As to b) agents can be sued for malpractice. The larger the transaction the more that is at stake, and likely the larger the earnest money and down payment. If you sell someone a $200,000 house, it’s unlikely they could claim more than $200,000 in damages, absent a consumer protection act claim or a claim to attorney fees. If you sell someone a $2,000,000 house the potential damages are 10x as high. Also, the risk of suit is greater because someone buying a $2,000,000 house has more resources to spend on attorneys. I used to say if you want to be involved in a lawsuit, buy Lake Washington waterfront property, because the land there is very valuable, the precise lot lines often uncertain, and the neighbors will have the resources to sue.

a. “On the listing side I once had a seller suggest the commission change the longer the property was on the market. I said okay, but had to ask whether he wanted it to go up or down (he wanted it to go up). ” Either this seller thought you weren’t working to peddle the place enough so they thought if they gave you a bigger cut it would help or they just thought you were a great guy — anybody have a guess?

b “For one thing the risk to the agent is greater the more money is at stake.” You must explain this to me for educational purposes? What is the risk to the agent? If the deal falls through does someone take you out to a back alley — come on that statement by itself makes me not like agents.

I wouldn’t agree though that it makes no sense. For one thing the risk to the agent is greater the more money is at stake. I think even some/most escrows charge based on the dollar amount of the transaction–and what they do is identical at any given dollar amount. What agents do isn’t necessarily identical for higher priced listings.

The commission arrangement is rather similar to an attorney’s contingent fee arrangement, and is used/popular for many of the same reasons. Specifically people don’t want to pay if no results are obtained and/or can’t afford to pay.

So the percentage commission is used a lot because it’s popular with buyers. But that doesn’t mean that because an agent is paid a commission that they will discount their clients’ interests.

You’re right you probably won’t get a ride in the Mercedes.

2. Yes Kary you did lump them together apparently your reading or should I say writing comprehension is off today. Please go back and read what you wrote.

Where was I talking about education? Clearly I was talking about the effect their compensation structure would have on their advice to a client/patient.

But let’s switch this. Let me ask you a question.

Why would you trust a doctor or lawyer more than an agent if you knew that for each one their advice to you could affect their compensation? What is so special about working on commission, as opposed to working on a percentage markup (medical tests) or hourly rate (lawyer services)?

Oh, and BTW, this is what I original wrote: “Undoubtedly there are some agents that just try to put a deal together, just like there are some doctors that order unnecessary tests to make their boat payment or lawyers that disrupt settlement talks to be able to bill more hours (some lawyers hardly settle anything and are constantly in court).”

1. Dave if these professionals are so in the know then why in the hell are they dealing with me for the chump change related to the average home owner sale? Hey I am not buying the Trump Towers.

2. Yes Kary you did lump them together apparently your reading or should I say writing comprehension is off today. Please go back and read what you wrote.

3. Ira IMHO you are an exception to the rule.

4. Ray you IMHO are over the top but you break the rule.

A) When home price are low
B) When interest rates are low
C) When prices are skyrocketing
D) When interest rates are going up
E) Always

The correct answer, for a real estate exam anyway, is obviously E.

I kid. Sorta.

http://www.youtube.com/watch?v=UVKsd8z6scw&feature=related

(alas I will never get that again with our model of real estate)

As to the value comment, I can’t imagine why a buyer wouldn’t want their agent’s opinion of value. They can of course ignore it, just as the client of an attorney can ignore advice to settle. But they would want the advice, especially when the agent is saying they think the client is over-valuing the property.

Well, Kary funny you should mention it. I do actually inspect the panel while I’m there. Its just one thing I take a peek at since my client COULD END UP DEAD from an electrical fire. Just a peek though.

Kary what you are stating……….. any person can do, who has ever lived in a structure with a roof. It does NOT take a real estate license to OBSERVE. Do YOU crawl under the home? I hope so…Why only the interior? I hope you get in the attic as well! Do you bring a ladder to get on the roof? I mean come on Kary…..Don’t just do a PART of the job.

If your going to point out defects in the home I hope you look at the ENTIRE home. I would expect no less when hiring you now.

I will not comment on your remark ,anymore, about advising your OPINION of the limit the house is worth. I believe it was not a well thought out statement. I have made too many people upset on these blogs and have gotten booted off Rain City and The News Tribune for being rude and making people feel bad.

I will end by just stating the obvious………………….The Buffet is Coming to an End and I can hardly wait.

RE: Kary L. Krismer @ 53 –

Kary………………..seriously now…………………pointing out defects and advising your clients what the home is worth………………Who are your clients? People who are 60+? people who have never been on the internet.

An agent in 2009 forward should facilitate the transaction by offering facts of what is currently for sale, sold, and what is in foreclosure in the neighborhood in question. We should offer facts about the depreciating asset environment that we are currently in and in the end, when given all the data………………..the Buyer should decide the value. Not you by “limit to what the house is worth”. Horrible advice…..

As for defects in the house…………I hope you have your legal expertise ready to be exercised in court when you begin to advise about defects in a home. What is and what is not. If you fail to point something out…etc….Its an avenue I do not travel. Unless of course I observe a missing stair, dripping ceiling, or dead vermin lying around.

Good God!

Wow, you think being able to access the Internet means someone can value a house? You’re kidding right?

And note that we wrote up the 2-3 offers that were over what we recommended they pay. We are their advisers, not there guardians.

As to the last point, now I can see why you give back 75% of the commission. Perhaps you should increase the rebate. We will still have the clients conduct an inspection, and the inspector will typically find more and look for more than what we looked for (e.g. we don’t remove the circuit breaker panel). But that doesn’t mean that when we see something we’ll stay quiet and let a client make an offer on a property that would have a condition that would affect their decision. Why would we waste our time and their money (inspectors are not free) by staying silent? I mean really. That sounds incredibly irresponsible. What were you thinking?

Kary………………..seriously now…………………pointing out defects and advising your clients what the home is worth………………Who are your clients? People who are 60+? people who have never been on the internet.

An agent in 2009 forward should facilitate the transaction by offering facts of what is currently for sale, sold, and what is in foreclosure in the neighborhood in question. We should offer facts about the depreciating asset environment that we are currently in and in the end, when given all the data………………..the Buyer should decide the value. Not you by “limit to what the house is worth”. Horrible advice…..

As for defects in the house…………I hope you have your legal expertise ready to be exercised in court when you begin to advise about defects in a home. What is and what is not. If you fail to point something out…etc….Its an avenue I do not travel. Unless of course I observe a missing stair, dripping ceiling, or dead vermin lying around.

Good God!

Although there are a fair number of slimy, sleazy, lying real estate agents, some of us rely on referrals and repeat business to keep going, and you’re just not going to get that by BS ing people. .

A good example of that is clients we had a few years ago that made 2-3 offers on a place at a price in excess of what we told them they should. Fortunately the deal never came together. After that they decided to expand their business rather than buy a new house, so seemingly we lost a commission. Quite frankly, I didn’t care that much because I wasn’t in favor of the offers they made anyway.

Eventually they did reenter the house market and we did find them a house. And in addition, they have referred us 2-3 other clients. Oh, and these were the same clients that thought I was trying to talk them out of making an offer on a house mentioned in #45.

Anyway, you generate referral business by representing your clients’ interests. That includes letting them know the limit to what a house is worth, and pointing out defects in a house. If you don’t do those things, I don’t think you’re likely to get many referrals or repeat transactions from past clients. They’ll just think of you as someone who can open doors, and there are a lot of people that can do that.

So Kary you want to lump real estate agents in with Doctors ……. hmmm, let’s see Doctors 4 years undergrad, 4 years medical school, 2 or 3 years residency, maybe a couple more as an intern depending on area of expertise. Real estate agents mmm well they have to take a test. Give me a break. I think you think a little too much of your chosen profession.

No, I’m not lumping them together–again a nice try. Although being both a lawyer and an agent I will sometimes compare the two, but rather clearly that’s not what I was doing in this thread.

What I was doing is dispelling the notion that you cannot trust your agent because they are paid a commission. Your attorney is likely paid hourly, in which case the advice they give you will likely affect how much they are paid. The doctor almost certainly doesn’t bill tests for their cost, so every test they convince you to do they get more money for.

So if you don’t trust a real estate agent because they get paid a commission, you also shouldn’t trust your doctor or your lawyer because their advice will also affect how much they get paid.

Now I’ll agree there are bad agents, lawyers and doctors. But the reason they’re bad isn’t because of how they get paid. It’s because of either incompetence or poor ethics. But that doesn’t mean they’re all bad.

Some of the questions on the rel estate exam were hard, such as:
If a client gives you 10,000 dollars earnest money on a home purchase, you should:

a. Give the client a receipt, make sure your paperwork and money is turned in in a timely fashion, and keep copies of all paperwork for your own records.
b. Take the money and spend it on cocaine and prostitutes
c. Take the money and invest in AIG stock in the client’s name.
d. Take the money and leave the country quickly.

Hey a couple of those questions on the real estate exam were difficult not to mention driving to the Sylvan learning center to take the test. and……………………….Don’t forget………brace yourself…………………………………..Having to walk inside and show ID. Also, filling up with gas prior and eating a hearty meal. This all takes planning and effort.

“what goes Up”….you make it sound so easy.

So Kary you want to lump real estate agents in with Doctors ……. hmmm, let’s see Doctors 4 years undergrad, 4 years medical school, 2 or 3 years residency, maybe a couple more as an intern depending on area of expertise. Real estate agents mmm well they have to take a test. Give me a break. I think you think a little too much of your chosen profession.

You are in a way correct but in reality blaming agents is lunacy, at best. Its like blaming the liquor company for alcoholics. Just like in the attorneys field there are more lame attorneys then good ones. However everyone who blames realtors or mortgage people and etc… are just shifting it from the real issues.

I’ll take that.

If you hire a person who just got a Real Estate license because they thought it was a way to make money, or they wanted to do their own deals, or they have relatives they want to help, or the church has a bunch of people who want to buy and sell houses, or the house wife who thinks it’s fun, you’re an idiot.

You will never get in front of a Real Estate agent who does deals unless you are an acceptable candidate. Real Estate agents, true Real Estate professionals, dedicate their lives to the business. They do deals and learn by doing deals, They know the market place and work. They work all the time. Many are highly educated and some are not.

I’ll point out that both Warren Buffet and Bill Gates never finished school. The most successful Real Estate Investor I ever knew never finished the fifth grade, he had to go to work.

You’re talking about a world you know nothing about.

Wow Kary what a powerful arguement you make “Well whatever. Good luck being your own doctor and lawyer too. ” So instead of just admitting you are wrong you pull this out.

Real estate agents only care about making the transaction because that is how they get paid. Is there anything wrong with that basically NO but to try and act like that is not the case is BS at best now is there something wrong with that YES.

Nice try. What I’m trying to say is some ignorant stereotypical statements about agents (e.g. your first sentence of your second paragraph above) is simply incorrect, and if you apply it to other professions too you’ll have a hard time living your life.

Agents spend a lot of time trying to find their clients homes. We probably only show less than half of the properties we preview, and it’s very rare that the client wants to make on offer on one of the first five we show them–at least not without looking at others. The goal is not to find them a home as quickly as possible. The goal is to find them a home that they really want.

BTW, some clients have mistaken my comments about houses to be advice not to buy them. For example I remember one house I commented on a window needing minor repairs and some facts about oil heat, and they thought I meant that they should not make an offer on the house.

Undoubtedly there are some agents that just try to put a deal together, just like there are some doctors that order unnecessary tests to make their boat payment or lawyers that disrupt settlement talks to be able to bill more hours (some lawyers hardly settle anything and are constantly in court). But that doesn’t make stereotypical comments about any of those groups correct, or even more likely than not.

So if you feel that way about agents, good luck being your own doctor and lawyer.

I hope that’s clear. ;-)

Real estate agents only care about making the transaction because that is how they get paid. Is there anything wrong with that basically NO but to try and act like that is not the case is BS at best now is there something wrong with that YES.

Gotta tell you, it’s really fun to see RE profs coming to your site to defend their honor. All those soft-focus Ardell photoshoppy avatars all in a row. A whole line of Krismers looking ready to yell at us dang kids to quit playing on his lawn. (I remember when they wouldn’t deign to acknowledge your line of argument at all.)

Anyhoo, thanks for keeping it going so nicely as the situation matures. This year’s ARM resets peak in June – hold on tight!

You are exactly right. However, a good agent knows the market place. When I work in Real Estate I spend an hour of two every morning looking through inventory on the computer. Clients ask for CMAs, I go to look at houses that are interesting, drive by some dogs, and the client expects me to know every house they talk about.

At the end of the day that’s what I get paid for. At night I go to community meetings to network and know what the city is planning to do to a neighborhood. I know everybody and everybody knows me. I know the Jones just had a second child with a third on the way. Neighbor Bill got a promotion and is asking around about what his property may be worth.

I network with other agents. Agents talk and are a good source of referrals.

When you ask for a good property I will show you three that fit. I should be able to tell you everything about them. It’s my business, that’s what I get paid for. I get paid to know the inventory and match you to it.

Now about the commission. It’s the only fair way to compensate. It’s based on a percentage that used to be 7% and is now 6% heading to 5%. People talk about the difference between a small town, less inventory, lower prices, and the city, higher prices more inventory more to know.

You all think it’s easy because your cousin Earnie got a Real Estate license and made a million dollars, and he’s an idiot. The people who used Earnie are idiots.

There are good agents. They are going to tell you the market place. You’re going to love this, but seriously you need to be referred to a good agent. A good agent is working today, right now. They have limited time to listen to you tell them how things are. You tell them what you want and need and they tell you the market place. if you want a discussion go to the Seattle Bubble. If you want service pay attention before you pay a commission.

In the interest of keeping it short…..

Hey, no one said government meddling was perfect, but like Obama, many of us feel something needs to be done. People are hurting.

Obama made about $1.2 million dollars last year, and gave less than 1%, about $11,700, to charity. So while he’s not going to personally help out, he’s going to help you help out. Now get out your checkbook, and….

What a f’n fraud. Now, back to Seattle Bubble!

I think we should take the AIG, etc. approach, and have all Realtors return whatever commissions they earned over the last 8 years to the poor home buyers who have lost equity while purchasing an asset that “always goes up.” It’s only fair.

If you go that far back, and have it work both ways, agents who had been in the business for 8 years could probably use all the profits the buyers made to bailout AIG. ;-)

But I suppose it might depend on how an agent gets their clients. If it’s through advertising, they might need to churn. If it’s through referrals, that would be deadly over the long term.

By Kary L. Krismer @ 32:

Agents have statutory duties to clients, be they a buyer or a seller. The law is not perfectly clear on whether or not they also have fiduciary duties, but a negative answer to that question wouldn’t mean that they don’t represent the client.

Sorry, but “statutory duties” doesn’t hold water with me. Financial incentives are what matter. And because they are paid on commission, Realtors have every incentive to convince buyers to buy and convince buyers to buy the most expensive house possible. With those incentives, there is no way a Realtor can be trusted to represent my interests.

Well whatever. Good luck being your own doctor and lawyer too.

Keeping response brief per Tim’s request.

…because they are paid on commission, Realtors have every incentive to convince buyers to buy and convince buyers to buy the most expensive house possible. With those incentives, there is no way a Realtor can be trusted to represent my interests.

I’m more inclined to believe that they have a stronger incentive to convince buyers to buy the first house available, rather than the most expensive house possible. Faster sales = more throughput = more money.

If you were an agent, wouldn’t you rather sell $300,000 homes to four people in two months ($18k commission) than $400,000 homes to two people in two months ($12k commission)?

Doesn’t change your point really, but I thought it was worth bringing up.

Agents have statutory duties to clients, be they a buyer or a seller. The law is not perfectly clear on whether or not they also have fiduciary duties, but a negative answer to that question wouldn’t mean that they don’t represent the client.

Sorry, but “statutory duties” doesn’t hold water with me. Financial incentives are what matter. And because they are paid on commission, Realtors have every incentive to convince buyers to buy and convince buyers to buy the most expensive house possible. With those incentives, there is no way a Realtor can be trusted to represent my interests.

Sorry, but Jim Stacey along with many others made the case to change the law to what it is today.

The seller has a product, the buyer has the money. radfun confirmed the process with it’s rebate marketing. The buyer has the use of the rebate in a Real Estate transaction because it leaves the buyer’s hand first. The idea was the rebate could be used in the Real Estate transaction because the buyer, with his or her money, made the deal happen before escrow was closed.

The seller pays the listing agent at the end of the Real Estate transaction. That’s why everybody has to agree if a listing agent kicks into the transaction. The agent would be using the buyer’s money other wise.

RE: Kary L. Krismer @ 29 –

“Agents represent their clients”

That is not factually correct. Real estate agents have no fiduciary responsibility to buyers. And with the currently dominant system, they are paid by the sellers (yes, even “buyer’s agents”).

How is that not factually correct? Agents have statutory duties to clients, be they a buyer or a seller. The law is not perfectly clear on whether or not they also have fiduciary duties, but a negative answer to that question wouldn’t mean that they don’t represent the client.

As to the money flow, that’s a very outdated way of thinking of things. The prior law assumed the agents represented the seller, because that’s where the money allegedly came from. It lead to people being mislead–buyers thinking they were clients when they weren’t. But the money flow is irrelevant, and you could just as easily argue that the money comes from the buyer. It’s a two step trace if you count the escrow. Tracing is a well accepted legal concept. For example, if John conveys a house to Bill in a transaction that is a fraudulent conveyance, a trustee can typically recover that property from Alice if Bill transferred it to her.

“Agents represent their clients”

That is not factually correct. Real estate agents have no fiduciary responsibility to buyers. And with the currently dominant system, they are paid by the sellers (yes, even “buyer’s agents”).

Ardell,

The percentage doesn’t matter, what matters is the sliding scale commission structure that obligates you (and others) to pump up a home as much as possible to gain the biggest commissions possible in the event of a sale..

You really had a distorted and inaccurate view of the world. I’m not sure how you can function, since views like that would cause you to question everyone you do business with. They’re all going to make money off you, and the more they can get you to do, the more they make!

I had a sale once where the buyer’s agent checked with the city regarding the status of certain property they owned. Do you think she was doing that to pump up the value of the property as much as she could, or to help protect her clients?

Agents represent their clients and the clients have a choice as to how their agents get compensated. You might chose another system, but it doesn’t mean that everyone picking the most popular system is getting ripped off or not being represented.

As far as this post goes, I have added a qualifier in parentheses before my link to and selective quotation of Ardell’s 2006 post to clarify my meaning.

Agree. And I was expecting pictures of the views!!!!

The percentage doesn’t matter, what matters is the sliding scale commission structure that obligates you (and others) to pump up a home as much as possible to gain the biggest commissions possible in the event of a sale.

Of course, you could have just not responded to Tim’s original post and it’s doubtful more than 10 people would have clicked on the link about the “gushing” agent. Instead, you posted, taking ownership of the comments, and everyone went for a look-see. Sometimes it’s better to let sleeping dogs lie.

Why would you assume that? Did you ever see me post that I have ever charged anyone 6%, because I haven’t. Why do people just assume things for some kind of shock value, without basing it on any truth or fact or proof?

On a different note, I feel that real estate agents do honestly believe all the hype, which in my opinion is pretty much untrue. I have friends in the business who honestly believe that the residential real estate is a great “investment.” When I point out that since the 90s, real estate inflation has been higher than wage inflation, they start babbling about reasons why this is the new reality, never mind fundamentals. When I start talking using micro and macro economic arguments, their eyes just glaze over and they just don’t comprehend. I also think their mind is on the 6% commission too. You know, I have never met a real estate agent that bad mouths a house for sale. Their comments always downplay the bad qualities and accentuate the good. They are not unlike car salesmen, IMHO. I must say, my parents, my sister and I have bought a total of 5 BMWs from a BMW salesman because he was always trying to steer us to the cheapest vehicle with the minimal amount of options that fit our need. For example, he always made us test-drive the lesser powered vehicle first and always talked us out of spending $2k on a navigation system. I’m sure there are real estate agents like that, but I have not come across any so far. Ardell wrote in the 2006 blog about redfin “You know I don’t push everything, even my own stuff. And I clearly don’t like every unit in there. ” I would like to see her comment on this site about units she does not like.

Whew, that was a voluble comment! Sorry for wasting your time.

Did you plan this?

RE: Groundhogday @ 15 – Lay off Ardell. She is one of the few realestate people that makes appearances here and seems genuine.

Now that is a real howler. Why exactly does she come here and “seem genuine”? To serve the community? Because she really, truly cares about YOU? Or because she is trying to pull in a few clients in a down market? Perhaps some naive renters who are looking for that one Realtor(R) they can actually trust? The bottom line is that Realtors(R) are commissioned sales agents, so use them if you need to but don’t trust them any more than you would trust a used car salesman.

The six percenters were deeply complicit in the great fraud that was the housing bubble–a fraud that we are all now paying for even if we were smart enough to not buy a house–and I don’t feel the need to lay off any member of that crowd.

http://www.raincityguide.com/2006/09/01/everyone-run-to-redfin/