There are moments in the process of helping buyers purchase Phoenix bank owned homes that I pity those trying to do this themselves. It’s difficult enough to do when you know the nuances of the contract and spend your time trying to explain them; I can’t even imagine what it’s like when you don’t know what you need to know because the other side either doesn’t know or doesn’t care.

Today’s example deals with what happens when a home being purchased “as is” isn’t in the same condition at the time of closing (or at the final walkthrough) that it was in when the home first went into escrow. Such as when the once intact arcadia door now is missing a panel that’s been broken by a rock.

The knee jerk reaction from the listing agent was that the bank’s not going to make any repairs. Except it’s not repairs that are being requested - all the buyers want is for the home to be the home they purchased.

It’s not an unreasonable request. And it’s even covered in the contract (and mercifully not overriden by this lender’s addendum):

 5a. Seller Warranties: Seller warrants and shall maintain and repair the Preimses so that, at the earlier of possession or COE: … (iii) the Premises, including all additional existing personal property included in the sale, will be in substantially the same condition as on the date of Contract acceptance;

Quick aside - here’s the fun part. Many listing agents add notations to the listing that this paragraph needs to be waived on Page 7 of the contract in the free-form section. My guess is many agents have done so without thinking about the consequences. Hopefully nothing happened to the home.

Lenders usually include a per diem charge if the escrow doesn’t close on time. There’s a way around this in a situation where the home’s condition has changed which I could share here … then again, maybe I’ll have you contact me rather than explain it to the agents who read this site who currently are scratching their heads.

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I pulled this comment out of a post on Redfin’s blog yesterday. The post was about an idea a friend of Glenn’s had for a web-based lockbox anyone could access with sufficient documentation … everything just short of DNA testing. The comment wasn’t.

“What really needs to be done is to force a seller’s agent to actually act as an agent solely interested in selling the property. It should be an ethical construct that a seller agent actually show (or delegate the showing) the property instead of the “you should use a buyer agent” rant or, in the Redfin areas, deter buyers from using Redfin (which is what happens everyday).”

Redfin’s not in the Phoenix market and the home prices here likely would make the margins so thin that it wouldn’t make sense to come here. But even without Redfin it’s not uncommon for a buyer to call a listing agent to see a house even if they’re working with their own agent.

Reasons vary … they can’t get hold of their agent. Their agent is out of town. They don’t want to bother their agent. Whatever.

If asked, I still will show one of my own listings to a buyer who wants to see it. I’m trying to sell a house. Just don’t ask me any questions. And I mean ANY questions outside of “how ya doin’ today?”

It’s not that I’m trying to be unhelpful. It’s that I can’t really answer any questions without creating an implied agency with the buyer. And that’s not what either the seller or the buyer is looking for in this situation.

Joe, who left the comment, apparently doesn’t want this - he even says he wants the “seller’s agent to actually act as an agent solely interested in selling the property.”

If you’ve got questions about the property, though, you need to ask your own agent. Otherwise, in the eyes of agency laws, I’m not going to be an “agent solely interested in selling” the home.

SIDE NOTE: As was leaked to the Bloodhound, Redfin now is offering four two-hour buyers’ tours with no upfront cost. It’s not quite the seven-hour tour many of us provide as a service to our buyers, but it’s another step toward the traditional real estate model.

In some ways, though, the more Redfin moves toward the more traditional model, the lone differentiating factor becomes the rebate. Cool software is a plus but won’t necessarily drive the business since buyers are shopping for homes, not agents (pr in this case brokerages.)

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In his vivisection of Redfin’s so-called Bill of Rights yesterday, Greg stated that many of the issues Redfin raised could be solved through the divorcing of the real estate commission from the transaction - in short, sellers pay their listing agent and buyers pay their buyers’ agent.

Under the current system, sellers pay both agents in a transaction. The listing agent negotiates the overall commission for the transaction and then offers a portion of the commission through the MLS’s cooperative agreement to other broker members. This is an off-shoot of the days of subagency, when all agents involved worked for the seller and buyers were on their own (whether they realized it or not.)

There’s a long-standing debate over who truly is paying the commission. Some will argue that it is the buyer since the cost is wrapped into their mortgage in a higher sales price. Others will argue that it is the seller because the money comes out of their proceeds.

The answer’s truly both - it’s two sides of the same pane of glass. But the debate on how best to handle compensation for buyers’ agents often is divided based on whom you feel is paying the commission.

In yet another of our almost continuous debates, Ardell suggested an unrepresented buyer ought to receive the portion of a commission set aside for a co-broke. After all, the seller already had mentally written that money off. Considering we’re in a market where the buyers already are asking for concessions, I find the idea of an automatic credit to be misguided at best.

The buyer has no God-given right to the co-broke fee. If the seller wishes to negotiate a credit then so be it. But to say the seller simply should hand the money over without the option of negotiation is ludicrous on its face.

I’m in favor of consumer protection, but not at the expense of half of the consumers on the market - the sellers. And that’s one of the many areas where Redfin’s co-called Bill of Rights falls woefully short.

Back to the idea of divorcing commissions from the transaction. On the surface it sounds like an ideal solution. The question is whether we want to force the buyers who likely need representation most into the ranks of the unrepresented - first-time buyers, for example, or others who can afford a home but not the cost of representation.

There’s always going to be a less expensive option on the market. But it’s also true that you get what you pay for. Before dismissing that as another cliche, think about it.

Those who are the best at what they do, regardless of the profession, demand premium payment. Agreed? So why would the most skilled in a given profession perform their craft for minimal compensation? Wouldn’t it seem likely that the least experienced and the least knowledgeable real estate professionals would gravitate toward a lower-cost alternative as a sort of entry position? What if these alternative brokerages offered a salary rather than commission-based compensation? Would they move then?

And at the end of the day, who is more motivated to work on behalf of their clients … the agent who is working for his check every day or someone guaranteed direct deposit every two weeks regardless of performance? (All closings are not alike - in complication or in the level of stress accrued by buyer and seller.)

Still, separating buyer and seller compensation would be a better solution than arbitrarily reducing the sellers’ net, just because a buyer elects to work without representation.

As I have said many, many, many times - until it can be proven unequivocably and repeatedly that a home purchased by an unrepresented buyer will be sold for x% less than the same house where a co-brokerage is being paid, you can’t say the commission is being paid by the buyer with no impact to the seller.

Again, it’s two sides of the same glass.

Change for the sake of change is worthless. Change for the sake of progress is priceless.

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One of these days, I need to spend some time in an office meeting explaining how to comment on a blog. Even anonymously. Maybe then it wouldn’t seem like I’m in the midst of a one-man duel over the issue of commissions paid when an unrepresented buyer is involved.

Here’s the basic issue at hand, the issue which underlies everything else we are discussing … the system is fakakta. I’ve tried finding a way to walk the fence over the past several months but as arguments take place, the justifications don’t make as much sense. There ought to be a better way … I’m just not certain it’s going to happen.

In an ideal world, sellers would pay their agents and the buyers would pay theirs. The only reason the sellers currently pays both out of their proceeds (I’m not yet conceding that point) is because that’s the way it was done in the days of subagency, when there were no buyers’ agents - only buyers who thought they had an agent.

I’ve argued that the status quo needs to be maintained because, as a whole, the public doesn’t seem to see the value in separate buyers’ representation. There are any number of reasons for this, among them that it’s easy to tell when a transaction goes very wrong but not as easy to differentiate between a transaction that’s smooth or very smooth.

The reason? We don’t always let our clients in on what we’re doing behind the scenes. Why? Because in 99 percent of cases they don’t care. They just want the sale done. It’s a wonderful little cycle. We know they don’t see the value and we don’t tell them the value because we know they don’t want to know. Try to break that one …

Peoria aren’t going to pay for something if they don’t see the value. And for all the time and energy spent explaining why there’s value, it doesn’t seem the message is spreading all that quickly.

This is best proven in the notion of some firms providing rebates back to buyers. The overwhelming evidence to date is both those who see the value and those who don’t see the value aren’t enticed by the rebate. Those who see the value believe they get what they pay for. Those who don’t see the value don’t see it at any price.

And so the current system stands.

I was accused today of viewing my commission as just my half of the 6% I charge. (And note to the tremble-before-the-DOJ crowd – I can discuss the commission that I charge as much as I want. It’s not price fixing for one person to discuss their commission that they charge in the course of doing business. It’s called advertising. Yes, I’m tired of that moronic subplot.) I stand guilty as charged.

Maybe that’s the wrong view. Maybe I ought to be hustling for every last dollar that I can make. My checking account and my wife would be all the happier, especially with Sephora about to open around the corner. But I just don’t see it that way.

That’s why I write into my listings that it’s a lower rate if there’s an unrepresented buyer involved. But if they’re going to be unrepresented, they’re going to be unrepresented. It’s up to the buyer to find a home inspector, make sure the inspections are done, send over the inspection report and fulfill all of their tasks. I’ll watch to make sure things are moving along, but I’m not assisting in the transaction.

Changing the commission system also would do away with this myth of “saving” money by going through the listing agent. A seller’s as likely to pocket the difference if there were a reduced commission as to give it to the buyer. Maybe even more likely. But if both sides were being paid separately, this little game would disappear.

Sadly, this seems like a utopian ideal with no chance of success. Not unless we can get buyers en masse to see why they need to be represented, that selling one or two homes in a lifetime isn’t the same as selling one or two a week or a month. Not unless we elevate ourselves in the public mind above the level of clerk.

There are multiple obstacles in our path. Maybe some will never be overcome. But it’s a direction we ought to be looking. Because the way it works now just doesn’t make sense.

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One quick follow-up item to yesterday’s question about whether a listing agent should claim the full commission if a fully capable unrepresented buyer wants to purchase one of his listings.

1) As was pointed out during my meeting yesterday, and rightly so, there is a myth in existence that buyers can find a better deal by calling the listing agent because the commission will be reduced. There is no such guarantee.

At the end of the day, the commission rate is set between seller and listing agent. In a slower market, the seller and the listing agent may be willing to pass along the money set aside as a co-broke to the buyer in an effort to secure a contract. In a more active market, it’s just as likely seller and listing agent will tell the buyer to take a flying leap.

(And then the seller likely will try to argue for a reduction anyway, usually without success - unless, of course, the issue was addressed up front as I discussed yesterday with the wording I add to my listings.)

There’s nothing that says a buyer can’t ask for a reduced sales price or closing cost assistance. But don’t assume that it’s a fait accompli because it absolutely is not.

2) The wording I use on my listing relates to any unrepresented buyer. But it’s not always in the best interest of the buyer to be unrepresented.

In yesterday’s example we had a buyer who worked for an attorney (and attorneys are allowed to sell real estate here.) On another tack, perhaps the buyer has purchased and sold multiple homes and already has an array of specialists in tow - home inspectors, pest inspectors, title companies, lenders, appraisers, etc.

In these instances, the buyer likely will be fine going it alone on the transaction. But more often than not, that just isn’t the case. Many agents are involved in more purchases and sales in a month than most people are involved with in their lifetime.

Assuming the usual five-year itch that strikes and causes homeowners to move, is it reasonable to expect someone to remember all of the minutiae involved in something they last did five years earlier? I think not.
Buyers’ agency was created specifically because of the need for buyers to be represented independently in the real estate sale (once upon a time, we all represented the seller whether buyers realized it or not.) Many people believe there’s nothing to it. Maybe people later find out how wrong they were only after it’s too late.

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