Agents Refusing to Make an Offer on Real Estate

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"buyers agent refuses to make offer" was a search hit I got recently. This is yet another reason not to sign exclusive buyer's agent agreements.

My guess is that the CBB is lower than the agent would like. The CBB is the "cooperating brokers" payment - that share of the selling agent's commission that will be paid to another agent who brings in the buyer.

Now, to repeat what I've said before, the listing agreement gives the entire commission to the listing agent if they bring in the buyer themselves, or if the buyer has no agent. But if they want buyer's agents to bring their buyers to this property, or if they want it to sell quickly, they'll make certain the buyer's agents have a good reason to bring the buyers by - in the form of a high CBB. Three percent seems to be average around here now, up from 2.5 about a year ago, and properties that want to sell go higher. Even the discount brokers that will settle for 1% to list (or a flat fee) will tell you to offer at least three to a prospective buyer's agent. It's not mandatory, of course. But it does work to sell the property.

Now, the default buyer's agent contracts (exclusive and non-exclusive) in my area specify a 2% commission from the buyer to the agent but state that any commission paid by the seller is to be used to offset this first. What this means is that as long as the agent finds you a property paying at least 2 percent to buyer's agents (CBB) the buyer pays zero. See Buyer's Agents: What Do They Do? for more information. (If they don't find you a property, no commission or other obligation is incurred)

Now my attitude is that as long as my buyer isn't going to have to come up with cash out of pocket for my commission, I want to move from "looking" to "negotiation". Because my contract with the buyer is non-exclusive, they are free to look elsewhere, and with other agents, cutting me out of the process entirely if I don't perform. Therefore, my motivation is to find them the property they want, and get the transaction moving. This isn't particularly virtuous on my part; That's where the incentives are. I haven't seen a CBB lower than 2 percent ever, that I can recall, except for a few greedy, almost always drastically overpriced FSBOs.

Suppose, however, Joe Realtor has your signature on an exclusive buyer's agreement. Now he's got your business locked up for six months or a year, no matter what. You can't buy anything without Joe getting paid. This creates a different incentive. Now Joe can pick and choose what properties he wants you to see, what properties he wants you to make an offer on. If you don't like his work, you are still stuck with him until the agreement runs out. If you go elsewhere and buy a property, Joe still gets paid, without really doing anything. If Joe gets two and The Other Guy gets two, and the CBB is only three, that's one percent you've got to pay out of your pocket at a minimum. Maybe two percent, because The Other Guy is going to take the viewpoint that he did the work for that property, and is entitled to the full commission. When lawyers get involved, you never know how it'll end up. My only advice to to heed Sancho Panza's words of wisdom, "Whether the pitcher hits the stone or the stone hits the pitcher, it's going to be bad for the pitcher." The legal system makes a pretty good substitute for the stone.

So Joe Realtor thinks he's got your transaction locked up with an exclusive agreement. So he's thinking of this transaction as being in the bag, and he wants to make it as large as possible in his favor. So if the CBB is listed as 2.5, or even 2, he isn't interested. He wants three at least, more if he can swing it. He also wants the transaction to be as large as possible, by the way, and if he can think of a way to talk you into a property where the only way you can qualify is a stated income negative amortization loan, boy has Joe got a paycheck coming!

Now it happens that flatly refusing to make an offer is one of the ways to potentially break an exclusive agency agreement (the relevant legal stuff varies). On the other hand, Joe's not going to let you go willingly. By the time you've spent fourteen months in court and thousands of dollars for your lawyer, you will probably wish you hadn't, particularly when it turns out that your claim is a "he said this, the other guy said that," case, as you have no documentation. Better to just wait until any claim Joe may have is moot. Better still not to sign the exclusive agreement in the first place.

Now, if you're a seller wanting to make the best possible profit, you might want a listing contract which gives more than half of the overall commission to the buyer's agent. The larger their commission, the more buyer's agents you attract, and therefore, the more buyers. It's a "catch more flies with honey" sort of thing. Mind you, the listing agents will resist this, but until you sign their contract (which has to be exclusive, by the nature of things, at least for a given property), you are the one who holds the power to control the transaction by walking out. Don't stint the listing agent, as they're the professionals who you're counting on to help you out in marketing and negotiation. But giving incentives for buyer's agents to bring buyers to your property, instead of the one two streets over, is typically money better spent in all but the strongest of seller's markets.

Caveat Emptor

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1 Comments

Dan Melson said:

Hi there! Starting to get referrals from the website of someone who thinks she's being clever by referring to this site instead of my other one. Go here



http://www.searchlightcrusade.net/posts/1131462101.shtml



And read down to the comments. Then ask yourself precisely what the value to the consumer is of the Exclusive Buyer's Agency Agreement. There is none. It's just a mechanism for agents to lock up your business so that they get paid a commission even if someone else does a better job. If the agent is confident that they will do a better job, a non-exclusive agreement is plenty to protect the agent's interests.

Please be civil. Avoid profanity - I will delete the vast majority of it, usually by deleting the entire comment. To avoid comment spam, a comments account is required. They are freely available, and you can post comments immediately. Alternatively, you may use your Type Key registration, or sign up for one (They work at most Movable Type sites). All comments made are licensed to the site, but the fact that a comment has been allowed to remain should not be taken as an endorsement from me or the site. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted. If you believe you see something damaging to you or some third party, I will most likely delete it upon request.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.

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This page contains a single entry by Dan Melson published on January 11, 2008 7:00 AM.

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