Friday, June 14, 2013

How to Choose a Real Estate Broker (Buyers' Edition)

In selecting a real estate broker, people tend to turn to someone recommended by a friend or family member if they already don't have a broker. I think there are better ways than that. After all, you'll be paying up to 3% of the purchase price of your home for the broker's services. Selecting one should be done with care and forethought.

Anyway, some ideas:

1. An experienced broker isn't necessarily the best choice.

If you select a surgeon, you tend to look to someone who's done the surgery many times, right? Maybe that's good and maybe not. When my son needed ACL surgery, we selected an orthopedic surgeon with a clinic in a Division I football town, where this kind of surgery was routine. The clinic and doctor enjoyed a national reputation. But he botched things.

When it came time to select a primary care physician in Colorado, I purposely passed over the experienced docs and chose one not far out of medical school. New physicians are more likely to be current on the latest in medical research and not set in their ways.

The point is that an experienced real estate broker isn't necessarily the best fit. Many newly-minted licensees are far more up to date on tech use and social media than their older peers (I know of one guy in the Portland Metro area who still refuses to use email). Moreover, I've found that younger licensees tend to have college degrees. Some people don't think that's important, but I do, even if the degree is in an unrelated field. People with degrees have developed problem-solving skills and can make sense of disparate information.

2. Good brokers run their practices like businesses.

That's because they are businesses. Your transaction should be considered a business deal. What's that mean? It means the whole process should be about you, the client, what you want, what your goals are from beginning to end. Buying a home is stressful, and it should be professional and pressure-free.

Pressure comes in the form of statements such as, "Competing buyers are waiving the right to a home inspection. I don't recommend it, but you should know what you're facing," delivered when you're writing an offer. Why is this statement a red flag? Keep in mind that the brokers don't get compensated until the transaction closes. If you've looked at a lot of homes, that broker has worked quite a few hours for no money and may be thinking of ways to get a deal closed one way or the other, even subconsciously. Brokers have bills, too.

Nonetheless, statements such as that suggest it's still about the broker and not you, the client. If the broker were running things like a business, he or she would have had a long conversation with you before ever looking at a single house to lay out market realities. That's how good business is done.

A good buyer's broker will want to have the conversation at the first or second meeting, and be prepared to spend a healthy amount of time. If the person doesn't initiate the discussion, go find someone else. Bring a list of questions and your goals. Expect detailed and concrete answers. Statements such as, "I'm sure we can find the home of your dreams" is not what you need to hear, as nice as it sounds.

3. They need to know something about issues related to real estate, not just sales.

While brokers don't need to be building experts, they should be able to observe, say, a blown window seal or issues relating to the geographical area, such as settling in Colorado or dry rot in the Pacific Northwest. Buyers often don't know these and can be tempted to think "that's just the way it is" when they see something unusual, and let it go unquestioned. It's the broker's role, here, to suspect a problem and direct you to an expert with answers. 

 Basic knowledge of title, real estate law and mortgage markets is also important. They can't practice law or offer mortgage advice, but they can ascertain your needs and direct you to the right place.  Oh--never take just one mortgage referral. Get three or four.

4. Beware of bullshit.

Bullshit might be worse than an outright lie. With a lie, you'll know a some point it isn't true. With bullshit, you never know for sure.  Here are some examples of bullshit:

"I'm a neighborhood expert." Oh? Says who? And what does that mean? Brokerage firms and companies such as Zillow or Trulia exhort brokers to become "neighborhood experts." What's that supposed to mean, and why is it important? With no objective correlating metrics, anyone can claim neighborhood expertise, and many do whether they know much about the area or not. Find a home on Zillow and a list of neighborhood experts will pop up. They didn't get there by passing a test, believe me. They paid Zillow for the exposure, and the amount they paid is reflected by the prominence with which they show up. The same is true for Realtytrac and most other sites.

"I'm a Top Producer." Oooh. Compared to whom? To what? And moreover, who cares? Anyone who feels compelled to crow about his sales volume is more concerned with inducing you to think how wonderful he is than in getting down to business. In my three-plus decades in real estate, I've found that ten percent (or less) of the brokers do ninety percent of the business in any market. And most of them say very little about their personal volume.

"I can get you a great deal." Oh right. How? Seriously, would a seller discount the property to a broker because the broker was the cat's meow? Run if you hear this phrase. It likely means the broker is getting a something extra out of it.

"I'm a short sale (or foreclosure) expert." Well, that might mean she took a one-hour class on it last week.

There are plenty of other examples, but the best way to judge is to determine if the statement (a) means anything anyway, and (b) is verifiable with objective information.

5. Big name brokerages are not better than one another, nor are they better than independents.

A brokerage makes it's money by collecting part of each agent's commission, usually ranging from 10% to 40%. The lower the agent's volume, the higher the percentage split, and vice-versa. Since a commission cut is the source of revenue, bigger firms tend to exhort, pressure, or otherwise encourage its brokers to ramp up their individual sales volume however possible, and they support it with sales training, inspirational videos and programs, accountability meetings and so on. Many of these brokers tend to be all things to all people.

Small, boutique firms focus on niche markets. Individual brokers have their own even smaller niches. That said, any of them can work anywhere in a given market and may have the expertise to do so. But they don't have the resources, such as lawyers, transaction coordinators, tech support, short sale negotiators and so on, that big firms have. Aligning yourself with a big, a small, or an independent needs to be considered.

And there's no branding among brokerages. Remax is no better or worse than Coldwell Banker. Moreover, there's very little branding among individual agents, try as they may to brand themselves. Many try to do it with absurd or catchy slogans, putting their names on bus stop benches or shopping carts, paying for flashy websites, using their high school yearbook photos  or whatever.  But that's not branding, in the sense of Neiman Marcus versus Sears, whose brand names speak for themselves. That's advertising.

The ones who do have a brand are those who run their practices as businesses, and then, it's not really a brand. It's just being a professional. These can work for any sized firm.

There's more, and I may update this post as ideas come along. Feel free to ask any questions that come up.