All sellers know that when they list their home for sale, they must sign a "Listing Agreement." This agreement commits the seller to give the listing agent an exclusive right to sell the home for for a specific period, say 120 days. In turn the listing agent commits to a fiduciary duty to his or her seller. What is a fiduciary duty?
Much like your attorney has a fiduciary responsibility to protect your interests to the exclusion of others so long as his actions are legal, the listing agent has the same fiduciary responsibility to the home seller.
An "Exclusive Buyer Service Agreement" commits the selling agent to the same fiduciary duty to her or his buyer for a specific period of time. In turn the buyer legally commits to purchase a home or investment property using that broker during that agreed upon time. If they buy a home without having their broker write the sale, they still owe their broker a commission.
Normally the seller pays the commission in a home sale. However, should the owner refuse to pay the commission (such as with For Sale By Owners), the Buyer Service Agreement says the buyer will pay the broker a specified fee based on either a percentage of the sale price (normally 2.7 to 3.15%); the buyer and broker might also agree to a flat fee of say $5000. If the buyer is paying the commission, negotiation for purchase need to take that into account and the offer priced accordingly, since the seller will thus gain that much more in his or her net proceeds.
How does this service agreement benefit the buyer? A lot of buyers never sign such agreements and still purchase a home using a broker. Under this agreement, the selling agent must make consistent efforts to find the buyer the type home the buyer seeks. Should the broker not be diligent in this effort (such as not personally contacting the buyer for one or two months), the buyer may not be liable to pay the commission should the buyer find a home on his or her own. This agreement helps the buyer psychologically also. When a broker knows he will be paid a fee for the effort he puts into finding a buyer a home (which can and often does take months), that agent will work even harder to meet his or her buyer's needs.
If you as a buyer trust your broker sufficiently to have her or him locate and assist you in purchasing a home worth hundreds of thousands of dollars, don't you think you should extend that trust to a formal commitment? The broker, knowing she has a higher standard of performance required under the Buyer Service Agreement, naturally puts even greater effort into finding you the right home...and equally important, in negotiating price, terms, and repairs on your behalf.
Thursday, August 24, 2006
Tuesday, August 22, 2006
Importance of Comparative Market Analysis (CMA)
It is critical that you perform a Comparative Market Analysis (CMA) when you sell or purchase a home. Why? To ensure the home is priced right. We are now in a tighter real estate market in which sellers cannot dictate price and terms any longer. Buyers are very cautious now, fearing a softening or even lowering of home prices.
Oregon's market has softened, but values continue to rise...although slowly. Other states, such as Florida, Arizona, and California, are in a real slump, with values falling 10-15% lower than last year. They had far too much new construction to handle the market in the past two years. Many sellers of existing homes felt they could continue to ask increasingly higher prices without regard for buyer sensitivity to the market. The result? A glut of homes for sale.
In any event, if a seller is too aggressive on price, buyers simply ignore the property. On the other hand, buyers want to ensure that they are not paying too much. A home market analysis helps both parties decide proper pricing.
In my book "Risk Hotline for Real Estate" (www.riskhotline.com) licensees stress the importance of "doing your homework." Your clients need it; mostly likely your company requires it. Definitely your real estate agency expects it.
Look at it this way, a CMA gives buyer and seller peace of mind that the selling/buying price is fair. It gives the listing and selling brokers peace of mind should the buyer or seller later claim the home was priced improperly. They have confirmation that this topic was covered thoroughly with their clients. Clients know that since the broker did perform this valuable service, they did not undersell or overpay.
Oregon's market has softened, but values continue to rise...although slowly. Other states, such as Florida, Arizona, and California, are in a real slump, with values falling 10-15% lower than last year. They had far too much new construction to handle the market in the past two years. Many sellers of existing homes felt they could continue to ask increasingly higher prices without regard for buyer sensitivity to the market. The result? A glut of homes for sale.
In any event, if a seller is too aggressive on price, buyers simply ignore the property. On the other hand, buyers want to ensure that they are not paying too much. A home market analysis helps both parties decide proper pricing.
In my book "Risk Hotline for Real Estate" (www.riskhotline.com) licensees stress the importance of "doing your homework." Your clients need it; mostly likely your company requires it. Definitely your real estate agency expects it.
Look at it this way, a CMA gives buyer and seller peace of mind that the selling/buying price is fair. It gives the listing and selling brokers peace of mind should the buyer or seller later claim the home was priced improperly. They have confirmation that this topic was covered thoroughly with their clients. Clients know that since the broker did perform this valuable service, they did not undersell or overpay.
Monday, August 21, 2006
Risks in broker representing both buyer and seller
When you list your home with a broker, he or she will likely tell you that there might be a situation in which they would represent both buyer and seller. For example, you list your home and your broker gets a call from a buyer that he wishes to write an offer on the home. Your agent explains that he represents the seller, but the buyer insists that the agent represent him also.
This is legal in real estate, unlike being an attorney. The broker likes the idea because he doesn't have to worry about an offer coming in from an inexperienced agent. He has control over both sides of the sale in this instance. Most of the time this "dual agency" as we call it in real estate, works fine.
However, when it goes wrong, look out! If your clients get into a hassle over some aspect of the sale and they deem you, as "their agent," have goofed, you may find you've bitten off more than you can chew. Suddenly the agent goes from hero to goat in one easy step. Both buyer and seller are angry at him or her, and the agent loses not just one good client, but two. Equally likely, the agent may face sanctions from the real estate agency if his sin (negligence or misrepresentation) is serious enough.
In my book "Risk Hotline for Real Estate" (www.riskhotline.com) I discuss an actual situation related to me by another broker (p. 203). This agent sold his own listing, representing both buyer and seller. Since the buyers didn't have the cash to pay for a home inspection, the agent agreed to pay for it himself, since he was to receive both sides of the commission.
The inspector discovered major dry rot and an inoperable sump pump in the crawlspace. Cost of repair: $12,000.
The sellers were furious when they learned "their agent" had paid for the inspection without asking their permission first. On the other hand, the buyers thought he "walked on water."
As luck would have it, the seller's homeowner insurance paid for most of the work. However, the agent lost another listing a few months later when another family member sold his home.
Moral of this story: The broker may have violated his fiduciary duty to his seller. The seller was not angry that the repairs were necessary, just that their agent had broken trust with them by not asking for their approval of his paying for the inspection.
A major theme in my book is showing buyers and sellers how they can be more pro-active on their behalf and understand more about the intricacies of buying and selling a home.
This is legal in real estate, unlike being an attorney. The broker likes the idea because he doesn't have to worry about an offer coming in from an inexperienced agent. He has control over both sides of the sale in this instance. Most of the time this "dual agency" as we call it in real estate, works fine.
However, when it goes wrong, look out! If your clients get into a hassle over some aspect of the sale and they deem you, as "their agent," have goofed, you may find you've bitten off more than you can chew. Suddenly the agent goes from hero to goat in one easy step. Both buyer and seller are angry at him or her, and the agent loses not just one good client, but two. Equally likely, the agent may face sanctions from the real estate agency if his sin (negligence or misrepresentation) is serious enough.
In my book "Risk Hotline for Real Estate" (www.riskhotline.com) I discuss an actual situation related to me by another broker (p. 203). This agent sold his own listing, representing both buyer and seller. Since the buyers didn't have the cash to pay for a home inspection, the agent agreed to pay for it himself, since he was to receive both sides of the commission.
The inspector discovered major dry rot and an inoperable sump pump in the crawlspace. Cost of repair: $12,000.
The sellers were furious when they learned "their agent" had paid for the inspection without asking their permission first. On the other hand, the buyers thought he "walked on water."
As luck would have it, the seller's homeowner insurance paid for most of the work. However, the agent lost another listing a few months later when another family member sold his home.
Moral of this story: The broker may have violated his fiduciary duty to his seller. The seller was not angry that the repairs were necessary, just that their agent had broken trust with them by not asking for their approval of his paying for the inspection.
A major theme in my book is showing buyers and sellers how they can be more pro-active on their behalf and understand more about the intricacies of buying and selling a home.
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