#4: Buyers’ agents
who urge their clients to bid high.
Agents hate it when their offers are rejected. Before submitting them, agents must usually show several properties, read through disclosures, and then assemble an offer package filled with contracts, documentation, and a cover letter. They get nothing for these efforts if their offers are rejected.
That's why profit-driven agents often encourage their clients to bid high. This may not be a problem for a buyer who is in love with a house and wants to get it at any cost. But most buyers don't just want a nice house, they also want a good deal--even if bidding low increases the risk of losing the house to a rival buyer.
Here’s how some agents
pressure their buyers to bid high:
Withholding useful information available only to agents
To help you decide on an offer price, a buyer's agent will normally show printouts of neighboring homes that have sold recently. But the sales prices of these "comps" (short for comparables) often don't tell the whole story. Many sellers, for example, offer buyers sales concessions in the form of credits for closing costs. Indeed, it's common for buyers of FHA- or VA-financed starter homes to get 3% of the sales price credited to them at close of escrow to cover closing costs--and some get even more.
As a buyer, you don't have easy access to this information, but your agent probably does. MLSs often have confidential sections that are intended to be viewed only by agents and appraisers. These confidential sections usually tell agents about seller concessions on sold listings, and also about sales commissions and special bonuses that are being offered to agents on active ones.
in my area forbid agents from sharing agent printouts of MLS
listings with non-agents, but your buyer's agent should share with
you--at minimum--information about seller concessions so you have a
good idea of what buyers of neighboring properties really paid for
Giving buyers "The
Failing to do homework
I once had a listing that had been on the market for months with no price adjustment. Then we got a full-price offer for it. Both the seller and I were mystified. We weren’t expecting any other offers, and the market had obviously spoken: the home was overpriced.
In order to get a good deal, agents should try to find out about the strength of the seller’s bargaining position. Are there other offers? If so, are they above asking? How long has the property been on the market? Are there similar homes on the market? Why is the seller selling?
The existing commission structure, though, doesn't reward agents for doing this kind of research. Finding weaknesses in the other side's position only encourages a buyer to bid lower, which increases the likelihood that the offer will be rejected.
If a client is hesitant about offering too much, an agent will sometimes share rosy predictions about where the market is heading. The National Association of Realtors is usually a good source of overly optimistic market forecasts.
The buyers' agents' perspective ...
A blog for real estate agents speaks volumes about agents' attitudes towards their clients. In it, agents discuss a San Diego County couple who purchased a home in a subdivision, only to learn later that similar properties had earlier sold for as much as $175,000 less. The couple then sued their agent for not telling them about the other comps. Here are some of the agents' comments:
|©Lori Alden, 2011. All rights reserved.