Does your Agent order the Rib Eye when you are paying?
I'm sure that this has happened to you before.
You go out to dinner with a group and either you are sharing the bill, or maybe the boss or someone's parents are paying.
You can order whatever you want!!!
What do you order?
A. The "Rib Eye" or the most expensive thing on the menu, and maybe a couple appetizers
B. The best value on the menu, perhaps the special.
One of the reasons that people hate REAL ESTATE AGENTS, is that they feel that they are always "BUYING THE RIB EYE" at their expense.
It seems that Buyer's agents are often trying to get their buyers to buy the biggest and most expensive house in their budget. If a buyer is able to pay $500k, they look at houses for $495k, and seem to overlook properties that might fit their needs at $400-450k.
Why is this the case?
A. The system by which Agents are compensated- Typically an agent gets paid a percentage of the purchase price as a commission. So the bigger the price tag, the bigger the commission for the buyers agent.
B. They don't understand or care about value. They don't take the time to figure out what is ultimately best for their client in the LONG RUN.
When shopping for investment properties VALUE is extremely important as there are deals at all price points. A deal is when there:
a. Value from the jump - a property that appraises over purchase price from day one.
b. Value created by forced appreciation - there is the ability to grow rents or improve the property to increase value.
c. Value due to location or property condition that will grow over time with limited work on behalf of the buyer.
Let's go one level deeper here. Some agents steer their clients to purchase properties which have higher commission percentages!!!
Eg. House 1 is $500k and pays a 2% buyer side commission = $10,000.
House 2 is $450k and pays a 2.5% buyer side commission = $11,250.
Some agents are pushing for house 2 so they can make an additional $1,250.
Another problem comes when the buyer realizes during the transaction that the property is not for them and the agent works to keep them in that transaction because it is in the best interest of the agent.
This is also an issue for listing agents, who often times do not fully market the properties to the public so that they have the opportunity to get commissions for both sides of the deal!
THIS IS WRONG!!!! THE AGENT IS SUPPOSED TO PUT THE NEEDS OF THE CLIENT FIRST.
Unfortunately there is a subliminal aspect to the system which is felt by agents when the are making decisions.
Also, unfortunately, commissions are how agent feed their families.
How can we correct this?
Sadly, the system is the system and until the way commissions are set up changes there is only one thing to do.
PICK AN AGENT WHO YOU KNOW IS WORKING FOR YOU.
PICK AN AGENT WHO HAS OTHER INCOME STREAMS AND WILL STILL BE ABLE TO FEED THEIR FAMILY EVEN IF YOU DON'T BUY A HOUSE.
SPEND TIME GETTING TO KNOW YOUR AGENT AND THEIR MOTIVATIONS.
Hopefully my clients understand that I have their interests foremost and I will not get upset at them for not buying a house and my not getting a commission.
And hopefully all the readers of this will find agents who work the same way.