Monday, November 13, 2006

Buyers Who Don't Want A Buyers Agent

by Osman Parvez


If you're thinking about buying real estate, I recommend reading "Buyers Who Don't Want A Buyer's Agent", from Searchlight Crusade. The author is a mortgage broker who writes and thinks as a consumer advocate, explaining "the system" as he likes to call it.

I've been reading his pieces for over a year and am impressed. His latest article nails it on the head for why you should get a Buyer's Agent if you're in the market for a home.

Dan writes,

"Buyer's Agents will make more difference to the sales price - not to mention the quality of the property you end up with - than any reduction in price you might get by agreeing not to use one. They're out there in the market all the time. They know the market you're in, and they know the tricks in ways that you, the buyer, are not going to equal, unless you spend the time it takes to learn everything they know. And unless you're a buyer's agent yourself, you pretty much can't. You've got your own living to make. What are the chances they could do better than you at your profession? The odds are not good; Even if they have the book learning, they don't have your experience."
Remember, finding the house itself is only a small part of the process of buying a home. When a buyer likes a house and wants to put in an offer, we roll up our sleeves and really get to work. What does that mean?

It means we (1) search for comparable sales (2) review the history of ownership for the property, (3) analyze all data for recommended valuation (4) advise on negotiation strategies, (5) structure the offer for maximum benefit and explain key components of the contracts, (6) negotiate on the buyer's behalf, and (7) advise the buyer on relationships with key parties involved in the deal (lenders, title companies, building inspectors, and more).

Don't discount the last item (#7). Given the massive impact of toxic, or so called "suicide" mortgages in Colorado and the high level of deception/fraud in the lending industry (read Dan's blog for more details), finding a lender you can trust and one that offers you a great deal is far from easy. We work with lenders every day and can help buyers get the best deal.

I recently took a continuing education class with real estate legal guru Oliver Frascona. He shared a story of a Latino family that had been duped by their lender into paying obscene fees on a loan with a ridiculous interest rate, and that carried massive prepayment penalties. How did they choose this lender? He was of the same ethnic background, spoke their language, and so they trusted him. They're now in foreclosure.

As buyer's agents, we act as advisors and work to help a buyer get maximum value, minimize risk, and reach their goals. When you pick up the phone and call a listing agent, as Dan rightly points out, you are dealing with the seller's representative. The listing agent is the one who (as Dan writes),

will use high pressure tactics, convince them (the buyer) that this property is the one they want even if there's better stuff out there cheaper, and trick them (the buyer) into signing on the dotted line
Do yourself a favor and consider a buyer's agent who thinks like Dan and works from the perspective of a true advisor, not a salesperson. You'll save time, money, and maybe even from making a big mistake.

If you have comments or questions, or would like to know more about how we work with clients as buyers agents, feel free to call me at ph: 303.746.6896.

p.s. while you're on Dan's site, be sure to check out his archive of articles. Great stuff.



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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

7 comments:

  1. In what States are buyers' agents permitted?

    Do they receive all their compensation from the buyer or does part of their compensation come from others (e.g., lenders)?

    In State that license/register mortgage brokers, must they be registered?

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  2. Great questions.

    In Colorado and Massachusetts (where I've practiced real estate), the seller typically compensates the buyer's agent and the listing agent. That's why in the past, I've called buyer agency the best deal in real estate.

    It's the contract between you and your broker which specifies how the broker will be paid. It *is* possible for the buyer to be responsible for the commission, but that's fairly uncommon. Ultimately, you need to read your contract carefully. Be sure you understand and are comfortable with the arrangement.

    In this region of Colorado, the vast majority of sellers offer 2.8% to the buyer's agent as a matter of course. You'll find this printed on MLS listing sheets and your agent should disclose it to you as well. Some sellers are offering more than 2.8%.

    As for mortgage lenders, it also varies by state. Although Colorado has fairly stringent real estate agent licensing regulations, it also has some of the weakest lender regulations in the country.

    Feel free to give me a call (ph: 303.746.6896) if you'd like more information. If you're not in Colorado, I'd be happy to help you find someone knowledgable in your state.

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  3. In this region of Colorado, the vast majority of sellers offer 2.8% to the buyer's agent as a matter of course.

    Why on earth would anyone listen to an buyer agent that is incentivized to maximize the sale price?

    Until there is a defined incentive for the agent to get the lowest price possible, buyers are going to continue to migrate away from agents.

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  4. This comment has been removed by a blog administrator.

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  5. Another great comment. I've elevated my response to a new post.

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  6. In rejoinder to Osman's reply that the seller typically compensates the buyer's agent, I think having the seller pay the buyer's agent may defeat the whole purpose of having a buyer's agent.

    I think it turns on who chooses the buyer's agent. You need the buyer's agent to understand that he or she was chosen by the buyer in order to pursue the buyer's interest. Also that if the buyer's agent wants future business and/or referrals he must please the buyer.

    In New York State the buyer chooses his or her mortgage broker but that mortgage broker often selects the appraiser, lender, and title company.

    Accordingly, the appraiser, lender, and title company know they have to please the mortgage broker not the underlying customer if they want future business. Also the lender and possibly others may pay the mortgage broker a YSP, so the appraiser, lender, title company and mortgage broker work against the interests of the underlying customer.

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  7. Anonymous,

    In Colorado, the buyer does indeed chose their agent. The Buyer's Agent is under a fiduciary responsibility to the buyer, meaning he is obligated to be a champion of the buyer's interest or he can lose his license as a real estate broker.

    As a professional, a broker will be focused on developing a long term relationship with a buyer to, as you mentioned, develop referrals and ensure his client is satisfied with the level of service provided. As a Colorado broker, I've never felt ANY obligation to the seller, even though he may be ultimately paying my fees as a buyer's agent.

    The buyer is free to work with any lender he chooses. That lender will most likely designate the appraiser, someone they trust. However, the seller will determine the title company. Any financial incentives beyond a fee for service is illegal.

    New York most definitely sounds like an interesting state for real estate!

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