The Reality of Real Estate (BlueRoof Blog)

Thoughts, opinions, and truths about real estate and life as I see it...

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Location: Salt Lake City, Utah, United States

I like long walks on the beach holding hands and.... oh, wait- that's a different site.

Monday, July 17, 2006

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.

161 Comments:

Anonymous Anonymous said...

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12:44 AM  
Anonymous Anonymous said...

When bad agents use agency to mistreat clients it's very poor logic to blame agency. Bad agents are going to find a way to mistreat people no matter what laws and practices are currently in place.

The only sector where the issues described have become a problem is with discount brokerages.

If you remove agency dishonest clients and agents will con honest agents into doing all the work only to have the rug pulled out from under them in the end. Agents will be reluctant to do any work for fear that this will happen, clients will be unhappy, and everyone will lose out.

Please also note that the length of agency is negotiable. 6 months is a very long contract, especially when the market is hot like it is. 2-3 months is more reasonable.

What's needed is client education. Some agents want clients ignorant and helpless so they will have to rely on the agent, but in fact the more knowledgable a client is the more likely they are to choose the agent that's right for them, be realistic with expectations, and be happy with the final result.

1:47 PM  
Anonymous Anonymous said...

It's not only "discount" brokers who mistreat people or agency. And what is your definition of a "discount broker"? Just because someone does not charge the same fee you charge- does that mean they are discount? Some agents simply charge more than others for the same service.

10:53 AM  
Anonymous Anonymous said...

Nice post, but it doesn't offer any solutions.

If I want to sell my home, what is the best way to do it? Should I go the FSBO route?
I'm sure there are good agents out there - how do I go about finding one? I feel the only way to get a motivated selling agent is to revamp the commission structure. Say, 10% of anything the house sells for above $X. eg. if X is 250000. If the agent can sell it for 300000, they get $5000. Something along those lines - these numbers might not some work, but I think something with a breakpoint is a lot better motivation than the flat 3%.

1:50 PM  
Blogger gt242 said...

Amit,

I offer my solutions about making the agency agreements more client-centric. Your idea about commissions can be discussed with your broker.

It is illegal in most states (including Utah) to have a net listing, which basically means that the commission is any amount over a pre-determined price. But is is possible to have the commission rate be x% if the home sells for $x and y% if the home sells for y% and so on...

4:31 PM  
Anonymous Anonymous said...

"Anonymous said...
It's not only "discount" brokers who mistreat people or agency. And what is your definition of a "discount broker"? "


Of course there are good people and bad people in every part of the industry. But discount brokerages as a category carry the reputation of listing a property on the MLS then disappearing for two or three months the way Greg mentioned in the blog. It's simple mathematics: cut rate=cut service. An agent charging 1 or 1.5% has to spend his time hustling new clients because he has to do two to three time more business to make a living.

I can tell by your defensive posture that you're a discount broker. As Greg said, there is room for variety in real estates services. Some clients simply can't afford to pay 6% and don't mind doing their own marketing, phone work, scheduling, and showings. To them you are valuable.


To Amit:

As in all things, the most reliable way to find a good agent is through word of mouth. Get referrals from friends and family. Then arm yourself with a little knowledge and interview the agents. Remember, you're hiring them. Ask questions about anything you're unsure of. And when you find an agent you like, stick with them. Tell everyone you know that you had a positive experience. This way the good agents will thrive and the bad ones will be weeded out.

11:18 AM  
Anonymous Anonymous said...

What's wrong with getting something at a discount anyway?

2:58 PM  
Anonymous Anonymous said...

Why would someone want to sign a contract with someone to show them homes? They just met this person and don't know anything about them- the homes are all online now anyway.

If an agent asked me to sign a contract before they showed me a house I would run.

I'd rather work with someone confident with the service they provided.

12:00 PM  
Anonymous Anonymous said...

You get what you pay for if Blue Roof claims to have the "good" agents and people believe them that is a shame. If a realtor is making a $1000 vs $10000 do the math, you will not get an experienced agent nor one that gives you good service. I am not saying you will always get good service with a full service agent so do your research, but Blue Roof's agents will have to spreaad themselves pretty thin selling 10 homes to equate to one the full service realtor. They are absolutely no threat because an educated person can see right through them. I agree that the defensive tone they have taken is proof of how weak a plan they have. This is a business they hope to turn around and sell for profit, they are not in it for the client.

6:12 PM  
Blogger gt242 said...

It is the natural and predictable response for traditional brokers and agents to say that because an agent charges a commission that is less than theirs the agent is not as good.

I have been hearing this my entire career, only I was always on the other side, being an agent who charged a higher commission of 6 or 7%.

We offer full service at a different rate because that is our model. Some people are threatened by that and others are accepting.

There is room in the industry for all of us. If your clients feel like they are getting better service because you charge more, than that's between you and them.

Thanks for visiting my blog.

9:30 PM  
Anonymous Anonymous said...

I have two solutions. #1. Listings should be limited to 30 days.Then the listing should only be able to be extended twice for 30 days each. This puts pressure on the agent and broker to keep the client happy.It also means pricing right will payoff. I am sorry for those who says that I can not afford to pay for ads etc. for a 30 day listing. If you are under this type of pressure you are less likely to just submit it to the MLS and hope for the best. We are hired to use our best efforts to market the property. We should actually do some marketing.
#2. Make the commission split for a in house sale a little larger than for a co-op. The listing agent should agree to chip 1/2 of a point or so. Here we only allow new agents to show in house listings.

By doing this brokers will actually lower their costs and get less of the " If I can sell my house for 10% more than it is worth, I will buy something for 20% less than it is worth" type of listing.

8:39 PM  
Blogger gt242 said...

To the last (anon) poster- What company are you with?

You need to be careful about offering an incentive to sell "in-house" listings over other brokerages listings because this can be viewed as leading people to buy your companies listings over other homes that may be better suited for the buyer.

It's just a sticky situation. The company I worked for when I first got into the business did this and they stopped because of that reason.

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Anonymous Anonymous said...

Some great posts. Keep up the good work. For another good blog on similar real estate matters check out http://www.realblogging.com

Dan

1:09 PM  
Anonymous Anonymous said...

Great concept but as our industry shifts to where the seller is offering little or no commission to the co-op agent, how is that agent going to get paid? No contract and good luck collecting anything from the buyer you just helped find their dream home. "This was a great transaction. The seller wasn't offering any commission, you owe me 3%." Good luck with that. You can't boycott the listing because the offered commission doesn't meet your standard. You better have something in writing.

A buyer has as much responsibility to know what they are signing as a Realtor does when they sign the same contract. Our company has Buyer-Broker Agreements and we rarely use them to their chagrin. We have been burned for no apparent reason. They just happened to write it up with another agent. We've been burned under contract as well- how much bad will do you create versus the amount we would have collected.

There are plenty of bad/stupid/lazy agents (and for every one of them, there are probably ten buyers who the same could be said). We rarely get interviewed before being "hired". We don't work with everyone that walks through the door.

Buyer contracts feel like a necessary evil that we can get away without using now but I think we will see more of them, not less, in the future.

I use "you" as real estate brokers in general, not aimed at anyone specific.

Charles Turner
www.PortlandRealEstateBlog.com

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