PART ONE OF TWO PARTS
“A house is just a place to keep your stuff while you go out and get more stuff.” George Carlin
With the advent of the internet, many experts thought real estate agents would be a thing of the past. This has turned out to be a wrong assumption. In fact, a real estate agent is needed more today than ever before.
Real estate agents are generally able to:
Provide a buffer zone between the buyer and seller
Be negotiators between the buyer and seller
Be a source of contracts and disclosures
Buffer Zone between Buyer and Seller.
A real estate agent can be a great buffer zone among the agent and the buyer and/or seller. Many times when a buyer and seller come face-to-face, dynamics come into play that may not favor either party, and may in fact jeopardize the entire transaction. There may be a personality clash between the buyer and seller that may “blow the deal.”
Also, each party may be able to obtain an emotional reading regarding how badly either the buyer wants to buy the property or the seller needs to sell it. When an agent is involved (dual agency) or two agent are involved (single agency), each party is only looking at the deal itself. “Negotiation gamesmanship” cannot come into play because the buyer and seller never meet each other.
The agent(s) is/are a buffer zone between the buyer and seller, thereby eliminating personalities and emotional issues. If it were a Texas Hold’em poker game, the other players cannot get a reading on the client because the client has their agent playing for them as they direct the action from the sidelines. In this manner, the other party is working in the blind (no pun intended) and cannot use any perceived motivations or weaknesses against the client.
An agent can be a negotiator between the buyer and seller. She may help the seller set a listing price that will sell the property and appraise for that amount when the buyer tries to get a loan. She also is able to help the seller obtain the highest possible price in the shortest possible marketing time.
An agent is able to advise the client regarding market conditions. In an upward-trending sellers’ market, when there are fewer properties offered for sale and more buyers coming into the market, the agent must educate her buyers about the possibility of multiple offers coming in on a property, and the probable price needed to elicit the seller’s acceptance of their offer.
Many times if there are multiple offers being made on a property, with many of them OVER list price, the buyer will not believe their agent when she urges them to write up an offer over list price. Instead, the buyer may instruct the agent to write an offer UNDER the listed price. The agent will usually go along and write up the offer—knowing full well that there isn’t a “snowball’s chance in ----” of the buyer obtaining the property. The seller will usually reject the offer or there may be multiple counter offers—with the seller having the ability to accept the highest and best counter offer. After the buyer “lose” a few properties in this manner, the buyer may start listening to their agent and finally acquire a property.
A few years ago a buyer was considering purchasing a single-family home. It was during a downward-trending buyers’ market and the buyer felt obliged to make an offer well below the list price of the home. When he consulted his real estate agent, his agent advised him to offer significantly above list price—if he really wanted the property. The agent explained that the home was an REO (Real Estate Owned) and had been recently foreclosed by the lender. The listing agent who was representing the seller/lender was attempting to obtain the highest price for the property in the shortest amount of time by pricing it well under its current market value and hoping to attract a lot of attention. He also hoped to elicit multiple offers above list price, thereby netting the seller the most money possible. This, of course, was after paying closing costs and real estate commissions. After talking with his real estate agent, the buyer offered above list price, instead of below list price, and was able to purchase the property at actual market value. It really depends upon price range, property type, and market timing.
I usually research sales comparables of properties that have recently sold within a targeted geographical area and pay close attention to list prices and sale prices to determine the actual real estate market.
For less-expensive properties that are priced near the bottom of the market, you may find sale prices at 120% of list price or more. It really depends upon how far you are into a downward-trending buyers’ market and how below-market the property has been priced by the seller.
If the buyer makes an offer that is below list price, the seller can accept the offer, make a counter offer, or completely reject the offer. It’s hard to make a counter offer to a sellers’ rejection. If the seller rejects the offer, the buyer will be in the unenviable position of having to counter himself. This could put the buyer in a bad negotiating position—even during a downward-trending buyers’ market. That is the danger of the buyer making a really low offer for a property he really wants.
Source of Contracts and Disclosures
A real estate agent can be a source of contracts, disclosures, and other technical items that a buyer and seller may not be familiar with, nor have access to, without incurring the added expense of hiring an attorney.
If a buyer or seller hire a real estate agent to help them with the purchase or sale of their home, they will probably also receive expertise regarding real estate contracts, disclosures, and other technical details that will help save time and reduce mistakes.
In California, real estate contracts are generally provided by the California Association of Realtors (CAR) and are considered by many real estate brokers to be some of the best real estate contracts in existence. I have talked to several international real estate license law officials over the years and they are always interested in discovering how California is doing things in the U.S. and then carry this information back to their respective countries for implementation.
On the same note, many states located throughout the U.S. look to California to see what they are doing, and then carry that information back to their own respective states. This is especially true for contracts and disclosures. In addition, much of California’s common law (court cases) is used by the rest of the U.S. as case precedents for the formation of their own real estate laws.
The same group of attorneys at CAR who provide the real estate contracts, also usually develop the disclosures that are used throughout California. Both contracts and disclosures are many times provided by the real estate agent as part of their services to the client.
Agents are usually paid between 5% and 6% of the purchase price. The entire commission is usually paid by the seller. The seller’s agent is usually willing to cooperate with a buyer’s agent in the sale of the home. For example, if a buyer hires a buyer’s agent to represent them in the purchase of a home, their agent will generally receive between 2.5% and 3% of the purchase price as a real estate commission. The seller’s agent usually receives the other 2.5% to 3% of the purchase price as a commission. The good news is that the client receives the benefits of an agent representing them with the purchase of the home, without having to directly pay for it.
Of course, the seller may be afraid he will net less money by using an agent and paying a commission, than he would by selling the property himself. However, this may not be true. With a real estate agent’s considerable marketing power, the seller may be able to actually net more money using an agent than if he had sold the property himself. An agent may have been able to obtain a higher purchase price than the seller could have obtained selling the property himself.
I am a real estate broker licensed in California; however, when I decided to sell a second home that was located in California and only two hours from where I live, I decided to hire a local real estate agent to sell it for me. I could have sold the home myself and saved the cost of a commission; however, a local agent who specialized in that specific market was a better choice. With her local marketing power she was able to net for me approximately $15,000 more for the property than I would have received had I sold it myself. And that was AFTER I paid her a 6% commission to sell the property!
An agent specializing in a particular geographic market has a greater advantage over an agent who is scattered and does not specialize in a local market. Many agents take whatever deals come their way and do not offer any specialization or expertise in any particular geographic market. For this reason, they may not be able to obtain the highest possible price for the property during the shortest possible marketing time.
Part Two of this two part series will be published next week.