A report planned for release on Monday, but getting plenty of press in the industry, will say that real estate companies are a "cartel" out to steal money from the pockets of home-selling and home-buying consumers. 

As usual, there are two sides to this story, maybe more.  The Consumer Federation of America, a nonprofit research and advocacy group, believes that consumers are getting caught in the crossfire between "discount" brokers and "traditional" brokers.  Discount brokers are offering all kinds of incentives to home sellers to list with them; and now they're beginning to offer home buyers the same kinds of incentives to buy from them.

What's lost in all these stories is the fact that if a buyer uses the seller's agent to buy a home, that agent is legally obligated to represent the BEST INTERESTS OF THE SELLER, not the buyer.  And if home buyers use their own Buyer's Agent, that agent is legally obligated to represent the BEST INTERESTS OF THE BUYER.  If consumers use either discount OR traditional brokers to BUY a home, they're potentially ripe for getting caught in a conflict-of-interest squeeze where the buyers' interests may not be represented at all, and the listing broker winds up with the FULL commission since they represented both buyer and seller. 

If home buyers use an "EXCLUSIVE Buyer's Agent," (EBA), where the broker NEVER lists homes, thus avoiding any potential conflict of interest between seller and buyer, then the consumer's interests will be well served.

The way a real estate transaction works is that a real estate brokerage will take a listing and charge a certain percentage of the final sale price.  Remember, that percentage is ALWAYS negotiable.  But, and here's the catch, in the commission negotiated with the seller normally up to half will be offered to any broker out there who brings the buyer.  If the seller's broker brings the buyer, she gets to keep the WHOLE commission, not just the half she gets for representing the seller.  Now remember, her job is to represent the best interests of the seller, not the buyer.  She can treat the buyer as a "customer," but she has a fiduciary responsibility to her seller to get the highest price and the best terms for them.

Let's say the broker representing the seller decides to limit what she offers to a cooperating broker representing the buyer to a level low enough that few cooperating brokers will offer to show that property to their own buyers, figuring that if the commission offered is that low, chances are good that the rest of the transaction will likely short the buyers.  And believe me, this has happened.  Now let's say too that the listing broker works hard to bring her own buyers, but now it'll take more time because fewer agents are willing to show the home.  She wins the whole commission, but her seller hasn't been well served.  Even if she lowers the cooperating commission out of a desire to save her sellers money, she still disserves them by effectively limiting the house's exposure.

But let's look at another scenario.  This time the discount buyer broker offers to represent the buyer with a discount on the fee paid BY the buyer.  Unless you're using an Exclusive Buyers Agent who belongs to the National Association of Exclusive Buyers Agents, this is not a good deal.  Why not?  Because the listing broker has offered the cooperating selling broker up to half of the commission paid by the seller.  A buyer's agent shouldn't be charging a buyer, (unless the buyer has an arrangement with a NAEBA broker which includes a commission but builds it into the price of the house).  The arrangement is the same as in the prior example, but the buyer receives full protection under the law, the same protection afforded by an Exclusive Buyers Agent who offers her services free to the buyer, expecting to be paid out of the transaction from the listing commission.

Now, what about rebates/refunds to the buyer as one newly national franchised brokerage is offering?  Is that a good deal?  Well, the plan is that consumers can do much of the work of finding their own house because of easy access to all the listings using the internet, but the franchise doesn't show houses, taking the buyers around on a house-hunting trip which could take two or three days.  Two or three days of an agent's time could cost a brokerage up to $300 a day.  So they don't do it.  Seeing the house will be up to the buyer.

The discounter will set up the showing with the listing broker, and the listing broker will be there to show the house and answer all the buyer's questions.  Does that sound like a good idea to you?  You know the listing agent is out to get the most money and the best terms for the seller.  They have a built-in bias.  Where's YOUR advocate, the one who will represent YOUR best interests?  Back in the office taking orders over the interest from other buyers.  They promise to shepherd the transaction through escrow, but how do you know they know enough about it to faithfully represent you?

You may be asking, what can go wrong in a real estate purchase?  Buying a house is likely the single-most expensive purchase of a lifetime.  It's a complex financial transaction.  At any stage of the transaction many things can go wrong, and they do.  An Exclusive Buyers Agent who does not ever list houses and faces no conflicts of interest  is your best bet to keep you out of trouble and to assure a successful escrow of the biggest purchase of your life.  And it should be FREE to you. 

But it does cost your Exclusive Buyers Agent to represent you.  It's not free for them.  Overhead can eat up 25% of a commission, and taxes up to a third.  So an EBA won't be taking 100% of the commission to the bank, only from 42 to 45% will belong to them.  Let's put that in perspective. 

Let's say you buy a home and pay $350,000 for it.  Let's say the seller has offered to pay the cooperating broker bringing the buyer a 2.8% commission (typical in Colorado), or $9,800.  After costs, the Exclusive Buyers Agent will receive from $5,390  to $5,684.  This is compensation after perhaps months of working to find your perfect house, negotiating with the seller's agent for the price you want to pay, negotiating for the inspection items you want fixed, shepherding the contract through endless telephone calls and emails to the inspector, the title company, the lender, the listing broker, conversations with you keeping you informed about what's happening every step of the way, and finally at the closing table receiving a commission.  Oh yes, keep in mind that if in the middle of the process you decide to back out or that it's better for you to rent for awhile, all that work by your Exclusive Buyers Agent doesn't get compensated at all, because agents only get paid for a successful purchase.

So now that $5,000+ has to cover the costs involved in the two or three transactions that weren't compensated, not just the one at hand. 

So it's a bit more complicated than the  Consumer Federation of America (a nonprofit "research and advocacy group" but accepting contributions from Bank of America -- who incidentally has been fighting to be allowed to sell real estate as a bundled service after a century of keeping banks and real estate brokerages separate for good reason, that would lead to a REAL cartel) suggesting the real estate profession is out to hurt consumers!

Check out an article written by Blanche Evans, Editor of Realty Times, a widely read industry newsletter, who has her pulse on the real estate industry. 

"A Lakewood real estate agent has been sentenced to 49 months in federal prison after pleading guilty in March to wire fraud and money laundering that involved arranging more than 100 fraudulent loans and mortgages for illegal immigrants and other unqualified home buyers, officials said Thursday." Article in the Rocky Mountain News Friday, June 9, 2006.

Colorado just passed a law requiring mortgage lenders to register with the state and get a criminal background check because of episodes like the above.  Up till January 2007 Colorado will have been one of only two states where mortgage professionals have not been regulated.  As a result we've seen a lot of so called mortgage professionals go to jail in the last few years.

If you're thinking about buying a home in Denver PLEASE give me a call (303-587-3509) so I can refer you to a tested, honest, competent lender.  I refer my clients only to the best.  You DON'T want to get cheated when you're involved in what is normally the biggest money transaction of your life.

As an Exclusive Buyer's Agent I back the referrals I make with my own reputation.  I owe you, the buyer, a fiduciary relationship where I treat your interests higher than anybody else including my own.

I have clients who won't be able to move into their new home for a couple of months after closing during the two hottest months of the summer.  They're worried about the garden and lawn in their new home during the time they won't be there.

A lovely garden is a substantial part of the value of a home, so you don't want to make the mistake of not caring for it properly.  Canadian writer, P. J. Wade, suggests joining a local garden club to help out with advice on keeping the lawn and garden in shape, especially if you're a neophyte at gardening.  Garden club members are glad to offer expert advice about how to maintain a garden design, especially if local conditions present a special challenge as they do here in our high-altitude, dry climate.  The Colorado Federation of Garden Clubs is the place to find local expertise.

 You might also want to consider xeriscaping for a low-maintenance, low-water use garden.  Twenty years ago the Denver Water Department originated the use of xeriscaping for hot, dry climates and the practice is in wide use in the desert southwest.  Xeriscape gardens can offer an alternative to a high-maintenance, Kentucky bluegrass yard, and are quite beautiful. 

If you have specific questions about gardening in the Denver area, ask me.  I've been a Colorado Master Gardener since 1987.