Both the buyer and seller face huge disadvantages when it comes to most real estate transactions. Both the seller's realtor and the buyer's realtor are professionals in the industry while the buyer and seller only get into these major transactions a few times in their entire life. There are some critical aspects of these deals that both buyers and sellers need to be aware of to protect their interests in any real estate transaction.
- Avoid dual agency in all cases. The buyer and the seller should never be represented by the same realtor. Nor should they be represented by two different realtors from the same office. A single realtor cannot serve two masters. There is no possible way of negotiating both the highest and lowest selling price when a realtor represents both the buyer and the seller. The natural tendency is to find the highest price the buyer is willing to pay in order to maximize the realtor's commission. Dual agency is particularly bad for the buyer.
- Another practice that buyers need to be aware of is realtors that only show their own listings or the listings held by their office. This is nothing more than a manipulative maneuver for the agent(s) to obtain the dual agency mention above.
- Pocket listings often work against the buyer and for the realtor. Pocket listings are typically marketed as a "sneak peak". The realtor enters into a deal with the seller to show the house before it's entered into the MLS. Only the listing agent and maybe other agents in the listing office are aware the property is for sale. This is another maneuver to create a dual agency scenario that buyers want to avoid.
- Seller's want to avoid realtors that don't market the listing as widely as possible. In today's technology age this can be nothing more that a lack of understanding of the technology available. But more often, it is an attempt to keep listing off of popular third party websites. The more a realtor can keep the listing in-house, the better the opportunity to create the dual agency opportunity. Sellers should insist the property be broadly marketed and included on third party websites sites such as Realtor.com, Zillow, Trulia, MSN RealEstate, Yahoo Real Estate, NeighborCity.com, and others.
- Open houses do more for the realtor holding it than it does for the home seller. While the realtor will sell the home to a prospect that stops by an open house (creating a dual agency scenario), the realtor is just as likely to offer showing the prospect any house that is currently for sale. Specifically, other houses listed with their agency. If a buyer is interested in making an offer they find through an open house, the buyer needs to insist the offer be presented by a realtor independent from the selling office.
- Referrals made by realtors and real estate attorneys. Referrals are common in the real estate industry because buyers and sellers don't typically know the right professionals to match with their cost and representation needs. These referrals might be from a realtor to an attorney. Or an attorney to a title company or any other referral. The problem with referrals is there is often a referral fee involved. That means the referral is not unbiased. The referring professional is making the referral for the fee instead of in the best interest of the client. Buyers and sellers alike should insist the realtor and attorney disclose all fees and payments he or she will receive in the transaction. And then shop around for the services they need.
- Standard real estate forms are designed by the industry to best serve the industry. Rather than maximizing the buyer and seller's negotiating power, the industry forms are designed to limit that ability and to close the deal as quickly as possible with the least amount of work required by the realtors involved. These are not mandatory forms. The buyer and seller can and should eliminate clauses that don't serve their needs and write in clauses that do serve their needs.
In no way is this list of bad practices intended to imply that the majority of realtors engage in bad practices. It's only intended to inform buyers and sellers of potential bad practices that exist in a high monetary transaction that consumers seldom engage in. There are many exceptions to these rules for the professional investor. Investors are professionals in the industry as well. As long as they are aware of all relationships, commissions, and fees in a transaction, investors are able to make informed decisions.
Please leave a comment if this article was helpful or if you have a question.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
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