Three Clauses You Should Definitely Use to Amend Your Listing Agreement

When it comes time to sell your home through a real estate agent, the document that cements the relationship is called a Listing Agreement (or Listing Contract). I assure you there are two aspects to the Listing Agreement few home sellers know about.

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First, the Listing Agreement is not a government sanctioned form. It is a form typically created by the state’s Association of Realtors. It is created by realtors, for realtors—not consumers. It lays out the terms of the contract between the broker and the home seller, and its primary thrust is to make sure the agent/broker gets paid (and doesn’t get sued). Consequently, the default terms of the Listing Agreement tend to be very favorable toward the agent/broker, which is to be expected.

The second thing most home sellers do not know about the Listing Agreement is that it can be amended by the seller. All of the terms of the Listing Agreement will take effect unless they are superseded by amending clauses. As a home seller, you do not have to accept the terms as stated on the Listing Agreement. You can amend the agreement with terms that are more favorable to you. All Listing Agreements have a section called “Additional Terms,” or something similar. All you have to do is add the amending clauses to that section and get the agent/broker to agree to them. What if they do not agree to your amending clauses? You can back down, or you can do what I would do: find another agent. As things turn out, there are lots of them.

So, what clauses should you use to amend the Listing Agreement? There are many you might consider, but the three detailed here are a must for any intelligent home seller. (Special thanks goes to CAARE, the Consumer Advocates in American Real Estate for suggesting some of these clauses. Visit their web site for suggestions on other amending clauses.)

The first clause you should use makes sure all the other clauses take precedent over the Listing Agreement.

1. The following clauses take precedence and supersede any conflicting terms that exist in the Listing Agreement.

The second clause ensures that there is no chance of dual agency. This is an absolute must if you want the best, most committed representation from you listing agent. Of course, this is only required in states where dual agency is legal.

2. The broker/agent will not engage in a dual agency relationship in which the broker represents both the buyer and seller when selling the seller’s home. If a multiple representation situation arises, the agent/broker will refer the buyer to another broker.

The way most Listing Agreements work, is that the commission you agree to pay goes 100% to your listing agent and THEY agree to pay a portion of that (typically 50%) to the buyer’s agent. In the event that they are not required to compensate a buyer’s agent, they get to keep 100% of the commission, unless you add the following clause:

3. In the event the broker/agent is not required to compensate a buyer’s broker, the funds earmarked for the buyer’s broker shall be refunded to the seller.

These three amending clauses should be included on any Listing Agreement you use to sell a home through a realtor. They may not even come into play, but in the event that they do, you know you are protected. You will know that the equity in your home which is rightfully yours is yours, and that your real estate agent is truly committed to your success and no on else’s.

To find more helpful information to protect your hard-earned equity when selling your home, visit ReaListing.

 

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

Why Redfin Will Be The Nation’s Biggest Brokerage

A recent article on Inman said Redfin may not be the nation’s biggest brokerage (yet). But it operates what’s by far the most popular real estate brokerage or franchise website. Why do so many consumers start with Redfin? CEO Glenn Kelman explains

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I remember not too long ago, when Trulia and Zillow were raising huge buckets of venture capital money, Redfin was struggling with cash flow. To the VC community, all Redfin was at that time was a discount broker with cool search capability. And discount brokers do not last. Boy were they wrong.

Redfin flat out gets it. Not only are they the absolute leader in technology and accuracy of real estate data for consumers, but they are taking the lead in the desperately needed area of transparency. While Trulia and Zillow (soon to be Zulia) serve agents as their customers, Redfin serves consumers. Why do consumers start with Redfin? Because it makes them the smartest home buyers and sellers.

Now, if that was the end of the story, Redfin would simply be a better version of Trulia and Zillow. But Redfin is not a marketing platform, it is brokerage. And in an industry where everyone is desperately trying to maintain the status quo, Redfin is doing something unheard of: passing the savings, that technology affords in real estate, onto the consumer. Their business model, which includes reduced seller’s agent’s commissions and treating their agents as employees (rather than contractors), is a glimpse of what the real estate industry will become. Today, Redfin is the irrational oddball. In the future, when most other brokerages are operating in a similar fashion, the industry will wonder why it ever operated any other way.

But Redfin’s transformation of an industry in desperate need of it is not yet complete. Offering discounted seller’s agent’s commissions and buyer rebates is a start, but it is not where the industry ultimately needs to go.

For the transformation to be complete, Redfin still has some work to do. First, it should establish a consumer’s bill of rights which eliminates all the dirty little secret behaviors in the real estate industry such as pocket listings, dual agency, minimum service requirements and controlled business arrangements. Even if Redfin itself does not condone these practices, a bill of rights can serve as an opportunity to educate consumers, who will see Redfin as being on their side.

Second, they need to further preserve home seller’s equity, not just from reduced seller’s agent’s commissions, but also from reduced buyer’s agent’s commissions. In the past, buyer steering, although highly unethical, was a real problem, which meant offering anything less than customary commission to the buyer’s agent risked a serve reduction in home buyer traffic. But today, Redfin has the ability to combat this using their own platform, to bypass the agents, and educate the buyers directly about this deceptive practice.

Finally, Redfin should become the industry leader in advocating a shift from seller pays for buyer’s agent to buyer pays for buyer’s agent. Sub agency legal relationships serve neither party particularly well. Ultimately, buyers will be better served by shopping around for, and paying for, their own agent to represent them. Only in the real estate industry is it considered a crazy idea for the person receiving the service to actually pay for it.

I like Redfin. I wish them luck. But, there is a $60 billion industry out there that is hoping they fail. After all, success for Redfin means that $60 billion number will go down (just like everything else technology benefits). But if it sticks to its guns, there is no doubt in my mind that someday Redfin will be the nation’s biggest brokerage. Fight on.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

OMG! I Just Found Two Ethical Real Estate Agents

As circumstances would have it, I am in the processing of interviewing real estate agents to list my home.

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Now, most home sellers do not bother interviewing agents—they just choose the first one they speak with. The few that do interview agents tend to do it in person, usually at their home. Not wanting to do things as everyone else, I have taken a different approach. I made up a survey and emailed it to agents in my neighborhood (over 80 of them). Among other things on the survey is a series of probing questions to see what kind of real estate agent they are. (To see a list of over 30 questions you can use to interview listing agents, click here.)

One of the questions I included in the survey was meant to discover if they are truly an ethical agent. Here is that question:

Is there a chance you will represent the buyer when selling my home?

This is probably the single most important question you can ask a listing agent during an interview, because it tells you everything you need to know about how ethical they are.

Representing both the buyer and seller in a real estate transaction is called Dual Agency. The consumer advocate group CAARE calls dual agency “The Biggest Consumer Scam in Real Estate.” It is so bad, dual agency is illegal in every other profession. Only in the real estate industry could a practice so unethical, actually be legal. Would you want your lawyer also representing the other side in a lawsuit?

Needless to say I was disappointed when 100% of the agents who responded to my survey answered this question “yes.” I would like to think those answers say more about the industry than the agents. Can it be that 100% of real estate agents are unethical? I was beginning to think so.

Just as I was about to give up on the whole lot of them, I came across an (old) article by a real estate agent from Seattle named Patrick Flynn where he discussed the merits of dual agency. Patrick, a true hero in the real estate industry, actually proclaims, in writing, that dual agency is intolerable, a no-win scenario and should be avoided at all costs. Thank you Patrick.

Not to be outdone, Jay Thompson, a real estate broker in Phoenix, echoed the same sentiments as Patrick when he said, regarding dual agency, “just because something is legal doesn’t make it right or what is best for all parties involved.” Kudos to you Jay.

As long as this highly unethical and objectionable practice remains legal in real estate, it is incumbent upon the seller (and the buyer) to forbid their agent from acting as a dual agent, because you can be sure, left to their own devices, most agents will gladly forfeit their fiduciary duty at a chance of collecting double commission. Show me the money. Oh the hypocrisy.

To see how ReaListing puts and end to the hypocrisy, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

What Drives Real Estate Agents Crazy and Makes Home Sellers Stupid?

I do not know what makes me laugh more, the home seller who auctions off their listing to the agent who promises to get them the highest price, or the agent that takes their listing. There is no bigger hot button in all of real estate than establishing a home’s listing price, and the stupid way some sellers act drives real estate agents crazy.

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Let us agree to a simple fact up front: every home seller that has ever sold a home in the history of home sales wanted to get the most money they could for their home. The sellers know it and the agents know it. And I am sure you have heard many times that what the seller wants (or needs) for their home is irrelevant. It turns out that what the agent tells you they can get for your home is also irrelevant. You might as well choose an agent based on their astrological sign.

Home sellers listen up. Here is the cold, hard truth. For most homes, there is a maximum a home can sell for and it is not determined by what you want or the real estate agent’s genius marketing plan. No, the maximum your home can sell for is determined by…drum roll please…the bank lending money to the buyer.

Before they lend any money, the bank is going to get a professional (and impartial) home appraisal. In fact, they may get more than one appraisal just to be sure. And that is the amount that becomes the maximum price for your home. In a standard mortgage with 20% down, they will lend 80% of that maximum amount to the buyer, and no more.

The only mathematical way you can get over the maximum price is to find a buyer who can put down more than 20% or can purchase your home for cash. Now, if you happen to have one of those homes that people with lots of cash just have to have, then yes, you may get over the maximum. But for most of us with the three bedroom, two bath ranch house smack dab in the middle of suburbia, it is a long shot.

Now, to be sure, just because your home has a maximum price (as determined by the lending institution) does not mean your real estate agent can get it for you. That is what you are paying the agent for: to get you the appraised value of your home.

So, if you want to know what the maximum amount your home is worth, pay a couple hundred dollars for an appraisal. (Do not use those online services like Zillow and Trulia. Research shows their estimates are just not that accurate.) That should be your sales goal when selling your home: to get the appraised value. Any real estate agent that promises you more than that is just being crazy, and there is no reason for you to be stupid and believe them.

To find out how ReaListing takes the guesswork out of selling your home, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

What Drives Home Sellers Crazy and Makes Real Estate Agents Stupid?

I asked a real estate agent friend of mine recently if he would take a hypothetical listing with a $40,000 commission ($20,000 for the buyer’s agent and $20,000 for the seller’s agent). I added that the hypothetical home is in good shape, in a desirable neighborhood and the seller is motivated to get it into escrow quickly. Without hesitation he said, “Absolutely.” “But,” I replied, “you do not know the price of the home.” He told me he did not care what the price was. He said that $20,000 would be the biggest commission he ever earned and it represented a significant portion of his yearly income. And knowing that the seller was motivated to sell quickly, he felt it would be a fantastic opportunity, regardless of the price of the home.

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I then asked him the same question regarding a similar, but different hypothetical home. The home is in good shape, in a desirable neighborhood and the seller is motivated. Only this time I asked him if he would take a 2% commission. “Absolutely not!,” he replied. And when I inquired why, he said, “First, his broker would never approve it. Second, it would set a bad precedent, and third, no real estate agent would ever bring a buyer around to see it so it would never sell.”

If you have not already guessed where I am going with this, the second house I am referring to above is a $2 million dollar house with a $40,000 commission (at 2%). My friend would happily accept a $40,000 commission on a $2 million home but would flatly reject 2% commission on a $2 million home. What Makes Real Estate Agents Stupid? Commissions based on a percentage of the home’s sell price. It distorts their thinking and disconnects their compensation from reality.

Real estate agents are the only home service professionals that base their compensation on the value of the home. Plumbers don’t; Electricians don’t; Painters, roofers and gardeners don’t. Why can all of these other home service professionals—many of whom have more training than real estate agents—be content with fixed-fee compensation? Home sellers may not be able to articulate why, but intuitively they understand there is something inherently unfair about compensation so completely divorced from the quantity of service rendered. And it drives them crazy.

So, it got me to thinking, what if real estate commissions were project based: a flat fee for a standard suite of services? For it to work, two things will have to happen. First, there will have to be a way to assure the agents that the sellers are motivated. And second, there will have to be a way to “hide” the percentage that the flat fee represents. In that circumstance, the listing agent would be left to focus on the only information available to them: a motivated seller and the dollar amount of the commission check they will receive when the home sells. In the end, isn’t that all they really need to know?

To find out how ReaListing makes this approach to home sales possible, click here.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.