As interest rates creep upwards, and hot markets like Las Vegas and San Diego start to cool, pundits predict that the nation may be headed more toward a buyer's market in housing. And that's the worst thing that can happen to the industry because it's still woefully unprepared to work effectively with buyers.
Advertising works great when people want to buy, but how does the industry get buyers interested in buying homes in a buyer's market? The answer is - it can't, because many brokers and agents don't know how to work with buyers or how to sell.
There are several reasons for this:
The traditional real estate industry promotes listings. Listings are currency, and almost every training course for real estate success suggests that "if you want to last, list." You'll make more money because if you can get more listings, someone else will do the work of selling them, unless you are in a rare market where your broker dominates, and you can capture both sides of the transaction easily.
When markets collapse, or languish in buyer's markets, many Realtors realize they should have done more to build relationships with buyers, but there are few blueprints to follow to show them how.
The traditional real estate industry markets real estate, but insists it doesn't sell real estate. Sellers hire Realtors to sell their homes or get their homes sold, either of which means getting buyers to come to the table. Yet, Realtors seem curiously ashamed of the sales aspect of their jobs.
They say you can't sell a person something they don't want, and many agents do a better job avoiding showing certain homes they believe will take more creativity and work to sell than they care to put toward the chore.
New anti-agency laws encourage disloyalty to both sellers and buyers. Only in the real estate industry can a seller sign a contract with an agent to market his home, and have the agent come back with a signed buyer's representation agreement to tell the seller that she can't represent him any longer in the transaction, but that the listing fee will remain the same. Listing agents in some states tell sellers that they will try to get the highest price and best terms for their seller to get the seller to list with them, and then turn around and sign buyers by telling them that they will get the best terms and lowest price for them. If agency is not possible, both the seller and buyer are left to negotiate for themselves, and one of the most valuable reasons for hiring a real estate agent has been eliminated.
They say they are professionals, yet run from fiduciary responsibility if there is a chance to represent both sides of the transaction. In no other "profession," does a representative have the ability to lessen fiduciary responsibility to the client in favor of also representing the other side in the same transaction.
The real estate industry has done such a good job representing sellers, that many buyers think they don't need an agent. Some believe that if they buy a home from the listing agent, that somehow, they'll be able to negotiate a better deal. Meanwhile the listing agent can remain the fiduciary of the seller in certain states, while working with the buyer as a customer, but the buyer will have a facilitator rather than a representative.
It's evident in the confusion of buyers that some are beginning to realize that if their buyer's agent is "free" as so many advertise they are, then somebody else has to be paying the buyer's agent. While the industry maintains that the cut comes out of the listing broker's pocket to pay the buyer's agent, the question is - if the listing broker is paying the buyer's agent, then doesn't it stand to reason that the buyer's agent is working for the listing broker?
In the argument of whom pays the commission, buyers can do math well enough to realize that the money they bring to the table covers both the listing agent's fee and their buyer's representative's fee, yet the listing agent can remain loyal to the seller even while being paid with the buyer's loan money. Some buyers want to use this fact as leverage to get dual agents to get reductions from sellers.
Most agents are not trained to work with buyers because buyers are still considered the second-class side of the transaction, even though nothing happens until something is sold.
Many Realtors have refused to recognize the interest span of a typical buyer particularly one who uses the Internet. They think that all buyers are interested in are listings, when what buyers really want is information - about listings, but also about the homebuying process. Realtors often miss the chance to be indespensable mentors early in the transaction.
Buyers, because of their lower status in the real estate transaction (and this is squarely the industry's fault,) have been trained to be disloyal, distrusting, and solitary because few in the transaction really represent their interests. There are less than 500 exclusive buyer's agents out of one million Realtors. Only one in 24 Realtors is a REBAC member, a buyer's representative dedicated to being a fiduciary to the buyer. However, REBAC members can also be listing agents, which means that it is up to the individual agent whether or not he or she will represent both the buyer and seller in a transaction.
Continued competition over the currency that is listings means that listing agents and brokers are willing to supply listings to buyer's agents to sell, but do not want to contribute listings to any environment where buyer's agents might be chosen by buyers over the listing agent for the listing. This gives much more limited means by which buyers' agents can even get the word out to buyers that they exist. While it is effective in squashing competition, such practices also tarnish the unique cooperation that the real estate industry has built.
With a slowing of the real estate market anticipated by most economists and many in the industry, it stands to reason that now is a good time to reverse a lot of the industry culture that hurts the effective representation of buyers and start favoring buyers with better training for real estate agents and better service from brokerages.
But how to go about it?
Here are a few suggestions:
Demystify who represents whom
It should be disclosed to the buyer immediately who an agent represents. If a buyer meets an agent who represents the seller, the buyer should be told immediately that the agent is representing the seller.
If the buyer understands that he is the customer, not the client, and is willing to proceed with the seller's agent serving him as a non-fiduciary, then no harm is done. But, by the same token, the buyer should also be told that he has the right to obtain an agent who can act as a fiduciary if he wants one.
Clarify who pays whom
It should be made clear to the buyer how money flows in a transaction. Every state is different, but in most states, the seller hires a listing agent, and the listing agent agrees to work for a fee. The listing agent pays the sub-agent, or buyer's agent. If a buyer wants to insure fiduciary level service from his agent, he should be willing to sign a buyer's representation agreement that outlines that the buyer's agent will be paid from the proceeds of the transaction.
Stop being ashamed to sell
Unless brokers and agents graduate from law school and pass the bar, they can't function as attorneys anyway, so they might as well learn to be great at what they are authorized by license to do by the state - to broker real estate.
That means to facilitate a sale. Finding buyers. Finding sellers. Putting them together. Selling.
Sellers put their homes into MLSs with listing agents because they are told that if they do that, all agents will have an opportunity to sell their home. They have the expectation that their home will be sold if this happens. Listing agents market homes to other agents and to the public, but it is up to the buyer's agents to do the "selling" to the buyer.
If an agent is going to represent buyers, she should be trained by the broker to sell, and that means learning to show the bounty of homes in the MLS with pride; to overcome objections (especially silly or unreasonable objections), and; to squash personal preferences in types of housing or neighborhoods so that all sellers who provide inventory to buyer's agents via the MLS have an equal shot at having their homes presented.
Quit worrying about liability and start taking responsibility for clients and customers
Real estate associations have just about seen to it that the use for hiring an agent has been legislated out of existence, and this is at the insistence of brokers who see more profitability in the abdication of responsibility to either buyer or seller. But this abdication is coming back to haunt the industry with such seemingly unrelated problems as confusion over who owns the listing data (MLSs, agents, or brokers) to the inability to cope with new discount business models that charge so little they don't represent the seller or buyer at the negotiating table.
It's a little known fact that brokers who allow dual agency or one of its derivatives - transactional agency - pay more in E & O insurance than brokers who practice single agency. That's how much of a risk the insurance companies see in dual agency.
While it's true that most real estate lawsuits are brought by buyers, it is the second-class nature of representation of buyers that is at the root of misunderstandings, disappointments and fraud experienced by buyers.
Brokers have to decide now whether they want to be in the brokerage business or in the responsibility deferment business.
Which do you suppose is more rewarding for the broker, agent and consumer?
Published: October 13, 2004
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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68.
In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.
Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans.
Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR
"The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors
Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68.
