How to Effectively Shop for a Buyer's Agent

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This is easy. Much easier than effectively shopping for a loan or a listing agent. So easy that a congresscritter can do it. So easy that congressional leadership can do it.

The only thing possibly moderately difficult to understand is that finding a good Buyer's Agent takes place in two steps, not one.

The first thing to do is figure out your situation. What do you want in a property, and what is your budget? I've written several articles to help you determine your budget, but the one piece of data they are missing, because they have to be, is what the rates that are available to you are. Unless you're sure that you fall into the topmost category - great credit score, no late payments or anything, and you're looking to buy something well beneath what you can prove that you can afford, you can only find this out by having good conversations with several loan officers. Rate advertisements are teasers, aimed at getting you to call, useless in reality. I have never seen an advertisement for a loan that 1) actually existed, and 2) that I would consider signing up for, even if I could get paid for it.

Then, make a list of agents you might like to work with. This can certainly include Uncle Bob, your neighbor, or your poker buddy, but you want more than one agent on the list. My experience is that agents at the big chains are (in the aggregate) not up to the standards of the ones working at independent brokerages, but your mileage may vary. Also, I am a Realtor, but that's for reasons completely unrelated to competence or ethics. I'll believe that Realtors are superior to non-Realtors when the boards of Realtors start handing out penalties for non-compliance with the code of ethics that mean something. Ditto all of those little "designations" that have been cooked up to parallel the ones financial planners get. Unlike many financial planning designations, some of which are graduate degrees of one value or another, these are marketing efforts cooked up to fool a gullible public for sitting through a couple days worth of lecture. The qualifications for the real estate designations are laughable in the context of ChFC (Chartered Financial Consultant) and other financial planning designations that require five to ten graduate level college courses to attain.

Then, have a good conversation with those agents. The first thing you should ask, on the phone, is whether they require an Exclusive Buyer's Agent Agreement, or whether they will accept a Non-exclusive Buyer's Agent Agreement. If they require an exclusive agreement, that should be the end of the conversation, and cross their name off of your list. If you sign an exclusive agreement, you are locking your business up with that agent. You are putting yourself in their hands completely. The only reason that you should even consider an exclusive agreement is if you are asking for something special that costs money - for instance, expedited foreclosure lists (The free lists are a waste of time, because they're already flooded before you get them. The subjects of the free lists have said, "no" to literally hundreds of others before you even got the free list, so unless you've got something very special in the way of an offer, you are wasting your time.)

There is absolutely no good reason not to sign a standard Non-Exclusive Buyer's Agreement. You risk nothing by signing. You lose nothing by signing. You can have any number of them in effect, and as long as you don't sign any exclusive agreements, you're fine. All you do is assure the person whose services you use that if they find and help you purchase the property you like, then they will get paid. The only reason not to sign such an agreement is if you're looking to stiff a good agent who finds you the property you like, so that you can use a discounter on the transaction, and that's shooting yourself in the foot. The money you get back is unlikely to be as much as the difference the good agent will make in negotiations, or the trouble the good agent will save you.

One more thing any buyer's agreement you sign should have: An explicit release if they are the listing agent for the property you decide to put an offer on. It is a very bad idea for buyers to accept a dual agent, because the agent has a responsibility to the sellers, but nearly so deep of one to you. They're on the other side. I wouldn't pick a quarterback that played for the opposition at the same time, and neither should you. Tell them to pick a side and stay on it, and as they already have a listing agreement, they've already chosen the other side. It's great for them and for the sellers that they've sold the property, but their desire to get paid double does not outweigh your right to representation with responsibility to you and no conflicts with other duties.

Tell them what you want in a property, where you would like to live, and what your budget is. Then ask them if it's a realistic, and see what they say. If they say yes, that's great, but wait until you hear it more than once before you celebrate. Many agents will tell you yes, figuring that it's easier to raise your budget than lower your expectations, especially once you have seen this beautiful property that they "just happen" to know someone who can get the loan for. Nor is this a straight yes/no question. They might tell you an unqualified yes, as desirable properties possessing those characteristics you want are available in that area below your budget. They might tell you that such properties are available, but that they are scarce and you must be prepared to act expeditiously when you find one. They might tell you that you're going to need a fixer to get those characteristics, or that you're likely to need to compromise some of them. Or they might tell you that what you want is sufficiently beyond your budget that an alternative approach is probably called for.

Now, whatever the first agent tells you, don't swallow it whole. Get some evidence. If they show you literature for brand new beautiful properties just being sold out that are less than your budget right where you want to live, that's evidence. If they execute an MLS search and the only things that pop up in your budget are out of area properties being cross-marketed, that's evidence. The worse the news they tell you, the more likely it is to be true. Sales persons do not like to be bearers of bad tidings, especially before their commission is paid. But if they're willing to give you evidence that your expectations need to be adjusted downward, that is evidence that this is probably someone who takes their fiduciary duty seriously, and that is an agent you probably want to work with. By comparison, the agent who fills your head with happy thoughts is one to avoid, as millions of people have discovered the hard way in the last few years after they went through foreclosure on properties that they shouldn't have bought in the first place.

Notice that I said an agent you want to work with, not the agent. There's a reason for this. Remember that non-exclusive agreement you signed? Remember that I told you it's fine to sign more than one? Here's the good thing about signing more than one: Now you have multiple agents looking for that special property that will make you happy. You won't pay any more for this than for one agent, because they are all competing for your business and the same commission check. This is the stage at which the agents are actually competing for your business, by looking for the property you want. You don't have to decide who gets paid up front. You wait until one of them brings you what you want. Furthermore, the agents will self-select or disqualify themselves to a large extent.

Let's say you signed seven non-exclusive agreements. One is Teresa Top Producer, who slams clients into the first property that's even a rough fit. She'll take you shopping one day, try hard to sell you every property, and get upset if you don't make an offer on the first day. By "try hard to sell" I don't mean anything so crass as the hard sell. What happens is she talks up everything she mentions, very little if any compare and contrast, and whatever she does, no calling your attention to defects or undesirable items. In fact, she'll do her best to distract you or get you to ignore them. For savvy, patient, intelligent buyers, Teresa is not a good fit as an agent, and you're going to realize it after one or two properties. And here's another great thing about the non-exclusive agreement: You just stop working with her, and she's out of the picture!

The second person you sign an agreement with is Martin MLS. Martin does an MLS search, and wants you to go around with him to every property on that list. He sets up an automatic notification to you of every property that fits some basic criteria that gets listed, and he wants to go check out every one with you. Lest you not have figured it out while reading the last two sentences, Martin's approach is basically throw a lot of mud at the wall and hope that if he throws enough, a little bit will stick. Martin may or may not have any real idea of the spread and breadth of your market, and he may or may not be able to recognize a real bargain when it bites him, but he probably has a good idea of the general state of the market. You'll get the same idea pretty quickly by working with Martin, after you see fifteen or twenty properties that seem pretty much to run into one another - except for the ones that are drastically over-priced. You get the idea that working with Martin is not an effective use of your time, and soon, you stop, at which point Martin's out of the picture.

The third person you sign up with is Benny Bump. Benny's got his own unique way of making transactions happen. Actually, it's not at all unique. It's common enough to have a general slang term among Realtors. What Benny does is take you to three or four properties that look like war zones, comparatively speaking. These are not desirable properties on the scale you're using. They fall well short of desirable on one scale or another, and usually on several scales. Then, just as you are despairing of ever finding something you like, Benny Bumps you by showing you this absolutely gorgeous property in perfect condition. "Yes!" you happily cry, having quite predictably come to the conclusion that You Want This One, and you'll do Whatever It Takes to get it. You may or may not notice right away that the price is way above the budget you stated to Benny, and he's counting on you not caring when he whispers that he knows how to get the loan, or knows someone who can. The vast majority of people who meet Benny will fall for "The Bump", and most of the ones who don't fall for it will not realize what a vicious, unethical trick it is. You, being that one in a hundred or so who is smart enough to realize what happens next to Benny's former clients, inform Benny that his services are no longer desired.

I have said it before, and I will say it again. You should demand to know the asking price of every single property before you agree to view it, and if the agent can not explain why that property might be obtained within the budget they agreed to work with, that is an offense not only worthy of firing them, but one for which financial prudence demands firing them. You can't fire someone who you've signed an exclusive agreement with except by waiting out the agreed upon period. You can fire someone whom you have signed a non-exclusive agreement at any time by Just. Not. Working. With. Them.

The fourth person you signed with is Rhonda Rebater. Rhonda is a discount agent sits in her office, and waits for you to bring her the property you like to her for negotiations. She'll usually also expect you to meet the appraiser, meet the inspector, etcetera, nor will she shop services for effective value. Quite often, Rhonda has her hand out to these people behind your back. Not necessarily for a lot of money in any one place, but her whole approach to the business is based upon volume. And she does quite a lot of volume, because people who think in terms of cash in their pocket (that rebate of some portion of the buyer's broker's commission that Rhonda gives them back) are her legitimate prey, and they flock to her in droves, like politicians to campaign contributions. If you're savvy enough in the business that the value provided by a good agent is negligible, why don't you get licensed and earn yourself the entire buyer's broker commission? Because Rhonda has little real market knowledge, she's a very weak negotiator on your behalf, and because her business model is predicated upon high volume, she's an awful guardian of your interests as the transaction goes along. So Rhonda may not be precisely out, but she's not likely to go out and find you a real value.

The fifth agreement you signed is with the team of Gary and Gladys Gladhand. Gary and Gladys get their business from social groupings. Gary has a bowling team and a softball team and he's a soccer coach and Gladys is PTA president and girl scout troop leader and organizer of the party circuit. And, of course, their ads are all over the place. "Mr. and Mrs. East Side" on the East Side and "Mr. and Ms. West Side" on the West. Together, their objective is to know enough people, and make certain all of these people know that they are Realtors, that they are always getting referrals from these folk because "of course" they'll use Gladys and Gary, and walk-ins from those stupid enough to believe their advertising. You may have come to them as Uncle Gary and Aunt Gladys, because normally Gary and Gladys don't allow non-exclusive agreements, and they will almost certainly balk at the no dual agency release, even from a relative. Their whole business approach is predicated upon not competing for your business, and locking out the competition so that they don't have to compete by making it a social obligation to do business with them. In point of fact, Gary and Gladys may be decent or good listing agents, but are extremely unlikely to be strong buyer's agents, because all of this schmoozing takes a lot of time that could more productively - from potential buyers' point of view - be spent obtaining market knowledge and finding bargains. Their approach is reasonable on the surface: You want a house and their listing wants to sell a house for too much money and they want to get paid both halves of that commission, so there just isn't any reason not to make everybody happy, is there? But a good buyer's agent is going to be the one that looks at every single property, whether they listed it themselves or not, with a cold, rational, logical mind and clear eyes for comparative value. I don't list many, but I rarely show one of my listings to one of my buyer's clients, because my listings are priced to the market and the situation. This means that while they're not over-priced, they're not the greatest bargains in the market, either. I only need to price low enough to attract people foolish enough to sign an exclusive agreement with one of these problem agents, not to attract a cold, steely-eyed buyer's specialist. Gary and Gladys are going to show you all of their own listings (except the ones that are obviously unsuitable) first, then, all of the listings with other agents in their office that might interest you, and then they are going to start acting an awful lot like Martin MLS: Throw enough mud at the wall, eventually some of it might stick. Are any of these tactics likely to generate a superior value from a buyer's point of view? Not on Planet Earth.

Now, you got really lucky, and beat the odds. Out of the seven you signed up with, you've actually got two agents that are going to do their job by going out and looking for the best values in your current market by actually looking at them and comparing them to each other, from the standpoint of your needs and your desires and your budget. The ratio of these agents in the real world is much lower than that. If you don't have at least a couple agents left on your list when you're done vetting, go out and find more. You can sign any number of non-exclusive agreements, at any time.

When good agents show you a property, they show it to you with context in mind. They're willing to say bad things about every property, not just the ones they don't want to sell you, even though they should only be showing you superior values. They're going to compare and contrast virtues and defects. Lest I be unclear, it is precisely for these virtues that you have been vetting your candidate agents. You can only see real evidence as to whether they are present or absent in action, not during the interview process. Knowing enough to sign a non-exclusive agreement gets you the ability to find the defects in the five agents who didn't do what you wanted, and you didn't need to commit yourself to any of them before you observe them under fire. Instead, you know enough to understand that there is no real need to commit to anyone until you make an offer.

Now, which one of these two of three good agents gets paid? That depends upon which one of them does a better job of finding you the property you want. Best trade-off of those things you want in a property versus price. Of course, you won't be sure exactly what price you can get it for until you go through the negotiations. And it is possible that one of the others really does have something good, if not nearly so likely. In my experience, Martin MLS will eventually get the job done, if you have enough patience or he gets lucky. Rhonda Rebater will be there if you get frustrated enough to take matters into your own hands. And it is possible that Gary and Gladys Gladhand have something you like, but it is unlikely to be a superior value. Teresa Top-Producer and Benny Bump are deadly poison, as far as buyers are concerned, and once you discover this hidden attribute, you should give thanks that nothing you saw with them was attractive to you. But none of these others has gone out and physically looked at all those properties, which gives those two good buyer's agents you did find an unbeatable amount of market knowledge, which they can then turn around and use to your benefit in negotiations. When they can tell you what the bad points in a property are as compared to the other stuff, you have evidence that they can explain it to the agent on the other side of the transaction. Except for those owners who just won't listen to reason because they want their property to be worth more than it is and they are not going to entertain evidence to the contrary, this evidence is powerful stuff, and can make a huge difference on the price you end up paying, even on a property that is legitimately an above average value to start with.

Caveat Emptor

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About this Entry

This page contains a single entry by Dan Melson published on December 2, 2014 7:00 AM.

Mortgage Markets and Providers and Yield Spread Explained was the previous entry in this blog.

Earnest Money: Copy of a Check or Proof Of Funds? is the next entry in this blog.

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