The Holdover Clause; Does It Matter To The Buyer?

There was a recent CBC news story about a gentlemen who bought a house and was sued by his former agent for commissions "owed". The challenge here is that when you are selling your home a hold over clause usually negates when you sign a new listing agreement with an agent. When purchasing and signing a Buyers Representation Agreement (BRA) the holdover clause is not replaced with a new contract.

The concern here shouldn't be the holdover clause, it should be the BRA in the first place. Why should an agent get the exclusivity to my purchasing if they are not doing their job. In most cases, like the one in the CBC story, if the agent is enforcing a BRA holdover, it's likely they were not living up to the expectations of the client. Simply put, they didn't do the job they were contracted to do. I would think that, as a professional, I should work at earning my clients trust and respect to keep them loyal to me, not be a smooth talking salesman and sign them to a contract locking them up for upwards of 6 months.

The worst part of this story, IMHO, is that the governing body (RECO) says the buyer is at fault. This is what happens when you have self policed industries working under what could be considered a monopoly.

What are your thoughts? How would you feel if someone didn't do their job and you got told you had to pay $12,800 to them because they made you sign a bunch of papers as a "trusted professional"?


M

What A Home Buyer Needs To Know About Using A Real Estate Agent

I have had the two opposite ends of the spectrum come across my desk in the last 10 hours.

Last night while at a St Paddy's Day party I had a great chat with a local Cambridge real estate agent. One that I had yet to really meet, but was bound to eventually as our kids go to the same school. We had a great chat over the food table (where else would I be) about how she approaches sellers and how she coaches her buyers that are looking to purchase a home that is listed with PropertyGuys.com. It was refreshing to hear a proactive approach where she explains to her clients that she is getting paid by them, whether it is included in the asking price or not, and she advises them to pay her directly through the lawyer so they can better negotiate the purchase with the seller.  She doesn't call the seller to ask "Will you compensate me?" She calls and asks if she can show it to her buyers. She brings up commission if and only when they are discussing an offer. Usually she is able to say her buyers are paying the commission so they don't have to worry about negotiating the rate. An agent that is progressive and doesn't hide behind the numbers.

Today I hear from one of the clients I listed last week that were happy to report they had an offer. It turns out in their negotiations with the buyer's agent the agent wanted 3% instead of the traditional 2.5% a buyer's agent typically starts at.  Our sellers were very clear that if the real estate agent wanted 3% that his buyers would have to pay more for the house. The agent proceeded to advise his clients to put in a higher offer to maintain his high commissions. So I ask you this, who's best interest is this agent looking out for? Last time I checked taking money from unsuspecting people was thievery.

IF you are going to use an agent to buy a home I will give you a few suggestions.

• First, don't sign a Buyer's Representation Agreement unless it is specific to A house and for a short period of time (7 days). 
• Second, discuss commissions up front with your agent.
•  How are they getting paid? 
• Will the agent drop their commission if they can't negotiate a price that is acceptable to buyer and seller? 
• How much commission are you willing to pay?
• If you end up buying an agent listed house will they pay you back a portion of the commissions? 
• Third, know that if you are using an agent to buy a house, it is not free. You are paying more for the house because your agent gets paid through the purchase.

At the end of the day, you the home buyer decide if you want to use an agent. We coach PropertyGuys.com clients on how to interact with your agent and show them that if they maintain their bottom line (or more) and you are satisfied paying more because you brought an extra mouth to feed, why not entertain the offer?

M

Tied Selling in Real Estate

• 

  Are your hands being tied as a house buyer?

  
  

  So you think you have found the perfect house. From what you have seen online it is the "forever house" the two of you have always talked about.  After contacting the real estate agent that has it listed and going to see it you know it's right.  You sit down to crunch some serious numbers. It will be tight over the next few years but doable.  After running all the numbers and budgeting your costs to sell, including $1,500 for your PropertyGuys.com listing you decide that you will make the leap.  
  
  You contact the agent to tell them your intentions to put in an offer conditional upon sale of your home.  This is when the house of cards comes tumbling down.  You are told that not only do you have to list the home with an agent but that it also has to be within this agent`s office.

  
  

  As you go through a range of emotions from anger to panic to fear you wonder is this even legal?
  Here is what the Competition Act has to say about Tied Selling:

  “tied selling” means(a) any practice whereby a supplier of a product, as a condition of supplying the product (the "tying" product) to a customer, requires that customer to(i) acquire any other product from the supplier or the supplier’s nominee...

   Why would the competition act be the place where this is addressed? Great question!  You see when someone ties you to a specific product what they are in turn doing is limiting your options in the market and forcing you to pay their price.  This snuffs out the opportunity for another company to offer you a newer or cheaper or more efficient or ground breaking product or service.  The act of tied selling costs you, the buyer.
  
  If you come across this situation as you are searching for houses in the market make sure that the real estate agent you are dealing with knows that they cannot force this type of condition on you and that you would be interested in knowing why this type of Tied Selling is even in the agreement.  No doubt you will hear some mumbo jumbo about how they need to know you are serious about selling your home and that you have to do everything in your power to sell it blah blah blah.
  
  The quick and easy response to this is to plainly say that by adding $15,000 to your selling price works against not only his client's best interest but also the laws of economics.
  
  Have a story where you were pushed into this type of situation?  Please, share some details with us.
  
  M

How Buyers Search for Houses Online

How are buyers finding homes on the internet?

The results of studies vary, but most conclude it is 85%-90% of home buyers search online for their next house.  In today's internet hungry, immediate gratification society this is really no surprise. I mean if you are reading this blog it's because you use the web for information, so where else would you search for a home than the comfort of your home, in your jammie pants, with a glass of shiraz.

That is not what I wanted to write about.  This information is like the 1 in front of an algebraic x, it is understood (shout out to Dr Pamboukian my high school math teacher). What I am more interested in explaining is what they do when they get to the site.

The main sources of online inventory have search tools.  Sites like PropertyGuys.com and Realtor.ca both offer the ability to narrow your search.  Typically you will type in the city you are looking for and more than likely narrow that down by price range.  No doubt we all want to see the mansions and multi-million dollar properties but the goal when you are serious is to narrow the search and find homes you can afford.

For the home seller this is important.  This is something you need to pay attention to because if a buyer is limiting their search you need to make sure you are maximizing your ability to be found.

Our society seems fascinated with the "900" factor.  You know, "Why list your home for $300,000 when you can list it for $299,900?"  Do you think today's buyer really sees that $100 difference as a savings on a $300,000 purchase?  It equates to 1/3 of a tenth of a percent.  I am going to show you how that $100 will work FOR you.

You will notice on search pages that the areas in which you set your high and low price criteria are drop down menus.  They usually are $25K increments to $400,000 and then they go in $50K increments from there.  So if someone is looking for a house between $275,000 and $300,000 your $299,900 shows up, great! Now let's say the next buyer is looking between $300,000 and $325,000.  Do you think this would be someone that should see your home?  What about if you priced your home at $302,000 hoping to settle for just under $300,000 once negotiations finished.  The person searching $275,000 to $300,000 doesn't find you, and they probably should!

My point is that if you look at the buyer search tools you are better situated to have your house found.  If you are within a few thousand of one of the search criteria you are best to round to the number so you can straddle both sides of the search bracket.  $300,000 will get you way more traffic on your listing than either $299,900 or $302,000.

What other things do you think will get more traffic to your listing?

M

Should I Sell My House Before The Holidays?

Do you want to list your house for sale when this is happening?

So many people think they are best to wait until the new year to list their home for sale, that during the month of December people don't buy houses.  Quite the opposite is true.  Houses sell all year long, regardless of what is going on with the social calendar.

With so many people thinking about waiting until the new year to list their home for sale you can get a jump on the competition by listing now.  All the people that are either seriously or casually looking for houses now will be looking at your house.  If you have it priced right they may make the decision to jump on it before someone else does.  Just think how good the holidays would be with all that commission money tucked safely in your pocket away from the grinchesque agents.

No one can guarantee when your house will sell. The one thing I can guarantee you is if you don't let buyers know your house is for sale you won't find any buyers, regardless of the time of year.

M

So Where Does All Your Money Go?

It seems more important today than ever!

A recent blog post on buzzbuzzhome.com has us look at the transaction of a home purchase from an economic standpoint. How does your home sale/purchase impact our economy?

It would seem that the national average "service and taxes" fee of $22,775 sits well with the traditional high fee real estate agents.

Imagine another reality...the $10.2 Billion spent on these services was reduced to a fraction and the average home owner had more equity, more accessible cash and less debt. What would our economy look like then?

M

How Does Your BRA Fit?

They are not one size fits all, or so my wife tells me!

Garth Turner had a great post on his Greater Fool blog exposing the Buyer Representation Agreement and the dangers of signing one.

There were a lot of really good points brought up in this blog. The one area that he didn't get into is that not all agreements are equal. A BRA is as varied as a seller's agreement and depending on the local real estate board or even individual realtors, they can differ.

For the first time I am going to ask for homework. Think about what you would look for in your BRA. If you could write a BRA that would fit you like a...well bra, what would it look like?

M

Using an Agent is FREE for Buyers....

Not a chance!

I hear this regularly. In my opinion, this is one of the biggest fallacies in real estate today!

Just because you don't stroke a cheque to your realtor doesn't mean you are not paying for it. Think about it. If you are selling your house and using a real estate agent your first thought is generally "I need to get $X for my house". Then you figure what the agent is going to cost and tack it on top. Looking at it from that point of view....the buyer ends up paying the ENTIRE realtor commission as the seller has passed it on to you.

I prefer to look at it this way. The cost of selling the home is on the seller and the cost of buying is on the buyer (what can I say...I am a no nonsense kinda guy). In a standard 5% realtor assisted transaction the 5% is split 50/50 between the buyers agent and the sellers agent, 2.5% each.

In a Private Sale transaction the seller pays to market the home with services like PropertyGuys.com and the buyer is responsible to pay for any representation he chooses to use (buyer's agent). Now this can be negotiated into the purchase price, meaning the buyer pays more for the house than without the agent, or the buyer can pay for the agent themselves. We have seen this happen but it is for sure the minority. Our experiences tell us that less than 15% of private sale transactions have a buyer's agent involved and that the BUYER is the one paying for them, even if they are paid through the transaction!

Now what exactly is a "Buyer's Service Agreement"? Below an agent describes what "Buyer's Representation" is. Pay attention to the comment about paying the agent whether they are the ones who find you the house or not. This would mean once you sign the agreement you are on the hook even if they do NO WORK!


M

Survivor's Newest Song?

OK so I talk quite regularly about selling. A recent comment asked about sharing some knowledge for buyers.

The comment specifically was:

I know property guys have been really going well with sell your self but what about buying. Using an agent seems to be the only option and then that becomes a problem since they won't show private sales.

Let's first focus on the misconception that using an agent is your only option when buying. Stats show that 90% of people start their home search online, not with an agent. We find that buyers are more concerned with the homes than the sign on the lawn. They care which website it is on because they want to be able to get as much info as possible while doing their search. As pointed out by Levitt & Dubner in Freakonomics the hording on information on the public facing portal of the MLS (www.realtor.ca) forces you, the buyer, to have to call them. Information hording throws the balance of the power on their side. Sites like PropertyGuys.com work the opposite way. As a home seller you want to talk to qualified buyers, buyers that want to buy your home. To do this you have to give them all the information you can. Quality photos, virtual tours, Google maps (including street view), and all the information you can cram into a web page.

As for agents not bringing buyers to private sale homes, this is another misconception. I would estimate that 5 to 10% of the PropertyGuys.com homes sold here in the Waterloo Wellington area are sold to a buyer with an agent. We make sure to coach our clients on just how to deal with an agent assisted purchase. It is simply about knowing your bottom line and knowing your "agent" bottom line (bottom line divided by .975). This will allow you to account for the agent's 2.5% commission they "expect" for working with a buyer. When worked this way the seller is not paying for the agent they are simply allowing the buyer to pay for the agent as part of their purchase. Want to see how it works?

Private Home Seller Asking Price - $300,000
Private Home Seller Bottom Line - $290,000
Private Home Seller "Agent Bottom Line - $297,435.90

If a buyer comes in "sans agent" they have $10,000 in negotiating room. Buyers that choose to use an agent now have less negotiating room on the house,$2,564.10 to be exact. This means they are paying for their agent without having to cut a separate cheque. As a buyer are you keeping your eye on the dollars you are spending?


I pity the fool that pays commissions!

M

Why Would You Buy A Home?

The question comes up often. Most people fall into the purchase column because that is what we do, right. We go to school, get a job, rent an apartment, save up some money, buy a house, buy another one, maybe one or four more, then we rent again, move into a "home", then we die. Life in Canada.

So does it make sense to buy a home? Their are plenty of people on either side of this argument. On the purchase side their are countless realtors, mortgage brokers, bankers, etc. Against the home purchase plenty of economists and investment people. The loudest voice against purchase seems to be Garth Turner. He is far from shy about exposing people "talking out their ass" about purchasing.

Let's look at the basic math as it sits today to see if Garth is right.
Here is a rental townhouse in the north end of Cambridge that is available for $1,350 per month. Cost to rent this home for the year would be $16,200. Lets look at this over the 25 years it would take to purchase a home because we know that you pay more interest at the front and less at the end. Assuming that rent will not go up (err on the side of caution) the cost of renting this home for 25 years would be $405,000. WOW. What would it cost you to purchase?

We recently had a comparable home in the same area sell. It sold for $240,000. Again erring on the side of caution let's assume your mortgage was at 6% over the 25 years (although it is 3.79% today I would think it will go up over the next 25 years). So calculating this with 5% down ($12,000) your mortgage would be $228,000. With monthly payments of $1,458.76 your annual costs are $17,505.12 (a little more than renting) and the total paid over the 25 years is $437,627.41. $32,627.41 more than rent, right? Wrong. You still have the equity in the home. When you take away the $240,000 in equity (again not looking at inflation) total cost of the home was $197,627.41.

The only other thing to consider is the $12,000 you put out as a deposit and the $100 or so a month you saved in the rent situation. Let's assume that money was invested to see if it evens out. Investing the $12,000 deposit plus $100 a month at 6% (equal to the mortgage amount to be fair) works out to $123,225.53. Subtract that from the cost of rent and your cost to rent was $281,774.47, or $84,147.06 more than buying a home over 25 years.

So I will leave it to you whether you will buy or rent. Whatever you do don't get pushed into anything you are not ready for. Specially if it seems like Dr. Suess is the one doing the pushing...


M