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How to Choose an Agent
There are
good agents out there, and their advice can be invaluable. To
find one, I suggest you focus on four qualities:
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Honesty.
Is the agent likely to put your interests ahead of her own?
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Professionalism.
In my experience, agents either view themselves primarily as
salespeople or as advisors. The agent/salesperson tends to
take courses and read books on personal marketing.
Agent/advisors, on the other hand, flock to courses on contract
law, the art of negotiation, finance, and real estate economics.
You want a professional, not a salesperson, for an agent, since
an agent's persuasive talents
are more often put to use on his own clients than on
other parties.
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Diligence.
It takes patience and hard work to get good deals for
clients. You want an agent who will work hard for you.
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Experience. New agents are more easily manipulated by
their counterparts, and may not catch problems with homes or
contracts.
Several real estate
websites (like this one
and
this one) provide questions for buyers and
sellers to ask agents while interviewing them. Many of the
standard questions are good, but they don't do a good job of
screening out agents who engage in sleazy practices.
Indeed, some of the questions may favor sleazy agents:
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(for buyers' agents):
How many homes have you
sold in the past year? A high
number of sales might suggest that an agent is an effective
salesperson who's good at cajoling his clients into making
offers that are more likely to be accepted--that is, high
offers.
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(for listing agents): How many of your listings have sold
in the past year?
A high number of sales might suggest that an agent is an
effective marketer, or it may suggest that the agent
systematically underprices listings for quick sales.
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(for listing agents): What is your
average sales-price-to-list-price ratio? This
statistic is supposed to measure an agent's success in
getting good prices for sellers, but a high ratio might
reflect underpricing rather than good marketing and
negotiating skills. Note that some agents change their
listing prices after they've received offers in order to improve
their stats.
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(for listing agents): How long, on
average, are your listings on the market before they sell? A short period, again, can suggest underpricing rather
than effective marketing, especially if the agent is also
reporting a high sales-price-to-list-price ratio.
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Are you a Realtor®?
A "yes" response is supposed
to be a plus, since Realtors are expected to adhere to a
code of ethics. The US Department of Justice, however,
seems to take a different view, and has taken action against
the National Association of Realtors for alleged antitrust
violations. Being a Realtor isn't necessarily a
negative (one benefit of joining is that it gives agents access to key contract
forms) but I question whether Realtors are any more ethical
than non-Realtor agents.
I would add these
questions to the standard ones:
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(for buyers' agents): Do you offer buyer
rebates of part of the commission? (Note that
rebates
aren't allowed in these states:
Alabama, Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri,
New Jersey, Oklahoma, Oregon and Tennessee.
Click here to read about efforts by the US Department of
Justice to lift these bans on rebates.) Subtract points if
the agent pretends that she's never heard of this
policy--signaling that the agent is either dishonest or
incompetent. For more information on negotiating buyer
rebates, see my website
CapturetheCommission.com.
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(for buyers' agents): Are you also a
mortgage broker or do you have
an in-house mortgage broker? Subtract points if the
answer is yes. Your agent's interests already conflict
with yours: Since she gets a payday if you buy a house, she
has a strong incentive to urge you to bid high. If she's
also brokering your loan (or in cahoots with a mortgage broker)
then her payday--and her incentive to get you to make high
offers--becomes even larger.
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What specific techniques
have you used to negotiate better prices for your clients?
Add points if the agent appears to have given some thought
to the art of negotiation. Subtract points if the
agent talks abstractly about being an expert negotiator without
giving specific examples. Walk away if the agent uses
lies to get better prices--lying about the existence of
other offers, for example, is a material misrepresentation
that could get both the agent and client in trouble.
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(for listing agents): How much do you
think my home is worth? If the estimate is
high, the agent may be trying to "buy a listing" by
telling you what he thinks you want to hear. If the
estimate is low, the agent may be laying the groundwork so
that he can underprice your home for a quick sale.
Subtract points if the agent asks you how much you wish to
net, since that information is irrelevant.
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(for listing agents): How would you
protect me from being sued after escrow has closed?
Give the agent points if she answers that she cannot
completely protect you, since you can get sued if you
knowingly make misrepresentations about your home, or fail to
disclose serious known defects. Also grant points if
the agent's brokerage has a well established protocol for
handling disclosures. Subtract points if the
agent says that she has errors and omissions insurance,
since this is designed to protect agents, not clients.
Also subtract points if the agent promises you won't get
sued--agents who make these kinds of reckless claims to
clients may also make them to buyers.
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How would you
protect my private information? Add points
if the agent volunteers that she shreds unneeded documents,
redacts social security numbers from FIRPTA forms (required
by the IRS) before presenting them to the buyers for their
signatures, or keeps the terms of your accepted offers to
herself. Subtract points if she doesn't appear to have
given much thought to this issue.
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(If the agent is a
member of a large brokerage) How is being a part of a
large brokerage advantageous? Give the
agents points if she says that the brokerage has a competent
administrative staff, a good training program, and lots of
collective experience to draw upon. Subtract points if
she indicates that the brokerage gives her inside
information on prices--this might suggest that the agents in
her brokerage trade confidential information at the expense
of their clients. Also subtract points if the agent
says that her brokerage often finds its own buyers for its
listings, since this might suggest that the brokerage
engages in anti-competitive practices in order to get both
sides of commissions.
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(for listing agents): What are the
advantages of working with a full-service agent? I
wouldn't subtract points if an agent cites a widely
circulated National Association of Realtors statistic
saying that sellers who work with Realtors get 13% or 16%
more for their homes than "For Sale by Owner" (FSBO)
sellers, or statistics claiming that most FSBO sellers
eventually give up and list with Realtors. As I've
noted elsewhere, I believe
these statistics are bogus, but they're so widely circulated that agents can
be forgiven for believing them. Subtract points,
though, if the agent appears to have memorized a slick FSBO-conversion
script (like
this
one or this one). FSBO converters are more likely
to be inexperienced, since more seasoned agents tend to rely on referrals
to get listings. They're also more likely to view
themselves as salespeople rather than knowledgeable
professionals who are focused on providing competent
service.
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(for listing agents): How much do you
charge? This fee should be negotiable. Ask
the agent to explain what services are provided.
I would also do the
following:
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(for listing agents): Look at how the
agent's active listings are being marketed. Give
points if the agent uses classy signage, produces quality
flyers, has a good website, and hosts regular open houses.
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Check on the
agent's license. States usually provide
information online about how long agents have been licensed
and whether they've received disciplinary actions.
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(for listing agents): Ask your agent for a
written marketing plan before you sign the listing agreement.
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Ask for references and check them out.
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(for listing agents): Incorporate a 10-day cancellation
clause into the listing agreement.
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Is it penny-wise,
pound-foolish to scrimp on the sales commission?
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Agents often point out that the standard sales
commission is a mere 5 or 6% of the total sales price--and that it's
silly to scrimp on such a small amount when so much is at stake.
You get what you pay for, after all.
But here's another way of
looking at it.
Suppose you want to sell a home that's worth about $500,000, and
that you think could sell it quickly on your own simply by putting a
handmade sign on your lawn with a price of $450,000. What
you're really doing, then, is deciding how best to capture that
additional $50,000 in value.
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Your goal should be
to get the most bang for your marketing buck. One good move,
for example, would be to offer a commission of, say, 2.5% to buyers'
agents. In most states, you can put a property on the Multiple
Listing Service for a flat fee (about $200); this MLS listing
constitutes a formal commitment to pay a commission to the buyers'
agent. You might also want to hire a professional
photographer ($200), provide color flyers ($300), rent signs ($100),
and hire a lawyer or closing broker to help you with the
negotiations and paperwork ($4,000).
For 2.5% of the sales price, a listing agent
will take care of the MLS listing, photography, flyers, signage, and
paperwork--saving you about $5,000. In addition, a listing
agent will coordinate everything and help you with open houses.
The listing agent also assumes some of your risk, since you pay
nothing to cover marketing costs if your home doesn't sell.
If the
listing agent succeeds in selling your home for $500,000, you'll owe
him $12,500, or about $7,500 more than it would have cost you to do
purchase most of the agent's services on an á la carte basis from
different service providers. When deciding whether to pay that
2.5% commission to a listing agent, the question should be
whether the agent's coordination services are worth
that extra $7,500.
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