Does your agent “stand in your shoes?”
Originally appeared in Bay Area News Group publications on May 14, 2010
In the overheated real estate market of 2004 to 2005, many buyers paid outrageously high prices for properties that were not special in quality or location. This included numerous ones that were decidedly underwhelming. Now, a plethora of purchasers are either victims of foreclosure, have sold for large losses or are paying mortgages on houses worth a lot less than their total loans.
Conversely, in today’s much weaker market, where prices have softened substantially, we see some homes listed at unrealistic amounts. These are the ones that sit unsold. In a number of situations, overpriced properties that did not sell were taken off the market and are now back on at equally improbable figures.
We can ask: “What advice, if any, did the agent give his or her buyer or seller?”
Selling vs. representing
I repeatedly concentrate on this because no real estate subject is more important or less understood.
In July, 2005, I wrote, “At some point, when the market shifts, a number of buyers will look back and realize their agent did a lot of selling and not enough representing. Understanding your agent’s key function before it is too late could save you distress and money.”
Despite the fact that there are many excellent, caring licensees in real estate, others focus solely on sales, not what is best for their clients. In a rising market, poor decisions and mistakes may be washed away. Those who buy and sell within this euphoric window of time may make, rather than lose, money despite having paid too much. But, then, the game of musical chairs stops.
Agents who understand and adhere to their “fiduciary duty of utmost care, integrity, honesty and loyalty” (Agency Disclosure form) explain to their buyers why a particular property may be priced higher than the market can justify.
With a paucity of inventory, still true in popular price ranges and neighborhoods, an auction-like atmosphere can drive prices skyward. As a buyer, you want a Realtor who will clarify why paying too much in a soft market is an even bigger error than overpaying in a fast one.
The best agents talk their buyers out of houses that do not make sense. On the other hand, some say: “This is the market. If you want to buy, you need to offer enough to get it. If not, someone else will buy it and you will still be looking and probably pay more for the next one.” This fear tactic is not uncommon.
There are salespeople who do not discourage their buyers from paying too much because it will take longer, possibly months or a year plus, to find the right house at a price that can be reasonably supported. That would mean fewer sales and less commission and does not fit into certain agents’ business model.
On the listing end, top professionals do not work with sellers who insist on an asking price well beyond what the market dictates. Those of us in the business have all heard sellers say, “I will not take less than ….”
That is the seller’s prerogative; it is the licensee’s choice to suggest that the home be listed with someone else. Agents who accept grossly overpriced listings do so in the hopes of eventually wearing down the seller until the price approaches reality. This is not best for the seller, because these listings, if they finally sell, generally net less to the seller.
Pointing out deficiencies
The average buyer and seller are as unaware of expensive problems with a property as I am with my car about brake calipers or transmission gear ratios. The key distinction is that car troubles, although sometimes costly, do not approach $75,000 or more.
In addition, as auto repairs are quite common, I get to know and trust my mechanic over a period of time. Most people do not buy or sell homes often and, consequently, when they do, may not have a relationship with a trusted real estate professional who is familiar with their local area.
Standing in clients’ shoes means helping them recognize concerns with the house that are or could be expensive. This is why the words, “where was their agent?” usually ring in my ears when I read reports and disclosures of active listings that have formidable, unresolved issues from when they bought four to seven years ago.
An example is structural pest control reports that include recommendations for further inspections that were never completed. How did the buyer know the extent of the problems he was accepting in the purchase? What is the condition today and what would it cost to fix?
Prevalent, but hard to fathom, is active termite infestation or extensive fungus damage that has not been eliminated. Did anyone tell the buyers that a $5000 report, under certain circumstances, can jump to ten times that amount within a relatively short period?
What about general home inspection reports that recommend further evaluation by an engineer for framing, foundation or drainage problems? Would an intelligent buyer whose agent explained the possible dire results of ignoring this not insist on these further inspections?
As an East Bay and Bay Area real estate expert witness, my expectation of being called into more cases involving inadequate agent representation is happening. Although everyone at a party appears to be a real estate expert, few are. Most buyers and sellers need a professional to do for them what that professional would do for himself. Accept less at your peril.
Poor Representation: Big Problem in Real Estate