LIEB BLOG

How current events impact your business and real estate holdings

Showing posts with label Professional Advice. Show all posts
Showing posts with label Professional Advice. Show all posts

Thursday, August 27, 2015

Fortune Attacks Real Estate Brokers – Do You Agree?

Yesterday, Chris Matthews’ article “Real estate agents may be colluding to rip you off” was published by Fortune while citing to a paper published by the National Bureau of Economic Research and authored by Panle Jia Barwick, Parag A. Pathak, and Maisy Wong.

The article claims that “brokers who charge lower commissions are punished in the marketplace” and that sellers are “uniquely incapable to gauge the quality of what they’re buying”.
According to the authors of the cited article, Conflicts of Interest and the Realtor Commission Puzzle,
“[t]hese adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents.”
So, in English, it’s not that seller’s agents’ efforts are adversely affected by lower commissions, but instead, that buyer’s agents, who are generally compensated by seller’s agents, are less likely to bring buyers to properties where they are offered a lower percentage for procuring.

As an industry, we need to make sellers capable of gauging the quality of what they’re buying; to make informed decisions as to commission payments.

To accomplish this, brokers need to explain to sellers that they offer a split of their commission to other brokerage companies in the area (i.e., cooperative brokerage) in order to induce such other brokers to act as buyer’s agents and/or broker’s agents in procuring their purchaser to buy the property (i.e., this practice increases demand and consequently the price for real estate).
Seller’s agents need to explain that buyer’s agents and/or broker’s agents are money driven and will steer their buyers to the properties where they are compensated at a higher level (as stated in the study).

Consequently, the amount of the commission that is to be paid to the cooperating brokers must be discussed when a seller’s agent initially takes the listing and such percentage should be included within the brokerage contract (i.e., exclusive right to sell agreement).

In Long Island, the local REALTOR© Board, LIBOR, permits the seller’s agent to control the commission percentage offered to cooperating brokers in each individual deal.
To illustrate, if a seller is paying a broker 6% one cannot deduce that the cooperating broker, who procures, will always get 3% for their efforts. Instead, the cooperating broker will get whatever percentage that is listed on the cooperating brokerage listing (i.e., Stratus) agreement by the seller’s agent (each region in New York has a different cooperating brokerage agreement and therefore this blog’s suggestion does not hold true everywhere).

As a result, sellers need to be educated that they have 5 points of negotiating commissions when hiring their real estate agent, as follows:
  1. The commission percentage to pay the seller’s agent for merely listing the property and negotiating for the seller;
  2. The commission percentage to pay the seller’s agent if such agent individually lists and procures the purchaser (i.e., direct deal);
  3. The commission percentage to pay the seller’s agent if such agent lists, and the commission percentage to pay a colleague within the same brokerage if such colleague procures the buyer  (i.e., in-house deal; this will be one total commission number for both the listing and procuring because the brokerage and not the salespersons is paid the commission);
  4. The commission percentage to pay the cooperating broker where the seller’s agent lists only, but another brokerage procures the buyer while such cooperating broker is negotiating for the interests of the seller (i.e., broker’s agent);
  5. The commission percentage to pay the cooperating broker where the seller’s agent lists only, but another brokerage procures the buyer while such cooperating broker is negotiating for the interests of the buyer (i.e., buyer’s agent)

The article’s title attacks an industry (“colluding to rip you off”). Yet, this blogger theorizes that sellers care more about themselves and getting the job done (i.e., selling) than fixing an industry. Without commenting as to whether the authors have a point about collusion, its submitted that simply having our brokerage industry inform and educate our buyers of the statistical effects of their commission offerings will make meaningful change. Let’s give our clients the tools to make smart choices. Let’s educate the vulnerable consumers that we serve. It’s the job of a seller’s agent to explain to their seller the 5 points of negotiating commissions.

Beware of Form Contracts – Why Your Business Needs a Tailored Agreement

As an attorney that regularly practices commercial litigation, I read a lot of contracts. Some good, most bad. One disturbing trend that I have noticed is the willingness of businesses – both small and large – to use form contracts or contracts created for other companies. The justification I hear is the belief that the contract must be good enough because a larger or older company is using it. The thinking is simple – “if it works for them, why wouldn’t it work for me?”


This isn’t a knock on Blumberg forms or other form contracts. They have their purpose and may work for some people. I do, however, take exception to the thought that because it’s good enough for someone else, it is good enough for your business. It’s not, and the fact that I just finished a trial on a ten year old breach of contract litigation confirms that every business needs its own tailored contract.

Form contracts and contracts written for other businesses do not take into account the traits that make your business unique. Every business has a differentiator, especially in highly regulated fields. When you use a form contract, you are failing to include language that accounts for and takes advantage of the differentiator that makes your business successful.

Form contracts typically are overbroad and are not sufficiently specific. Blumberg doesn’t know the nuances of the agreement between your business and your clients, so their contracts are intentionally drafted using vague, ambiguous and broad terms and topics. In a breach of contract litigation, ambiguities are the death of your contract. Not only are ambiguities construed against the drafter of the contract (yes, you are considered the drafter of the contract if you choose a form contract[1]), but once a court finds an ambiguity, the door is open to parole (extrinsic) evidence which can potentially modify the written contract.[2] If you are fighting about what the parties “thought” the contract meant, you have already lost the battle.

My ten year old breach of contract case likely never would have gone to trial if the business had used a contract tailored to their specific business instead of using a generic contract used for their industry in general. Because the form contract included services and methods of payment that were inapplicable to the business, following a motion for Summary Judgment (asking for a pre-trial decision by the Court as a matter of law), the Court held that the contract was ambiguous. Once it was determined that the contract was ambiguous, the defendant was allowed to introduce a slew of evidence of oral representations allegedly made by the business which made the defendant misunderstand the written terms of the contract. If the business had retained an attorney to draft a contract specifically for the services that they provided instead of using a form contract shared between multiple businesses in the industry, there likely would have never been a lawsuit in the first place, let alone a trial.  

If you have the ability to control the contents of your contract and you take a shortcut or the cheap way out, you are being penny-wise but pound-foolish. A rock solid contract decreases litigation costs and increases the chances that you will be compensated for your goods or services. A defaulting party is less likely to challenge a contract in Court if the language is straightforward and tailored specifically to address the dispute in question. Finally, in the event that you are forced to go to Court to enforce your contract, a tailored agreement decreases the chances that there will be a trial[3] to resolve what the parties were really agreeing to when they entered into a written contract that was supposed to memorialize their understanding and agreement.

Be wary of forms.  




[1] Interested Underwriters at Lloyds v. Ducor’s Inc., 103 A.D.2d 76 (1st Dept. 1984)
[2] Hartford Accident & Indemnity Co. v. Wesolwski, 33 N.Y.2d 169 (1973).
[3] The interpretation and application of an unambiguous contract is a matter of law that may be disposed of in a motion for Summary Judgment, obviating the need for a trial. Hartford Accident & Indemnity Co. v. Wesolwski, 33 N.Y.2d 169 (1973).

Thursday, February 27, 2014

Why Should a Homeowner Hire YOU to Sell Their Home?

Part of my regular reading is a wonderful blog from a local real estate brokerage analytic company called Keeping Current Matters. While browsing the blog I found an infographic from a Park City Utah based real estate brokerage titled "Top 10 Reasons to Hire a Real Estate Agent". The list discusses the value a seller obtains by hiring a real estate agent instead of listing for sale by owner. The list is helpful in establishing the basic value of a real estate agent, but in my opinion it does not go far enough. Any real estate agent can convince a homeowner why hiring an agent is better than listing for sale by owner, but a superstar can convince a homeowner why hiring them is the only option.

As a real estate agent, it is crucial that you maintain a constant self awareness of the value you provide above and beyond any other real estate agent or brokerage. Create a list of things that you do better than any other real estate agent. Always work to expand that list and focus on building upon the strengths you already possess. If you are aware of the value you provide, it will naturally find its way into your representation. As your network and reputation grows, these value adds will stay attached to your name and brand.

This self awareness of what makes you indispensable and unique not only makes it easier for you to pitch your services to a potential client - it also helps you grow as a professional. Why should I hire you when it's time to sell my home?