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Real estate transactions can run from simple, to some with a few moving parts, to very intricate. The more moving parts there are, usually, the more personalities are involved. A well-seasoned broker is going to be adept at:
Negotiation
Managing personalities
Legal ramifications
Paperwork
Logistics
Financial acumen
Before hitting these points, let’s start with a quick discussion of why you need to have your own representation. For further reference, while there is no dual agency in Colorado, it would help to understand the concept of it; google dual agency.
It used to be, back in the dark ages of the eighties and early nineties, that an agent listed a home representing the seller. Then you came along as a buyer, engaged with that listing agent, and the agent worked for both of you (theoretically). As such, the agent had a fiduciary relationship with their seller, (the legal obligation to protect the interests of their client – the seller. IE. Not you). And the agent had a customer relationship with you, which for arguments sake here is a much lower bar of fidelity and loyalty than they have to the seller.
How does this sound to you? Let’s look at it this way. Without you the buyer, and your money, there is no transaction. You are bringing earnest money, you are bringing down payment, and you are agreeing to borrow a ton of money to guarantee paying for the home. But, the only representation in the transaction at a fiduciary level is to the seller. Does that make sense. Not for this fat kid it doesn’t.
This is where buyer agency came about, and this is why you need buyer representation. Without it, everything you say of import to the listing agent is not only repeated to the seller. The listing agent has a legal obligation to report it to the seller. That is not the way I want to buy a home. Is it the way you do? I don’t care to tell my agent something in confidentiality and then way too late realize that everything I say to them goes immediately back to the seller.
I have heard the argument that if I go direct to the listing agent the commission will be discounted by the agent. Balderdash! The agent is working for some sum that is being charged by the agent’s brokerage. In normal fashion, the listing brokerage will split some of that fee with the brokerage that brings a buyer. If you don’t use another brokerage firm and agent to purchase, and go direct to the listing agent, that listing agent might discount the fee by .5% or 1%. Or they might not. But even if they do, is that money you really want to save? Do you really want to walk into perhaps one of the biggest transactions of your life with no one to have your back? Or to make sure you’re protected?
{At this point I’d like to point out that moving through the courts right now is a very large, very public class action suit pertaining to buyer brokerage.
The crux of the lawsuit is a large class of plaintiffs have brought suit saying that since sellers have in due course have paid the buyers agents (from other firms) that consumers were harmed by price fixing. Some large real estate firms have been named as defendants and recently some of them have settled with the plaintiffs. And while I definitely have an opinion on this, I don’t care to opine on this lawsuit here. More to come on that in another series of articles).
One last point about buyer brokerage. Weak agents that are looking to sign you up as a buyer and represent you will say something to the effect that “buyer brokerage is free to you, because the seller pays me”.
This cannot be further from the truth. While the fees paid out from a real estate transaction may be paid by buyer, by seller, or on a split basis, make no mistake about it. You, the buyer, are bringing all the money to the transaction. There is no transaction without you and your checkbook. I’d like you to think of it like this. On the day of the closing, you are going to walk into a conference room (or virtual conference room) with your pockets stuffed full of your own and your lender’s money. Someone in that room is going to grab you by the ankles and hold you upside down over the table, whereby all the money will fall out of your pockets and onto the table. At that point, everyone around the table will grab some of that money. And for that, you will get a set of keys. The seller grabs some, both agents grab some, title grabs some, the government, the HOA, maybe a vendor or two, everybody’s got their hands out. You, my friend, are throwing the party. The seller ain’t paying the buyer’s agent, you are paying for your representation, so make sure your agent is competent.
If you think of your home purchase like this, you will realize my point that you need someone to represent you in a home purchase. You are bringing all the money, you are paying everyone’s fees, and you need someone to provide loyalty and fidelity to you.
I cannot think of a more important reason to interview my buyer’s agent and make sure he or she has the necessary skills to represent me.
Ok, so we’ve hopefully established that you want a buyer’s agent to represent you because you want a level of representation commensurate with the sellers. You want loyalty and fidelity.
Let’s now get to what skills you need your buyer’s agent to possess. To reiterate, at the very least I want my agent to be adept at:
Negotiation
The ability to manage stakeholders expectations
Legal ramifications
Paperwork
Logistics
Financial acumen
Let’s talk a bit about each one.
Negotiation
An experienced broker / agent will have been through some training that helps them realize the goal of a transaction is a successful closing, not the winning of a strife filled war of attrition.
The art of negotiation, especially in a home purchase, is not war; it’s not win at all costs. I have had numerous clients wanting to beat the opposing seller or buyer into submission. It’s not the way to proceed, nor is it a way to get what you want.
Mostly, the art of negotiation is about presenting an idea that your counterpart thinks is their idea, and then they allow you to agree with it. It is subtle, nuanced, and with all due respect, I do not see many clients that possess this skill. Especially people who negotiate in their work lives. A lot of those career negotiators find it difficult to measure and temper their emotions when their personal finances and family are involved. And it’s very difficult to successfully negotiate when your emotions are high.
I have negotiated with plenty of agents in transactions that play all the games. They don’t answer their phone, they’re too important or busy to communicate, and they allow their clients’ emotions to show through.
I love facing them; they are easy to recognize, and they show their hand often.
To be clear, you want an agent on your side that keeps you and your thoughts in the background. You do not want your counterpart to know what you are thinking.
He who has learned to disagree without being disagreeable has discovered the most valuable secret of being a diplomat. – Robert Estabrook
Personality management
The amount of people in a home sale transaction can reach up to 15 for a ‘normal’ sale.
Usually, there are:
2 title agents
2 real estate agents
Buyer (s) 2 or more
Seller (s) 2 or more
Loan officer and assistant
Home inspector
Vendors; think of perhaps: roof, sewer, structural, painter, handyman, GC, windows, HVAC, etc.
Now, hopefully, all these folks are as calm, cool, and collected as we are. But it might only take one or two that don’t have the communication skills, steady demeanor, and placid comportment that we require to make a mess of a contractual transaction that has a ton of very, very important deadlines attached to it.
Many times, all the people involved have no ego and the transaction is smooth as silk. And many times, it’s a struggle right from the offer acceptance. And sad to say sometimes this has to do with a prominent person in the hierarchy, and agent or loan officer or attorney, that is either too busy or too incompetent to execute their duties well. You want skilled buyer representation to address this at the point of friction. A good agent that can take the temperature of a deal, the personalities, and the solutions required are worth their salt. Because the win they provide is not ego based, which is the win you require – a successful closing.
A person that can manage other people’s expectations, and their own, will be an extremely formidable proponent for you. And that person will make closings easy.
“Winners make a habit of manufacturing their own positive expectations in advance of the event” —– -Brian Tracy
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The paperwork
The amount of paperwork in a real estate transaction can be staggering. Let’s list a few of the docs that may be needed in a typical home sale.
Either an Exclusive Right to Buy or Sell
Contract to Buy or Sell
Change of Status
Agreement to Ammend/Extend
Definitions of Working Relationships
Selller’s Property Disclosure
Square Footage Disclosure
Water Addendum
Post Closing Occupancy Agreement
Some of these, like the Contract to Buy and Sell might be upwards of 18-20 pages long, single spaced, with a large volume of legalese attached. I don’t claim to know every clause or entry on these docs. What I do know that makes sense for me is to hire a transaction coordinator on my own to make sure that I (and my buyers) are in compliance with all of Colorado’s statutes and that all our deadlines are explained and met.
Some people are detail oriented. And some are not. For me, I’d rather pay my TC to make sure that I have all my files in order so I can keep my job of representing and moving my clients forward. And that goal is only to move the buyer to a successful close.
A man’s got to know his limitations. -Harry Callahan
Legal Ramifications
When a person pays their $400 US dollars and takes a test to be a real estate broker (yep, that’s all it takes, not really a high bar to entry) one of the biggest things they learn is to not represent themselves as something they aren’t. And the biggest one of those things that we don’t represent being expert in legal matters.
One of the best phrases I’ve ever learned is “I am not sure on that, but it sure seems like it’d be helpful if you consulted an attorney”.
Or a structural engineer, or a roofing specialist, or a sewer professional.
Unfortunately, while brokers carry E&O (errors and omissions insurance) it rarely covers enough of any mistakes that arise from giving advice that brokers aren’t qualified to give. And attorneys know how to go after the deepest pockets in a lawsuit.
There are a shit ton of stories of brokers and agents that thought they were covered for a mistake in giving unqualified advice that have cost them tens of thousands of dollars.
Unfortunately, we live in a litigious society and if you run into a crazy on the other side of your transaction, I want you to have your broker be the voice of reason to make sure you get the counsel you need. I know this sounds like CYA, but here we are.
“If someone tries to steal your watch, by all means fight them off. If someone sues you for your watch, hand it over and be glad you got away so lightly.”
― John Mortimer
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Logistical complexities
Let’s talk about showings, inspections, making appointments, getting you access to homes, making sure pets aren’t running free, and negotiating secondary access for your vendors and inspectors.
What about the school district ratings, where is your go to shopping and worship and commuter needs? How far are you from the routes you need to drive on? What about sports complexes for the kids and your other recreation?
All these things fall into the logistics of a home purchase in my mind, and many times the homebuyer is so overwhelmed that they forget to think of some of these things. A buyer’s agent will have some knowledge or research of this stuff when taking you through the neighborhood.
While sometimes it may be too demanding of your agent to know exactly all the answers to these questions unless he or she lives there, a broker that services their clients will find this information out while preparing an offer.
As someone who flew two space capsules and twice landing in the ocean, I can attest from personal experience how much logistics work is needed to get you home -Buzz Aldrin
Financial Acumen
I don’t think your broker needs to be Warren Buffet or Peter Lynch.
What I suggest is that your trusted advisor, who may be advising you on the largest transaction in your life should have a level of financial sense to look at the pros and cons of a home purchase.
I think he or she should be able to talk you through the next five years of your life considering your income, the added liabilities that you’ll be taking on, and the level of comfort you yourself need to have to feel safe in the purchase.
If it was me, I’d like my broker to be able to
- Give me a net sheet so I know what my personal balance sheet will look like a month after my purchase
- Talk to me about what expectations they have for 1, 3, and 5 years out with respect to the mortgage I’m taking and my household’s expected income.
- If (I am planning for this) and when I’ll be able to buy another home for investment either using equity built in this home or added income due to my household’s career prospects.
Maybe this is too much to entrust to your agent for you. Maybe you don’t want to give your agent that much information. For me, this is exactly why I want a true fiduciary in my corner. I want a professional that not only knows how to get a deal to closing, but can keep me apprised of things I need to know in the real estate markets that I don’t have time to keep up on.
You might just want someone to open doors and (hopefully) write a contract that gets your offer accepted. For my purposes, I’d want an agent that can help me and my family use real estate to get me to financial freedom.
“A forever real estate agent understands that the concept of home is predicated on the many changes life can bring, and it doesn’t start—or end—with the transaction.” ― Gino Blefari, CEO of HomeServices of America
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