The liability part. I know it is hard to tell a seller or buyer you should use me strictly for the liability reasons. They would laugh and say is that all you got. I hear alot of people say the liability is on the attorneys. This is totally false. The attorney has no liability. Attorneys rarely have liability. They are the ones who write our contracts we public and agents have to use. Do you think they are going to put a trap for them to step in on the contracts. No way. They make the blame on someone else. I can not think of one case where the courts step up and say the attorney was at fault or the contract did not have a blank for something to be answered correctly. They change contracts every year to try to make them better. What is the reason for the changes. It is because of the problems they find thru the year. Never do they say though the attorneys should of had this in the contract. They point the blame at the agent, buyer or seller, never the attorney. A perfect example of this is title insurance. When you buy a house an attorney does a title search. We agents do the best we can with this, but we can not do as great of one as an attorney. Title search searches for any easments, road construction coming, past owners, current owners, taxes, leans, flood zones, anything that could be a splinter to the buyers. As an agent if we miss something with this and a contract is written and signed than something is found later. Guess what, we now have a law suite and the buyer is in court suing the agent. The attorneys have created something called Title Insurance. The attorneys do the search about few days before closing. Than when you go to closing and there is a charge for title insurance. This title insurance lets the attorneys off the hook for there research. If something is found later, and you try to sue the attorney, title insurance comes up and pays you off for the damages. Worst scenario they will give you back everything you paid for the house. The attorneys can do a better title search than we agents can, yet they have insurance and we don’t. That is a classic case of the attorneys make the contracts so they are not the ones being fired at. There are tons of areas like this in the contract, this is just a real obvious one.

Commission: That commission rate is different than ours. I do agree they have to change as well. They are old ways of doing things. I will tell you though, they will not get cheaper. If anything they will go up. The world is changing. It is getting more expensive for everything. Greed is always here on earth. The reason I say it will go up if anything is because the profit margin for a real estate office is already low compared to other fields of business. The IT industry from what I understand used to be good and now is going to india. The profit margin for a real estate office is only about 5%. The average for any business I think is at least 10%. This is why lots of real estate businesses usually do not make it. Paper marketing is very costly. Office space is very costly. The market is changing and paper market is going away and everyone is going to the digital office now. This will cut cost. But the internet is booming and so that money will only be transfered over to creating web sites, making more advanced phone options, money spent on LCD screens instead of paper. Think about this: in 1993 agents did not have computers and cell phones. If I were an agent in 93 I would of saved 200 a month on a cell phone and around 300 a month on computer equipment. Today my 2 biggest expenses are computer technology and my phone. I can’t tell you how many web sites I am on. When I get free time to goof off. I am on my web sites trying to make them better. Just 16 years ago these things did not exist. I remember having a pager and paying $10 a month for. Riding down the road and having to pull over and call someone when my pager went off. The market has changed but the expenses have only been replaced by another source. And with the internet there have only been more sourced added. A perfect example of this is the number of people who have filled bankruptcy this year. In Canada in 94 you had 65,000 cases file bankruptcy. In 2008 you had 125,000 file for bankruptcy. I dont even want to go into my country the USA. ,We go thru money like it burns our hands. Anyway, it has rose more since 94 to 08 (14 years) than it has in the 60 years before 94. Reason this is: I think because there is simply more stuff out there now. Everyone wants an ipod, a new computer. These things did not exist before 94.

Sorry for the long writing, but story sold simple the profit margin for a real estate office is low as it is. So I do not think commissions will go down, only up. People demand that you do more today and it cost money.

Your an IT guy. Just think probably 15 years ago your job did not exist. So to a company you are an added cost. There are some companies out there that have rooms full of servers and IT guys 24-7 running that equipment.

Thanks PB you are one of the more smarter ones on here. You make good points, instead of just saying well realtors lie and they should all die for it. I am still not sure I have proved my point based on what you said. You still may have the upper hand. I will have to sleep on it and maybe write more tomorrow.

I should probably qualify why I said the real estate agents should have paid me. I am also in sales and took time out of my day to meet with the agents. Two of them showed up with no market research on my neighborhood and absolutely no idea what to list my house after the visit. They wanted a second meeting. I have been doing IT sales for 15 years and if I showed up to a meeting with a client and did that I would never be invited back. This has nothing to do with one person clicking well with another. I realize there are going to be very good agents and very bad ones. It seems the extremes in real estate are even more so because of the easy barrier to get in to the industry.

Perhaps the liability thing is an issue in the U.S. I am in Canada and the real estate agent as far as I can tell has absolutely nothing to do with this. I don’t doubt you have the ability to carry extra coverage on behalf of the client, but much like warranty on a new TV, I doubt that it is often used. Everything must be done by lawyers on both ends, so the liability thing is not an issue here. If an agent told me he was protecting me from liability as the value-add, I would probably suggest they take up a career in the insurance industry. Anyway I wouldn’t buy into it here, but perhaps this is different in the U.S.

I realize you are in the industry and obviously are very passionate about it. I believe things have changed in this industry to a point where the fees do not make sense for what value is brought to the table in certain situations. The other thing that should be changed is the compensation model itself. The reason I believe I have met as many horrible agents as good ones, is the industry rewards the agents equally. The agent who does the actual selling in most situations is the one who brings the client to the table, yet the listing agent gets a good chunk of the check. Also in Canada I believe the agents get paid 7% on the first 100K and 3 % on each 100K after that. On any house over 100K, there is really not much incentive for an agent to make an extra 5 or 10K for the client on the selling price because the small extra percent they would make outweighs the risk of further negotiation and the cost of the extra time.

If I was in this business and was good at it, I would want to see some reforms to better incent the agents for selling higher. I don’t mind paying for value. As mentioned my first agent was excellent and I never even considered negotiating her comission. If anything I would like her to be paid more and better compensated for selling higher not getting the automatic 7% on the first 100K.

Anyway as someone who has spent his life saving before buying, I don’t fall into the realm of typical home buyer. I do a lot of research, I have paid between 35-50% down, and I make a business decision on a house, not an emotional one. I just feel for what is provided in a non-down market, using an agent on the current fee structure system is not worth my hard-earned money.

As far as your buying agent. I am sorry you feel you had a bad agent. The market has changed. You are right. The internet has made it much easier for buyers to find there own house. You have to understand that is not the agents job as much any more. Back when horses and buggies were around. The agent would have a MLS book. He would wave this book infront of you so you would sign an agency aggreement. Once you signed you got to look at the book and you felt like you had the top secret files to the government. The agents main job of todays greatest agents is in the negotiation and contract. In the 80’s our contracts were 1 page. There were about 100,000 law suits in my state a year. Today the average contract is around 10 or 12 pages. My new construction contract is usually around 40 pages. There are millions of law suits every year. The saw suits have grew more than the number of houses sold. Guess who the majority of those law suits are, FOR SALE BY OWNERS. It is easy for one party to lie or the other party to not know what to ask for and than later want something. The stats are that 80% of FSBO’s usually list with an agent. So in a given year in my market there are 80% of agent sold homes, 20% of FSBO sold homes. The 20% FSBO market is more problem than the 80% Agent market. Now agents deals go to court also. I know this. But your risk is much greater as a FSBO. The realtor association interviewed the FSBO law suits one time and you know what they said. “If only I had an agent, so the finger would not of been pointed at me”. It is like the saying the mouse said when the trap popped on him “forget the cheese, I just want out of the trap”. The commission we make is not worth the liability we take on. This liability does not cost us except in errors and ommission insurance. Insurance will alot of the times not pay for the mistake, because they try to say the agent did it on purpose and not by mistake. It is like riding a 55 gallon barrel in an ocean storm. You know a wave eventually is going to hit your 55 gallon barrel. You just hope it is not a big wave, cause if it is your barrel is collapsed and your dead.

Negotiation issue: I agree with you to an extent about you should not worry about offending them, it is strictly business. But if you know anything about negotiation, you should know that the trick is not to get the upper hand and shaft the other party. It is to create a win win situation. So in one sense you have to care about there feelings. I have a house listed now that a year ago they had it listed as a FSBO. An agent in my office brought them an offer. The sellers offered to pay 3% commission. The deal ended at a price of $410,000. The sellers were mad and said no. The buyer walked away mad. Now I have this house listed at $339,000 and the seller is paying 6% commission. If only the parties had not got mad at each other. Negotiation is a very hard science. Many people think they are good at it and in reality less than 1% of the population is actually good at it. I have read alot about negotiation. I do it every day, it is the difference if I sell house or someone walks away. I still scratch my head sometimes. The negotiation is where the agent today is worth gold. I can guarantee you on a custom build (especially 600K) I can save you more money than I will cost you. There are so many tricks in custom home building. I know alot of them. Enough to save you at least double what I will charge in commission. I guarantee you. I used to work construction, I know the short cuts. I could make a book on short cuts that builders can do. Some of them are not even short cuts, they are actually ways you can cut cost and still add sq. ft. .

Plus if we get out of the business, do you know the government would attack the home owner. The government knows there is alot of tax dollars to be made in home ownership. Who do you think pays speakers to to before the government and fight any taxes the government wants to impose on home ownership. I know me for one paid $500 extra this year to fight a bill that added an extra closing expense to home buyers.

I agree with JM about the bonuses. They just about a year ago changed the contract for us agents. We now have to disclose any bonuses given to us. I never took a bonus off of a house anyway. I always gave it to my buyer to either get a price off the house or use for upgrades. I am fine with the 3%. Pigs get fed, hogs get slaughtered.

1. Not offering 5% below list IS a load of BS … the agent only says that to keep that offer UP there to increase commission! I’m not saying a seller should take a HUGE loss – BUT – their agent isn’t doing them any favors by failing to point out how long they have lived in the property and what they would have paid in RENT had they been RENTERS that whole time … that $$ amount should be considered when ANY offer comes in. Even if it was a low-ball offer I ALWAYS advised my sellers to NEVER just outright reject an offer and to always do a counter off FIRST!

2. Listing on MLS … yes there ARE companies out now that have arrangements and will list your property on the MLS for around $400 and/or Realtor.com but you definitely want to make sure you can’t do this yourself for less … just take your time and ask ALOT of questions! I’ve been watching and researching this myself along with the FSBO business but am not versed well enough yet to fully comment on that.
I think as long as you use an attorney that you trust to do the paperwork you’ll be okay.

3. Open Houses: Less than 1% of Open Houses produce a buyer for that property. They are a FARMING tool for the Realtor to build their BUYER database. Now this isn’t always a bad thing because that Realtor could be holding an open house at another property and have a buyer walk in that is PERFECT for your property but Sellers need to know UPFRONT the true purpose of an Open House and the Realtors I know do NOT make that clear to their sellers!

4. Buying Vs. Selling Agents — It isn’t easy to be great at both of those labels. They may claim to be a buyers agent but when all is said and done they get PAID by the seller. While I often handled both sides of a transaction (happens alot in small markets) it was very HARD to walk that fine line when it came to disclosure and fiduciary duties so I do NOT recommend EVER using the listing agent as your buying agent. It’s a shame this guy came recommended and failed at his duties to you. Next time (if there is one) I’d ask for history of their deals that include figures that show the difference between the list vs. actual sales price. Once you look at a good batch (and I’d want atleast 6), you can get a pretty good feel for the ability of that Buyers agent.

5. As for “Gifts” … you probably wouldn’t be aware of them IF nobody ever brought it up. I advise a BUYER to always ask if there is ANY Bonus being offered to the agent by the seller if a property is sold within a certain timeframe. If the agent fails to disclose this and you later find out they DID get a bonus … that agent can lose their license! Those Bonuses belong to the BUYER – NOT the agent!

NOTE: The ONE TIME I did it …. I didn’t KNOW it was a violation. In fact I didn’t know this until I took the Broker Course 2.5 years into my career! It was NEVER brought up in the Agent Course and quite frankly — I saw memo’s faxed around ALL THE TIME to all the agencies — telling them about these bonuses and they were pinned in a area for the AGENTS to see but never a client. The point is — if Broker/Owners don’t make that CLEAR to their agents then they are as liable as the agent when all is said and done but MOST “Old School” Brokers still feel that these bonuses belong to THEM so they don’t enforce it or teach it and unfortunately NEW agents just simply have no clue and could end up losing their license over something they were never told about!

PS: Derek – sorry for coming in and posting on your blog – but couldn’t help myself . Seems I’m going to have lots to say over the coming years lol.

In summary, much like the automobile business has changed where you can do most of your research and purchasing through the internet, the real estate business is changing as well and I think the folks in it would be wise to adapt or be looking elsewhere for employment. For these agents who are talking about advertising in papers and magazines, and doing open houses, I would ask why are you wasting your money? Open houses in my mind is spending an afternoon with tire kickers. If someone sees something they like on MLS and are going to take the time to make an appointment, they are a more prospective buyer. I don’t know anyone who recently bought a home who did not do all of their primarly research through the MLS website. Yes we only see what people are asking but not selling price, but this is an arbitrary number anyway as the price listed is what they expect in a best case scenario. I would have no issues making a realistic lower bid (compared to a 5% below listing price offer from an agent who doesn’t want to offend seller or other agent). This is business, even if they do have soft skin, if they are trying to sell their house they might not like your offer but they are still going to look at it and counter if they feel they have a pontential buyer, especially if they have been sitting on it awhile, or are in divorce situaion, or moving, etc.. This offending people statement is pure BS. .

I know when I sell our current house, I will plan to list myelf on FSBO. I know I wont have the best access because I can’t get on the golden goose which is MLS. I have heard there are new businesses though where an agent will allow you to list only on MLS with no other services for a drastically reduced fee. This to me makes sense in certain scenarios. I have 15 years in selling various IT hardware, software,services, etc. and based on what I have seen from the agents I have met with, I am a much better negotiator. I don’t care it is a different product, negotiating is negotiating. Having said that, if agents bring clients to the table, I would be happy to pay them their earned comission.