2010 Jul 12th

Are You Really Sure You’re Not Working With an Agent?

Misguided Buyers  confused

I had an interesting conversation with some Hoboken condo buyers the other day.  They were not customers of mine but were buying in Hoboken and for other reasons we got to chatting.  They were in contract for a condo in Hoboken in a building with which I am extremely familiar.  I asked them who their agent was and they replied “oh, we aren’t using an agent“.  They had seen the property on the internet and called the listing agent directly.  They viewed the property with the listing agent, made an offer through the listing agent and negotiated the sales price with the listing agent.  But they were convinced that they weren’t using an agent.

A few days later I was on a listing appointment with sellers who were in contact for a new contruction condo in Hoboken.  Similarly, they told me that they weren’t using an agent for their condo purchase.  They had gone to the sales office, viewed the property and made their offer through the sales office.  Yet they also believed they were “not using an agent”.

When you, as a buyer, deal directly with the listing agent or the sales office to purchase a property, that listing agent, know it or not, IS YOUR AGENT.  The listing agent loves when this happens because he or she gets both sides of the deal and makes double the commission.  Right there – if buyers realize this single fact – they could avoid making their first mistake.  If I were a buyer negotiating an offer directly through the listing agent one of the first things I would ask for during my price negotiations is that the listing agent cut his or her commission.

The first couple went on to tell me about some specifics the listing agent told them about the building.  Many of them were simply not true.  For example, the listing agent actually told the buyers that they could build a deck on the roof.  He failed to mention anything about needing to get a building permit and possibly a zoning variance from Hoboken City Hall.  Or that City Hall almost never grants them anymore.  Clearly, the listing agent was either simply ignorant or would say just about anything to get the property sold, especially to his own buyers ($$$).

Hoboken Buyers Need a Wake Up Call!wake up call

The listing agent works for and is an agent of the seller. He has a fiduciary relationship to the seller.  There are many states that have made it illegal for the same agent to be on both sides of a deal because it is viewed as a conflict of interest.  New Jersey is not (yet) one of those states.  New Jersey does have rules that require the agency relationships to be disclosed to the consumer in writing.  (As a lawyer, I can tell you that the “Consumer Information Statement” disclosure form typically used by agents is one of the worst written legal documents I’ve ever seen.)  Yet how many of these agents actually understand and can explain what it means to be a “dual agent”?  So what is a buyer to do?

Any time a buyer sees a property on line, or at an open house, or in an advertisement of any type, chances are that property is in the multiple listing system.  That means that you can view the property with the agent of your choosing and let them work on your behalf while the listing agent works on the seller’s behalf.  That is the whole point of the multiple listing idea.  Any agent can sell any property.  Even if you are looking at, say, Toll Brothers properties at Hudson Tea, Harborside, or Maxwell Place.  Before you go, find an agent you like, trust, and wish to work with and bring them with you to the sales office!  Or if it’s a spur of the moment visit, walk into the sales office and state “I have my own agent but she is not with me today – if I look at your properties will you allow him or her to represent me?”.  If the answer is no, walk out.  Come back later with your own agent.

The same holds true when visiting an open house. When you enter the property and you’re asked to sign in, let the  hosting agent know that you are working with your own agent.  Should you decide you’re interested in the property, you’ll be able to move forward with your own agent at your side.  If you don’t care, and you do work with the listing agent, be aware that anything that you tell that listing agent must be disclosed to the buyer.  That is part of the fiduciary duty the listing agent has to the seller.  During price negotiations, if you say “let’s start at $475,000 and see what the seller says before we go up to $500,000”, the listing agent must tell that information to the seller!  Forwarned is forearmed.

  1. Gilbe

    Speaking of transparency, can someone answer this question: Why would a realtor, on behalf of a seller, negotiate a credit instead of a price reduction. In other words (for example) counter to a purchase offer with: pay the list price and at closing you’ll get a 20K credit? Does this appear to anyone else that the realtor is putting his interests ahead of the seller’s? Isn’t it better for the seller to show less profit on the property?

  2. Lori

    Gilbe – Whether to issue a credit to a buyer rather than lower the purchase price is always the seller’s decision – not the realtors (just to be clear). I don’t see how it affects the realtor’s interest in any way. Most of the deals with a credit were more in the range of 2k, not 20k. They are often for things like replacement of old countertops with granite, or installing a washer/dryer, or a year’s parking, or prepayment of a special assessment. It’s commonly done as a way to overcome the objection buyers are likely to have to a particular fault with the property. I think psychologically it may have more impact to say “we will give you the money to replace the old counters that we know are not very attractive” than to leave the old counters, say nothing, and simply lower the asking price. Once the parties start negotiating over price, the credit is often dropped. So it’s real affect is more an advertising/marketing one than financial. The only other type credit I’ve seen is when the seller offers to pay tbe buyer’s closing costs. This is done because after coming up with the cash for the downpayment, the buyer simply may not have any cash left to pay to close.

    As for the realtor’s interest I don’t see how it would even matter other than it might help get the property sold. The credits I’ve seen are not in the 20k range but more like 2k. The difference in commission to the realtor is less than $25. I know of no realtor who is basing pricing advice on the cost of a pizza dinner. A significantly larger credit may very will raise other issues with the lender.

    As for the seller showing profit, it probably doesn’t matter if it’s the sellers primary residence because he or she will take advantage of the capital gains exclusion if they purchase a new home.

  3. Gilbe

    Thanks Lori – I see what your saying and, in the 2-3K scenario it makes perfect sense and keeps the dialog moving. Perhaps, as mortgages get harder to come by, clever realtors are finding another use for a “credit” and upping the ante? In my case, which IS 20K – 1200 worth of commission (or 600/600) not a fortune, but more like a new computer than a mere pizza dinner and a commission amount worth salvaging. (Also is enough to impact comps) Additionally, it may be the sellers decision, but it would have to be the realtor’s suggestion, wouldn’t it? Please understand, I’m not a person that falls into the “I hate realtors” catagory. I’m simply trying to continue a negotiation without undue suspicion.

  4. Lori

    Gilbe – As I said, when the “sales price” on the HUD differs from the real sales price there may be issues so you should talk to your attorney and your lender. (This was an issue when people were borrowing more than the purchase amount and using the excess to cover their closing costs.) It not only affects the comps but also the appraisals. PS – why would the realtor have to suggest it? The seller can think of these things on his own, no?

    Also – the realtor gets paid on the sales price LESS THE CREDIT. No benefit to us at all!

  5. Gilbe

    I felt better after the first post. What is it with realtors? They don’t get commission on the credit? So, the pizza analogy wasn’t even relevent, yet it was offered as an explanation. In that case, wouldn’t the proper initial response have been, ‘they are paid on the sales price LESS THE CREDIT?’ So which is it really, the realtor gets nothing or the realtor gets enough money to buy a pizza dinner (generally.)

    As far as the seller thinking of offering a credit themselves, why would they? They don’t work in real estate? A layman wouldn’t necessarily know what estopple means. A layman wouldn’t necessarily know how to read lab results on a blood test. That is why advisors are hired. Not every seller or buyer has been busy playing tidly winks with real estate for the past decade.

    Maybe I’m lucky in this transaction and, at least, my realtor is honest – or is honest realtor a complete non sequitur?

  6. Lori

    A little harsh Glibe. I was just trying to answer your question. And I wanted to confirm w my broker that we are paid on the sales price less the credit before I posted that.

    The buyers I have dealt with are quite saavy and well informed. Why wouldn’t they be able to come up with an idea like having the seller pay for rental parking for a year? That doesn’t require any special expertise. Just common sense.

  7. Gilbe

    Sorry Lori – purchasing is stressful

  8. Lori

    Apology accepted. Good luck.

  9. V

    If you work with a listing agent directly (or they serve as the dual agent), is it common for them to offer to reduce their commission in Hoboken to get the deal done? It would seem logical to me. If I was a broker, I would be happy to take 4% and get the deal done without a buyside broker, if it works for the seller. I am still better off as the broker (by 1%) and the seller is saving 2% and getting a deal done.

  10. Ralf

    I think buyers do better when dealing direct with the seller’s Agent for the double commission reason. If a seller’s agent is looking at double the commission, they will try harder to solidify the deal. I’ve whitnessed this down in Georgia, suspect it is the same here in Hoboken. 6% of $390,000 sure beats 3% of $400,000. And yes, to V’s point, if you deal directly with the seller’s agent you might be able to get that agent to drop thier commission to 4%, better than 3% for the broker.

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