Ray Wilson, author of Bought, Not Sold, brings academic discipline and field experience to expose consumers to the reality of the realty industry.
Reality inReality in
1. "When An 'Agent' is not an Agent"
2. "Is You Is, Or Is You ain't, My Agent?"
3. "The Dating Game"
4. "States of Confusion"
Realty 2001 1. Career Advice
1.1 "Don't Quit Your Day Job"
2. Seller Advice
2.1 "Appraiser, Yes! CMA, No!"
2.2 "Listing Purpose & Pitfalls #1, 2, & 3"
2.3 "Listing Pitfalls #4 & 5"
3. Buyer Advice
3.1 "EBA, EBA, EBA"
3.2 "Promises, Promises, Promises..."
3.3 "You! You! You!"
3.1 "The 'Big Grab' versus the Big Dope"
3.2 "If not revolution, then evolution""
1. "Making Magic in Chicago"
2. "No Sign of Reform in NAR Leaders"
3. "The Wrong in the Percentage Commission"
Reality In Realty 2001
Seller Advice Continued:
© 2001, Ray Wilson
Listing Pitfalls #4 & #5
Author's note: "Reality In Realty 2001" like the
original "Reality In
Realty" series approaches the subculture of the real estate
industry in terms of the "reality" of the world -- the
"real world" --
around it. It is a reality dictated by the world of consumers, not the
of one set of providers. Ray Wilson's academic discipline as a
brings light into the shadows of professional subcultures where the
grasp for control over the many, sometimes in deliberate self
themselves entrapped in their own island propaganda..
My last column -- "Listing Purpose
& Pitfalls" -- covered the seller's purpose in listing and the
first three of five pitfalls to avoid. So far, here's the portrait
in reality for a home owner about to put property on the market:
- Get a professional estimate of the market value of your property
by a qualified "appraiser" and not a "CMA" by a listing
agent. (See "Appraiser, Yes!
CMA, No!" -- two columns back in this series.);
- Choose your market method -- full agency, limited agency,
non-agency service, or FSBO (For Sale By Owner).
There's a "catch" to #2, for it's a matter of making
an informed choice. It involves what you want to do and
who you're going to do it with. Putting the "who" before
the "what" is far worse than putting the cart before the horse.
The "who" here is not a horse, but someone fully capable of
climbing into the cart, taking the reins, and putting the bit in your
So, when you begin by asking a real estate sales licensee what your house is
worth, and what it will take to sell it, then when the listing contract
comes out of the briefcase, see it for what it is -- a BRIDLE!
Putting the what first doesn't require that you become a pro, but it does
mean doing at least the little bit of homework assigned here. It is not
rocket science. Just know three things before you talk with any prospective
agent: (1) the market value of your property, (2) the performance outcomes
you expect from anyone you hire, and (3) the pitfalls to avoid in hiring.
Once more, expect -- no, demand -- five performance outcomes:
- maximized income to you;
- minimum time frame;
- the most favorable terms;
- minimum liability;
- minimum inconvenience and discomfort.
These are called "performance outcomes" because you expect
someone to perform, i.e., to actually work to make them happen. Why
pay the big bucks to someone who can't grasp the notion that earning the
money means getting out and selling for you, doing the work
that a SALES person is supposed to do? With a spray-can and a piece
of cardboard, you can put your own home on the market without an agent, and
it will sell itself sooner or later. You need a professional sales
effort , a genuine work effort aimed at each of these performance
outcomes. The problem is that contracting to pay a professional fee does not
guarantee a professional sales effort. By definition, you don't get that
from a mere "order-taker."
The first three "pitfalls" were all about the problem of hiring an
"order-taker" instead of a "sales-agent." Specifically,
they dealt with three levels of order-takers, going from bad to worse.
Pitfall #1: Order-Takers -- sales wannabees who just
don't have what it takes to be in sales.
Again, the details on Pitfalls 1-3 are in the last article. These are all
about avoiding the "order taker" as opposed to what a seller
really does need -- i.e., a "sales agent." That two-word term
encompasses two distinct concepts (I told you this was not rocket science).
The focus in #1 through #3 has been on sales effort and performance. In
real estate, it is not enough to simply hire a sales person. You
need an "agent" and -- surprise, surprise -- you could very well
list your home with something other than a true agent. Surprise again; the
non-agent will likely "require" an agent's fee. I will suggest
below what you should require of such persons if I can find the right
words to meet the good-taste requirements of my editor.
Pitfall #2: Seller-Capturing Order-Takers -- salesperson
pretenders with no intention of delivering sales effort. Their
listing contract is simply a legal device capturing you and your checkbook
as a revenue source at the inevitable sale.
Pitfall #3: Commission-Hogging Seller-Capturing Order-Takers --
listing offices who blatantly reward themselves for listing rather than
selling. Take charge and tell them they can't take the lion's share of the
commission you're paying out to get your property sold. Take charge
and tell the hogs to take a hike. Hire only genuine sales agents who
will not withhold a sales-motivating "commission split" from those
who do the selling. More on this when we get to #5.
Pitfall #4: Paying A Full Agency Fee for Less than Full
It is important for you to distinguish the term, "agent" from
"broker" or "salesperson," if for no reason other than
to be sure the professional trying to list your home knows the difference.
It is important to your wallet and to your well-being before, during, and
after the sale of your home. To "broker a deal" means simply to
bring the parties together, regardless of who gains or loses what. Generally
speaking, the noun, "broker," (real estate or otherwise) implies no
duties to the other parties beyond record keeping and administrative
matters, and not defrauding, extorting, or injuring them. If you want more
than that, you want an "agent." Certainly, if you are paying an
agent-level commission, you are entitled to an agent... a real
Only "agents" are legally bound to put themselves right in
your shoes, working for you as if they are you. That is what
defines an "agent".
That universal definition comes straight from the Common Law which also
identifies the specific duties to clients ("fiduciary" duties)
necessary to act in another's place. Recognized for over a century and 100%
true today is that those duties cannot be met by a seller agency which
includes so-called buyer agents! Why? The short answer, Mr. & Mrs. Seller,
is that agency loyalty to buyers on the part of your contracted
"sales" firm is disloyalty to you! Here are some of
your listing firm's obligations to its buyer clients:
- to tell them of all better deals for them than your home;
- to tell them what is needed to get you to accept the lowest possible
- to tell them of any pressure on you to accept a low price
- to not tell you anything that will give you negotiating
There is nothing wrong with a buyer's agent having such obligations, but
within a listing firm, they constitute clear conflict of interest. It
is also blatantly illegal in Common Law states -- which was the case in all
fifty states until very recently. The real estate industry not only knows
that, but proclaimed it for a century, insisting that listing brokers always
work only as agents of sellers. That worked fine for the profit structures
since there simply weren't any buyer agents, so brokerage fees stayed within
listing agency control. Then, in the 1980s, buyer agencies appeared; by the
late nineties, buyers were actively seeking buyers' agents, so listing
agencies responded with, "Yeah, we can do that."
Well, they can NOT do that -- at least not when the "that"
is to provide full agency service to both buyer clients and seller clients.
(There is one rare exception, the very small firm
practicing "single agency" -- note at end of this section on
Pitfall #4). Listing firms did not offer buyer agency for three
The first of these changed with expanding awareness of the modern
consumer. The most dramatic catalyst in the paradigm shift was a 1983
Federal Trade Commission expose of buyers routinely being lured to believe
that the seller subagent showing them properties was their own agent. In
the process most had trustingly conveyed information which the undisclosed
sellers' agents were obligated to use for the sellers' advantage. Lest you
think this might be good for sellers, consider that most sellers were first
buyers, and immediately become buyers again. (It was "good" only
for the agents.) Consumers had agency representation as sellers, and now
they wanted it when they became buyers.
- the absence of demand (no money in it),
- the working impossibility, and
- promising the impossible was illegal and could cost them their
The second of these didn't change. No magic has come along to fulfill
mutually opposing promises one firm makes to both buyers and sellers. The
interests of one client or the other, or of both, are being
compromised. Client interests are clearly subordinated to the interests of
The third of these partially changed. The universal
"Laws of Agency" is really immutable, as untouchable by state
legislatures as the Law of Gravity. In legal parlance, it is part of the
"Common Law, "
derived from the common sense of what people expect from one another,
evolved in common practice, and so fully ensconced in the common language
that it is bonded in myriad ways to the protection of the Constitution. The
meaning of "agent" and "agency" is not subject to the
whims of real estate lobbies or lobby-serving legislators. But the lobbies
and their legislators don't have the distance vision to see beyond
short-term gain; so some have decided to take their chances against eventual
revenge of the consumers in accrued damage and class action suits...
In about half the states, new statutes now allow certain practices which
were outright condemned by the very industry suddenly touting them when the
profit picture changed. Offering no consumer benefit not already available
under the Common Law, and significantly reducing agency protection and
service to consumers, the practices of "Transaction Brokerage" and
"Designated Agency," are those which you
Transaction Brokerage (TB) is contractual non-agency -- meaning the
broker is merely one who facilitates the transaction without agency
responsibilities to either side. There is no "trustworthy listing agent"
here because there is no agent. This brokerage form is fully
available (without the new label) under the Common Law, provided that both
principals (buyer and seller) are fully aware of what they are getting into.
The major attraction for this form among brokers was that it represents
greatly decreased liabilities for them -- i.e., fewer promises to keep to
buyers and sellers. Its Common Law counterpart is "dual agency"
which was regarded as appropriate only when buyer and seller had nothing to
negotiate, as perhaps in a property transfer within a family. Undisclosed
dual agency is illegal; and the point might be made that TB is undisclosed
dual agency if the new label leads the consumer to think it is something
other than dual agency. There is strong indication that most sellers really
do not realize TB is anything less than full agency since they are
presented listing contracts and signing them for full agency commissions.
It looks like the repackaging of dual agency under the TB label works well
for the pros, if not for the consumer.
- as a seller seeking a trustworthy listing agent would do well to
- as a voter seeking responsible officeholders would do well to
Designated Agency (DA) is bait and switch -- you are lured in as a
full-fledged client of a true agent who will promote your home to all buyers
in the market, acting fully on your behalf in selling to and negotiating
with them -- that is -- with one "small" exception. As seller,
you are told that in the instance where -- perhaps -- one of the firms
buyer-clients might want to offer on your home, then a "special"
situation will be set-up to protect the agency rights of both you and the
buyer. Specifically, both a seller's agent and a buyer's agent will be
designated within the firm for each of you, respectively. At least one
state (North Carolina) that has enacted DA defines it as dual agency at
best, honestly recognizing that negotiating on your behalf is drastically
limited. Some scenarios worth considering:
- Say, an unrepresented buyer shows up. Does the agency start pitching
your home to the customer who may go shopping elsewhere, or does it pitch
its buyer agency services to lock the buyer in for a commission on whatever
is finally purchased? It is your interest versus the firm's interest.
- If designated agents are real agents, then the designated buyer's agent
who works in your listing agency must convey any advantageous
information he/she has about you to the buyer (eg., that you're pressured to
accept a low price).
- If designated agents are dual agents, then your designated agent cannot
give you any information about the buyer which will work to your advantage
(eg., that he could increase his offer by several grand) -- even though your
agent must do that about buyers from outside the agency.
- Say, one of the firm's buyer clients makes a low offer you are almost
resigned to accept, and known to the firm is the existance of a highly
motivated wealthy buyer who is not one of its clients. Does the firm betray
its buyer client by telling you about the outside buyer, or betray you by
staying silent as you accept the low offer?
- How does your agent's loyalty to you stack up against loyalty to buyers'
agents at the neighboring desks whose financial interests are not served by
buyers outside the firm?
HAVE YOU HUGGED YOUR LEGISLATOR TODAY?
Considering the price tag, the time costs, the liability risks, and the
market dynamics, most people have neither the time nor the ability to sell
their own home and achieve the above performance outcomes. So, they need to
find people capable and trustworthy enough to provide that time and ability
fully in their behalf -- the practice of agency. Transactions brokers
are not agents by their own declaration. Listing firms which include buyers
agents or reserve the right to designate buyers agents are not true agents
by Common Law or common sense. If your legislature has chucked the Common
Law, you still can have common sense and common decency working for you by
hiring only an "Exclusive Sellers' Agent" (ESA), i.e., one who
works for sellers only and in a firm that never indulges in buyer agent
masquerades. Should it be that one of the less-than-full-agency options is
your only choice, I cannot imagine any legitimate reason for you to
be paying a full-agency commission
NOTE ON "SINGLE AGENTS": a single agent must
have a very small practice with a small enough clientele to allow scrupulous
procedural controls. As your seller agent, all new buyer prospects are dealt
with as customers -- not clients -- who may not be taken on as clients until
it is established that they are not buyers in your market, i.e., that there
is no discernable likelihood of interest in your property. Remedies are in
place should the unexpected interest nevertheless arise. Single agency is
discussed at some length in BOUGHT, NOT SOLD (pages 10-11, 78) and in
an earlier IRED article, If Not
Revolution In Real Estate, At Least "Evolution"
Pitfall #5: Being Used as a Pawn In Direct Opposition to Your
Your property in the wrong listing hands puts at risk two sets of
your interests, best classified as "pre-sale" and
"post-sale." Regarding "post-sale," I am not talking
about vague down-the-road eventualities, but about your immediate needs when
the sale transforms you instantly into a buyer or a tenant. To repeat a
closing line from the previous column:
The anti-buyer-agent shenanigans of Listing Lords may inflict
collateral damage on sellers, but buyers are in the
cross-hairs of their gunsights.
The interests of both buyers and tenants are protected by the availability
of full Exclusive Buyer Agency (EBA) since tenants pay for landlords'
purchase mistakes in the form of increased rents and poor quality living
conditions. The "anti-buyer-agent shenanigans" we've already
described may be avoided by listing with an Exclusive Sellers Agency (ESA).
However, even ESAs can get into, and draw you into, anti-EBA mischief
which not only works against your selling interests but may even pull you
into legal entanglements.
The downside of agency is that you can be held liable for the actions of
your agent, since the agent is standing in your shoes. Usually, when the
agent is a pro and the principal (client) an amateur who knew nothing of the
agent's deception, the client can be held harmless or have a case for
damages against the agent. Either way, you want no part of misbehaving
You especially want no part of rascals who tell a buyer's agent something
"Take it or leave it. You get a 2% commission because my seller won't
accept an offer with anything higher."
Laying blame on the seller is a frequent gimmick of listing agents seeking
to keep more of the bucks in their own pocket. It is, of course, patent
nonsense, since higher shares to the agent bringing the buyer are in the
seller's interest, and lower shares work against the seller. I know of
cases where EBAs have been squeezed to 1%.
Often there is something even more ominous here. If the above 2% to a
buyer's agent compares to 3% offered to traditional listing agents bringing
buyers, then your agent may be implicating you in a restraint of trade
conspiracy. The conspiracy is real; it always is when a new trade moves into
a market where an established trade had free reign. The charge could even
stick if your agent actually did get you to agree that EBAs would be paid
less than subagents. My advice: don't do that. Even better: whatever
the level of the buyerside share, insist on nondiscrimination, period!
There's another fundamental abuse of buyer agents, very widely spread,
highly likely to erupt in courtrooms across the country. The buyer's agent
is employed by the buyer, under contract to the buyer, and absolutely not
part of the listing contract in which you employ your seller's agent. The
EBA works for the buyer and his/her compensation is established in that
contract in which neither you nor your agent have any part. In this, the EBA
is different from those who agree to work for your agent, as your subagents,
in return for a share in your agent's commission. When the buyer offers
$100,000 for your property, it might include $3,000 for the payment of his
agent's fee -- a legitimate brokerage cost encompassed in the price for
loan/mortgage purposes. If the net to you isn't high enough, reject the
offer, even suggest a higher purchase price -- but any attempt to change the
fee agreed upon between buyer and buyer's agent is illegal third-party
interference in a contract! Your listing agent wouldn't hestitate for a
second to bring charges against a buyer's agent bringing an offer which
suggested reducing his/her listing commission. Advice: reject low offers
based on net to you, not on buyer agency fee; instruct your agent to
respect the other party's contract!
In typical practice between reasonable people, if you had agreed to a 6%
listing commission and received the above offer, your listing agent would
advise you to accept it and reduce his/her own commission to 3% -- netting
exactly what he/she would have received in a conventional 50/50 commission
split. Of course, that doesn't work if your agent had planned to hog a 4%
The very simple truth is that there is no reason for the listing agent to be
"reducing" the listing commission as if the offer through a
buyer's agent is any kind of a surprise. Any professionally competent
listing contract would have accounted for the event of a buyer agent offer,
spelling out what the seller agent would get -- say, 2% or 3% where 6% would
be considered market level when all brokerage costs fall on the seller's
side. Why would you even consider hiring a listing agent who was not
prepared for such a foreseeable event?
Don't try to answer. It's a trick question. I've neither met nor even heard
of a listing agent willing to offer such a "professionally competent
listing contract." Professional competence simply has nothing to do
with it. It is about market control, not professional service, and
playing dumb is part of the strategy -- at least when dealing with anyone
pointing out buyers' rights to employ and pay their own agents and the
integrity of buyer agency contracts. The pretense that there is just one
employer and one paymaster is crucial to maintaining the fiction that there
is just one job -- that of real estate broker -- who can serve buyers
and sellers equally well. The obvious goal is not so much to serve both
sides as it is to collect commissions from both sides.
It's nonsense! The stakes here for buyers and sellers are too high to trust
to a simple matchmaker -- a broker -- whose job is done whether or not the
match is made in heaven or in hell. Agents are needed here -- buyers'
agents and sellers' agents whose jobs are as different as the processes of
buying and selling. What company do you know that combines its sales agents
and purchasing agents in the same department?
Advice: Tell the listing agent what you will pay (a)% to your agent to
list and market your property and guide the transaction on your behalf, and
that you will pay an additional (b)% for agent or subagent service to an
unrepresented buyer. Put it in the listing contract. Typically, the
total of (a) and (b) would be between 5% and 7%, and (a) should never be
more than (b). Explain that there will be no (b) if the buyer has an agent,
that you expect the buyer to pay his/her own agent, either directly, or by
specifying it in the purchase price.
Do not be drawn into the traditional agents' resistance to buyer agency. In
addition to all the above precautions, I suggest one more. Consult your
attorney to make sure your agency contract has language holding you harmless
in the event of litigation stemming from agent misbehavior. Have her/him
review the entire contract before you sign it.