Technology is changing how our industry works, and though I think our relationship with homebuyers is likely to change, I don’t think it should be severed. A real estate transaction from a few years ago illustrates my point.
One Sunday a few years ago, a good friend, who I will call Jason, called me on my cell phone (I’ve changed the names in this story to preserve confidentiality). He asked several questions about new home construction in a very desirable area just south of Nashville near Murfreesboro, Tennessee.
Apparently, Jason and and his wife Ellen were driving around the day before and found a house under construction that was about a month or two away from completion. They met an agent I’ll call Anita, and were very impressed by her presentation as she pointed out the various features of the home.
Some of the questions Jason asked me during the phone call involved signing a new construction contract, handling multiple inspections and due diligence, choosing builder upgrades, etc. As I listened to him, I came to the conclusion that he and Ellen were probably very close to signing a contract on the house.
I worried that they already had signed and executed an agreement with the builder. Fortunately, for their sake, they had not yet put their signatures on the “dotted line.” Nevertheless, what came next in the conversation caught me off guard.
The words that came out of Jason’s mouth are ones I will never forget. He said: “John, we really don’t need you to help us in buying the house as the onsite agent said she could assist us with everything including inspections and the closing on the property. Since you are a realtor, I was calling to get your take on new home construction. If we do move forward, we’ll most definitely get you to list our current house.”
In my head, I was thinking – “WHAT???… is this guy crazy? Doesn’t he know I am a professional buyer’s agent and I was the one who negotiated, advocated and did everything I could to get them into their current house at the best price on the date they wanted”?
I took a deep breath – a very deep breath — and said, “Jason, if you guys want to move forward in buying the home, you need me to guide you through the purchase process — plus it won’t cost you anything to use me as your buyer’s agent.”
Jason had no idea he could have professional buyer representation when purchasing new construction. He thought the onsite agent was the one who could assist him and Ellen in buying the new home.
I spent the next half-hour explaining the importance of having someone who was specifically watching out for their interests and ensuring the builder and agent did what they needed to do — and not do — on the other side of the transaction. The seller’s agent faces a conflict of interest.
Jason did listen to me and agreed that I should be involved in the deal.
Working as their advocate, and explaining my value
The next afternoon, I met Jason and Ellen at my office to review various buyer representation documentation and run a comparable market analysis on homes that sold in the development during the past six months.
At the end of our meeting, they signed a buyer representation agreement and we scheduled a time for the three of us to meet with the Anita.
When we arrived at the model home, I introduced myself to her. She was cordial — but was not thrilled with my presence.
Anita was probably expecting to get both sides of the transaction, but she knew she had to be willing to work with buyer agents. This particular new home development welcomed agents and had a written policy stating they would pay a selling commission to a buyer’s agent.
We sat down in Anita’s office and reviewed the floor plan and specifications of the new house. I asked questions concerning the development and what the timeline was on building out the remaining lots. A few minutes later, we walked over to the home, spending close to an hour inspecting the interior and exterior of the house with Anita.
I asked if she had anyone else interested in the property. She said only one other couple had recently toured it and were scheduled to come back in a few days to take a second look.
Here’s where I was able to leverage my experience to improve the buying process for the client: I had worked with this builder in the past and knew that the company was always willing to negotiate price and upgrades – especially if the house was close to completion and not under contract.
I shared this with Jason and Ellen, and a smile came to both of their faces. They both asked if I could do all the talking when we met with Anita to go over the contract paperwork. I said: “absolutely!”
That is when a smile came to my face.
To make a very long-story-short, we sat down with Anita, and I negotiated a purchase agreement that was approximately $32,000 less than what she provided to Jason and Ellen during their previous visit.
I was also able to get some additional upgrades for the kitchen, porch, and master bathroom. The only stipulation in the contract was a sale of home contingency stating I needed to get my client’s home on the market within seven days and promise to close within ninety days. I was confident I could sell their house quickly.
I put their home under contract with a cash buyer three days after it was listed. The sale of home contingency was removed, and my clients were able to close on both houses sixty days after we signed the new home contract. I monitored every step of both transactions to ensure all the contract performance dates were met without delay, and that the final inspections were completed to everyone’s satisfaction.
At the closing table, Jason and Ellen gave me a big hug. They were thrilled I saved them money – a lot of money! They are still in the home today and have sent me numerous referrals over the past few years.
I share this story not to boast about how good of a real estate professional I am, but to emphasize that a buyer should never be without representation in the purchase of a property — whether buying a new home or an existing one. What we do for our buyer clients is invaluable.
Nevertheless, buyer representation is under attack by various parties who feel the need to change the cooperating relationship between the listing and selling brokers, especially relating to buyer agent compensation.
Several lawsuits have been filed in federal courts, and a U.S. Department of Justice inquiry centered around possible violations of the Sherman Antitrust Act and the distribution of cooperative broker compensation are grabbing the headlines and putting everyone on edge about the future role of the buyer’s agent in the real estate transaction.
Defending our work as real estate professionals
If we want traditional buyer representation to continue, agents are going to have to know and convey their particular unique value proposition to the consumer.
In my book, “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success”, I write about how a real estate professional’s value proposition is probably the most critical element of selling real estate.
At the heart of a professional buyer agent’s value proposition are the skills of negotiation, mediation, communication, advocacy and transaction management from “contract to close.”
I was able to do this for Jason and Ellen, as well as numerous other buyer clients, over the years.
Those who can effectively communicate their value proposition to the client will be more than likely to remain in this business for many years — those who can’t will die on the vine.
So, what do we do? Buyer’s agents must face some hard truths about what lies ahead in our industry and prepare to adapt their current business models and real estate practices.
As we prepare for the future, I would like for you to consider the following five key observations relating to buyer representation:
1. Realtors must realize that the landscape in residential home buying is changing.
Significant players in the industry like Zillow, Compass, and Redfin are continuing to grow and provide new and unique solutions for today’s home buyer and their buying experience.
Real estate professionals must recognize these disruptors are here to stay — at least for a while — and know their buyer clients are aware of them as well. We can no longer ignore them.
But, don’t let them distract your current selling efforts. Watch how they operate and work as competitors within the marketplace.
Good competition is one of the best ways for all of us to improve at what we do to serve the consumer.
2. In the future, buyer’s agents are going to need to become more creative as it relates to compensation.
More and more home buying consumers are wanting choices in how they search for and view properties as well as how they want to work with real estate agents to assist them in the sales transaction. This is especially true with younger buyers.
Buyer agents will need to become much more inventive in how they receive compensation as a result of a property sale. Revenue generation as a buyer representative will require creativity and ingenuity. For example, buyer agents might need to establish a sliding-scale “consulting fee” to work with their buyer clients or an “à la carte” pricing structure where the buyer can pick the services they need or want when purchasing a home.
Even if the recent class-action lawsuits filed against National Association of Realtors (NAR), Realogy, Keller Williams, RE/MAX and others are dismissed, I am pretty sure the traditional agent commission structure we operate under is now on life-support.
How long seller-paid commissions in this business will last is anybody’s guess.
3. Buyers must be better educated as to the value of using a buyer’s agent in their home purchase.
Buyer agents must be able to communicate their unique value proposition to their prospects and clients. Ask yourself these questions: What can you “bring to the table” for your client? What sets you apart from your competition? How do I show a client I am worth every penny I charge?
From negotiating the purchase price to managing the transaction to a successful closing, the buyer must see the importance of having a buyer’s agent at their side.
If the consumer cannot perceive the value of using an agent, there will be no need to enlist an agent to help them in the purchase of a new home.
4. Buyer’s agents must be willing to meet with prospective buyers at the beginning of the client-agent relationship to explain the buying process and set realistic expectations.
Many buyer agents do not spend the necessary time to sit down with a prospective buyer at the “get go” of the relationship to describe what lies ahead as they work together.
I find many agents are eager to put a buyer in their car and show them houses so an offer can be written, resulting in an executed contract. If a buyer’s agent would just take an hour or so to carefully explain how the buying process works, and what the buyer can expect as they move toward purchasing a home, the transaction and the relationship will be filled with less “drama and trauma.”
This applies to both first-time home buyers as well as those who have purchased numerous homes.
5. Explain the importance of having a legal buyer agency relationship with the buyer. Ask them to sign a buyer representation agreement.
Although a buyer representation agreement is a legal document of “employment” between the broker and the client, it does provide a higher level of service from the broker and their designated agent (you) who is willing to be a true advocate for the buyer.
Many agents are fearful of having this agreement signed because it discusses compensation. However, without it signed by the buyer, there is a possibility they could go behind the agent’s back — leaving him or her entirely out of the purchase transaction.
It is my belief the buyer representation side of our business is vital to protecting the consumer and their interests as they search for a new home.
For this piece of our business to continue and endure for years to come, realtors must be willing to fight for their existence as buyer agents — even if it looks different in the coming years.
It is going to change from what it is now, but I hope most agents and brokers will be smart enough to modify this segment of their business, and redefine their value to the homebuyers in this country.
If we don’t adapt, online buyer portals may become the “go to” sites for homebuyers and buyer agents will find their roles diminished.
Let’s not let this happen.
Buyers such as Jason and Ellen need us.
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John Giffen is Director of Broker Operations for Benchmark Realty, LLC in Franklin, Tennessee. He is the author of “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”
