I am in the process of finding a home to buy and in the last few weeks I've learned a few lessons about this process, particularly about realtors; their stated roles, and their actual roles.

The way the system is supposed to work, is that a realtor who represents the seller's best interests and tries to facilitate the sale of the house at the highest possible price, and likewise a realtor who represents the buyer's interests tries to facilitate the sale of the house at the lowest possible price. They're also there of course to draw up the legal documents, etc.

What actually happens is both realtors are really actually purchase facilitators. They don't really care if the house sells for too much or too little, they just care that it gets sold because ONLY then do they get paid, (within reason of course, as it has to appraise near the negotiated price.) So what I've found actually happens is the seller's realtor tends to try to convince the seller to concede to the requests/price of the buyer, and most especially the buyer's realtor tries to convince the buyer to purchase at whatever higher price... because really, the buyer has all the money, and everybody gets their chunk out of what comes out of that big lump of cash.

You're in an even worse situation if the same realtor is representing both the seller and the buyer because then they definitely have conflicting interests and really just want the sale to go through. The likelihood of a realtor who represents both parties telling either party that it's a bad deal is slim to none, IMO. (I'm sure a few realtors are going to pipe in here, espousing your high moral standards... but I'm sorry to say, you are in the minority, and when it's all about big chunks of money trading hands or not trading hands... I tend to err on the side that everybody wants their piece of that big ol money pie. )

So some words of advice for first-time home buyers:
1) ALWAYS ask to see the comps of recent sales in the area (I didn't know to do this, and my realtor certainly didn't suggest it out-of-hand)
2) Remember that the realtor is supposed to be working for you. So if you want to offer a lower price, or deny any special requests in the counter-offer, don't let them just talk you out of it. Listen to their advice and expertise, but there's a fine line between hearing someone's professional opinion... and being manipulated by that person into accepting a price + seller requests just so they can make the sale... and get their $.
3) The simpler and more standardized the contract, the better. The state has established some fundamental protections into real estate transactions that serve to protect both the buyers and the sellers... DO NOT just up and sign those away!

I'd be happy to give more details/examples from what I've experienced, but I just thought I'd throw this out to anyone who is looking to buy or sell a home, particularly first time home buyers.



Apologies to any realtors on s2ki who uphold the highest moral and professional standards, but I think you'll be the first to admit (if only to yourselves) that the system as it is presently set-up is flawed, and both the buyer's and seller's interests are typically under-represented, and unscrupulous realtors can easily push people into bad deals.

 

All good points.

If I might pick one nit, however, note that not all real estate agents are Realtors. The term "Realtor" is a registered trademark of the National Association of Realtors, and a real estate agent may call themselves a Realtor only if they're a member in good standing.

I don't know if the NAR keeps records of complaints against its members as, say, the BBB does, but it's worth checking before settling on a particular agent to represent you.

 

magician, I swear you seem to know something about everything!

thanks for the input-- definitely a resource worth checking.

 

You'd think the "power of the internet" and the Walmarting of pricing in the U.S. would have already lead to lower margins for realtors or even the elimination of needing one altogether.

6% commision is rediculous. Especially out there in California where average homes sell for $600k+. Thats a $36,000 commision for an average home. You are right in that the buyer agent and selling agent both just want the home as quickly as possible sold so they can collect. In the same example of $600k home even if they lowered the price by $100k at $500k the commision is still $30,000. Not much different for the realtors.

The last 5-6 years has been an almost golden age for anything real estate related. (Sales, Appraisal, Loans, Construction). Its pretty easy to get licensed in most states. All thats required is a written test and a few courses.

Everyone has been talking about a crash coming for real estate. Hard to say where the top is (or was). But I do know it is very easy for someone to put nothing down on a loan, buy the house with mortgage insurance, then 3 months later refi and have the mortgage brokers appraiser (independent, but gets a lot of business thru the broker and has no real liability for over estimating the price) up the appraised value by 20% so the home owner now has 20% equity in a house and won't have to pay insurance. Somewhere, lending standards got thrown out the window.

I don't think home construction cost has gone up step by step with home values (i.e. - the cost to replace or rebuild a house). How much does it cost to construct a typical 1800 s.f. house today? Even with the recent inflation in lumber and concrete cost I would think most of it would still be labor cost. Wages have pretty much kept pace with inflation which has been very low.

Out of curiosity, (because I had considered moving to Cali a number of times) if you were a home owner in California for say 6-10 years, isn't there almost an incentive to not "trade up" to a bigger house because you'd have to reset the cost on your real estate taxes? Example - Couple 'A' buy a house in San Diego 5 years ago for $320k. They are still paying taxes on a 320k house. If they were to sell the house for $600k now and buy an $800k house wouldn't it be better to just tear down the current house and build a bigger one on the existing lot? If they traded up instead of "tearing down", wouldn't they be paying tax on an $800k house?

 

I am an investor / realtor... A broker / realtor does honor a higher degree of confidentiality to that prinicipal... The party being represented.

It's a good idea to avoid dual agency sitautions, buyers don't have to worry about paying commission so consult me I'll represent you. Customer is always the boss.

Comps should be pulled as status, sold / contingent / pending... STI or subject to inspection doesn't really qualify b/c the property hasn't sold. 6 months max on the comps typically, within a 1/4 mile radius, age, sqaure footage, ammenities, many other variables will dictate fair market appraisal.

Bottom line, if you do not understand the content / do not sign...

If you've been through the process before make sure to include these three contingencies, Inspection, Financing Addendum, Title Contingency, as long as these three are included, you can rescind the contract without default.

If an agent is pressing you, the transaction isn't for you... Have fun shopping!!!

 

[quote name='JohnE' date='Feb 20 2005, 07:56 PM'] You'd think the "power of the internet" and the Walmarting of pricing in the U.S. would have already lead to lower margins for realtors or even the elimination of needing one altogether.

 

John E, all good points. To answer your question on $ per square foot, depends on the builder, you have to shop labor / like interest rates / just like anything else. $100 bucks a square foot is pretty typical for an average custom here in WA though. You can do the math on 3000 square feet, the lot and location dictate the rest. Pretty straight forward stuff.

 

I just posted another topic about home buying but I can offer one other tip.....

I am going through a builder of new homes but this would apply to prebuilt as well. My friend at work has a realestate license and she said that the builder would pay a realtor a 3% commission, even though I found the place on my own. She offered to go in with me, get 3%, keep enough to pay the taxes and kick the rest back to me for funishings when I move in. I told her I would split it down the middle so she gets a couple grand too, but it will buy lots of goodies when the time comes.

If you find a place on your own and know a personal friend that is a realtor, perhaps they will do you the same favor.


As for working with realtor on selling my current home, yes they want 6%, three for themselves, of which they get half and their firm gets half, and three percent for the buyers realtor. Without MLS it can be difficult to generate the traffic through your home depending on its location. I can list mine on MLS for $250-$300, offer the standard 3% commisiion to realtors that bring in clients and sell for half the cost of being represented. It may take a little longer, and there is noone in my corner pushing my house on their homebuying clients, but it will save me many thousands.

 

I can already tell this is the greatest comment of the day

www.buyowner.com for the rest of us.

I'd rather take a hit on my equity than donate 6% to a sales toad.

 

vader1... I do kick backs all day long... 1-2k no problem... I do this all the time. As long as I close the transaction, I'll do this for whoever, and even get the seller in most cases to pay half or all of buyers closing costs. Negotiation.