Putting Sellers’ Interests FirstOctober 8, 2015
There are a number of very good and ethical real estate agents in Silicon Valley. Unfortunately, as someone well-versed in the field of real estate law, I am all too aware of the games that some other agents and brokerages play for self-serving reasons. What is surprising to me is the seemingly illogical arguments put forth by these agents, to which many clients assent without understanding the complete picture or the alternatives. This article outlines a few approaches that I believe are fundamentally better for sellers, along with some counterarguments asserted by certain agents or brokerages.
1) “Double Ending” Transactions Detrimentally Impacts Sellers (See Conflicts of Interest. The DeLeon Insight, May 2015)
The same person should not represent a buyer on one of his/her own listings, and he/she should disgorge any financial gain associated with any particular offer getting accepted. This should include undisclosed “referral fees” that the listing agent gets from any other agent. Generally, the listing agent has too much confidential information from the sellers, and there may be too many opportunities to sway the transaction, even before offers come in.
Other agents’ counterarguments:
- “Agents would not be influenced by the fact that they make double commission if one offer gets accepted over another; they have a fiduciary duty to their clients.” [This argument is convoluted, confusing, and not credible. Plus, one must wonder how an agent’s fiduciary duty can be fulfilled to both clients when the seller wants the highest possible price and the buyer wants the lowest possible price.]
- “In our office, this is not a problem because the listing agent steps aside and works only with the newly engaged buyers, and someone else, generally the managing broker, advises the sellers.” [Setting aside the fact that this requires listing agents to abandon their seller-clients at a critical time, the manager is not very familiar with the sellers, the sellers’ situation, or the property. Further, this “solution” does not address the fact that the listing agent has access to confidential information or the possibility that the listing agent could subtlety discourage other buyers once they know that they have clients who might write an offer.]
2) Long-term Listing Agreements Hurt Sellers (See The Trap of Long-Term Listing Agreements. The DeLeon Insight, July 2015)
My position: The initial term of a listing agreement should not extend more than 45 days after the home is placed on the MLS. In Silicon Valley, most homes should sell in this amount of time. If a home has not sold, the seller should be under no obligation to continue with that listing agent. Nevertheless, the seller has the option to relist if they have been satisfied with the agent’s performance, which gives the listing agent an incentive to keep marketing the property aggressively throughout the listing term.
Other agents’ counterarguments:
- “The agent doesn’t set the price; the market sets the price. I need to have time to push for a price reduction or for the market to catch up with the seller’s expectations.” [I wonder whether the listing agent was candid about the price when getting the listing.]
- “It takes time for the right buyer to find it on the MLS.” [The question turns on what exactly did the agent do to market the property and was this explicitly written in the listing agreement?]
3) Listing Agents Should Spell Out Their Obligations in the Listing Agreement (See Structuring Listing Agreements on page 17 of this edition)
Listing agents should provide a comprehensive addendum to every listing agreement that specifically lays out what marketing they will do and who will pay for the staging, property inspection, pest inspection, and other expenses.
Other agents’ counterarguments:
- “I will market ‘aggressively’ but I need the flexibility to make changes to the plan… trust me.” [The agents could always do more, but they should lay out their minimum commitment in the listing agreement.]
4) In-Person Offer Presentations Can Hurt Sellers (See The Downside to Live Offer Presentations. The DeLeon Insight, July 2015)
Sellers should have the choice as to whether they want to attend an in-person offer presentation (i.e., live presentations by buyer’s agents, but where the buyers generally are not present) or have offers submitted electronically. While sellers get to see and hear the buyer’s agents’ “stories” during in-person presentations, there are numerous disadvantages to this approach, such as: (1) live offer presentations generally result in the buyer’s agents knowing some or all of the other agents that are submitting offers, which could be advantageous for their buyers; (2) some sellers don’t do well with maintaining a “poker face”; (3) the “smooth” buyer’s agent often gains an advantage for his/her buyers, at a cost to the sellers; (4) some buyer’s agents submit a lower priced offer with the hope that they will be able to lobby or charm their way to a deal; and (5) some buyer’s agents use this opportunity to pressure the sellers to accept an offer that is “due upon presentation.”
At a recent negotiation training event at Harvard Law School, I explained the in-person offer presentation system for which some buyer’s agents advocate, and the professor was truly surprised that sellers accept this one-sided approach.
Having completed an extensive amount of graduate-level work in negotiation and dispute resolution, and having handled a large number of offers, both in person and electronically, I am well-versed on the topic. For most sellers, I have come to determine that electronic presentations generally result in a higher sales price. In fact, I think that is one of the reasons why DeLeon Realty’s sales prices and other stats are so impressive. Using the largest sample size possible, which is all DeLeon Realty sales compared to all the sales of the other top 10 brokerages in Silicon Valley, our average sales price is about double that of the other brokerages, with our homes selling in nearly half the time and for more per square foot.
Other agent’s counterarguments:
- “Buyer’s agents like the opportunity to advocate for their clients.” [I don’t dispute this for a second— many buyer’s agents prefer to present their offers in-person because that enhances their chances of getting a lower-priced offer accepted. However, a lower price is not consistent with most sellers’ goals.]
- “It is not always about the price and the terms; there are ‘intangible’ factors to consider.” [Any and all relevant information can be obtained from the buyer’s agent, ideally in writing. In fact, I generally leave several hours between when offers are due and when the sellers respond so that we can collect and verify all relevant information.]
- “Sellers are able to determine whether the agent is professional based on the presentation.” [A good listing agent will provide counsel on this themselves after thoroughly reviewing the background and experience of each buyer’s agent, as well as all of the materials presented. In-person presentations often sway sellers toward buyer’s agents who are smooth and charismatic, which can create a detrimental bias.]
- “Some listing agents are going with electronic submission because it simplifies their lives.” [Yes, electronic submission is convenient for all agents, which encourages more offers from agents, provides for a detailed record of offers that were submitted, and, importantly, is more convenient for the sellers.]
There are pros and cons with every negotiation technique and the particular method recommended will vary depending on the individual home and sellers. A good agent will discuss the advantages and disadvantages of the various methods so that the sellers can choose the one that is right for them.
Each of these positions are presented in more detail in the referenced articles, which are available at: www.DeLeonRealty.com.