Buyers are liars! Get any two real estate agents alone, and you are bound to hear that sentiment. Where does it come from? Lookie loos. Buyers who waste an agent’s time by looking, but never actually buying, a home.
As long as there have been lookie loos, there have been real estate agents trying to do something about these time wasters. The objective is to separate the serious buyers from the less-than-committed ones. The idea being that if an agent could somehow identify them ahead of time, they could avoid them and let some other agent deal with them.
One of the tried-and-true techniques used by agents to help spot a serious buyer is if they are willing to get pre-qualified, or better yet, pre-approved for a loan, prior to actually looking for a home. The thinking here is that if a buyer is willing to go through the financial gymnastics of getting pre-approved prior to working with an agent, they must be serious. And it is not a bad idea, but it has one flaw: it may be good at eliminating non-serious buyers, but it may also eliminate serious buyers.
When my wife and I started looking for a home recently, we were definitely NOT serious buyers. We were just looking…until she found our dream home for sale on the Internet, months before we were ready to buy. So, several months ahead of schedule, and against my better judgment, we decided to make an offer. No pre-qualification; No pre-approval.
We got pre-qualified in about 4 hours. We jumped through hoops to arrange the necessary paperwork and got pre-approved not long after. We were serious buyers, we just did not know it, and neither did the agent we had already agreed to work with. Had she asked us to get pre-approved at that instant we would not have done it—we were not ready yet, or so we thought. And yes, we ended up buying the home.
The fundamental problem of the lookie loo is the structure of the buyer-agent relationship. The way the real estate industry works, the buyer’s agent does not make a nickel unless and until the buyer actually buys something, regardless of how much time and money they spend on the buyer. Is that any way to run a service business?
I think there is a better way to spot a serious buyer, and it is also a much more intelligent (and fair) way to run a real estate business. Ask for a refundable cash deposit up front. The buyer writes a check to the agent, say for $1000, before the agent goes to work. If the buyer ultimately buys a home through the agent, they get their deposit back at closing, so it cost them nothing. But, if they fail to buy, the agent keeps the $1000, to compensate them for their time and effort. Only a buyer truly committed to buying a home (and committed to the agent) would hand over money up front. And if the agent really wants to make it enticing, they could offer to refund $1500 at closing. That way serious buyers stand to actually make money by going through with it.
It will be a tough sell. After all, buyers are accustomed to getting their real estate services for free, which is what they are doing when they don’t buy anything. But it is not fair to expect agents to work for free. Perhaps the real estate industry that established these customary practices in the first place, can come up with a newer “customary” practice that is more fair for the agents they represent.