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SanFran, Home Buyer in Broomfield, CO

Question about Buyer's Agent ethics and integrity.

Asked by SanFran, Broomfield, CO Sat Jan 24, 2009

Here's another one to put someone on the spot! Honesty expected! :) If a Buyer's agent gets his/her comission from the seller (or seller's agent) as a % of the final negotiated price, wouldn't a Buyer's agent want to get as high a price as possible to maximize the % comission? Why would the agent negotiate hard if all their comission derives from the sale price?
Its all good to be a Realtor and have signed up for code of ethics and integrity. But what other ways can a Buyer tell if the Agent is actually sticking to his/her integrity and holds the Buyer's best interests?
Someone on another forum noted that I ask too many questions. Hopefully, the answers I get here will not just help me but help others too who haven't thought of 'em.

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Answers

20
Hi:

I have yet to find a Realtor that represents a Buyer that would try to maximize his/her commission by offering a higher price for a property. The difference in commission would be negligible. The Buyer's Agent always tries to obtain the best deal for their Buyer and the Seller's Agent tries to obtain the best deal for their Seller. At least, this has been my experience after 32 years in the business.

When I represent a Buyer, many times I don't even look at the commission that is being offered to the Buyer's agent. I am always trying to get the best transaction for my Buyer. Also, when I represent a Buyer, I have to know what is going on where the Buyer is intending to purchase. You have to know the market. Sometimes, when you are advising your Buyer to offer much lower than the commanding prices of similar homes, you are only doing them a disservice, because they will keep on losing the homes that they are interested in purchasing to other Buyers. So, also, you have to be smart to represent a Buyer or a Seller.
2 votes Thank Flag Link Sat Jan 24, 2009
I find this whole discussion fascinating, especially the bit from freakonomics. I'd like to turn the question back to you, 101, and ask what would it take for you to feel confident the agent is looking out for your best interests? Would you feel more confident if you were paying the agent yourself? Because I'd be up for that. All commissions are negotiable. What if you paid your agent a set fee, regardless of the final contract price, and the portion that would have gone to your agent from the transaction goes towards your closing costs instead? Let's think outside the box and see if some of the bizarre ways real estate is 'done' can be done differently!

Regarding the comment from 'Under the Bus', "he compared the figures for homes owned by real-estate agents with those for homes for which they acted only as agents. The agents' homes stayed on the market about 10 days longer and sold for 2 percent more." I've noticed that agent-owned houses were often priced higher and stayed on the market longer, too. But I reached a different conclusion. You see, most people who put their home up for sale truly believe it's better than all rest. Sometimes it is, but usually not. If they hire an agent who'll tell them the truth, it's that agent's job to educate the seller on the facts of the market. But who will educate a real estate agent who falls into the same very human trait of thinking their house is better than all the rest? No one. So, off he goes, down the same merry path of sellers with agents who won't tell them the truth.

BTW - I never think people making huge financial decisions ask too many questions!
1 vote Thank Flag Link Sun Jan 25, 2009
I always thought it was a thorny subject when I first got into the business but it hasn't proven to be that way. I think it is better now when a buyer has an agent representing them than 20 years ago when both agents represented the seller.

I love negotiations and will fight for my client to get the best price however it is a fine line. What if a client really wants the house and is emotionally attached, its still my job to get the best price but if I lose that house, I am doing them a disservice. So in a situation like this where we found a dream house and there isn't a 2nd best alternative it isn't worth losing the deal for 5k or ($250 a year on a 5% mortgage). Normally the deal comes closer to 2k when things get hairy. Now lets say that we get that other $2k but the sellers are upset and feel taken advantage of. What will happen when we find something during the inspection and would like a concession, need to change the closing date, or would like to get in the house for measurements? Zip, Nada, no more from the sellers "we already gave to the most we could"

There really is no way to tell if agent is a bad negotiator, just wants to get the deal closed, or doesn't want their client to lose their dream house over $500 bucks. Like any other profession it is best to build a relationship and be clear what you want out of the negotiations. There is a new certification CNE (Certified Negotiation Expert) that you may want to look into, I took the course this summer and it was very good.
1 vote Thank Flag Link Sun Jan 25, 2009
I think you are looking at the commission structure too narrowly. We all say that the seller pays the commission for both Realtors, but that commission is paid out of the sale proceeds; the sale proceeds are paid by the buyer. So, the commissions are built into the sale price of the home and ultimately are paid with the buyer's money.

If home sales were like car sales, there would be every incentive for the agent involved in the transaction to jack up the price to maximize commissions. However, unlike other forms of commission sales, there is usually an agent on both sides of the deal. Both of those agents are negotiating to get the best deal for their respective clients. Sometimes the best deal for the buyers may be to offer full price (or more) if they really want the home and the market is turning over quickly. Sometimes the best deal for the buyers may be to walk away from the home. Every buyer has a different interest, and an ethical Realtor will give the best advice and negotiate the best deal for that particular buyer's interest.

I came to real estate after a long career as a lawyer, and maybe that is guiding my real estate "practice" as well. I have always looked at negotiating a deal as a game, and we win if we get the deal that best meets my client's needs. I do not "win" if I have an angry client who believes they paid too much for a home just so I could get a few extra bucks in commission.

You ask how you can tell if your agent is acting in your best interests. I believe buyers need to be prepared before they set out on a home search by thinking and deciding what their goals are. When you interview agents (and I agree you should interview more than one), tell them what your goals are and how they will help you meet them. Rely on your gut instinct. If you feel like a Realtor is trying to hustle you, do not hire that agent!
1 vote Thank Flag Link Sun Jan 25, 2009
Home Buyer 101,
Thanks for the great question. The key element missing from all the prior answers is if the Broker is acting as a Buyer's Agent, or Transaction Broker . Under Colorado law, a Transaction Broker is neither parties advocate, and thus is NOT seeking a price that is acceptable to the Buyer, but only to the transaction.

However if a Broker is acting as a Buyer's Agent, here are the additional duties owed to the Buyer, as quoted from the Exclusive Right to Buy agreement from the Colorado Real Estate Commission.

"5. ADDITIONAL DUTIES OF BUYER’S AGENT. If the Buyer Agency box at the top of page 1 is checked, Broker is a limited agent of Buyer, with the following additional duties:
a. Promoting the interests of Buyer with the utmost good faith, loyalty and fidelity.
b. Seeking a price and terms that are acceptable to Buyer.
c. Counseling Buyer as to any material benefits or risks of a transaction that are actually known by Broker."

Seeking a price and terms that are acceptable to the Buyer often means that you can't put a deal together as a Buyer's agent, where as a Transaction Broker, you are just trying to put the deal together.

So as a Buyer's Agent, you would actually be violating your contract and Colorado Law if you were not promoting the interests of the Buyer.

So all Buyers need to decide if they want to be represented by a Buyer's Agent or Transaction Broker.
Respectfully,
Darrell Wass
1 vote Thank Flag Link Sun Jan 25, 2009
If I get my client a $10,000 price decrease when buying I "lose" $300 on average. I don't know anyone that would see that as a reason to "charge" their buyer more. The goal of my business is not the commission I receive from my work upon completion of my clients sale, rather it is the referrals to their friends and family. So I LOVE getting the lowest price possible for my clients as they always "gush" to their "people" about what a great deal they got with their great Realtor....I'll take that any day over $300 etc.
Experienced Realtors did not get to be where they are by overselling their clients...but when you are looking for your Realtor...ask people you know for a referral and call on two or three....interview them...make a choice, they are helping you with a very important transaction. I have a list of 19 questions you should ask your Realtor when selling your home...it can be applied to buyers agents as well. email me if you'd like a copy.
All my best
Laura Myers
Keller Williams Arizona Realty
LauraMyers@kw.com
1 vote Thank Flag Link Sat Jan 24, 2009
It is about ethics. As a buyer's agent, even though the agent is getting paid by the seller, he is actually employed by the buyer and must, by ethics and commission standards, represent the buyer and only the buyer. As stated previously, the amount of commission to be gained by trying to squeeze a few thousand more out of the deal (on the price of the home) would only net a few hundred dollars extra commission, and that is just not worth risking reputation and future referrals as that is where our business comes from.
I always arm my buyers with as much information as possible so that an offer can be made, not to maximize my commission, but to get the buyer the home they want at a fair price, leaving nothing on the table. IF this means that I loose a few bucks in the process, my clients interests are met and I have clearly done my job, hopefully gaining their respect and business for life and, most importantly, their referrals.
By the way, I don't think you ask too many questions, please keep them coming as they tend to spark thoughtful responses.

Chuck Strauss
Keller Williams DTC
720-318-7598
CStrauss@kw.com
1 vote Thank Flag Link Sat Jan 24, 2009
Being a Realtor and staying in business with success is dependant on previous client referrals and repeat business. I wouldnt put my carreer on the line for a few hundred dollars. it isnt really that much of an increase. think about it... 3% for example of $5K is $150 .
One way I suggest to buyers in Colorado is to look at your agreement between the Realtor and yourself, is he/she representing you as a Buyers agent or a transaction Broker. Read the definitions, if you didnt get one ASK FOR ONE.
Bottom line, Realtors rarely get the respect that we deserve, some are bad, most are great.
1 vote Thank Flag Link Sat Jan 24, 2009
Please consult Professor Steve Levitt's, of the University of Chicago (one of my alma maters), Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. He talks about and empirically proves that Real Estate Agents have no incentive to serve their client's interests for points you just made. Here is a summary:

Levitt took up a hobby: rehabbing and selling old houses in Oak Park, where he lives. This experience has led to yet another paper, about the real-estate market. It is his most Chicago-style paper yet, a romp in price theory, a sign that the university's influence on him is perhaps as strong as his influence on it. But Levitt being Levitt, it also deals with corruption.

While negotiating to buy old houses, he found that the seller's agent often encouraged him, albeit cagily, to underbid. This seemed odd: didn't the agent represent the seller's best interest? Then he thought more about the agent's role. Like many other ''experts'' (auto mechanics and stockbrokers come to mind), a real-estate agent is thought to know his field far better than a lay person. A homeowner is encouraged to trust the agent's information. So if the agent brings in a low offer and says it might just be the best the homeowner can expect, the homeowner tends to believe him. But the key, Levitt determined, lay in the fact that agents ''receive only a small share of the incremental profit when a house sells for a higher value.'' Like a stockbroker churning commissions or a bookie grabbing his vig, an agent was simply looking to make a deal, any deal. So he would push homeowners to sell too fast and too cheap.

Now if Levitt could only measure this effect. Once again, he found a clever mechanism. Using data from more than 50,000 home sales in Cook County, Ill., he compared the figures for homes owned by real-estate agents with those for homes for which they acted only as agents. The agents' homes stayed on the market about 10 days longer and sold for 2 percent more.

For more interesting insights, see the respective links.
http://freakonomics.blogs.nytimes.com/2006/01/03/more-bad-ne…
Don't get thrown under the bus!
1 vote Thank Flag Link Sat Jan 24, 2009
An agent is bound to always put his client's interest first period. Our business is built on referrals and word of mouth. It is in our best interest to therefore serve the client well. In the long run it means return business. But just to follow your reasoning,if it were an issue of money alone, the difference in commission would not be great. Having a great reputation in serving your client is by far more valuable. Hope this helps.
1 vote Thank Flag Link Sat Jan 24, 2009
Hire an Exclusive Buyers' Agent and negotiate a flat fee.

An EBA is an agent who works in an office that NEVER takes listings. If you've ever felt pressured by an agent to buy one of their listings, or one of their own company's listings, you'll understand why this is important. (Especially in a market where agents wallets are hurting)

Find out more at the National Association of Exclusive Buyer Agents website:
Web Reference: http://naeba.com/
0 votes Thank Flag Link Tue Feb 3, 2009
Simple answer, referral business. The buyer's agent isn't going to get any referral business if the buyer isn't happy and doesn't get a good price for the home. The buyer is going to realize pretty quickly (if they didn't get comps from their agent, what a good buyer's agent should do, before making the offer) that they paid too much for the home. A good way to determine this is to ask others that have used the buyer's agent about the agent before you pick the agent. They will tell you if the agent worked hard for them to get them the best price for the home and if they are satisfied with it. I hope this helps.
0 votes Thank Flag Link Mon Jan 26, 2009
I think all a buyer's agent can do is advise. A buyer's agent will do comps and tell you what they think a home should sell for, but ultimately the buyer decides how high they want to go. The fact is, the difference between 350,000 or 355,000-365,000, as far as commission goes, is pretty minuscule with regard to what the agent is going to net from the deal, so I don't think an agent is going to hammer on you to pay an extra 5,000 so that they can net a couple of dollars more..
0 votes Thank Flag Link Mon Jan 26, 2009
I think this is a very fair question to ask and one that has often crossed my mind being a licensed Realtor. The best answer I can give is that a buyers agent should be able to provide you with evidence/facts as to the value of a given property. The value is primarily derived from the comparable sold properties in the area. You also have to take into consideration any value effects from location, level of finish or upgrade, views, light exposure, curb appeal etc. Any good agent should be experienced enough to give this information to you before any price negotiations would take place for your purchase. True a buyers agent makes more money when you spend more but our job is to negotiate the best deal and this is through experience and understanding of the market. Some agents are starting to guarantee their buyers purchase to the point that if they dont like the home 12 months after purchase, the agent will buy it back...
0 votes Thank Flag Link Mon Jan 26, 2009
For myself I work as hard as I can for my buyer and or Seller. It does not matter on the Sales price of the Home. I am working for the Future and will get the Buyer the best Deal I can on the Home and Wait for Referrals.
Most Good Realtors that I know do not look at the Commission when writing an Offer. This is a good Question. We ( Realtors) as a whole work hard 7 days a week and deserve to get paid. I wonder why "buyer's are so worried about us making a living helping them with most Important purchase of someones lifetime???
The difference on asking price to sold price on Commission is pennies on the dollar and should not be worried about.
http://www.denverrealestatesoup.com
0 votes Thank Flag Link Mon Jan 26, 2009
Leslie:

A Buyer can fire you at any time and it does not even have to give you a reason. This is our profession.
0 votes Thank Flag Link Sun Jan 25, 2009
I did read the book on Freakonomics and that is what instigated me to post this question.
~~~~~~~~~~~

He drew a faulty conclusion from the data. He did that in other places in the book too. It's a logical post hoc fallacy. Agents may get a higher price because they negotiate better and they don't have a client who is anxious to deal with.. They may get a higher price because they are more patient. There are a lot of reasons and I did not agree with Freakonomics conclusion.
0 votes Thank Flag Link Sun Jan 25, 2009
Home Buyer 101,

Here is another point that was not brought up: why not hire an agent that offers a service guarantee? It is a guarantee that your agent will work in your best interests. If you don't think they are you can fire them and seek new representation. It gives your agent motivation that they will work hard and in your best interst.

If you would like to see my buyer's service guarantee go to: http://www.LeslieHeldenbrand.com

Leslie Heldenbrand
720-283-5978
http://www.LeslieHeldenbrand.com
0 votes Thank Flag Link Sun Jan 25, 2009
This is great! Its exciting to see so many responses overnight! I am glad you professionals are stepping up and answering than hiding behind the couch. I do think that good agents/brokers/lenders/attorneys work hard and they ought to get paid for their services. I am a professional in another field too. We are not very many in this country today!
I did read the book on Freakonomics and that is what instigated me to post this question. For other readers reading this post, as a new home buyer (haven't bought yet) I'd advice to research and read books on Realtors, Real Estate Agents, brokers, lenders, and how they all work. Its amazing how you could uncover certain things that may not serve your best interest.
0 votes Thank Flag Link Sun Jan 25, 2009
Well before making an offer on a property, you can tell if your agent is working in your best interest. Are they answering your questions; are they giving you lots of information to make an informed decision; are they pointing out cons as well as pros on every property; are they trying to get you to buy every house they show you (big red flag); are they really listening to you and hearing what you are saying? Price isn't everything--maybe making a better offer on price would be in your best interest. Perhaps you can beat out the competition for the property if it is a really good one. Yes, that is happening in the Denver Metro area today in certain areas and price ranges.

Listen to your gut. Also, there is no such thing as asking too many questions when making a major purchase and commitment like real estate.

Good luck, Linda Alexander 303-475-3078
0 votes Thank Flag Link Sun Jan 25, 2009
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