Simple.  He can’t.

The market determines final sales prices.  Not the agent.  Not the seller.  Not the neighbors.  Not your relatives.  The market.

Yes, I understand one of the agents claimed he could get more for your house than the other agents you interviewed.  This is a fairly common, although unethical, practice in the real estate industry.  It’s often called “buying the listing.”

The agent’s strategy is to get you to list your property with him by telling you he can sell it for a higher price than any other agent.  The price is not supported by the comparable sales in the area (red flag #1).  The agent will usually talk about how his marketing will draw more traffic and get you more offers on your property (possible red flag #2).  If you’re lucky, you might even get into a multiple bid situation and further inflate the final sales price (red flag #3 – nobody knows how many offers will arrive or when, although the opposite approach of under- pricing this listing makes this much more likely than marketing).

That’s music to a seller’s ears.  Too bad it doesn’t work that way.

Pay close attention to the following statement: 

There is no amount of marketing that will make a buyer overpay for a property.

Let’s say your neighborhood grocery store was selling Oreo cookies for $3 per package.  At the same time, the neighborhood gas station was selling identical packages of Oreo cookies for $10 per package.  Where would you buy the Oreos?  At the grocery store, of course.

Take this one step further.  Let’s say the gas station has the $10 Oreo cookies in a glass display case in the middle of the store, there are 100 black and white balloons attached to the outside of the store, there’s a big banner advertising the $10 Oreos, and there are even dancing models in bikinis in the store telling you about the $10 Oreos.

Now where are you going to buy your Oreos?  The grocery store, for $3, of course.

The same principle applies to real estate.  Buyers are not stupid.  And the banks loaning money to the buyers are not stupid either (anymore).

The agents who use this strategy are getting you to sign a long-term listing agreement.  This gives time for you to see how many people are interested in overpaying for your property.  Surprise, surprise…no buyers are making offers.

“Well,” says the agent, “I guess you should lower the price.”

And that’s how it works.  Once you’re in the long-term listing agreement, you’re stuck.  The agent knew that would happen from the beginning and has removed your ability to choose another agent.

There may be some concern that a low list price will cause the seller to lose money.  “If I price it so low, there won’t be room to negotiate.”  This is a common concern, but the free-market system solves that problem.  If a property is priced too low, all the buyers will be interested in it and will bid the price back up to market value.  It operates like an auction at that point.

You’re in a much better position if you price your home at market value and reject offers that don’t meet your price or terms.  If you price it too high, you won’t get any offers at all.  I see this happen every day, from weak agents who do a poor job of educating their sellers.  You can’t afford to make mistakes like this in any market, especially in today’s market.

The trial started well.  My lawyer gave a great opening argument and I felt good about my representation.  After he had presented the argument for my innocence, something strange happened.

He turned to me and said he would be presenting the argument AGAINST me as well.  He was the only lawyer in the courtroom and had to represent the prosecution and the defense at the same time.

What?!

Okay, so maybe I invented this story.

It certainly helps me make a case for the ridiculousness of dual agency in real estate transactions, though.  It’s like one of Aesop’s fables, with a modern day twist.

Dual agency is the idea that one real estate agent represents both parties in the transaction at the same time.  How can one person  advocate for both sides of a transaction?  Great question.  I don’t get it either.  Just like in a courtroom, it doesn’t seem possible to represent opposing parties’ best interests simultaneously.  Yet, it happens with frightening regularity in the real estate industry.

Some states don’t allow dual agency at all.  We’ll call those the “smart states.”

Some states allow dual agency as long as all parties agree to it.  We’ll call those the “dumb states.”

I’m having one of my interns create a colored map so we can easily see where the smart states and dumb states are located.

When a buyer and seller consent to dual agency in a transaction, they have cheated themselves out of the representation they deserve.  Sure, the agent will have good answers for why it’s a good idea and will make you feel good about the decision.  OF COURSE the agent is going to tell you that because it means two commissions instead of one.  If there is only one agent involved in the transaction, the agent gets to keep the entire professional fee instead of splitting it with another agent.

Even if dual agency is allowed in your state, I don’t ever recommend it for consumers.  I also discourage agents from acting as a dual agent.  I’ve been around this business long enough to know where lawsuits come from, and dual agency is at the top of the list.

I make it point to tell my clients that I will NOT be involved in dual agency, even if the state allows it.  It just doesn’t make sense to me.  My happy clients are the best source of new business referrals for me and there’s no amount of money that is worth my reputation.

Is dual agency greedy or simply short-sighted?  Since I don’t like either of those words attached to my business, I’ll stick with single agency, thank you.

Where the buyer found the home purchased in 2008, percentage distribution:

34%  Real estate agent

32%  Internet

15%  Yard sign/open house sign

7%   Friend, relative, or neighbor

7%   Home builder or home builder’s agent

3%   Newspaper advertisement

2%   Directly from the sellers/knew the sellers

1%   Home book or home magazine

The interesting piece to note is 66% of all buyers found the home they purchased through their agent or the internet.  Only 15% found it through an open house sign or yard sign (those two are grouped together in the report).  This is relevant because it shows where buyers go when they want information about properties for sale.

The odds are not good for someone to stumble into the home of their dreams without being directed there in some way.  The odds are VERY good that stumbling into an open house will put a buyer in front of a Realtor. The Realtor’s job at that point is to build a relationship with the potential buyer and help the buyer find a property that is a good fit for the buyer’s criteria.

Dirty little secret from the agent world – The ONLY two reasons agents hold open houses:

1. To keep the sellers happy because the agent is too afraid to say no to the seller or simply doesn’t know that open houses don’t sell real estate.

2.  To capture new buyer and seller clients who stumble into the property.

I have heard of unique situations where people wander into an open house and buy it on the spot.  The reason I remember those stories is because they are extremely rare.  It simply doesn’t happen very often.

There is a third possible reason an agent would hold an open house, and although uncommon, it is worth mentioning.  Some agents are legitimate “neighborhood specialists.”  Many claim this distinction and don’t have the foggiest clue, but there are some true specialists out there.  As part of a larger marketing and branding approach to a real estate sales business, the specialists will use open houses as a way to keep tabs on the real estate activity in the neighborhood and meet everyone in the neighborhood.  They are the same agents with For Sale signs all over the area and a strong internet presence focused on the neighborhood.  These agents are usually the ones who know the market statistics and are recommended by the neighbors and past clients in the area.

If you find one of those agents, you can stop searching.  You hit the mother lode.

When you’re exploring neighborhoods where you might want to buy a house, visit some open houses (Sunday afternoons are prime time).  Talk to the agents in the open houses.  Ask a few simple questions about market statistics, list-price to sale-price ratios, and month’s of inventory on the market right now.  You don’t have to know the answers to those questions for this exercise to work.  You’ll be able to tell which variety of agent you have encountered when the agent responds to you.  Proceed accordingly.

Topics:

• Real estate commissions and savings to the seller
• The finer points of negotiation
• Disclosures
• Legal precautions
• Online and offline marketing
• Open houses
• Safety and security when showing your home
• The list price and your home’s value
• Real estate contracts
• Appraisals, home inspections, and financing
• Do you need an attorney?

At the end of the webinar, there is an open forum for unanswered questions.  To register, please send an email to info@transparentrealty.com.  There is no cost for the webinar and all we need is your name, email address (we never share it), and city location (for time zone planning purposes).

Common questions covered during the webinar:

How do buyers get themselves involved in lawsuits?  How can I avoid this?

How do I choose a real estate agent?

Should I use one agent or multiple agents?

Do I need a lawyer?

What are my mortgage options?

Should I buy a foreclosed property?

Is a house or a condo a better choice?

What are the tax implications of purchasing and owning real estate?

When should I do an appraisal?

There is an open forum at the end of the webinar where participants can ask any questions that weren’t answered.  The webinar is free and all you need to do is register by sending a message with your name, email address (we never share it), and city location (for time-zone purposes).  The registration email address is info@transparentrealty.com.  Please put “first-time buyer webinar” in the subject line.

The Digg post

Granted, “Jennifersmom” doesn’t even have a profile picture, so this could be a competing agent for all we know.  The question becomes, “How many posts do you need like that before everyone starts to believe them?”  I have a feeling it’s fewer than you’d think.

$200,000 sale price

6% total commission paid by the seller = $12,000

Half to the listing agent =$6,000

Half to the agent who represented the buyer = $6,000

What is often overlooked is the agents each have to split their commission two more times after the transaction closes.  First, the agent has to split her commission with the broker.  The commission split arrangements between agents and brokers vary widely.  Typically, it’s something like a 50/50 split for newer and less experienced agents, and as high as a 90/10 or 95/5 split for the most experienced and productive agents.  Let’s examine a 70/30 split between the listing agent and the broker.

$6,000 total commission

70% to the agent = $4200

30% to the broker = $1800

Now, the listing agent gets to split that $4200 with her business partner, Uncle Sam.

$4200 minus 35% ($1470) = $2730

From the $2730, the agent is also paying the other business fees associated with being a real estate professional.  This includes personal marketing, dues to the board of Realtors, continuing education, gas, cell phone, website, etc.  The original $12,000 in total commission isn’t as sexy now, is it?

Coming soon! The truth about dual agency and why it doesn’t represent anyone’s best interests except the agent.

Should you stage your home?

Should you hire an agent?

How do you determine the asking price?

What are the common negotiation pitfalls for buyers?  Sellers?

Is your agent an idiot?

And much more…