How Not to Get Screwed When Buying a Home

Why do agents advertise?

Agents have all kinds of marketing tools to help sell a home. When I teach continuing education for experienced agents I ask them to make a list of all the marketing tools they use. Here is a typical list:

• Yard signs
• Open houses
• Sunday morning TV shows
• Real estate publications
• Local newspapers and area publications
• Mailers
• Flyers

• MLS

  listings, which puts the home on the internet
• Staging
• Agent web sites
• Internet marketing

When I ask agents how many of these are truly effective the list gets cut in half. Why do agents do all this marketing? Is it really to help sell the home? Or is it to troll for new buyers? Let’s look at open houses and list the benefits in order of importance;

• To make the seller happy
• To troll for new buyers
• To help sell the home
• To possibly connect with a nosy neighbor who is thinking of selling their home

Why do agents advertise homes in those books you find at the grocery store?

• To tell the seller that they are doing something to help sell the home.
• To troll for new buyers
• To market to sellers for new listings since sellers also look at those books to see what is going on.
• To promote their name and brand

The primary reason for most of the marketing tools on this list is for self promotion and to troll for new buyers. Think of it like fishing. They are the fishermen, you are the fish and the open house, the yard sign, the ad are all bait.  You pick up the real estate book at the grocery store and see a home that catches your attention. It seems just what you have been looking for. So you call the agent (you just took the bait) but that home is already in contract. You are too late.  But agents are good at fishing so they start to reel you in. Now they turn on the charm and talk about their experience and knowledge and how they are the top seller for that neighborhood.  This gives them an inside edge to sometimes know the “hot homes” before anyone else. (More bait to make sure you are hooked). If you work with them you won’t lose out on another opportunity. Before you know it they have you reeled in all the way and are helping you find a home.

AN INSIDERS TIP: It’s rare for an agent to be able to control a market and know about all the best homes before they come on the market. Besides, most homes don’t sell that quickly (with the exception of some strong seller markets in tight urban markets). Ask an agent to show you the recent sales history. You can see the days on market which will tell you the truth about how quickly homes are really selling.

How to get great deal on a home

You won’t find a sign in the front yard that says, “great deal today.” I was showing a house to a client, the seller answered the door, handed us an info sheet and said “and we will take less then what the sheet indicates.” Clearly they were packed and ready to go but stuck in their current situation. To get a great deal on a home two things have to happen.

1. You have to be prepared to buy. If you aren't prepared to buy you may not be able to take advantage of a good deal. Or you  may not even be able to recognize a good deal when you see it. Being prepared means:

• Having your finances prepared
• Know the market and what you need to spend to get what you want
• Understand the compromises you will have to make
• Learn about the market you are interested in so you will know the value of homes

1. You have to be lucky. There is no secret skill in getting a great deal on a home. You mostly have to be at the right place at the right time. Most importantly you have to be able to recognize and then take advantage of the opportunity when it presents itself.

To have a chance at a great deal you have to be prepared before you start looking to buy. If you have a competent agent they will educate you about the market and value before you start. But you also have to be ready to buy. These are issues like;down payment, your credit score, when your lease expires and timing.

The downside to working with a top producing agent

Top Producers are agents with a large market share of listings. Once you focus on an area you will start to see their names over and over again. The downside to working with a Top Producer is you increase the chances of creating a situation that works against you. You’re creating an incentive for them to sell you one of their listings.

Bob is interested in the desirable Hawks Nest area of town, where the average home sells for $500,000. Sally is a Top Producing agent in the market. She lives there, belongs to the local country club and with a large share of the listings you see her name everywhere. So Bob hires her because of her local knowledge and she tells him about some hot new listings that are about to hit the market and he will see them before anyone else. There are 12 homes on the market and she has the listings on 5 of them. Which homes do you think she has the incentive to show Bob?  Her listing commission is 6% so on the 5 homes she has listed she can have a $30,000 payday. On the other 7 homes she will only earn $15,000. That is a lot of incentive to sell you on a particular outcome. Wouldn’t you rather have an agent who doesn’t have the incentive to sell you a home?

Pocket listings, how agents use this to hook new clients

Most people have no idea how to go about selecting a good agent. Here is what typically happens. You are interested in a particular area of town so you go on line and search the listings, pick up the real estate books at the grocery store to see what is on the market and you start going to open houses. Before you know it you are talking to a real estate agent and they start telling you about some “hot” homes that are about to come on the market. Agents call these “pocket listings” because they are in their back pocket and only their clients will know about them. But is this agent on your side or are they just trying to sell you the home? They are leveraging their knowledge and your fears to sell you a home. Besides, do you really think many homes are truly sold this way?

One of my agents started working with a million dollar buyer who was looking in a smaller older neighborhood. In these types of markets there aren’t many agents and it’s typical for the client to have at least met with more then one agent. So this buyer was polite and had seen a few homes with another agent, Rich, so he did the right thing and called to tell him he was working with another agent. All of sudden Rich said he knew of several “hot listings” that were about to come on the market. I thought it odd for Rich to now have pocket listings that were just what the buyer wanted to see. Where were these listings last week when he was working with the buyer? Being curious I went online to see his listing and selling history and during his entire career he hasn’t had a single million dollar listing but all of sudden he was about to have several.

Can you trust your real estate agent?

Why do people have trust issues with real estate agents? It's because they sell, sell , sell. According to a survey about how consumers rate the trust worthiness of different professions real estate agents come in lower then lawyers and somewhere close to gun dealers. I think lawyers come in higher because people know they can at least trust their own lawyers but people aren't sure if they can even trust their own real estate agent.

The problem is agents are taught to be sales oriented, they strive to be included in the $1M, $5M, $25M dollar clubs, etc. They define themselves as sales people. And how does the public view sales people? If you define yourself this way you are bound to  alter your behavior to mold to it. This creates an incentive for agents to close deals. And way to often to do what is easiest and maybe best for the agent.

I teach real estate classes for new agents and in my last class a new agent told the following story. She is stuck with a $500,000 hard to sell home. It's listed and a buyer wanted to rent it for 18  months and then purchase it. He put down a $5,000 deposit, which he will get back if he closes. If he doesn't he is out the money. Each agent is holding $2,500, which they will keep if the deal doesn't close. When the seller asked why they get the money she was told, "this is standard practice and how things are done".

What they should have said was the truth, which was "We have earned a $15,000 commission but won't get paid for 18 months. Do you think it is appropriate to get a partial payment of $2,500 now and the balance at closing?" That would have been honest and appropriate.

Instead they put their own best interest ahead of the sellers. They manipulated the deal for their own benefit and to her detriment. I can only assume they aren't devious or anything like that. I honestly think they thought they were doing what was right. but that is the problem. They accept this as the standard for what is normal.

Do you have any good stories about real estate agents?