Category Archives: Choosing An Agent

“Dear Prudence” Is Giving Real Estate Advice?!

spookyYou just never know what people will decide to write to an advice columnist about. Only yesterday, a couple asked “Prudence” (Emily Yoffe, of Slate) whether they should buy a house that was the site of a horrific and widely publicized murder, in which the husband dismembered his wife. The couple work as a mortician and a pastor, respectively, so they aren’t personally freaked out by death, but they’re worried about what the kids and others will say.

Prudie’s advice is fine as far as it goes. She says if you’re comfortable with living there and want to buy the place, just be sure to tell the kids soon, and perhaps hold a prayer ceremony to . . . well, she didn’t say it, but I’m assuming to rid the house of ghosts and negative energy.

But there’s a lot more this couple should consider, namely:

  1. Their statement that, “Thanks to the Internet, we know all the horrific details of the case” is disturbing. It suggests they might not have learned about the murder from the sellers. A seller is, under most states’ laws, supposed to tell buyers, in writing, about anything that might materially affect the value of the house. If the seller did not, in fact, tell them about this, what else are they not telling? See my earlier blog post about a lawsuit by a buyer against a seller who neglected to disclose a murder/suicide that had taken place in the house for sale.
  2. Is the couple getting a bargain for the house? They’d better be. The place is, in real estate jargon, a “stigmatized” property. The fact that they may be willing to live there doesn’t change the widespread public perception that it’s tainted. Some properties of this nature remain on the market for years, or ultimately have to be bulldozed out of existence.
  3. Have they considered resale value? Once stigmatized, always stigmatized, if the event was horrific enough. And it sounds like this one may have been.

In the end, this couple may actually be the perfect one to buy the house and make it into a cozy, ghost-free place to live. (In fact, buying a stigmatized property is one of Nolo’s “Top Tips” for getting an affordable house.) But to the extent that a home is also an investment, let’s hope they proceed with their eyes wide open, and press the matter hard in negotiations.

Home Sellers: Don’t Spill Precious Beans to Prospective Listing Agents

flageolet_bigIf you’re doing your due diligence when preparing to sell your home, you’ll talk to two or three real estate agents or brokers about the possibility of representing you in that sale.

Brokers are typically generous with their time at this stage — they’re experts in the field, they love touring houses and talking about real estate, and they (of course) are hoping you’ll sign up with them and ultimately pay a chunky commission on the sale.

But I’m getting ahead of myself here. Things can get very chummy during these initial conversations, and you may even feel with each broker that, “This is the one.”

Better keep at least some cards close to your chest, however, as described by columnist Ken Harney in his intriguing and disturbing article, “Agents not obligated to keep secrets when they don’t get the listing.” If it weren’t for an April Fool’s joke played by a real estate broker — who pretended to have set up a website, “LostListings,” in which the unchosen masses of prospective brokers could sell information gleaned from those initial conversations — this topic might not have made it to anyone’s radar screen. The joke website suggested, for example, that brokers might reveal things like the seller’s desperation to unload the house quickly to avoid foreclosure, or defects the seller was hoping not to have to disclose.

Not everyone caught on to the joke, however. (That always happens!) And a conversation ensued along the lines of, “Okay, so how much can a broker who no longer has a direct relationship to the seller ethically reveal?”

For the brokers who ARE in contract to sell someone’s house, the answer is clear. They must maintain confidentiality, subject to any exceptions set out by state law. (In some states, for example, listing brokers must tell buyers about material defects within their knowledge that would not have been readily apparent to the buyer or an inspector.)

If I’d had to guess, I would have said that prospective brokers would also have a professional obligation to keep confidential any information they learn from home sellers. That’s what lawyers have to do — in fact, Section 1.8 of the American Bar Association’s Model Rules for Professional Conduct specifically addresses the nature of lawyers’ relationships with prospective clients, saying, “Even when no client-lawyer relationship ensues, a lawyer who has learned information from a prospective client shall not use or reveal that information, except [some narrow exceptions].”

Well, guess what? Apparently no such rule has been written for real estate agents and brokers. Harney interviewed the National Association of Realtors’ (NAR’s) top legal official, Laurie Janik, who said, “The Realtor Code of Ethics does not impose any duty of confidentiality with respect to information provided by a prospective seller client who does not engage the Realtor.”

Harney also spoke with the ethics columnist for Realtor Magazine (also senior vice president and general counsel of Prudential Alliance Realtors in St. Louis), Bruce Aydt, who agreed that the Code of Ethics says nothing about information divulged during listing presentations. Aydt noted, however, that sellers in these conversations likely “have an expectation of privacy ….” Yup, that’s just what the lawyer for the disgruntled home seller would write in the 100-page legal brief to support a lawsuit against a loose-lipped broker.

To be fair, no one is claiming that there’s been a rash of — if any — instances where selling brokers revealed confidential information about a prospective client. I’ll bet most of them have enough business savvy to keep mum. But if you’re thinking of selling, you might not want to put this theory to the test. Unless you want the word on the street to be, “We just won the zillion-dollar lottery and are moving to the Bahamas, you can sell this dump for $1 and we’ll still be rich!!,” keep it to yourself.

In a Multiple-Offer Situation, Will Your Buyer’s Agent Shine?

applesThey’re making a comeback: multiple-offer home sales. With pent-up buyer demand, low inventory, and a widespread perception that both home and mortgage prices may be on the rise, stories of homes that attract two, five, or ten offers, and sell for far over the asking price, are becoming increasingly common.

If you’re a wannabe homebuyer, you’ll find it hard to predict in advance whether you’ll end up in one of these bidding wars. Not every home will become the hot property of the week. The move-in ready homes in great locations with tempting price tags seem to attract the biggest buying swarms. But, you never know–a fixer upper with great potential may suddenly become the darling of the week.

Some buyers try to avoid emotional turmoil by taking a hard-line approach like, “I’m just not going to bid on any homes where I have to compete with others” or “I’ll never offer more than list price.” That ignores market realities and may mean you wait a long, long time to buy a home.

So, let’s say you find yourself trying to make your offer stand out from a bunch of others. There are various strategies you might take, such as offering all cash (don’t gasp, it might just mean borrowing the money for a couple of months from family and friends, then turning around and getting a bank loan later), or waiving the inspection contingency (risky).

But the strategy I’d like to focus on today is making sure you’ve got an agent on your side who both represents you well and whom the seller’s agent will want to work with.

Real estate agents come in all personalities and levels of professionalism. And their skills and personalities will be on full display in a multiple-offer situation. That’s because the sellers and sellers’ agent will likely schedule the buyer’s agents for back-to-back offer presentations. You, as the home buyer, won’t likely be in the room. You’ll have to trust that your agent will represent you well.

What do these presentations involve? Your agent will need to do more than just hand the offer papers across the table. He or she will want to give a summary of your offer, highlighting its strong features and downplaying its weak ones (i.e. “Even if this isn’t the highest offer you receive today, look at how big the down payment is! My clients will have no trouble getting final loan approval”), and giving a picture of you as buyers (“They’re a lovely couple whose hobby is gardening, and they’re so excited that your yard already has mature fruit trees”).

All of this makes a difference. A bigger one than you might think. Sure, the seller’s biggest decision-making factor is the offer price. But other factors might make the seller rethink and choose a lower offer — and some of those factors depend on the agent him or herself. Picture yourself as the home seller for a moment. Wouldn’t you think twice about an offer where, for instance:

  • the agent already gives indications of being a hard-line negotiator, perhaps by asking for things that aren’t traditional in your locale (for example, to have the seller, not the buyer, pay for escrow costs) or peppering your agent with suspicious questions like,”What’s that new drywall covering up?”
  • the agent appears disorganized, shuffling papers around (“Gee, where did I put that letter from my clients?”) and making you wonder whether he or she will really be able to close the deal without mishaps
  • the agent insults your home in a misguided effort at negotiating, as in, “Of course, we would’ve offered more, but my clients need to set some money aside to rip out that overgrown garden and put in some real landscaping.”

And then there’s the factor that the agent doesn’t really have any control over within the conference itself: His or her reputation in the community. You may have never heard of your buyer’s agent before signing up with him or her, but the seller’s agent has. They may have worked together on many deals in the past. And if it was an unpleasant experience — or worse yet, the buyer’s agent’s incompetence or obstreperous behavior led a deal to fall through — you can bet the seller’s agent will be telling his or her client, “Look, I know it’s the highest price, but here are some very good reasons that we don’t want to work with these people.”

The bottom line: Check out your agent carefully before signing him or her up. Make sure you like the agent personally, and that he or she is highly thought of by others in the same profession. For more tips, see Nolo’s article, “Choosing Your Real Estate Agent.”

Prospective Homebuyers: Beware of Backing Into Arrangement to Hire Real Estate Agent

A friend of mine was complaining the other day that she lost out on a house that would have been perfect for her, because her agent hadn’t sent her word of its existence.

“How did you find this agent?” I asked.

“Oh, I met him at an open house, and he offered to send me listings that I might be interested in. I said okay, since I’m not sure I’m quite ready to buy yet anyway.”

Ack! Whoa! This is exactly the way that far too many homebuyers end up in contract to buy a house, with an agent at their side whom they never would have hired if they’d been making a conscious decision. Idly shopping for a house often results in FINDING the house of your dreams and deciding that your life will not be complete without it.

If you haven’t chosen the right agent, however, you could not only pay too much for that house, but end up losing it to another buyer. Why? Because:

  • Your agent plays a key negotiating role in the home sale process, helping you evaluate the local market and not only offer a competitive (but not too high) price, but later bargain with the seller’s agent over things like who pays for repair needs that the home inspection turns up. An agent who is a savvy negotiator (tough, but not so obnoxious as to kill the deal) can save you literally tens of thousands of dollars.
  • How well your agent is regarded in the real estate community can determine whether your offer is chosen over someone else’s. Ask any seller’s agent: Price is not the only concern. In a multiple-offer situation (which do happen, even today) sellers will reject, yes, reject an offer because they don’t want to deal with a difficult buyer’s agent who may end up preventing the sale from going through at the offer price (if at all).
  • An experienced real estate agent does much more than find you the house to buy. He or she will need to shepherd the deal to a conclusion over the many weeks that this will take. That requires both knowledge and a sense of responsibility. How do you know that this agent isn’t a flake? Or won’t do something unethical, like recommend that you hire an inspector who (unbeknownst to you) has a reputation for overlooking problems, thus ensuring that the sale goes through without a hitch . . . .

When you hire a real estate agent, you enter into an agreement that only that person will represent you, and will be entitled to receive a commission (paid by the seller) on your sale. The agent is supposed to sign a written contract with you, but will expect to be involved in any transaction that he or she sent you the listing for, or at least be paid the commission from the seller’s agent, regardless. (The commission is seen, in part, as a “finder’s fee,” even though a good agent does much more than find you a house.)

You can fire your agent at any time, however, subject to what you agreed to in the initial contract. (You may, for example, still need to pay a commission if you fire the agent in mid-sale transaction.) Be sure to do the firing in writing — your agent should have a form for this.

Then do your homework before hiring an agent that you have carefully chosen (and checked the references of) — even if you aren’t sure whether you want to buy a house. For tips on this, see “Choosing Your Real Estate Agent.”

Most Home Sellers Interview Only One Prospective Agent

Wouldn’t you think that sensible home sellers would cast a wide net before selecting the agent who will help them market and sell their home — and to whom they will ultimately pay around 5-6% of the selling price, as a sales commission? (That’s $18,000 for a $300,000 home, folks — some people will be lucky to be paid that amount for an entire year’s work.)

And yet, two thirds of sellers interview only one candidate for the job, as reported by the National Association of Realtors and discussed by Patricia Mertz Esswein in the May 2012 edition of Kiplinger’s Personal Finance. (See “How to Sell Your Home Fast.”)

Maybe some of these sellers so loved the agent who helped them buy their home that they couldn’t imagine hiring anyone else to sell it.  (That was the case with me, and it all worked out great.) But I bet it’s not true for a sizable number of home sellers. They meet an agent, they like what they hear, and that’s it — for better or for worse.

That gives the first agent a seller interviews a huge advantage; and unfortunately, an incentive to overstate buyers’ likely interest levels and the price you’re likely to obtain for the house. Setting the price too high is a problem in any market, but it’s fatal in the current depressed market, where buyers have learned to be leery of inflexible, unreasonable sellers who simply can’t believe their house has dropped so far in value over the last five years.

As Mertz Esswein notes, “In addition to a history of successful sales in or around your neighborhood, you want total honesty — even if it’s painful to hear that you must spend money in order to sell.”

Open House Day: Got Your Contortionists Ready?

The real estate market clearly needs a shot of adrenalin, and some agents are doing their best to inject it.

In some cases, their strategies for enticing buyers and agents to visit open houses get increasingly wild and expensive with the price of the home. Free mimosas? Check. Shirtless male jugglers? Check. A raffle for Botox treatments? Check. And the cost, sometimes in the thousands of dollars, all comes out of the agents’ pocket.

It’s all detailed in Lauren Beale’s article, “Real estate agents spare no effort to sell luxury homes.” Me, I’d definitely stop by any open house that offered those Thai foot massages.

Of course, if you’re selling a home in the lower end of the range, your agent will likely not be amused by your request that he or she open a free bar on your front lawn.

But when choosing an agent, it’s worth asking what creative approaches he or she has come up with for other properties, and what might work for yours.

Creativity doesn’t always have to be limited by price range. For example, in the book Selling a House in a Tough Market, we describe strategies such as holding specially themed open houses, say, with an architect or contractor on hand to describe how the place could be remodeled, or with art showings in coordination with a local gallery. These won’t cost anywhere near as much as those shirtless jugglers.

Real Estate Agents Developing Specialties

Just as with flavors and caffeine levels of soda pop, the choices to be made among real estate agents has expanded over the years — despite, or maybe because of, the down economy.

As Marilyn Kennedy Melia points out in her article, “1. Change, 2. Choices,” you can now find agents to help with short sales, foreclosures, buying or selling a “green” home, and more.

Meanwhile, other agents have (according to seemingly good authority within the article — namely me!) packed up their offices and headed for careers with less uncertainty and competition.

Marilyn also quotes me as saying it’s worth asking agents about their negotiating style before signing them up. Indeed, carefully observing an agent’s personal style and trying to get a handle on how he or she will represent you in front of the other party is particularly important for both buyers and sellers, because negotiations can get contentious.

Buyers have leverage in today’s market, and they know it. Many deal have fallen apart over amounts of money both large and small, for example because the buyer negotiated hard over repair costs after the home inspection. It’s all too common for either the seller or the buyer — or both — to start to “take a stand” on mere principle, forgetting that the ultimate goal is to transfer the house.

WIthout a skilled agent to smooth relations with the other party, not to mention provide a voice of reason when you yourself most need it, a deal that looked rosy one day can simply wilt and die the next.

By the way, I’ve got a whole list of other questions you might want to ask agents before signing them up — you’ll find it in the article “Choosing Your Real Estate Agent.”