How Agency Agreements are Ruining the Real Estate Industry

Editors note- my blog address has changed to:

blueroof.wordpress.com

This is a much better blog host for me, thanks! Post follows:


First, let me start by saying that I believe in agency. I believe in the concept of agency and I believe in it's place within the real estate industry. I teach the agency classes at the real estate school and have never accepted teachers pay, because I teach agency for one reason only- to teach agency.

Having said that, agency agreements, as they are and as they are used (at least in Utah, Colorado and California where I have been a broker) is hurting the industry and clients as much as they are helping. This is mostly due to the fact that there are too may crappy Realtors out there doing a crappy job.

See, the problem is that many Realtors use these as a ball and chain for their clients. They meet the client, give them their schpill about why they should sign the agency agreement and then stop trying. Sort of similar to how a lot of people try so hard to make a good impression while they are first dating someone they like and then after they get married/committed/engaged they stop trying.

An agent meets a buyer, convinces them to sign an agency agreement, and then feels entitled to a commission whether they do any work for the client or not. The client can get tired of the agent not answering their phone (very common) and not returning their calls (very common) and find another agent, then go out with that new agent and find a home they like and the first agent feels like they should get the commission because they got an agency agreement signed first.

An agent meets a seller and convinces the seller that the best way to sell their home is to "price it right" and put it on the MLS. This is my favorite line used by agents. I'll have to dedicate an entire post to it later so this one doesn't go on too long. But, essentially, "price it right" means price it as low as the agent can get the seller to go, and then put the home on the MLS so some other agent can do their work and sell it. This way the listing agent has no marketing expense and no work to do. And then if the seller is unhappy with this "service" they are stuck in this contract, usually for six months.

I wonder why people would have a bad taste for Realtors after this...?


Here's my solution;

All agency contracts should allow the client to cancel anytime they feel they are not being taken care of. There could be a provision in a listing that states any actual marketing expenses incurred during the listing period will be reimbursed by the seller, but the seller can cancel and find a good agent if the one they got doesn't do a good job for them. The government tries to keep corporations from having a monopoly so consumers will benefit from competition. But when some schmuck lists a home and for six months no other Realtor can approach that client, help that client, or even talk to that client, there is a six month monopoly happening and often times the seller suffers. And the same goes for buyers working with an agent that does not do their job.

My solution is to let agents earn the business. Sign an agency agreement and represent the client, and know that if you do not represent the client well you will lose out on that business. Isn't that what agency is really all about? Representing the client? Putting the client first?

There are a lot of really good agents out there and they do represent their clients well and they do earn their business. If agency contracts could be cancelled the bad agents would suffer and the good agents would be able to show more people what it feels like to represented well by a good professional Realtor.

Editors Note-
Apparantly I'm not alone- Ardell at RCG wrote a post about the same thing on 7-25-06.