Anyone who has ever bought or sold real estate can tell you that the process is never simple. With hundreds of thousands of dollars at stake, it can be downright overwhelming to manage the reams of paperwork, legal contracts, salesmanship, and hardball negotiations while maintaining your sanity.
That's where professional real estate agents and brokers come into the picture. These pros make a living helping individuals buy and sell real estate, whether it be a home purchase or an investment property.
How do you know that your real estate agent knows what he or she is doing?
With so much money at stake and so much influence in the process resting on the shoulders of your real estate agent, it is absolutely critical to make sure your agent is truly an expert.
To find some best practices, I talked with Bennie Waller, the department chair of finance and real estate at Longwood University. Waller has had a long and distinguished career in real estate, owning investment property and holding a real estate license, in addition to his academic work in the field. He understands the theory, and he knows how to put it in practice.
He was able to boil everything down to five simple questions that every real estate buyer or seller should ask an agent up front. These questions are designed not to evaluate the professionals' resumes, but to gauge their real abilities to help you navigate the process and win the negotiations.
Enter Dr. Waller
1. How long has the property been on the market?
Waller said that "typically owners of properties which have been on the market for extended periods of time are more likely to negotiate." For the prospective buyer, your agent should recognize this and guide you to a more aggressive negotiating stance. If you're the seller, your agent should prepare you for these tactics and provide you with supporting market data to justify your list price. It's important to remember that the definition of market value is the price at which a willing seller and a willing buyer agree to transact. It takes two to tango.
2. Is the owner a licensed real estate professional?
"If so," Waller says, "you likely will have less negotiating power." Why? Because the owner will be a more experienced negotiator with a deeper understanding of the market than the typical seller. If you are selling your property, this also indicates that it's worth taking the time to independently research the market. Your agent or broker can help, but don't be shy about calling local appraisers or bankers as well. Most will be more than happy to help.
3. Is the property vacant?
According to Waller, a vacant property is an indication that the prospective buyer has more negotiating power. A vacant property is providing no income or living space to the owner and is therefore a cash-flow drain. The owner is more likely to sell at a lower price, because every day the property sits on the market is another day of interest expense paid to the bank with no value to the owner.
4. What is the original listing price? How many times has the price changed since the property was originally listed?
Yes, question No. 4 is actually a double question, but it speaks to the same issue. If the asking price has been reduced significantly or repeatedly, then the seller is probably more willing to negotiate even lower. An effective real estate agent or broker will recognize this and negotiate accordingly. For the prospective seller, your agent should advise you of this psychology and assist you in avoiding this pitfall.
5. What should you watch for in regard to dual agency representation?
This is a situation whereby the real estate broker is representing both the seller and the buyer," Waller says. "Keep in mind that the real estate broker is likely receiving a commission which is paid by the seller. Caveat emptor" -- let the buyer beware. Essentially, you want your agent to represent your interests and your interests alone. These people are professionals and assist buyers and sellers to make a living. By ensuring your agent represents only you, you are preventing a big commission from clouding his or her judgement. The agent should work to get the best deal for you, not for him- or herself.
Hire slow and fire fast
Buying or selling real estate is a big deal. Large amounts of money are at stake -- not to mention that, in the case of a home purchase or sale, there is generally a lot of emotion involved as well.
Hiring the right real estate professional is absolutely critical to successfully doing business in real estate. Take your time, interview several candidates, and ask around to understand the reputation of each. Talk to appraisers and to bankers. Take your time before signing on the dotted line.
And don't forget: You're the boss. If your agent or broker isn't getting the job done, it's entirely within your rights to seek out a new agent to help you through the process.