Note: I know there is a difference between a real estate agent and a realtor in that all Realtors' are licensed to sell real estate as an agent or a broker but not all real estate agents are Realtors'. Nevertheless, for my purposes I am going to use the two interchangeably here.
As we head into the Spring & Summer months, the traditional "hot" months for real estate, many buyers and sellers will be asking themselves how to go about picking a realtor? Some readers who read my article titled "What Makes a Good Mortgage Broker Good" asked if I would do one on how to go about selecting the right realtor. They also wanted to know the different questions to ask if they were considering listing their property versus using an agent to find them a home. This brings to mind that there are two kinds of real estate agents: Listing agents and Buyers' agents. The former markets the homeowner's property so as to secure the best selling price; the latter works on behalf of the buyer to negotiate the best purchase price. Occasionally a realtor will act in both capacities.
Most people are more familiar with what a listing agent does and this issue's discussion will focus on them. I will devote next month's issue to buyer's agents. What follows are some considerations and questions to ask when shopping for a professional to represent you in a transaction.
THERE ARE LISTINGS AND THERE ARE LISTINGS'
Open Listing. An open listing lets an owner sell her home by herself. It is a non-exclusive agreement, meaning the owner may execute open listings with more than one real estate broker and pay only the broker who brings an able buyer whose offer the owner accepts. The big difference is an owner will probably pay only a selling broker's commission, which is about one-half of typical fees. The reason is because the owner is unrepresented.
Therefore, owners do not pay a broker to represent the owner, but do pay the broker to represent the buyer. However, if the owner finds the buyer herself, the owner will not owe anybody a commission. Open listings are not popular with many full service real estate brokers.
Exclusive Agency Listing. An exclusive agency listing is similar to an open listing except the major difference is the broker will represent the owner. The owner still reserves the right to sell the property herself and not pay a commission. The broker is free to cooperate with another brokerage, meaning the second brokerage could bring an able buyer whose offer the owner accepts. Typically, the broker is paid a listing commission that is shared with the selling broker, so the owner pays both fees.
Exclusive Right-to-Sell Listing. An exclusive right-to-sell listing is the most commonly utilized instrument. It gives the broker the exclusive right to earn a commission by representing the owner and bringing a buyer, either through another brokerage or directly. The owner pays both the listing and selling broker fees. The owner cannot sell the property herself without paying a commission, unless an exception is noted in the contract.
Exception to the contract. Say, your next-door neighbor has expressed an interest in buying your house. Often a listing broker will give the seller X number of days to produce a contract with the neighbor without owing a commission.
HOW LONG AND WHAT IF
Length of Listing. The duration of the listing agreement is negotiable. Common terms can be 30 days, 90 days, six months, one year or more.
Cancellations. If you sign a listing or buying agreement with the agent and later find that you are unhappy with the arrangement, will the agent let you cancel the agreement? Will the agent stand behind her service to you? What is her company's policy about canceled agreements? Has anybody ever canceled an agreement with her before? Why would you want to do business with a broker who would not release you from the contract if you were unhappy or dissatisfied with their service? Ask about it before you sign a listing agreement. Some agents will release you; others will not. If the broker will agree to let you cancel at any time, that broker is giving you a guarantee. In that instance, the duration of the contract doesn't much matter.
Expiration of Contract. If the contract should expire without mutual renewal or the parties elect to cancel the contract, the listing broker might supply the owner with a list of names of prospective buyers the broker produced. If any of those buyers approach the owner within the time period specified in the listing contract and successfully purchase the property, the owner could still owe a commission.
HOW TO DECIDE WHOM TO INTERVIEW
While most buyers are not apt to be as rigorous as suggested here in their selection process, even if you use a fraction of the suggestions and questions laid out you are likely to be much better off than if you had not.
Track Neighborhood Signs. Pay attention to the listing signs in your neighborhood. Make note of the day they go up and when the sold sign appears. Sold signs may also be an indication of who is adept at moving property in your neighborhood, if you*re looking for some one to list your property. The agent who sells listings the fastest might be better for you than the agent with the largest number of "for sale" signs. Results speak volumes.
Recommendations from Professionals. Ask other real estate agents for referrals. Agents are happy to refer buyers and sellers to associates, especially if the service you need is not a specialty of the agent who is referring you. Some agents specialize in residential re-sales while others work exclusively with new home builders. Other agents sell only commercial or investment property. Mortgage brokers are also a resource for agent referrals as many brokers have first-hand knowledge of exceptional agents. Pros tend to refer pros.
Using Print Advertising. Real estate agents run real estate ads for two purposes. The first is to sell specific real estate. The second is to promote the real estate agent. Look in your local Sunday newspaper for ads in your targeted neighborhood. Then look up the Web sites of the agents who are advertising. These agents could be specialists in your neighborhood. Call and ask them about their experience.
Search Online for Agent Listings. There are plenty of Web sites that will refer agents to you but that is no assurance of quality. The agents they refer are those who have paid the Web site owners a fee to be listed in their directory. A better bet is to Google the top real estate companies in your area, go to those Web sites and look up profiles of individual agents at offices near you. Agents who are experienced will mention it, but newer agents might have more time to spend with you. Look for customer testimonials.
Get referrals. Ask your friends, associates, and neighbors who they used and if they would use them again. Most real estate agents stay in business because satisfied clients refer them to friends, family, neighbors and coworkers. Ask the people around you who they have used and ask them to describe their experiences with this real estate agent. Successful agents make customer satisfaction their number one priority and put their customers' needs before their own. Try to find an agent who goes above and beyond her responsibilities. She'll be the agent whose praises your friends sing loudest.
Open houses. Visit local real estate offices and open houses. By going to open houses, you can meet real estate agents in a non-threatening working environment and interact with them. Collect business cards and make notes on them. If you're thinking about selling your home, pay attention to how the agent is showing the home. Is she polite and informative; appear knowledgeable? Does she hand out professional-looking promotional material about the home? Is she trying to sell features of the home? Or is she sitting in a corner reading a book, ignoring you? Many realtors hold open houses, not to sell the house but expressly for the purpose of picking up buyers who do not have representation.
It's best to have a choice. Interview more than one. The first one you interview may sound great, but you'll often be surprised to find out that the second one does, too. Sometimes, they'll bring up things that neither you nor the previous realtor thought of. Remember, you are looking for someone to represent you in possibly the largest financial transaction of your life. If they are not an expert in selling homes in your neighborhood or lack the experience to do the job, consider someone who does specialize in what you need. Make a list and winnow it down.
Q & As (as in Questions for Agents)
Ask questions' lots of them. A good realtor can handle them because they've had years of experience. Very few have questions posed to them that they have not heard hundreds of times before. But, how they answer them makes all the difference and should give you some idea as to their expertise and competency.
1. Experience. How Long Have You Been in the Business? How long in the local area? How many transactions locally in the last year? The standard joke is there's nothing wrong with a new agent that a little experience won't fix. But that's not to say that freshly licensed agents aren't valuable. Much depends on whether they have access to competent mentors and the level of their training. Newer agents tend to have more time to concentrate on you. Some agents with 20 years of experience repeat their first year over and over. Other 20-year agents learn something new every year. While experience isn't everything, it does count. Look for a minimum of five years' experience. It can mean the difference between knowing how to handle a difficult situation to ignoring it or not recognizing the signs of a potential problem before it develops into a crisis.
2. Marketing. As a seller, you will need to know specifically, how they will market your home? Which one (or more) of the following methods will they use: Photographs, Virtual Tours, Signage, Print Advertising, Direct Mail, Open Houses, Agent Tours (caravans), Sending E-Flyers, etc. Where and how often do they advertise? Will they show you a sample flyer? Does their firm have a relocation department? National firms often have "RELO" departments, thereby exposing your property to a larger market via referrals.
What is Your Best Marketing Plan or Strategy for My Needs? Compare marketing plans. Listing agents can be very skillful in making sales presentations that "over-promise" and "under-deliver". The approach of some listing agents is what I term "flinging mud against the wall and seeing what sticks" in servicing their listings. They try to amass as many listings as possible in the belief that once it hits the Multiple Listing Service (MLS) their work is pretty much done and another agent will deliver a buyer for their property, thus minimizing further effort on their part. They are not prepared to devote much time to marketing or working that listing to bring you a buyer.
Ask yourself does the realtor appear to be concerned with your listing? In some cases, the first time you see the listing agent is also the last time you see them: having obtained the listing they will turn the property over to one of their minions while they go on to secure another listing. Ask them who will be the point of contact throughout your exclusive right to sell.
3. Metrics. What is Your Average List-Price-to-Sales-Price Ratio? Knowing the agent's average ratio speaks volumes. A competent listing agent should hold a track record for negotiating sales prices that are very close to list prices. Therefore, listing agents should have higher ratios closer to 100%. When hiring a listing agent, expect to see list-to-sales ratio within 97% to 100% in a buyer's market; in a seller's market: 100% to 110% of list price.
4. Credibility. Ask to see references. Everybody has references. Even new agents have references from previous employers. Ask if any of the individuals providing references are related to the agent. Ask if you can call the references with additional questions. You might find references on an agent's Web site, but you should also ask to see letters of reference. Clients often send thank you notes or letters to the agent's broker. Check a minimum of three references.
5. How Are They Different From Their Competition? A good agent won't hesitate to answer this question and will be ready to fire off why she is best suited for the job. Everyone has their own standards, but most consumers say they are looking for agents who say they are:
* Honest and trustworthy
* Excellent negotiators
* Available by phone or e-mail
* Good communicators
* Able to maintain a good sense of humor under trying circumstances
* Strong repeat record of satisfied customers
* Extensive online marketing
6. Review of Documents
A sign of a good real estate agent is a professional who makes forms available to you for preview before you are required to sign them. If at all possible, ask for these documents upfront. As a seller, ask to see:
* Agency Disclosure
* Listing Agreement
* Seller Disclosures
* Ask about reserving the right to sell the home yourself.
7. Affiliation with Related Professionals. Your agent should be able to supply you with a written list of referring vendors such as mortgage brokers, home inspectors and title companies. All agents build teams of professionals, from title companies to escrow officers to mortgage lenders, home inspectors, and appraisers. Let the real estate agent explain to you who he works with and why he chose those professionals. Ask the agent if the professionals he recommends charges competitive fees. Ask for an explanation, if you see the term "affiliated" because it could mean that the agent and her broker are receiving compensation from one or all of vendors, and you could be paying a premium for the service. Ask if the agent's company is receiving compensation for the referral. If so, you might want to choose another professional. Payment of some referral fees are against the law.
8. Real Estate Fees (selling commission). How much will you pay the selling agent? When there is a lot of inventory on the market and fewer buyers, to generate traffic, you might want to consider paying the selling agent more than you would in a market where inventory is tight and a lot of buyers are vying for few listings. For example, if the total commission is 6%, and the listing broker wants to offer 2.5% to the selling office, you could insist on paying 3% instead. It's your money. The listing agent will get less, but so what? Don't ask if the fee is negotiable. All real estate fees are negotiable. Typically, real estate agents charge a percentage, from 1% to 4% to represent one side of a transaction: whether it be the seller or the buyer. A listing agent may charge, for example, 3% for herself and another 3% for the buyer's agent, for a total of 6%. One caveat: if a realtor has a choice between showing a property that has a 3% commission and one that brings his or her 2%, which one do you think he or she is more likely to show? Sometimes, sellers are penny-wise and pound-foolish. If you are a seller, ask about discounted fees. Sometimes agents will match fees offered by other agents. If you see a fee you do not understand, question it.
9. What Haven't I Asked You That I Need to Know? Pay close attention to how the real estate agent answers this question because there is always something you need to know, always. You want an agent to take her time with you to make sure you feel comfortable and secure with her knowledge and experience. She should know how to listen and how to counsel you, how to ask the right questions to find out what she needs to know to better serve you. You might ask the agent to reiterate your goals and objectives. If the agent does not appear to have a thorough understanding of what you want, despite your attempts to explain what you want, then hire somebody else. Some agents do not listen very well. You want an agent who will listen to you and communicate with you. The best way to find out if the agent comprehends your desires is to ask the agent to repeat it back to you.
The following real estate agents contributed to this article:
Carole DeJonge - firstname.lastname@example.org
Jeff Nelson - email@example.com
Pam Parkinson - firstname.lastname@example.org
Copyright © 2020 Rod Haase. All rights reserved.