A recent blog post by Brian Brady offers proof that Mortgage Brokers are Loan Specialists, NOT Real Estate Experts (and vice versa). Brian, who is associated with Jumbo Mortgage Capital in San Diego, California, wrote a post entitled, "Negotiate The Buyer Broker's Commission Before You Look For a Home" which drew a considerable amount of criticism from real estate professionals.
Mortgage Brokers are NOT real estate practitioners. They are NOT licensed in real estate law, they are NOT trained in real estate contracts, and they do NOT possess negotiating skills.
The blog warns Home Buyers to be cautious and wary when enlisting the services of a real estate agent. Caveat emptor (Let the buyer beware) is always a good rule of thumb in any major purchase decision. The blog's focus, however, seemed to center on the compensation model and agent's earnings in a transaction. It warns consumers to, "Beware of the five most common things real estate agents, representing buyers, say about their compensation:"
"My services are free to you; the seller pays me."
Professional services are seldom free. Agents can and do perform pro-bono work and compensation is occasionally forfeit. For example, a Buyer's Agent provides his clients market information and arranges tours of listed properties. However, for unexplained reasons, the Buyers discontinue their home-buying pursuits and no sale transaction occurs. The Agent is never compensated for the professional services rendered.
Properties that are listed in the local MLS inherently provide a cooperative agreement between Real Estate Brokerage Firms. Compensation for the Buyer's Agent is typically arranged through the terms of the Listing Agreement, an established contract between the Listing (Seller's) Agent and the Seller. The fees agreed upon are NOT necessarily 2.5% to 3.0% as Brian's post indicates. The compensation amount is set by the seller.
Brian's comment that the Buyer "finances" his/her Agent's compensation is akin to arguing which came first, the chicken or the egg. One can argue that the Buyer's loan indirectly compensates the Buyer's Agent. In reality, once a Seller receives payment (the funding portion of a Closing), compensation is made to the Listing (Seller's) Agent and/or Brokerage Firm who, in turn, compensates the Buyer's Agent and/or Brokerage Firm. Brian's statement that this, "makes the buyers' brokerage fee "feel" like 6-7%" is unsubstantiated and mere conjecture.
i List For Less Realty utilizes a Buyer Representation Agreement that indicates commissions will be sought from a Seller and/or their Agent: "Source of Commission Payment: Broker will seek to obtain payment of the commission specified in Paragraph 7 first from the seller, landlord, or their agents."
- "My compensation does not conflict with my ability to represent your interests aggressively."
Brian comments that commissions should be divested of the property sales price. The basis for his views were derived from a blog (an opinion), that was posted on BloodhoundBlog.com back in November 11, 2007.
As a fiduciary, a Real Estate Broker is held by law to owe specific duties to his/her principal (the person who they are representing). The Agent is obligated to act at all times, solely in the best interests of the principal, excluding all other interests. This is clearly outlined in our Buyer's Representation Agreement, "The Broker and the Sales Associate shall promote the interests of the Buyer by: (a) performing the terms of this Agreement; (b) seeking property at a price and terms acceptable to the Buyer; (c) presenting in a timely manner all written offers or counteroffers to and from the Buyer; (d) disclosing to the Buyer all material facts related to the property or concerning the transaction of which they have actual knowledge;"
- "We're not allowed to "rebate" the commission to you."
Brian claims this is an inaccurate statement in 35 states. His source? A Wall Street Journal article dated April 5, 2006.
The fact is, "Ten (10) states currently have laws that ban rebates. Nine states have a full ban on broker rebates: Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee. In addition, Iowa prohibits rebates when the consumers use the services of two or more real estate brokers during a transaction." -Source: U.S. Department of Justice, Competition in Real Estate.
This is further proof that Mortgage Brokers are Loan Specialists, NOT Real Estate Experts. Your Real Estate Agent possesses current and factual information. The Code of Ethics and Standards of Practice of the National Association of Realtors® states, "In recognition and appreciation of their obligations to clients, customers, the public, and each other, REALTORS® continuously strive to become and remain informed on issues affecting real estate and, as knowledgeable professionals, they willingly share the fruit of their experience and study with others."
- "The Buyers Brokerage Agreement is not something we really enforce."
Brian seems to imply that Agents use deception to force consumers into a contractual obligation to solidify their relationship. Though many agents do not use such an agreement, the document actually protects both Buyer and Agent.
Real Estate operates on the Law of Agency. An agent that represents a Buyer, under the provisions of a Buyer's Representation Agreeement, works EXCLUSIVELY for the Buyer. In some states where Subagency is practiced, allowing an Agent to handle your purchase, without this document in place, is akin to having a Prosecuting Attorney act as your Defense Counsel in a court of law. Not a good idea.
i List For Less Realty incorporates a Buyer's Representation Agreement to promote the interests of the Buyer. It clearly spells out the Term of the agreement, the Duties to be performed, and the Compensation the Agent will receive.
- "Why would a buyer pay an agent twice as much money for an "easier" transaction?"
In all my years of practicing real estate, I can attest to the fact that each transaction is unique and none are ever "easy." To ensure a successful sale, an Agent must handle all the many details and intricacies often acting as both mediator and facilitator. A Buyer's goals are generally achieved through the efforts of their Agent who kept the deal together by being involved in all facets of the transaction.
Let the Real Estate experts at i List For Less Realty handle your realty matters permitting your Mortgage Broker to handle your financing affairs. If you're a Home Buyer in need of a reputable lender, i List For Less Realty can recommend a mortgage provider to help you arrange financing so we can help you achieve your real estate goals.
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Copyright © 2011 By Mike Mayer and/or i List For Less, LLC. All Rights Reserved.