MYTH-information - Competition for Finding a House is Great for Buyers!!!

It "sounds" logical, right?  If you're a buyer looking for a home, why not do your own shopping (properties abound on the web - listed properties, By Owner properties, New Construction!  There's virtually no end to the choices.  And you can talk to some agents, too, have them do some of the leg-work for you.  After all, they likely know more about the areas or the floorplans, so if you get their help you might even do better, right?

You've heard it all before - "two heads are better than one" (so four or five must be even better, right?).  Buyers frequently say things like "I want to do some of my own looking, but if you find me a house first, you'll get the deal" or they'll talk to several agents, give them each enough information to give the agents an idea of what they're looking for, thinking"let several of them look, and whoever finds the house gets the deal".  It can't really surprise anyone that buyers might think this way.  It's pretty much standard practice when shopping for nearly everything.  What do you do when you're looking for a computer, a new coat, a car?  You comparison shop!  Are you "loyal" to one salesman?  Not likely.  If the subject were to come up, you were likely advised to "shop around", "get the best deal", watch out for the "pushy salesman", don't "commit to anything ... you want to keep your options open". 

All of this makes perfect sense when comparing retail products and when dealing with sales people.  After all, it is level playing field.  Those salespeople are charged with one task - to move product.  Yes, it's much nicer when they display social skills, when they sincerely want to help you find the best product you can get.  But real estate is something different ... at least it became something different as soon agents were charged with fiduciary representation. 

Fifty years ago, real estate agents were basically sales people, too.  They "brokered" real estate transactions between the sellers and buyers of real estate.  Remember the phrase "Caveat emptor" (Buyer Beware)?  To perform their role, real estate practitioners earned either a "salesperson's" or a "broker's" license.  Those are still the terms used today which can certainly confuse the issue.  In time, as "representation" became a duty of an agent, all agents initially representated the sellers of property (that was called "seller sub-agency").  Today, that's no longer the case.  Though there are various types of representation today, and the laws regarding the responsibilities of a real estate agent to the consumer differ from state to state, it's important to understand that there are, in fact, such laws, and that working with a real estate agent means something quite different that working with a salesperson at a department store.

So, you're asking, what does this all mean to you, the prospective home buyer?  There's a lot more to a real estate transaction than "finding a house".  It's not the same thing as finding a pair of shoes or a new coat...or even of getting a car.  For one thing, there's much more of a financial commitment (and risk) involved with a home.  For another, the purchase of a home involves signing a contract and a whole host of legal documents.  And let's not forget the house.  It's much more than wood and nails on a bit of land.  In addition to things buyers typically describe as important to them (things like the number of bedrooms and bathrooms, how far the house is from work or school or shopping or public transit, etc.) there are many other factors that buyers often overlook.  For example, how "resalable" is the floorplan or does the house suffer from "functional obsolescence"; how is the house priced compared to other homes in the area; how is the house "located" relative to market preferences (does it back to a busy street, high tension wires, a pond, a park, a playground, forest preserve, a factory, a landfill).  Specific location is important, not just for the buyer today, but for resale in the future.

And what about your (as buyer) particular circumstances?  Are you "just looking"?  Do you already own another home?  Is your lease up and you need to decide whether to buy now or renew your lease?  What is your financial situation ... what's your credit like, do you have downpayment and closing funds in the bank or will you need to borrow funds to purchase a home?  Do you receive steady income either salaried or hourly or do you rely on commissions only?  How long have worked in your current field?  Do you receive alimony or child support?  Are you paying alimony or child support?

These are the types of considerations involved in every single real estate transaction, and this list is only the tip of the iceburg!  In other words, there's a lot more to consider than just whether you want to buy a house or not. 

Now comes the question about how to proceed with the home search and buying process, and the impact of having agents compete either with yourself, with each other, or both when trying to find that "right" home.  Let's begin with a simple scenario:

Let's pretend that when you arrive at work next Monday morning your boss calls you into his/her office and says "I have a very exciting project for you!  It's particularly important that you work very diligently and do your very best work ... in fact there is quite a lot at stake for me.  I'm counting on you to put forth your very best effort on my behalf.  When all is said and done, the rewards for you could be quite high, in fact, so it could be very much worth your time to complete the project successfully.

Does that sound good to you?  After all, the boss picked you to do a very special job.  You feel good about the trust the boss has placed in you.  And, in addition, you stand to receive a great paycheck for your efforts, right?  At this point, how inclined are you to do your very best to complete the project?  Would you be willing to work extra hours?  Would you be enthusiastic about the task at hand?   Chances are, the answer would be a resounding yes!  Ok, lets take this scenario a bit further.  The boss then adds:

As a matter of fact, this project is so extremely important to me that I'm also giving the very same assignment to several other people.  Heck, I might even work on the project myself.  After all, as I said, it's very important to me that it get done.  But, just so you know, when all is said and done, only the first person that completes the job will get paid.  That might certainly be you ... or not.  And heck, if I get it done first, then I won't have to pay anyone!

Now how do you feel?  Now how hard might you work to complete the task?  Will you give it your very best effort?  Will you be willing to put in extra time?  How much attention will you give to the details?  How many hours are you willing to work, and how enthusiastic will you be to put forth your best effort when your odds, right from the start, are less than 50/50 you'll ever receive a paycheck at all?  Here's one more consideration to add to the mix.  What if the boss just changes his mind?  What if he decides the project isn't that important after all?  Or what if something happens that, despite all your best efforts, something goes wrong and he simply cannot pay you...even if you did complete everything he asked you to do?

Take a look at your own situation if you're considering buying a home.  While the above description sounds a bit absurd, it basically describes what real estate agents are confronted with on a regular basis ... because, by and large, the vast majority of them receive their compensation as a result of a closed transaction ... irrespective of the time, expense, or effort they make on a buyer's behalf.  If they participate in no closing, they receive no paycheck.  

But WHAT IF ... what if the above scenario were changed a bit.  What if your boss were to say

I've actually discussed this very important project with several different candidates.  After reviewing their work ethics, their training, their capabilities, etc., and comparing them to yours, I'm offering you this opportunity.  I expect it's going to be a lot of work for you, you'd have a lot of responsibilities.  But when all is said and done, you'll be handsomely rewarded for your effort.

Now how do you feel about the prospect of tacking this challenge?  Is your perspective a bit different?  How hard would you work now to do, not just a good job, but a great job!  It's human nature to be willing to work harder when you know you're work is appreciated and that you will reap the rewards of your effort.

It's important to look at one other component of this issue because it's something that likely you've heard before.  It's a complaint that buyers sometimes make about agents, saying "they were only interested in selling me something fast", "they showed me all sorts of homes I'd told them I didn't want to see", "they only showed me their own company's listings", "they tried to get me to buy more than I wanted to spend", and the list goes on.  What do you suppose is behind that sort of behavior?  Does it sound more like the action of a "salesman" or that of someone providing "representation"?  Are the agents behaving in that manner concerned more about themselves or are they concerned more with meeting the buyers' needs?  The answers are obvious.

What is the solution for you?  There are a number of things you can do to protect your interests.  One way is to talk with other people who have bought or sold property.  Ask for recommendations, to be sure, but also ask what they liked or didn't like about those agents.  Interview several different agents.  You'll find a wide range of experience, ability, conscientiousness, training, market knowledge among the people you interview.  How much control over the process do you want to have?  What type of communication do you prefer?  How "accessible" are these agents and how does that compare with your schedule?  Once you've evaluated the agents, make a decision.  Choose someone you trust and have confidence in and then prepare to be loyal to them.  The agent, like yourself, will work much harder on your behalf if they know they'll be rewarded for their diligence and effort.  One more suggestion.  Many agents require that a Buyer Agency contract be signed before they'll really go to work for you.  This would be very similar to the Listing Agreements that have been signed by home sellers.  The agreements (whether with buyers or with sellers) outline what the responsibilities are of the agent, what their compensation would be and how it would be paid (buyer's agent compensation is still cusomarily paid out of the transaction through the offer from the listing broker, though other alternatives might also apply), the timeframe for the agreement, etc.  Don't be afraid to request an "easy exit" clause in any agreement that you make that could take effect under certain circumstances.  This is not designed to cheat an agent out of their due compensation, but is designed to protect both buyer and agent from being stuck with a "partner" who is not holding up their end of the bargain.  It should protect both parties.