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March 3, 2007
Contract them no matter what
Moving on, we began to learn about listing homes. This is the second entry on lesson 2.
This discussion begins with the instructor chanting at us “No listings for under 6%!” That about sums up the average flexibility of an agent on a listing. They want 6%, and will do what it takes to get it.
The instructor tells us that we should always get a contract before talking to someone. If they want to see home, make them sign a contract. If they want to list, contract em. If they walk into your office, contract them. This brought to my mind a memory of walking into an agency here in Utah when I was first considering buying a home. The agency advertised themselves as providing a huge list of foreclosures and other listings free of charge, so I walked in and was quickly shuffled into the agent who was on floor time for the moment. My wife was in the car, so I was in a bit of a hurry. I explained that I was just here for the listings of properties and was asked to sit down. The lady then presented me with a contract guaranteeing her 6% on any home I buy over the course of the next 18 months. I explained that I perhaps hadn’t made myself clear, and that I just wanted a list of foreclosures. She told me that she could only provide a tailored list and asked for my Name, income, and social. I balked. Look, I explained, I don’t want to get prequalified for your mortgage, I simply want the free list of homes. We argued further as she pushed the contract, and I responded with “I’m still living in California, I’m just here in Utah for a weekend, and I really have no interest in having an real estate agent right now. I believe I walked out with a few useless MLS printouts, and a wife that had sat alone in the car for almost 40 minutes before she came in and rescued me.
Some time later when I was actually looking for a home I used a Realtor who advertised himself as being a no-contract buyer’s agent. He showed us some homes, and was kind. Best of all, we weren’t locked into a contract of just buying a home through him, which proved a wise decision.
Our instructor begins with a story describing a young couple he knew that were overseas in Japan. They had contacted him wanting to look at some homes, and he sent them a few MLS listings. When they arrived in Utah he showed them a couple of properties. As he knew them rather well, he hadn’t presented a contract yet. He then turned solemn, and told the class that unbeknown to him, the father of the young man in the couple had been taking the couple out each evening to look at Fizzbos. Fizzbo is the derogatory remark that the instructor and several of the students spit out when describing a F.S.B.O (For Sale By Owner) property.
Real estate agents almost never show FSBO properties to their clients, as they rarely offer commissions, and if they do, the commission is almost always lower than what a normal home on the MLS would go for. Many brokerages do not allow their agents to even mention a property that doesn’t carry a 6% commission. Apparently, the young couple had found their dream home, and bought it without giving our instructor a commission. He explained that being young they were naive and thought that just because they had located, bought, and completed the transaction themselves, that they didn’t owe a commission to their agent. I was tempted to point out that as he wasn’t showing them FSBO homes, that really he didn’t have much right to complain. I thought better of it, as the instructor was very bitter, and continued to outline how he had wasted HIS fuel, and HIS time showing them a house, and because he hadn’t gotten a contract, he had gotten screwed.
The entire class was quite sympathetic, and many began declaring their intentions to never even speak to a potential client, let alone show a home without a contract. The instructor attempted to calm everyone down by saying that while a contract is important, one must use some tact. Invite them into your office, talk about the family, then politely give them a contract. Try to avoid rudely throwing it at them first thing, work them into it.
He then began to make me scratch my head by advocating that you tell your client to be that it is ILLEGAL for an agent to work without a contract. Now this is an outright lie as far as I can tell, but he claimed it had done very well for him. That whenever he was asked to show a home to a potential buyer he would ask if they had an agent, if not he’d tell them that it is illegal in Utah for him to show them the home unless they sign a contract to him. Most buyer are uninformed on Utah state law, and are thus inclined to believe whatever the licensed agent is telling them about law.
The class loved this, and several students began to greedily outline plans of theirs on how to convince both a buyer and a seller to pay the commission to them, known as a dual agency. Dual agency is when a buyer is represented by the same agent as the seller, an obvious conflict of interests, but legal in Utah as long as disclosed. Agents always want the dual agency, as it provides them with the full 6% commission. Many in the class were visibly deflated when the teacher cautioned that they would HAVE to contract with the seller to be allowed dual agency before they could legally represent both sides. Sellers can legally forbid their agent to represent the buyer, and honestly, that is probably a wise thing to do. If an agent is representing you as the seller, the last thing you want him or her to do is disclose your financial situation or how desperate you are to sell, or your lowest acceptable price point to the buyer. While disclosing such is often illegal, I have seen several agents all too eager to disclose such in return for a quick sale. As a buyer, it’s also unwise, as legally the agent is obligated to the seller BEFORE the buyer’s interests. That means that legally the agent is interested in the seller getting the better end of the stick.
The instructor then shared the most popular story of the day, the tale of his biggest commission ever. As the home already had an incredibly high selling price, he was forbidden to represent a buyer. As such, he legally could not represent the buyer. That said, he had a friend who wished to buy the property, and through a creative contract, he had this friend sign stating that he was representing himself. The instructor was thus able to net a 6% commission, while still being on the good side of the law.
The class exploded with excitement. Several students appeared like they wanted to clap. One asked where they could obtain such a contract, while another student declared that she would always do what the instructor had done, and gain a 6% commission in all her sales!
If you’re looking to sell your home and hope to avoid having an agent do the same, I would recommend clearly contracting that your listing agent is not to receive a commission above 3% no matter what the circumstance. This will keep them from loopholing your desire, and being able to represent both the buyer and seller legally, and prevent them from double dipping on the commission. Your agent will NOT like you limiting them, and one should always keep in mind that your listing agent is often the one providing the contract tailored in THEIR BEST INTEREST. Always have an attorney look over ANYTHING your agent tries to contract you to sign. If nothing else, at least read it carefully and sleep on the contract. A home is the largest investment most people will ever make. Rushing into it is stupid.
The instructor continued pushing contracts by describing a home which he contracted to sell for 7 years! He managed to keep the seller under contract during this time by submitting addendum to extend his time representing the property.
He then told a story which seemed rather ironic given his earlier tale of woe in losing his commission to a hated FSBO. He had been contacted by an interested buyer in a home he was listing, and he had of course gotten them to sign a contract before showing them the house. They bought it, and he happily earned his 6%, only to get a call from another young Realtor furious at him, declaring that he had shown the buyer that same home just a week earlier. Procuring cause used to be law in Utah, stating that the agent shown to be the one causing the eventual sale of a property is the one entitled to the commission. In this case the other agent didn’t have a contract, and so our instructor told him to have his broker talk to his broker and see what could be done…which in this case, with no contract, and procuring cause no longer being the law of the land, amounted to nothing. He was proud of how through a contract, he got the other agent’s commission.
Class concluded at that point. We were handed a practice test, which was for the most part rather easy, however it did contain one question that I found amusing:
Which of the following would be considered lawful practice in real estate brokerage?
a. Deceitful or dishonest practices (do we have to think about this one?)
b. Exaggerated statements about the property (To me, exaggerated translates to “it’s around 1000 square feet, when it’s really 600)
c. Omitted statements of material fact. (I read this as meaning forgetting to mention in the listing that there is an extra workshop in the back.)
d. Misstatements about the property. (Like Puffing perhaps?)
I answered C, as the rest seemed questionable. I was told I was wrong however, apparently answer (b) is the only lawful option. Think about that the next time you’re dealing with an agent.
read comments (5)
March 3rd, 2007 at 8:51 pm
I’m surprised that agents are legally permitted to exaggerate. Perhaps that’s why a lot of the ads I see now say something along the lines of “buyer to verify all info.” I wonder if there is a legal definition of exaggeration. At what point does an exaggeration become a lie…
March 4th, 2007 at 7:14 am
Item B is puffing (”The best ranch house in the nieghborhood”). Item D is deception.
Real estate pre-licensing is bad even when it’s excellent, but it has very little to do with the actual practice of real estate representation.
This site would be a lot more interesting if you were interested in seeing things from all sides, rather than just reinforcing your prejudices.
March 4th, 2007 at 9:43 pm
I read your comments and it sounds like you had a bad teacher! I’m going to classes to get my RE license. And my teacher was nothing at all like your teacher, we have never ever been told to lie to a client! That would be fraud and you could you lose your license for that. And I’m sure you learned that a most agents only get a percentage of the 3%.
The average agent in Houston makes around $25,000 to $40,000 a year and thats over 45 hours a week working a lot evenings and weekends. Also there are no paid benifits for most agents no health insurance no sick pay no vacation pay, agents have to cover those cost themselves. And they can go months without making a penny, but still working the whole time. I know in any feild there are bad apples that give the rest a bad name. But don’t judge the whole industry because of a bad teacher or a bad experence. Could you imagine putting in 15-25 hours on a specific project and then your boss tells you he is not going to pay you for it. And everyday when you go to work, you might get paid you might not.
March 5th, 2007 at 11:54 pm
I honestly don’t think these teachers are necessarily bad. I think that even good teachers can teach silly and incorrect things, and this seems to be the case. My biggest fear, and motivation for pointing out some of these things is to show that perhaps the industry isn’t providing the best learning environment for it’s students.
March 20th, 2007 at 5:14 am
[…] things would have been had things started to go bad after you signed. Most agents will be kind but firmly insist you sign the contract before they can speak to you. They may even tell you it’s illegal for them to talk to you […]