OfflineEvery day is independence day for home buyers and sellers. Every day more consumers are freeing themselves from the deceptive business practices that so often lead to uninformed and bad decisions when it comes to buying or selling a home. That means that more consumers are seeking out conflict free real estate professionals whose advice is not marred by secret incentives that undermine the very reason those professionals were hired.
In the spirit of independence, CAARE is releasing this list of the top 10 worst business practices and how to avoid them. It is CAARE’s mission to empower consumers to make intelligent and informed real estate decisions and free themselves from bad practices when buying or selling a home.
Free Yourself from the Top 10 Worst Business Practices
1. Dual Agency. This is the most deceptive and anti-consumer practice – avoid at all costs. No one can serve two masters and when they do the conflicts are on the verge of absurd and usually insurmountable. Dual agency occurs when the brokerage firm represents the buyer and seller on the same transaction (even if different agents are involved). Dual agency arises with little warning and results in the abandonment of the services for which the agent was hired. In dual agency, the broker gets paid double and the buyer and seller forfeit their right to representation on such things as negotiation of price and terms (2 of the top 3 reasons consumers hire Realtors*).
Solution. Look for quality agents from small brokerages or from brokerages that exclusively represent buyers or sellers. Never call on real estate advertisements or visit open houses.
2. Controlled Business Arrangements with Title and Closing Services. Title companies that are owned or affiliated with other real estate professionals destroy the integrity of this vital check and balance. In addition, they destroy the consumer advantages that are borne from competitive business practices such as good service and competitive pricing.
Solution. Only hire a title company that is truly independent from your brokerage, builder, lawyer or lender firm**. Never use an affiliated business in real estate.
3. Lawyers Who Sell Title Insurance. Attorneys cannot negotiate title coverage on behalf of their client when the attorney also represents the title underwriter providing that coverage. In addition, the commission paid to attorneys on the sale of title insurance is very large and is only paid if the transaction closes interfering with the attorney’s representation of the clients’ best interests.
Solution. Hire an attorney whose practice focuses on real estate and who will not sell you or your lender title insurance.
4. Lawyers Who Represent Home Buyers, Sellers, and Who Also Represent or Receive Referrals From Real Estate Professionals. Many of the worst business practices will not be disclosed to buyers and sellers if the attorney represents, seeks to represent or gets referrals from real estate professionals.
Solution. Only hire a real estate attorney who does not represent or get referrals from real estate professionals.
5. Marketing Manipulation That Fosters Dual Agency. Many real estate brokerages engage in market manipulations disguised as selling strategies. These practices usually involve limiting demand in order to collect a double commission.
a. Pocket listings (aka Sneak Peaks). Properties are shown only to in-house agents prior to being placed on the MLS. If the strategy works, the broker gets paid a double commission and the seller will have sold their property in a severely manipulated market situation in which demand was intentionally curtailed. In addition the seller and buyer forfeit their right to representation.
b. Internet Marketing Plan Manipulation. Some firms have actually pulled their sellers’ listings from the top buyer frequented real estate websites in order to collect double commissions.
Solution. Walk away from any brokerage firm that encourages you to do a pocket listing or excludes third party internet websites from their marketing plan. Only use brokerage firms that offer a complete marketing plan that includes their listings on Realtor.com, Zillow, Trulia, MSN RealEstate, Yahoo Real Estate, NeighborCity.com and others.
6. Buyer Broker Compensation. Buyer brokers typically get paid by the seller which creates a horrible conflict of interest. Combine that with the fact that the listing broker actively conceals this offer of compensation from both the buyer and seller and the result can be outright bribery. Many listing companies and builders will provide huge secret incentives to buyer brokers who are successful in convincing buyers to purchase their listings.
Solution. Use a small brokerage and hire the broker (they don’t have to split their commission with agents). Negotiate your buyer broker’s fee upfront and before you are shown any properties. Insist that your broker disclose all compensation being offered prior to showing you any house. Insist that your broker pay all seller or listing broker incentives to you.
7. Open Houses. Open houses do not even make the list of effective ways to sell a house. Open houses are traps for home buyers and sellers that foster dual agency and double commissions. Walking into an open house could easily result in a commission dispute if the buyer decides that they want to hire their own broker to negotiate the transaction. As a result, it is likely that the buyer will forfeit both their and the seller’s right to representation. Open houses serve no purpose other than to provide the listing broker with a free platform to solicit buyer clients to find other homes. They also create a security risk for sellers.
Solution. Do not let your Realtor hold ANY open houses and do not go to any open houses.
8. Bad Forms. The negotiating power of buyers and sellers are ignored in the industry forms (mostly drafted by Realtor Associations). The forms that exist include many unsavory elements to which no consumer should ever agree. Extra fees and commissions payable even if the deal does not close are two examples.
Solution. Use a small brokerage firm that is willing to negotiate their contract (large firms rarely do.) Hire an attorney to help negotiate this key form.
9. Home Warranties. Home warranties are rarely worth the expense and provide secret incentives to real estate brokers and agents. There exists so much mis-information about home warranties that a google search of “problems with home warranties” now leads you to many self-serving blogs. Try searching “home warranty rip-offs” or go to sites like the **** Report. Many Realtor Associations have now included a check box for buyers to select on the purchase agreement requiring the seller to pay for a home warranty as part of the transaction.
Solution. Do not buy or sell a home warranty. If a home warranty is required as part of the transaction, require your broker to pay you the compensation that they would have collected for selling this.
10. Arbitration. Many Realtors advise their buyers and sellers to agree to arbitration if a dispute arises in the transaction. Arbitration only benefits the broker in that it reduces their liability. The act of advising a client to agree to arbitration is most likely the unauthorized practice of law reserved for lawyers, not Realtors. Arbitration usually costs a lot more than Small Claims court, has a reduced statute of limitations and the arbitrators are often unqualified and sometimes biased. NAILTA
GREAT info Randy, thank you!!! It's important to be talking about this, as most people trust that some greater authority is always watching out for their best interest, making sure they don't get taken advantage of by "professionals" like agents/brokers, attorneys, title companies, etc. They have developed very effective deception strategies that have been making them LOTS of money. The funny thing is that if people realized what was going on and decided to stop participating, there would be massive job losses, as there would be no need for the number of lawyers, agents, brokers, etc. It looks like corruption at its finest to me!
Thank you for sharing!
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I started my investing career basically avoiding Real Estate agents for the reasons that Randy has mentioned in his excellent article above. Eventually, however, I realized that identifying them as the enemy and always trying to walk on the opposite side of the street was only preventing me access to the majority of properties. So I decided to make peace with the fact that agents have their own agendas, but that does not mean that we cannot work together--ultimately they benefit us and we benefit them. And I know that this is part of the message that Randy was conveying.
So now I'd like to share just a few words that may help you to build a good relationship with a RE Agent, and how to get past some of the inherent issues that exist at the beginning of that relationship.
1) Real Estate agents are people too, and they are in this to support their families.
2) Real Estate agents are not trained to be creative in putting together deals, or in marketing. They are trained to protect their own turf and not violate laws, and there are lots of regulations that they have to abide by.
3) Real Estate agents tend to have either a fear of real estate investors who might know more than they do, or a disdain for them based on past experiences where investors have wasted a lot of time and not pulled the trigger on buying properties. Unfortunately both attitudes have foundation, as there have been real estate investors who came before you that were unscrupulous and have damaged the industry. You will be fighting against some negative perceptions based either on past experiences or on horror stories passed along from one investor to another.
4) Real Estate agents generally are taught to control everything, and most investors take charge of their business and dictate what the agents do.
For these reasons, we need to tread lightly. These agents are not out to get you any more than you are out to get them. I suggest the following:
Let them know that you plan to do several transactions in the next 12 months, but don't make it sound ridiculous. I indicate that I plan to do a minimum of 6 transactions in the next 12 months, and if things work well between us, they can handle all of those. (That would be 6 commissions just from working with you, or possibly a lot more).
1) Let them know that you work with a variety of transactions, but may focus on specific types at different times.
2) If you are new, don't tell them you are a newbie, tell them: "I'm new to investing in this area." That implies you may have experience elsewhere.
3) Inform them that you do not make random lowball offers, that you have specific parameters and will be making calculated offers that will allow you to make a profit.
4) Make sure that they are comfortable to work with investors, or is there someone else in their office that you should be contacting. You are giving them the opportunity to opt out, which means when they tell you they want to work with you, they are "buying in" to that process.
5) You need to mention that you can provide a Proof of Funds for any property, and can provide an example if they would like. If you mention it before they do, they will consider you as a good risk for their time.
6) Let them know that you will make specific requests on their time, that you will not waste it, and that you are also busy, so you would like them to help you filter properties rather than just sending you the kitchen sink.
7)Find out about them, show an interest in them, and why they are in real estate.
9) Give the agent some specific parameters to search some properties, provide the information both verbally, and with a confirming email. See how they respond. Compliment quick and thorough responses, correct them if they did not provide what you requested, and refer to your written instructions.
10)It was once told to me that if you don't have a good agent working for you, either you need to switch agents, or you need to do better training. I believe that if you begin training during your first conversation, then you can eliminate most of the dissatisfaction you would otherwise have, and you will also establish a relationship where you are able to control your destiny.
11) Once you do these things, treat your agents like the goose that lays the golden eggs--they need to be treated well and paid well, and they will work hard for you.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
great information but i always thought that open houses were meant to create competitiveness among prospective buyers to motivate them to close quickly and with a possibly higher price?
Thanks for sharing this vital information. I learned early on how important
it was for me to "educate" and/or "train" a real estate agent in our initial conversations and contacts. Tho they said they were happy to work with investors their idea of "helping" was to send an email of their MLS listings
enmasse! My "bad" not theirs. Semper Fi D-LO
Nice infomation.It will always be beneficial when one tries to buy house or sell house fast.