OK, be warned. This is a rant, but I need to get it off my chest.
In this tough market, with so many sellers underwater, there is an increasing need to work with buyers and we’re seeing even seasoned listing agents working with buyers out of necessity. But with it, the frustration is increasingly oozing out of AR on the lack of buyer loyalty, how no one wants to sign a buyer agency agreement, that even if they sign it, you can’t enforce it, etc, etc, etc. See Mimi Foster’s excellent post An Intense (and embarrassing) real estate lesson to see a great collection of comments voicing these frustrations.
I personally never worked with buyers without a signed contract (just as I never would take a listing without one) but that’s not the point of this post. There IS much less buyer loyalty than seller loyalty but I will opine that it goes far deeper than whether a not a contract is used. It goes very simply to a falsehood that we have repeated to buyers for years and is now coming back to bite us:
“Mr. & Mrs. Buyer: don’t worry about my compensation - my services are FREE to you!”
This statement is misleading at best and patently false at worst and it has engendered behavior in buyers that make us want to pull out our hair. If our services are FREE, then why should they value them much? If they’re free, why should they be cognizant of the time they demand from us since it cost them nothing? And why in the world would one sign a contract for FREE services?
Our services to buyers are not free - they’re simply financed. Don’t believe me? Then, think for a moment of a huge expense to buyers that is also not free but unlike our current system of compensation, is paid for visibly and up front: the cost to move.
Unlike real estate services, we don’t roll the cost of the buyer’s move into the price of a house. They pay for the moving truck and all the other costs associated with the move out of pocket. Can you imagine offering a buyer the ability to finance their moving costs by rolling it into their mortgage? It would certainly help them with cash flow in the short run, but imagine the costs in the long run by paying interest on their move for years to come?
The point is that moving expenses are not free! There is a time value of money and there is much less total cost to pay for the service up front then to finance it. It's no different with real estate services. One of our ACRE® graduates recently spoke with a lender who estimated that for the average priced home, the buyer could end up paying $20k over the life of the loan for their “free” services.
Our current “system” not only hides the true cost of real estate services, but inflates the value of sold homes - something we are all too familiar with when doing a CMA and comparing MLS sold properties with private sales. When we try to take into account private sales (something we really need to do to get a truly accurate CMA as private sales are increasing), we end up having to back out the compensation on MLS sold properties so as not to compare apples and oranges.
When buyers are told the truth, a very interesting dynamic takes place:
- If they can afford to do so, they might opt to pay their agent for their actual services and time and have the offered co-broke taken off the price of the house, especially if the agent is a trained consultant who can offer this choice OR
- If they can’t afford the cash upfront, at least they see our services (especially the fiduciary ones such as the valuation of the homes they are seeing, negotiating and troubleshooting of the transaction) as the vital services that they are. When services have value, buyers are much more respectful of our time and expertise, and are much more likely to sign a contract.
Buyer services are not FREE! They’re simply being financed. It’s time we start telling buyers the truth and stop our industry’s circular shooting squad. OK, my rant is over - thanks for listening folks.