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9 Things Investors Should Know About Working With Agents
It is almost implied that you would be working with a real estate agent should you consider buying or selling a house. Especially when you are doing it for the first time.
While there are circumstances where an agent is not required for a property transaction, few people would have the knowledge or conviction to go about purchasing or selling a property themselves.
On the other hand, even when seasoned investors have acquired the the knowledge and skillset to deal in real estate without the help of agents, they often realize the value an agent brings to the table and will be willing to hire them for their services.
Saying that, you cannot truly expect a real estate agent to fully put your interest first. Can you?
Here are some important things every real estate investor should know about working with agents.
1) Agents are not employees under your payroll
While this can seem like an innocent statement, the implications can be enormous.
Real estate agents are presumably self-employed. At least that what agencies tell them when first trying to recruit them.
This means that they take care of their own interest above everything else.
They are not paid by you by the hour. And how they are remunerated depends on the quantity and quality of deals they close.
This makes their number 1 priority the closing of deals. Not to serve you as if you are the boss.
If anything, the way industry practice goes, agents are often more likely to be working for sellers instead of buyers. This is because sellers are the ones with “guaranteed” commissions due to their influx of funds from proceeds.
If you are a buyer, there is every likelihood that you are just an additional option for an agent to match you up with a seller he already has on his hands.
This is why sometimes, buyers are offered services from a broker for free… because the brokers know that they will still see their payday from the seller side.
In effect, this also means that when a side has to be chosen, it is more likely that a buyer’s needs will be compromised in favor of the sellers.
For example, if you are going to offer $300,000 for a house and willing to go up to $350,000, there is every chance that this little nugget of material information will be passed, directly or indirectly, to the seller.
2) Be extra careful with buyer agents
As mentioned in the previous point, buyer agents often have an incentive for buyers to buy at as high a price as possible.
This is even when they are charging a buyer nothing or a flat fee.
Due to the practice of co-brokering, buyer agents will often take a cut from a seller agent’s commissions.
3) Deals are kept in-house whenever possible
If you don’t already know, the competition between real estate agencies are some of the most intense in the economy.
While agencies happily serve buyers and sellers when transactions close between, there is always a preference for agencies to make deals happen “in-house”.
This means that the seller and the buyer is represented by agents of the same agency.
This makes a lot of sense for key promoters and owners of an agency.
An in-house deal ensures higher revenue, more commissions for agents, more transactions to report, more statistics to motivate staff, and more profits for owners to share around too.
An in-house deal would also mean easier administrative work and the company has control of both side of the transaction. Negotiation on the inside can also happen more candidly, and commissions can be split privately.
This is why it’s not uncommon to run into agents who only show buyers houses being represented by agents under the same agency.
If you ever suspect this is happening to you, call you agent out on it. And switch agents if you have to.
4) Everything is negotiable
The template answer you might hear from an agent when you question him about the high commissions charged is that it is a “standard”.
A big mistake new buyers and sellers make is in believing that fees and charges are fixed and non-negotiable.
This cannot be further from the truth.
Generally speaking, the job and amount of work an agent has to put in in order to buy or sell is essentially the same whether it’s a $100,000 apartment or a $1,000,000 bungalow.
It’s one of the reasons why they pump their fist in delight whenever they are able to sign up exclusive sales contracts with owners of valuable real estate.
In view of this, you should always negotiate a lower commission unless your agent is already charging you a budget fee.
Why should you be paying more just because you have a more valuable home?
5) An open house may be more beneficial to the agent than a seller
We can talk about it all day about why open houses are essential to get a handful of serious prospects and leads.
And you cannot deny that. It’s one of those things that are politically correct.
Yet anyone with half a brain will know that an agent will benefit at least as much, if not more, than a seller from an open house.
An open house is a great opportunity for agents to fill up their database of potential buyers for other listings in their portfolio.
This begs the question: Is your agent working for you… or is it the other way around?
If you find that your agent is proposing to conduct excessively frequent open house events at your property, you should definitely look into your situation more closely.
Maybe you have a chic house that draws a lot of people. Maybe there is genuine overwhelming interest from buyers. Or maybe it is giving your agent an overflow of quality buyer leads to market to.
Whatever the case, consider that the world has slowly gone digital.
Even the most conventional of products which the general public used to think they would never buy online… are buying them online now.
Buyers are getting more tech-savvy, and there is every possibility that an online marketing approach can produce better results than the traditional open house.
6) You may not have knowledge of ALL offers on the table
Let’s put it bluntly.
When you hire an agent to represent you, like it or not, you are essentially getting a gatekeeper as well.
Bearing in mind that most agents will be looking out for themselves more than for you, deals on the table that are detrimental to them might never reach you.
I have witnessed this myself first hand when an agent who brought me to an open house chat on the phone with another agent about not informing a seller about a better deal made by a buyer. This is because the deal is close to being closed, and a better deal coming into the picture can complicate the seller’s decision and also delay their payday.
Anyway, it’s not something you need to witness first hand to acknowledge that this unhealthy practice exists.
7) An agent is not always necessary
If you have the time and expertise to market your property or find one yourself, you can choose to forgo hiring an agent to help you.
To emphasize this point, consider that FSBOs have been around for centuries .
The documentation and paperwork involved can literally be completed by anyone serious enough to learn them.
You might be shock at the small amount of paperwork done and filed on your behalf… while you are being charged thousands of dollars worth of commissions.
The truth is when it comes to documentation, agents add great value in knowing what to file and when to file as they have in-depth knowledge of the transaction process.
This can be learned by anyone as long as you are willing to put in a little time and effort into it.
8) An agent is not an expert in everything real estate
In essence, real estate agents are salespeople. Highly skilled ones I might add.
The product they sell is property.
Don’t expect them to provide sound legal advice or information regarding things that are outside their field of expertise.
While they might have basic knowledge of escrow, mortgage, wholesale, seller financing, etc, they are not the best people to go to for dependable advice.
The worst that can happen is that you act on advice they have given that are not credible and dependable. Causing problems on your side.
If you need legal advice, consult a real estate attorney. If you need accounting advice, talk to a proper accountant or CPA. If you need to kill some time, check out Buzzfeed.
9) Loosely regulated industry
The government and related authorities would never want to admit it. They can point to the various legislation or the tests that agents have to pass.
But the truth is that the real estate industry is not as tightly regulated as most people believe.
This why every other day, news reports of rouge agents and client-agent disputes continue to be reported.
A reason for this is that when it comes to real estate, things are not as clear cut as day and night. This makes it difficult for law to interpret what is and what is not.
So even though agents are required to hold a license, good or bad faith can be something subjective and almost always possible to reason away.