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April 17, 2018

The Phases of a Real Estate Transaction

The purchase of property has three critical phases.  Each phase has value and worth.  As with doctors and lawyers, licensees deserve to be compensated for each phase.

Locating the Property

In the 1970s some of the sales success courses for licensees advocated high-pressure sales tactics such as buying a half gallon of ice cream for the potential buyers after showing them properties.  Agents expected the buyers to go home after they dropped the buyers off because the ice cream would melt.  In this way, they made sure that the buyers could not stop at another brokerage office and look at the property. 

Another tactic was to put buyers in the back of the car, lock the doors, and not let the buyers out until they signed an offer to purchase.  Until the buyer's broker agreement existed these were some of the best options available.

If you enter into a buyer's broker listing agreement with a licensee, he can then help you locate the most appropriate property for your needs.  He knows you want to buy from him.  He can take his time, find the property, and negotiate the best deal for you.

As with other professions, the efforts a licensee puts into achieving the final goal has value.  This effort has value whether or not he achieves the final goal -- to locate the property which fits your needs.  A licensee may spend a lot of time with you.  If you then decide no property fits your needs, that also has value.  You are now able to make a decision based on the licensee's knowledge, expertise, and the time he will have spent with you.  He will have helped you determine whether you should purchase or not in the current market.

Negotiating the Transaction 

In the past and currently, residential real estate negotiations often take place at a location we call "the conspiracy table," the sellers' kitchen table.  Commonly the seller, sellers' broker, and licensee (who is a usually a subagent of the seller and is supposedly representing you) are at the table.  You, the buyer, are the only person who is not there.

The more the property sells for, the more the sellers, the sellers' broker, and the licensee (who is supposedly representing you) all benefit.  The sellers' broker and the licensee generally both benefit because their commissions are based on a percentage of the sales price. The licensee supposedly representing you now usually has a fiduciary duty to get a higher sales price for the sellers because of subagency.  After all, the seller's agent and the licensee supposedly representing you have the same employer, the seller.

If you have an exclusive buyer's broker listing agreement the licensee will actually represent you.  The licensee will work in your best interests to get the property for the best price and the best terms.  He will resist the efforts of the seller and the sellers' broker to have you pay a higher price because his fiduciary duty is to you.

Closing Escrow

Once you locate the property and the seller accepts your offer, you put the transaction into escrow.  There are many details of escrow.  To close an escrow takes nurturing, constant observing, questioning, and the cooperation of all parties concerned.

Licensees presently help buyers through the closing.  If they did not help you once the transaction progresses to escrow, they might not get their commission.  With the current system, if the property falls out of escrow, they do not get paid.  If you then buy another property with another licensee, they are never compensated for all of their efforts.

If you have a buyer's broker listing agreement, the licensee will protect you right up through the closing of escrow.  He will not let you go through with something that could inherently damage you in the long run.  The licensee knows that you are going to buy from him.  He wants you to have the best property for you.

(Saul Klein is CEO of Real Estate Electronic Publishing Company, home of RealTown.) 

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