this agent or broker is only charging the fee to make sure that they are dealing with serious people; because, they only get paid when a transaction closes. They need to know that they are giving their best and dedicating their time, energy, and resources to serious clients only.
It is reasonable to assume that any employed person expects compensation for the work they do regardless of industry and regardless of whether they are on a salary, hourly wage, or any other form of compensation. How many here would go to work without the assurance of receiving a paycheck?
A good buyer’s agent–especially, an exclusive buyer’s agent with a good reputation for being a steadfast advocate for the buyer–is worth paying a retainer fee. When it is in writing that the fee will be returned upon the completion of a designated event, then this is a good indication that the agent or broker is not trying to “get rich” from charging retainer fees. Instead, they are merely looking for the assurance that they are dealing with serious people.
I work on retainer in my own real estate practice. However, I do not keep the retainers that I collect. Instead, I return them upon the completion of a designated event, which is ALWAYS in writing. I should also note that repeat clients NEVER have to pay retainer fees a second time and neither do the referrals they send my way. I am very dedicated to my clients’ satisfaction. Their happiness means everything to me and I always give them 1000% of myself to inform, shield and protect the strength of their negotiating position. This alone substantiates the value of paying a retainer fee for my service–a fee that I return to clients in the end, which they do not have to pay a second time.
The opening lines of a news article in the SeattlePI reads, “Marty Ummel believes she paid too much for her house. So do millions of other people who bought at the peak of the housing boom.”
With real estate values plummeting in some parts of the country, and as the mortgage industry tries to restore a sense of order after its meltdown, there will no doubt be chaos and casualties, as the market tries to recover. These events will no doubt have a profound effect on the future of the industry, and the way its participants interact. There is so much upheaval and disarray that some would see it fit to cast a shadow over the entire real estate industry. However, I disagree wholeheartedly, because there are many who conduct their real estate businesses as responsible consultants and advisors.
It is time to raise the bar in the real estate industry. Establishing mutual expectations and responsibilities upfront will go a long way to avoid misunderstandings, bad communication, and bad decisions. While I believe that buyers should be responsible for their own due diligence, it is an agent‘s job to provide enough data and information to enable clients the opportunity to make informed decisions; including where to find expert advice in matters that go beyond the scope of a real estate license.
When the market heats up, agents should advise against engaging in bidding wars, and if a buyer wishes to ignore such advice, it is better to terminate and walk away from the agreement than to benefit from a buyer‘s bad decision. A good buyer‘s agent will advise their clients against engaging in such activities that were prevalent in the last housing boom in Seattle. Many buyers were engaging in bidding wars against each other, agreeing to inflated sales prices, getting into adjustable rate mortgages with very little or no money down, waiving inspection and financing contingencies, and subsequently, driving up the values of surrounding homes.
The key is clear and honest communication. By communicating responsibilities and expectations up front, buyers will understand their responsibilities and agents will understand theirs. This will go a long way to foster trust, confidence, and mutual respect in the end.
"Indeed, an argument can be made that offering a high incentive (locally, 3% or more) to a buyer’s agent is one of the better ways to get the property sold. Not only do many buyer’s agents shop that way explicitly, but if they have an exclusive contract that says 3% (as many do, because their clients aren’t educated enough to know what a crock exclusive buyer’s agency agreements are in the first place, but they’ll also willingly trust the chain agent as to what is “standard”)."
Now the truth:
Speaking for myself, I do not look at commission rates when searching for properties. I look for properties that fit my client‘s needs and wants. Secondly, every exclusive buyer agency agreement should have some sort of a realease or exit clause, if it does not, then buyers should not sign it. Having a release clause means that if either buyer or agent becomes "disenchanted," written notice is all that is needed to terminate the agreement.
Under a non-exclusive buyer agency agreement, a buyer will still be obligated to buy through the agent who introduced the property under contract. An exclusive buyer agency agreement is no different. However, with a realease clause, if no property was found, and the exclusive buyer agency agreement is terminated in writing, then no commission is due. Buyers should review ALL written agency agreements with their attorney. This is how a buyer makes certain that this language is part of an exclusive buyer agency agreement.
Now, going by the “crockery” logic, if exclusive buyer agency agreements are a "crock," then why aren’t exclusive-right-to-sell agreements a "crock," as well–since these two agreements are, after all, equivalent counterparts?
"If the Cooperating Broker’s percentage is lower than what it shows on the buyer’s agency agreement, that buyer will need to come up with more cash to pay their agent, from out of their limited pool of available cash. When that buyer’s agent is in a position to demand 3% whatever property their victim buys, even if they didn’t find it and weren’t involved, that means properties paying less than that aren’t contenders for this buyer’s business, unless they’ve got so much available cash that it just isn’t a constraint, and that is rare."
Now the truth:
First of all, buyers who work with exclusive buyer agents (under exclusive buyer agency agreements) are hardly “victims,” but they are progressive thinkers. Buyers can negotiate exclusive buyer agency agreements to include, for example, language that states the commission earned will be X%, OR the percentage offered by the listing office. Furthermore, a buyer and a buyer’s agent can agree upfront to waive a portion of the commission if the property listing offers a “selling office commission” that is less than what was agreed upon in the exclusive buyer agency agreement. Three percent is not cast in stone.
Admittedly, Melson is very biased against exclusive buyer agency agreements, so his opinions in this matter are not going to be very objective. However, he applies a double-standard when it comes to sellers signing Exclusive Right to Sell Agreements–the equivalent counterpart of an Exclusive Buyer Agency Agreement:
"As I said in Exclusive Right to Sell Versus Exclusive Agency, it is in the client’s best interest to sign an exclusive right to sell, because the agent will have no mental reservations about whether they will get paid if the property sells."
"A better buyer’s agent puts a lower number on a nonexclusive contract, and if they get more, that’s certainly fine with them, but because they have a non-exclusive contract, they don’t get anything if the buyers become disenchanted with them and stop working with them."
Question: Would a seller’s agent consider working this way? Most, if not all, would not. Most listing agents will not offer real estate services to sellers without some sort of exclusive agreement, because they want to be assured that they are not working for free–after all, this is their job. For that matter, would anyone want to go to work, if they knew they might not receive pay; whether it is a real estate job or otherwise? Buyer agents are no different. Melson applies a double standard again. The truth is, buyers who sign an exclusive buyer agency agreement can terminate the agency relationship with their buyer‘s agent, as long as the agreement contains some sort of release or exit clause, and there is no property under contract.
An attorney can advise buyers on how to insert a release clause when negotiating an exclusive buyer agency agreement. A real estate attorney is a valuable part of a buyer’s real estate team.
As far as being locked in, regardless of whether a buyer agency agreement is exclusive or non-exclusive, a buyer will be obligated to work through a certain agent or broker if that particular agent or broker introduced the buyer to the property under contract. It‘s called procuring cause.
"This gives a buyer’s agent with a non-exclusive contract the incentive to find the property that’s a real value to the clients as quickly as possible. I care far less about whether I’m getting two or three percent or something in between on a particular property, than I do about finding the property my clients want that’s within their budget."
Another question–if a non-exclusive contract is such a "value" to buyers, then why is this “value” not extended to sellers, as well? Does this seem fair? Furthermore, any agent or broker who is truly passionate about their profession is going to work hard for their clients, because they want to earn their client‘s trust, loyalty, and future business.
"My incentive is to make the clients as happy as possible so that I do get paid, because if I don’t, I won’t. But the buyer’s agent with an exclusive contract that pays three percent has a different set of incentives, which is another reason I advise strongly against signing exclusive buyer’s agency agreements, and the existence of such creatures is the reason why it may be a good idea for sellers to offer a higher percentage to a buyer’s agent."
Now, the truth:
The choice of working on an exclusive or non-exclusive basis is not a matter of right or wrong, but a matter of preference–for example, a real estate investor may require minimum service and no guidance from a buyer‘s agent. These types of buyers are usually very experienced with many years of real estate investing behind them, they typically have long-term banking relationships established, and because of this, their financing is often times readily available. These types of buyers know exactly what they want, and exactly what they need. In this case, a non-exclusive buyer agency agreement might work best for them. However, buyers that need or prefer to have more assistance and advocacy on their side are better off working on an exclusive agency basis, because this agency option offers full buyer support at every step.
Therefore, it depends on a buyer‘s particular situation which form of buyer agency works best for them, but regardless of the chosen form, all agreements should be reviewed by an attorney before signing them around.
This agent wrote a hypothetical scenario of how he goes about critiquing a property. He did this by using a one-sided role-playing monologue to show how he works. Once he finished his one-man monologue, he started to explain the generic "benefits" of working with him, and then went on to make the assertion that in order to work with him, he would require a non-exclusive buyer‘s agreement–along with his interpretation of the "benefits" of working in a non-exclusive capacity. The fallacy of his perceived "non-exclusive buyer benefits" will be explored with the use of critical thinking.
Using critical thinking skills, a person has to wonder if this agent would work in a non-exclusive capacity with a seller–and if not, why? After reading his web site, it has been found that he does not work with sellers on a non-exclusive basis; most listing agents do not. A good listing agent will go the distance for the sellers they exclusively represent. Does a buyer not deserve to receive the same level of service that a seller would receive? Why should buyers be treated any differently? Does this Realtor not understand that exclusive representation for buyers is only fair, considering the level of service and representation sellers have traditionally received for over a century? Why should consumers receive anything less as a buyer than they would as a seller, because a seller will usually become a buyer at some point in the future?
Lastly, this agent claims that it’s only fair that buyers work through a non-exclusive agreement, because they are free to work with whomever they want. However, the decision to work under an exclusive agreement–or a non-exclusive agreement–is not a matter of fairness, but instead, a matter of buyer preference; because it depends on the level of service that a buyer wants to have. Buyers must decide for themselves whether they want to be treated as a client, or treated as a customer. As a client, buyers demand and get the best level of personal service from the professionals they work with, while buyers who are only customers are satisfied with–or are unaware of–arms-length transactional-based service.
An agent who offers transactional-based service is not concerned with the overall buying experience of buyers. Instead, they are only concerned with handling the particulars for the properties they find for buyers, also known as “procuring cause.” Such an agent cannot call themselves an advocate for the buyer, who takes a personal interest in providing a level of service that includes the entire buying experience.
This level of service is the direct result of agent-client relationships that build over time. This keeps clients coming back in the future, because they know they will not be treated as a sales statistic. Such relationships include getting to know clients over time, getting to know their unique situations, getting to know their individual priorities, and taking all of this information into account when creating customized reports based on client needs, related research, compiled market data, interpretation of market trends, and area statistics. An advocate will synthesize all of this important information into a useful and valuable report that will assist their clients in making well-informed buying decisions based on their own unique situations.
“Total existing-home sales —“ including single-family, townhomes, condominiums and co-ops —“ were down 4.3 percent to a seasonally adjusted annual rate1 of 5.50 million units in August from a level of 5.75 million in July, and are 12.8 percent below the 6.31 million-unit pace in August 2006″ (Molony).
According to Molony, Lawrence Yun, a Senior Economist at the National Association of Realtors, said he had expected the decline that resulted from a rise in cancelled and postponed sales transactions; which occurred when loan commitments fell through. This trend is expected to continue through September. However, Molony cited a different perspective from NAR President, Pat V. Combs, when she said that the outlook is actually improving:
“‘Mortgage interest rates have been declining and loan availability is improving,’ she said. ‘Movements to enhance the FHA loan program and to raise the limits for conventional financing could provide additional relief, and it looks like the worse of the mortgage availability problem is behind us…The abundant choice of homes is permitting buyers to better negotiate price and terms. There are good opportunities in the market now, especially for first-time buyers'” (Malony, Combs).
Read full press release: “August Existing-Home Sales Fall on Temporary Mortgage Problems”
"The Tale of Betty Buyer: Betty goes out on Sunday just to get the paper. But while out, she sees an Open House sign in the neighborhood and drops in. The listing agent greets her, and Betty seems very impressed with the place. She tells the listing agent that she lives in the neighborhood and saw the For Sale sign go up a week ago. The agent tells Betty this is the first Open House, and it‘s going really well —“ quite a few people have been in to tour…Betty didn‘t seem to find any flyers outside, and wondered how much they listed the place. The listing agent tells her, and Betty is surprised….—˜WOW —“ I can afford this! I just got qualified online. But, I‘m good to go for $50,000 more!‘…Yeah! It happens just like this. A buyers‘ anxious, nervous energy can get the best of them. They talk too much. Not only did Betty show an interest in the home, but she also told the listing agent she can buy it . . . and not only that . . . but can spend $50,000 MORE!"
Cite Source: “What Buyers Do Wrong” by Carla Muss-Jacobs, EBA in Portland Oregon.
Advocacy means that a professional takes the time to understand what their buyers are looking for, they preview properties to help buyers save time, they look for red flags, and they are supposed to recommend various inspections based on the red flags that they observe. Red flags that may not have been picked up by the buyer–had they gone by themselves. Buyers need to understand that they can negotiate rebates with any buyer‘s agent, but sacrificing advocacy is a big mistake.
One particular virtual real estate company on the web entices buyers with a 75% rebate offer–spreading inaccuracies, as another well-known discount broker has done recently. For example, they say that buyers cannot look at properties on their own when they go with a traditional Realtor, or inadvertently, with a Realtor who exclusively serves buyers only. This is not true. Buyers can arrange and coordinate with their agent on how they should go about looking at properties on their own. The company claims that its‘ agents do not depend on commission, and therefore, not influenced by commission. However, the company itself–which is the broker–does depend on commissions. How else can their business survive?
While the inaccuracies are plentiful, the major drawback of this company is that they do not preview properties and attend showings. Therefore, they cannot point out red flags that can go unnoticed if not picked up by a general inspection. They do not offer buyer advocacy, but rather, send buyers off to fend for themselves with minimal service. Perceived savings can become diluted if something is missed, goes wrong, and a lawsuit results. A buyer‘s advocate will point out red flags and recommend various types of inspections to further investigate potential problems. A buyer’s advocate will assist buyers at every step. Sometimes, a property will require more than a general property inspection, and these specialized reports are beyond the scope of a general property inspection–for example, geotechnical reports, and reports from structural engineers. If an agent does not go to the property, they cannot spot red flags. If they cannot spot red flags, they cannot recommend further investigation.
"A red flag can be anything that alerts you to a potential problem or that just doesn‘t seem right—¦Noting red flags in a transaction may result in the buyer‘s request for repairs, but it is far better than overlooking them, which can leave the buyer and seller vulnerable to a lawsuit, as well as the real estate agents, their brokers, and the general property inspectors." (Nichols p.17)
Barbara Nichols, "The No-Lawsuit Guide to Real Estate Transactions"
Bottom line–there is much more to real estate than searching for properties on the Internet. The Internet is a wonderful time-saving tool for buyers and sellers alike, but it is most powerful when used in conjunction with the full services of a real estate advocate.