Sunday, April 06, 2014

Finding Houses - A Competitive Advantage?

by Osman Parvez
Some of the larger brokerages in town are apparently pitching that they have an advantage by having access to unlisted properties.    Is it truly an advantage?  Not really. 

The Unlisted Sale
The rare unlisted sale
I've been tracking new listings obsessively this season as an effort to help my clients see and evaluate inventory faster.   Occasionally, a property will be listed as already under contract or even sold.   735 Mapleton for example. 

If you dig back through my "Get it Hot" series analyzing fresh inventory, you'll see it's a rarity - probably less than 1%.   Why?  Because it's a huge disservice to the seller and a potential conflict of interest.   

There could be a better offer lurking in the pool of potential buyers.    The only way to find out is to let the open market see the property.

What's a Better Offer?   
Obviously, more money but there are other ways that an offer might be better.   How about removing contingencies like the property inspection?   How about cash and a shorter closing date?    Personally, I like to write my offers so that we deal with a potential low appraisal situation ahead of time - giving my clients a clear advantage over other offers.

Sellers, make no mistake.  If you accept an offer written by your listing agent without letting the open market see it first, you could be leaving a lot on the table without knowing it. 

Pre-sold listings are rare, but what we do see on a regular basis are listings which are put under contract within a few days of hitting the market.   It's a small percentage but it's out there.  This is a lesser disservice but at least, in theory, buyers had a chance at seeing it.   

Buyer Strategy
A strategy worth considering
Get a highly responsive agent and go see inventory as soon as it hits the market.   If you are concerned with being skunked on pocket listings, feel free to maintain open lines of communication with seasoned brokers in other firms.    Let them know you're interested in pre-listed inventory and get on their mailing list.   Even better if you choose a listing agent with a large book of business in the particular neighborhood you desire.   

Don't know who to talk to?   Ask your buyer's agent.   We can look up past sales and tell you who handle the majority of transactions in neighborhood.


Whoa... did I just advise you to not go under buyer agency?   In certain circumstances, yes, it's a strategy worth considering.   I'm not saying you should finish the transaction without a buyer's agent, but there may be some advantage to not signing the agency agreement until you're ready to write the offer.   In a normal market, I wouldn't recommend it but in today's inventory deprived market - you should at least discuss it with your buyer's agent

I don't know about other Realtors, but I'm open to this arrangement and have experience working with it.   Last year, I represented buyers on two purchases who had concerns about missing pocket listings.   We discussed it and decided to not go under buyer agency until they had selected the house they wished to buy.   This allowed them to continue to remain in communication with listing agents from several firms, just in case a pocket listing opportunity arose while maintaining their right to have their own agent. 

One of those buyers ended up seeing the house they eventually bought first with the listing agent (they saw it a day before it hit the MLS), but they asked me to write the offer.    The listing agent didn't even blink an eye when I contacted her with an offer because the buyer had made it clear at the time of the showing that they might seek independent representation. 

In the second case, my client knew about it before it hit the market through his own relationships with a neighbor.   When I contacted the listing agent, she claimed she had another buyer interested in the property and that she had a discounted commission with the seller for representing both sides (a.k.a. double ending the deal).    I wrote a variable commission clause into the contract to neutralize the potential advantage that an unrepresented buyer would have in this scenario and we submitted the offer.   Turned out it was smoke and mirrors, there was no other buyer.   I got the strong impression that the listing agent simply wanted to earn both buyer's agent and listing agent commissions.   

The Bottom Line
Not that bottom line
You're spending a large amount of money on an investment.     Even if the listing agent shows you the house, you should strongly consider getting your own agent - whether it's me or someone else.   Yes, there's a risk of a procuring cause dispute.  Discuss this with your agent, in most cases the risk is minimal. 

Remember... who pays?    You do.   You should get what you're paying for.

Although the commission is already built into the deal, it's funded by the buyer.   Get your money's worth.    

This isn't the 1950's.  The services of a buyer's agent are not only about "finding the house."  In the vast majority of cases, we all know about the listings hitting the market but if anything, early knowledge about pocket listings may give you a little more time to evaluate.  The smart seller (and ethical listing agent) is still going to turn your offer into a first right of refusal and put the property on the open market.   

The Value Add of a Buyer's Agent 
If it's not about "finding the house," what is it about?   Buyer agency is about valuation analysis, negotiating intelligently and supporting due diligence.  It's about helping you make a smarter real estate decision.  Independent representation (i.e. not the listing agent) is the smart move when you're making such a large investment decision.  Something to think about. 

From the Colorado Real Estate Commission's How to Choose a Real Estate Broker

"Choosing a real estate broker is a key element in a successful real estate transaction. The largest single financial transaction that a family makes is often the purchase or sale of the family home. The importance of that real estate transaction cannot be minimized. The assistance of a competent real estate broker can go a long way towards making this most significant purchase a smooth and happy one. Deciding how to proceed when you decide to buy or sell real property should be a result of careful consideration."

Note:  I'll be discussing competency in the next post.

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Like this analysis?    Subscribe to my research.     Want to learn more about Osman, click HERE.      Ready to buy or sell?  Call me at 303.746.6896.   As always, your referrals are deeply appreciated.  

image credit:  ybot84, rafeejewell

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