10 Things Your Real Estate Broker Won't Say
by SmartMoney Magazine Staff
Thursday, July 9, 2009
1. "Your open house is really just a networking party for me."
Hire a real estate broker to sell your home, and one of the first things he'll likely suggest is hosting an open house so that potential buyers can casually check out your property on a weekend afternoon. But while open houses are promoted as a great way of finding a buyer, a National Association of Realtors study found that their success rate is a mere 2 to 4 percent.
No matter. Holding an open house serves another important purpose -- for the broker. "It gives him a database of clients," says Sean McNeill, an independent real estate broker based in New York City who says that he doesn't like open houses, preferring to match clients with appropriate buyers. "At open houses, you get all kinds of people walking in. Some are [trying] to see how much they should sell their own places for; others just want to get a look at what's out there." All are perfect pickings for a broker looking to increase his roster of buyers and sellers. "Think about it," McNeill says. "The broker is devoting a couple hours of a weekend. He won't do that unless it helps him in a big way." But it doesn't necessarily mean that a seller should forego an open house altogether -- says McNeill, "It's still a real good way to showcase your house."
2. "My fees are negotiable."
Brokers like to make it sound as if their fees are engraved in stone, but that's rarely the case. During the housing bubble, for example, as the number of brokers sharply increased, so did the competition for listings -- one broker says he lowered his fee by a full percentage point just to give himself an edge. But even in the wake of the recent crash, you have a good chance of negotiating a better deal -- that same surplus of brokers is still out there competing for even fewer listings, giving you something of a leg up.
The broker we spoke with, who asked not to be named, says that sellers should always shop around for better terms and has some suggestions for the best conditions to induce brokers to lower their fees: "If somebody's willing to commit to me for selling one place and buying another," or "If you're in a particularly desirable neighborhood with a house that will bring a lot of traffic" for an open house. And with a lot of smaller brokers, he says, "all you need to do is ask and they'll lower the commission."
3. "Think you've had no offers? Actually, there've been several."
Legally, the broker you hire to sell your home is obligated to tell you about all offers that come in. In reality, some do not. Perhaps he thinks the offer is insultingly low for you, but more likely, "the broker thinks it's too low for his own purposes," says McNeill. "He wants to hold out for a bigger commission." Another possibility is that there's an outside broker (or "co-broker") circling your house, and the primary broker is waiting for one of his own clients to make an offer so he can keep the full 6 percent to himself.
"You must be clear with your broker that you want to be informed of all offers," McNeill says. "Otherwise, you may be leaving him to make decisions that you should be making." Check the listing agreement drawn up when you hire the broker; if the promise to disclose all offers isn't listed explicitly, insist that it be added.
4. "I'm not obligated to keep my mouth shut for you."
You spot your dream house as you're driving through a neighborhood and call the broker listed on the "for sale" sign. That's how a lot of buyers stumble on a broker -- who, in turn, happily shows you other houses, asking about your needs, laughing at your jokes. It's easy to get loose-lipped and forget whom you're dealing with: someone else's agent. "Legally, brokers are obligated to provide their sellers with any information that can help them get the best prices for their homes," says Stephen Israel, president of Buyer's Edge, a Bethesda, Md.–based company that represents homebuyers. "If you tell the broker that you're willing to pay $500,000 but want to offer $450,000, they'll pass that on to the seller. They have to."
Also, some brokerage companies encourage prospective buyers to get preapproved for loans. While that can make a buyer more attractive to a lender, it also tells a broker whether a buyer can afford a $600,000 house when he's trying to haggle on a $400,000 property. "When somebody asks for [a preapproval], find out who they're representing," says Israel, acknowledging that such details can short-circuit your negotiating leverage. "If they represent a seller -- or someone in their office does -- they shouldn't have it. The broker may tell you she will be impartial, but how can she be?"
The bottom line: You need to hire your own broker. "The only safe way to go about it is to have an agent who represents you," Israel says.
5. "Sometimes I forget whose side I'm on."
The past 15 years have seen the proliferation of the buyer broker, agents who are supposed to work strictly in the buyer's interest, helping him get a fair price on a home as well as avoid pitfalls along the way. Unfortunately, things don't always unfold so nicely. While buyers may think they're getting a broker who isn't commission-hungry, many buyer agents are just that: They usually get about 3 percent, the same amount any broker typically earns when he gets involved with another agent's listing. "Buyer brokers are sometimes too focused on closing the sale and getting that commission," says Max Gordon, an Overland Park, Kan.–based real estate broker and attorney, so it's often in their best interest to see you pay as high a price as possible.
Even worse, some brokers who call themselves buyer advocates are actually working for companies that also represent sellers. "Brokerages offer bonuses to buyer agents if they sell an in-house listing," says Israel. A good way to get a broker who has no such conflicts of interest: The National Association of Exclusive Buyer Agents. Its website (www.naeba.com) can help you find a buyer agent near you who pledges to help you get the best deal possible and has no ties to sellers' agents; many even work on a fee structure rather than on commission.
6. "I know zilch about zoning."
Real estate agents love to suggest big ideas to prospective buyers -- say, removing trees to enhance a view, or even squeezing a rental unit out of a roomy garage -- meant to happen once the deal is done and they're out of the picture. But just because it sounds like a good idea doesn't mean it's legal.
"We had a client who bought a dilapidated house with a beautiful piece of property on a marshland," recalls New York City–based architect Mary Langan. "The broker told him that he could fix the house up however he wanted, insisting that this was a sleepy little town where nobody would care what he did." Langan says that the client built a $15,000 shed in the backyard, took down some trees, and had some of the marshland filled in -- only to have the town insist he put things back because of environmental zoning regulations. The moral of the story: Before you buy into your broker's creative thinking, check with your local zoning commission about what you can and cannot do on a given piece of property.
7. "I won't let termites -- or pesky inspectors -- kill a deal."
If a broker is selling a house, you figure he knows the place pretty intimately -- after all, he talks a good game about the new kitchen, the big closets, the heated garage. What you need to worry about, though, are the home's features that he keeps to himself. Steve VanGrack, former chairman of the Maryland Real Estate Commission, says, "We have had cases where [brokers have] been deceptive about termites and flood damage."
You'd figure that the home inspector, who comes to check out the place before you close the sale, might notice those things. And he probably will -- if he's not in cahoots with the broker. "Realtors give potential homebuyers lists of home inspectors," says S. Woody Dawson, a structural inspector and owner of Dawson Inspections in Connecticut. "Those are people who will rubberstamp the house" in return for repeat business. As one who works outside those lists, Dawson says that he sometimes butts heads with overly controlling brokers. "One time I had a broker tell me that unless I told her the results of my inspection -- which is confidential between myself and my client -- she wouldn't let me get up on the roof," Dawson says. "I got out my ladder and told her that unless she was big enough to stop me, I was going up there -- she wasn't big enough." For information on where to find your own home inspector, see item No. 4 in "10 Things Your Home Builder Won't Tell You," on page 94.
8. "I sometimes forget I'm not a lawyer."
Most states strictly regulate the contracts used in real estate transactions, stipulating the use of boilerplate agreements that offer little room for creativity -- but some brokers can't keep their clauseadding instincts in check. "I see [brokers] pushing the envelope all the time with amendments and addenda," says Gordon, the Kansas broker and attorney. "They draft language that can have consequences without really understanding it, but they want to keep the sale going."
For example, Gordon points out, it's fairly common for "a transaction to close on one day but possession doesn't happen until a later date, in which case the buyer rents the house back to the seller for those days." Gordon also warns that issues of responsibility for the house often require more than just a couple of lines from the broker's pen -- he says, for example, that if a clause is worded improperly, you, the buyer, could end up liable for damage done by your "rental tenant." Same goes for purchases of non-real estate items (such as patio furniture) and owner carryback (in which the seller provides some of the financing). "In both cases payment terms might not get spelled out clearly," Gordon says, "and can result in one party taking advantage of the other."
Whether you're the buyer or the seller, it's probably worth the legal fees to get the offer contract reviewed by your lawyer before you sign.
9. "My website is a dead end."
Considering that 77 percent of house hunters look on the Web, according to the National Association of Realtors, sellers might assume that using a broker with a site can help make a sale happen. But some brokers' sites are better than others, and you need to look beyond a welldesigned home page to figure that out.
One common flaw: posting houses that sold long ago. While the mistake can be simple negligence, others think that it's a bait-and-switch-style ploy. "It brings people in, but it gets them upset when they find out that the property's [gone]," says Frank D'Ostilio, Jr., sales manager for Coldwell Banker in Newton, Conn. "If a broker has to advertise properties that are already sold, it tells you that he doesn't have enough inventory to keep his [roster of houses] full."
Aside from checking up on its prominently placed listings, prospective sellers should also make sure that a site is easy to navigate. And Roger Lautt, a Chicago-based broker with Re/max Exclusive Properties who has his own site, recommends using a broker who "keeps himself relatively high on the search engines." Lautt says he pays a Webmaster to make sure this happens for his site, which is linked with Realtor.com, Yahoo, and the Re/max site.
Another important feature of a good real estate site: community information. It's "one of the big things a broker should have on his site," Lautt says -- schools, recreation facilities, commuting options, maps, all of which "attracts people who are thinking of moving to the community."
10. "You can probably do this without me."
Brokers like to create a lot of mystique about selling homes, insisting that the process is complicated and best left to professionals. Not so, say homeowners who have sold their homes themselves (about 20 to 25 percent do so each year). William Supple, publisher of the sale-byowner real estate magazine Picket Fence Preview and author of How to Sell Your Own Home, says that "properly priced and advertised, a house sells itself." Supple adds that sellers should plant a yard sign and post online ads for the property on local sites aligned with print publications (call current advertisers to see if a site is effective).
When it comes to the negotiations between buyers and sellers, Supple thinks brokers and their commissions tend to just get in the way. "Usually, the haggling occurs over a 5 to 10 percent difference," he says. "And that is more or less the broker's cut of the sale price. You don't need him." Just be sure you price your home well. The way most self-sellers hurt themselves, Supple says, is in setting either an unreasonably high or tragically low asking price. "Hire an independent appraiser for $200," he suggests, "and he will tell you [the parameters of] what to charge."
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