Playing Fair with Your Real Estate Agent

This week's blog is about playing fair with your real estate agent.

Last week I was in New York City visiting family, and while I was there I met my niece and her husband for lunch and a show. They live in the city - my niece is an astrophysicist and only about ten people in the world really understand what she does. Something to do with black holes and dwarf stars and galaxies far far away!

We had just settled into our seats at this great Cuban restaurant when my niece said she needed to ask me some real estate related questions. I told her I would try to answer her questions, but with the disclaimer that New York City real estate was out of my realm of expertise.

My niece and her husband have decided they need more room than they currently have, so they are looking for a two bedroom apartment. Number one on their list was an apartment with about 900 square feet, 2 bedroom 1.5 bath for $4,500 a month. (You can buy 6,000 square foot Las Vegas luxury homes around the $700,000 price range for that kind of monthly payment, including the taxes and insurance!)

She showed us the floor plan, and the second bedroom was literally 10x5 - really more of a den off the dining room. The kitchen was minimal, and the bathrooms were only just big enough to turn around in if you were on the slender side.

But here's the kicker and where the real estate question came in. They had previewed this apartment with a local real estate agent. In addition to paying $4,500 per month for the place, they were also expected to pay the real estate agent 15% of the total rental amount for the year, another $8,100! But after returning home they found the same apartment listed on another agent's web site for only $4,400 per month with the landlord paying the agent's fees.

The question: what kind of liability/responsibility did they have to the agent that showed them the apartment in the first place?

After I picked my jaw up off of the ground in amazement at how much the New York agents make on rental properties, my first question to them was whether or not they had signed any type of agency agreement with the first agent. They said she had tried to get them to sign an agency agreement, but they had declined signing her paperwork. (My niece's husband is an attorney, fortunately, and he knows better than to sign something without fully investigating the ramifications.)

So I felt pretty confident telling them that they had no financial obligation to the first agent. However, I also explained that in the Las Vegas real estate market we have what is called "procuring cause." The agent that shows the listing to a client is entitled to the commission in most circumstances as per the guidelines of our local Las Vegas MLS board. I told them I did not know if the same rules were true in New York, but it could be that if my niece and her husband used another agent, the second agent might be liable to the first agent for the commission.

I suggested that as a courtesy to the first agent they let her know that they had found the apartment online for less money and without the agent's commission being paid by the tenant. They should give her the chance to represent them if she was willing to negotiate on their behalf and collect the agent's fee from the landlord. However, if she was not willing to do that, they should contact the second agent and let that agent know the circumstances so the agent wouldn't be blind sided later in the transaction.

This way the first agent would still have the opportunity to work with them. But if she declined their terms, the second agent would be in a much better position to collect the commission for performing the job, though that would still not be guaranteed.

This is an issue that all buyers/tenants should be aware of. If an agent shows you a property, in most states they are entitled to the commission from the sale as "procuring cause" of the sale unless there are extenuating circumstances. While most of the time "procuring cause" does not affect the buyer/tenant financially, they need to be sure they are being fair to the real estate agent that has done most of the work. After all, who wants to work for free? We have seen too many situations where a buyer asks an agent to show them Las Vegas homes for days on end and then turns around and has a friend (who was either too lazy or too busy to show them homes at the time) write the offer.

You have to have a compelling reason to use another agent, or that second agent may not be entitled to compensation. A compelling reason is NOT that you prefer to use a friend or that the first agent was not available on short notice to write an offer. A compelling reason would be that you had good reason to believe that the first agent was not working in your best interests or had "abandoned" you as a client. Most of the time that is very hard to prove.

And above all, the morals and ethics of the situation call for being fair to all parties. If the real estate agent does the work, they should get compensated for that work. So if you are looking for homes for sale in Las Vegas, make sure that only the agent you expect to represent you shows you the homes you might want to buy.

Las Vegas Real Estate Market Inventory

As real estate agents, we often are asked the question: How does the current Las Vegas real estate market inventory stack up with past years? What about this “shadow inventory” we keep hearing about in the news? Will prices go down further? Have we hit the bottom of the market yet?

Unfortunately we cannot give predictions for the future. (If we could, we would be playing the international money markets!) But we can share statistics on current listing inventory vs. previous years to give buyers an idea of how balanced the market may or may not be.

Today’s inventory - As of March 4th, 2011 there were 12,238 single family homes and 2,658 residential condos listed as active (with no contracts pending or contingent) in the Las Vegas MLS system. As of January 2011 (the most recently published report supplied by the Greater Las Vegas Association of Realtors) the average sales price of a single family home was $157,081, and the average sales price of a condo was $83,828.

Inventory in 2008 – In February of 2008, there were 22,497 active single family home listings and 5,388 active condo listings. The average sales price of single family homes was $297,597 and the average condo sales price was $276,222.

Inventory in 2005 – In February of 2005, there were 14,041 active single family home listings and 2,593 active condo listings. The average sales price of single family homes was $334,732 and the average condo sales price was $189,462.

What do these statistics tell us? They show that currently there are fewer active Las Vegas homes for sale now than there were in the height of the “boom” years, but that the sales prices are less than half of what they were at that time. We are seeing cash investors buying up the “bottom of the market” because rental yields are so good at today’s low prices. (Over 51% of the housing sales in January 2011 were cash.) Sales prices are less than the cost to build new. Most Las Vegas foreclosure listings are actually selling for over the initial list price. And some zip codes in Las Vegas even experienced appreciation during the past year.

Again, no one can predict with any accuracy what prices will be in the future – there are too many global factors that could impact sales. But indications seem to be good for those that are willing to buy and hold for the long term.

Las Vegas Real Estate Agents Fire Buyers!

It doesn’t happen every day, but every once in a while Las Vegas real estate agents fire buyers! Real estate agents as a whole work harder than the average person in a 9 to 5 job. They are on call 24/7, and, especially in today’s market, often work for minimum wage when you count up all the hours and expenses that go into a transaction. That is why it is especially important for real estate agents to realize the value they bring to the table and when they should fire buyers that are just not worth their time.

Sometimes the agent doesn’t know the buyer’s mindset going into a transaction, but sometimes the buyer tips their hand in advance, like this actual letter we received on Valentine’s Day. Tim writes:

“I am seriously considering buying Las Vegas homes, BUT ONLY on a KILLER DEAL. I am not interested in a good, great or market price deal. I can pay cash, so there won't be any financing. So, probably a Las Vegas foreclosure, but open to all. I know that there are killer deals out there because I know of them all around me here. So, please, only a straightshooter reply to me.
My criteria: $50-100K. House, new or newer preferably, but not mandatory, 2> beds, 1>bath, a real fireplace is a must, garage, yard or acreage, good area/part of town. I have more likes/dislikes, but these are the standard facts.

I am retired. I want to be near or in relatively close driving distance to golf courses, casinos that have concerts, places to walk and hike, and take my dog. You get the picture?

I don't have a timeframe. As I said, if it is the killer deal for me then I am ready to buy today, or willing to wait until tomorrow, in a week, month or year or more until that deal transpires.
I want an agent that knows Vegas extremely well, is not pushy, is not in desperate need of a sale, will work with me on what I want and not what they want, and obviously knows real estate. Don't laugh. There are way too many people that received their licenses during the big boom years ago that don't know a thing about real estate, and many of them are still out there with their license. Please don't reply because I will know.

If you have someone qualified and interested, let me know, and we can talk.
Tim”

Since we received this letter on Valentine’s Day, we decided to have a little fun with it and instituted our First Inaugural “Kiss Off the Client” Contest. Agents contributed entries to let Tim know (politely) why they were firing him in advance. Below are a few of the entries submitted:

“Dear Tim, You’ll be excited to know that every home for sale in Las Vegas is by definition “a killer deal”. Knowing that should take a lot of the pressure off of both of us.

The remainder of your criteria you’ll find out in Pahrump, Nevada. Are you interested in looking at a few properties there? If so, I’ll be happy to recommend an agent. Make sure to pack your snake and scorpion repellant. Judy”

“Dear Tim, I would love to help you, but sadly my dog ate your listings. As he is on an all starch diet and will probably continue to eat your Las Vegas MLS listings for the foreseeable future, you will need to find another agent to assist you. As a dog owner yourself, I am sure you understand. Good luck! Dave”

“Dear Tim, Since killer deals seem to be falling off the trees right where you are now, why would you want to come to Las Vegas? Please let me know where you are so I can get my real estate license there! Gina”

“Dear Tim, The Good News: Our Las Vegas real estate agents are all HIGHLY experienced, with pit bull negotiating skills, impeccable integrity and incredible work ethics. The Bad News: They are all so successful and already have so many wonderful, motivated clients, none of them are “available” to help you. Management”

Please feel free to use these excuses the next time you are approached by a buyer that needs to be fired!