That blog post title isn’t a typo – I’m giving away free forms! When my real estate firm left the NWMLS, I had to find an alternative to the forms that it provides to its members. So I got to work! And now I’m happy to share them with anyone who needs them. If you’re interested, go to the Added Equity blog post about Free WA Real Estate Contract Forms, download the license agreement, and you’ll be off and running!
Craig is the founder and Managing Broker of Added Equity Real Estate. Added Equity charges a 1% fee to list and sell a home, total. Not 1% plus another 3%. Added Equity is different than any other firm. This is Craig’s blog series exploring why and how most realtors don’t talk openly and frankly about the actual fees they charge, keeping real estate agent commissions at their longstanding level.
First Installment: Real estate agents – intentionally or not – hide behind the law to avoid revealing their commissions.
Real Estate Broker Commissions Kept High with Secrecy
It goes without saying that real estate brokers benefit by high commissions. It also need not be said that those commissions will go down only when the prices are effectively communicated to consumers so that they can make informed decisions. By keeping commissions secret, real estate agents can keep them artificially high. How will consumers know of a better deal? They won’t. As a result, real estate agents have a strong personal incentive to “go along” with the system, charge the same high commission as anyone else, and keep it all from the public’s view.
Real Estate Agent Commissions Are Subject to Anti-Trust Law
The Sherman Anti-Trust Act is a federal law that is nearly two centuries old. Passed during the great reform movement that began in the late 19th Century, the law bars unfair business practices. Today, the government still uses the law to make sure businesses and entire industries don’t misbehave and trample on the fair workings of the market. Thanks to the Sherman Antitrust Act, the only legal monopoly in this country is the board game.
Around the same time as passage of the Sherman Act, the real estate industry formed as a cooperative business model. It worked well for the first hundred years or so. But the industries’ business practices did not subsequently evolve with the times.
In the early 21st Century, the U.S. Department of Justice began using the Sherman Antitrust Act to crack down on real estate agents and bring their practices up to modern standards. The DOJ believed that some realtors worked to keep their high real estate agent commissions. But even before that, the government charged real estate brokers with felony price fixing in 1977. Because of this longstanding legal oversight, real estate agents today have huge concerns with any discussion of the commissions they charge.
Realtors Hide Behind the Law to Avoid Discussing Realtor Commissions
Ostensibly as a result, real estate brokers almost always invoke the “it’s illegal to discuss!” shield whenever anyone wants to talk about their commissions. It is the routine, standard response on blogs, social media, and everywhere else.
It turns out that the fear is almost entirely misplaced. So says Brad Inman of Inman News, a reputable source to be sure. As he notes about any discussion of commissions on social media, “Someone utters the word ‘commission’ and there is a pile-on from Realtors who say ‘no-no-no.'” It’s a veritable Code of Silence, enforced by members of the club. One new agent commented on the “standard” treatment: “I have been a real estate agent all of few weeks now, and I have been cautioned about anti-trust law violations no less than a dozen times, NOT including actually learning it in class.”
But it simply isn’t true. Generally speaking, the law bars conversations between just brokers about the commissions that they charge, if they then act together in setting those commissions. A conversation that includes consumers on social media – where many, many conversations these days occur? Not even close.
It is, however, in brokers’ interests to keep these conversations out of the public view. Any discussion of commissions quickly leads to the conclusion that the seller almost always pays the buyer’s agent a 3% commission. A commission on top of the additional “listing commission” paid to the seller’s agent. Brokers would far rather focus on just the listing commission – after all, they’re likely to represent a buyer down the road, so why jeopardize that future big payday? The 3% buyer agent’s commission is best left unspoken. For brokers, anyway.
So agents routinely hide behind the Sherman Antitrust Act, instead of openly discussing their real estate agent commissions so that consumers can make informed pricing decisions. It is a huge irony, of course. The DOJ wants the market to exert price pressure on commissions. But the law used to make sure that pressure exists, and is exerted? The same law used by real estate agents to keep their high commissions concealed from the market. They’ve turned the consumer’s shield into their own sword.
It’s no big surprise that the Seattle City Council has been preparing to set regulations on vacation rentals, such as homes you find on AirBnb or Home Away/VRBO. Typically, vacation rentals allow home owners to rent out all or a portion of a home for short periods of time. Vacation rentals have become very popular with guests in search of a different experience than what you find staying in a hotel. Inside Airbnb states there are approximate 3,818 homes are being used as a vacation rental in Seattle that are rented, on average 110 nights out of the year. According to Inside Airbnb, 35.8% of the “hosts” or owners have more than one active vacation rental. People who I know who operate vacation rentals do so to help cover their housing expenses or because they plan to eventually retire in the vacation/second home.
Daniel Beekman of The Seattle Times wrote an article yesterday, “Seattle may slap new rules on Airbnb to ease the rental crunch“. The article fails to mention that Tim Burgess, who is the council member leading the charge on this issue, received a large contribution from hotel lobbyist.
The council is proposing to limit the number of days that can be rented as a vacation rental to 90 in a 12 month period. Burgess assumes that the other 9 months out of the year, these properties will be available to rent for periods of 30 days or more. This theory is flawed.
Often times with vacation rentals, an entire month is not “booked”. You might have someone staying one week and someone else staying a weekend in a month – not allowing a month to be available for a full 30 day rental period.
In addition, Mr. Burgess assumes that when a home is not booked for a vacation rental, that it will become available for longer term (30 days or more) rentals. Vacation rentals are furnished properties and, if rented for long term, will most likely not help those who are looking for “affordable housing”.
I do agree that vacation rentals should be regulated. Especially with some of the extreme examples that the Burgess used, citing:
“We have whole floors of apartment buildings that have been taken off the housing market,” he said. “We have entire buildings that essentially have become hotels.”
The “hosts” or owners who are gobbling up condos and essentially creating a hotel are a real minority and, in my opinion, should be treated more as a hotel and subject to zoning. However, folks who own just one property should be allowed to do so as a vacation rental without the 90 day limit restriction.
Should the regulations go through, limiting home owners from being able to use their properties as a vacation rental beyond 90 days, we won’t see these homes becoming long term rentals or helping the housing market. Many vacation rental home owners really enjoy the hosting aspect and meeting guest on vacation or business travel. What I think we will see is frustrated host eventually just sell their vacation homes during this hot market and again, that Seattle home will not be added to the long term rental stock.
Some neighborhoods, like West Seattle, lack hotels (we have one small motel) and actually need short term rentals to serve the neighborhood. Especially considering the alternative of just trying to get out of West Seattle and into a downtown Seattle hotel when West Seattle is where you want to stay.
From the Seattle Times article:
“The 90-day cutoff would affect just 20 percent of listings for entire houses or apartments in Seattle, according to a recent Airbnb report, Burgess says. The December report said almost 80 percent of entire-home listings here are rented for 90 nights or fewer per year…
“We don’t know how many of those are primary residences,” Burgess said. “But imagine if we put 300 homes back on the long-term rental-housing market. That would be worth a lot. To build 300 new units would cost more than $70 million.”
Burgess is looking at only allowing those who live on the property as their primary residence to be able to rent the homes longer than 90 days. His figures of having this impact only 20 percent of the listings is probably inaccurate.
I sincerely hope the City Council will take some time to do more research before impacting 3800 properties. And a majority of those homes will not go back on the market as long-term rentals.
If you own a vacation rental in Seattle, I recommend that you reach out to your council member to share your story.
Everyone who is buying a home comes to the marketplace with some preconceptions as to how things will proceed. If someone is selling a house in the area and buying a different house in the same area, there are not as many surprises that cause a lot of confusion. If someone is moving here from California, the process of buying a home is not different and the home styles are often so completely different that the expectation of what they will find is not carved in stone.
When someone is moving here from the East Coast, especially the Northeast, there are a few differences best known before you head out to buy a house.
1) THE HOUSES ARE DIFFERENT
The main difference in the home style is what is called “Craftsman” style. If you are building a house, they often will ask “Traditional or Craftsman?” when asking for the main styling of all of the millwork in the house. While “Traditional” will resemble an East Coast Colonial style a little bit…”traditional” does not mean “colonial”. The floor plan may or may not be different, but the facade will definitely be different.
The four homes in the photo are basically new homes by the same builder with the two on the left being on the East Coast and the two on the right being in The Seattle Area.
Some of the main differences:
1) Wood or wood facsimile products vs Brick A lot of people moving here from other States and other Countries like the more solid look of brick. But know that one of the reasons this area avoided brick for the most part is due to earthquake activity. Wood has some flexibility. Brick and mortar joints do not. There are plenty of old brick tudors still standing that have been through earthquakes. But I have seen many where there are patches over time from the brick cracking in a step pattern. I had some pictures in my phone of a house over in Montlake with this issue recently. If you do buy a brick house, examine it carefully, not just for cracks but for sections where the mortar is wider and often in a step pattern. Do use a structural engineer in addition to or as the home inspector as well. The new homes the brick is just a “facade” and not part of the construction. Still, brick doesn’t move well, even to a small degree.
That said, many of the homes today are built with a wood-like cement product as the siding. More expensive and custom homes still use wood. But most tract homes use the wood-facsimile product that may not have more movement than brick. You just don’t have to deal with the mortar issues.
2) Shutters Most of the time you will feel like the shutters are missing. Often, especially when buying older homes of the exact same style you can find on the East Coast, people will remark that they need to add shutters. Colonial homes had shutters going back centuries of the type shown on the homes in the photos on the left. Once in awhile you will find a form of shutters here that are more of a tudor style shutter. Same with the uneven pitched roof on the bottom photo on the right. There is a tudor influence. But no shutters has been more common for a very long time and because the homes were built that way it may not be easy to add them.
3) Closing and Closing Day
ALMOST NEVER DO YOU MOVE ON THE DAY OF CLOSING ON THE WEST COAST. NOR DO YOU TAKE OFF ANY TIME FROM WORK ON CLOSING DAY.
This has always been the most significant difference in the process, and one that often confuses people who are buying homes.
DO NOT MAKE ANY ARRANGEMENTS FOR MOVERS OR ANY OTHER SERVICES FOR CLOSING DAY!
This is vastly different from the East Coast where closings happen all day and several times in a day, usually every hour or so.
Whether or not you are moving here from the East Coast, it does seem a bit odd for the seller to be signing over his house to a buyer before it is paid for. It also seems a bit odd to sign all of your closing paperwork as the buyer and even bring your funds to closing, and not get the keys to the house. Even more odd that the day of closing is not the day you can tell your movers to bring your belongings to your new house.
The difference is that on the West Coast (and several other States) “closing” means the County has actually recorded the Deed to the property in the buyers name. On the East Coast that is not the case and the Deed is often recorded “in due course” and sometimes a month or so after closing. HUGE difference. On the East Coast they do a table funding and the buyer and seller are often in the same room with the agents and the closing agent. They buyer brings their money, the lender sent the money early in the day, the seller gets a check and hands over the keys to the buyer. All that within one hour. So if the signing is at 10 you can usually have the movers start moving things in around noon. If your closing is at 1 you can usually have the movers ready to move things in by 3 ish.
NOT so on the West Coast. On the West Coast the seller sometimes signs the new Deed over to the buyer a couple of weeks before closing. The buyer most often signs a few days before closing. Closing Day is too late to do much of anything. If it all wasn’t done before Closing Day, or at least most of it, less likely it will close by end of day. Closing is a phone call saying “we have recording numbers”. That means the new Deed has been recorded in the buyer’s name and that usually happens between 4 and 5 p.m. (not always; but often)
BUT! KEYS ARE NOT DUE UNTIL BY 9 P.M.
Once in awhile the seller is not completely moved out by the time that phone call comes in. Technically they have until 9 p.m. to be vacated and hand over the keys. I have only seen it go all the way to 9 p.m. a couple of times in a dozen years. But neither is it practical to want the keys to the house as soon as you get the phone call that it is closed.
The Seller gives the keys to their agent. Their agent gives the keys to the buyer’s agent. The buyer gets the keys from their agent. Most always the Agent for the Buyer can’t get the keys until after it closes. There are a dozen different ways we arrange this depending on the agents and parties, but do know that having cleaners or movers standing outside the door at 5:30 p.m. can end very badly.
Things are changing a bit because of the new rules that lenders must follow as of October 3rd. We are seeing more table funded loans and more buyers signing the morning of closing. We can’t move to a system where all buyers sign the morning of closing. It just wouldn’t work for the Title Companies.
As a buyer you don’t get much notice as to when you will be signing. More and more people are paying an extra cost for a mobile signer so they can sign after business hours or very early in the morning before work.
Just know that Closing Day on the West Coast is very, very different and once your loan documents get to escrow, there will be a signing appointment scheduled with very little advance notice. It’s a bit chaotic, but, it’s just how it is done here.
If you have moved here from the East Coast and have some other observations as to the differences, do note them in the comments along with where you moved here from.
Updated 9/13: Quill Realty is now Added Equity Real Estate – but everything else is as true today as when I wrote it! 🙂
I am loving life at the forefront of change in the real estate industry. My firm Quill Realty left the Northwest Multiple Listing Service on July 1. Since then, we’ve picked up some listings and sold a few houses – our first non-MLS sale closed Friday. Congratulations to this beautiful family!!!
So we’re selling houses at a dramatically reduced cost to our seller clients. In other words, the model appears to be working. Exciting times!
But it begs the question: Is Quill the only non-MLS broker in Seattle? Or are there others, such that a synergy might begin to build. To date, I have yet to find one. I even have a friendly wager with a title representative. He knows lots and lots of people in the local industry, and so far he’s struck out.
Is that right? Is Quill the only voice calling for change in the MLS-bound wilderness? If you know of any others – in Seattle, or Western WA, or even the USA – I’d love to hear about them. Please leave a comment, and thanks much.
I could not be prouder today. Quill’s first Single Broker Listing is live and looks great! On the Quill Blog, on Zillow, on Redfin – heck, it looks great EVERYWHERE!! By my estimation, this is what the future of real estate will look like: One broker marketing a property directly to buyers via multiple channels, without offering to pay the buyer’s agent’s commission (so no MLS number). Exciting times here at Quill!!
Today, my real estate firm Quill Realty is announcing its imminent withdrawal from the Northwest Multiple Listing Service [Quill Press Release 5/19/15]. We have some current inventory we need to clear. But by July 1, and likely sooner, Quill will withdraw from the NWMLS.
Why? Because that is where the future of real estate lies. For a long time – 10 years – I have been working on developing a better business model in real estate. It’s been apparent that real estate simply would have to change given the ongoing information and technological revolutions that have changed pretty much everything else. Yet 10 years on, and nothing has changed much at all.
The real estate broker system, with its hallmark of cooperation between brokers, has been around for more than a century. A hundred plus years ago, the term “marketing” didn’t exist, and the only way to sell a house was to have folks talk it up, literally. So today, just like 100+ years ago, a seller must hire two brokers to sell the house: the listing broker; and the cooperating or selling broker who often represents the buyer.
Notwithstanding the fact that listing brokers today take pride in their marketing abilities and are more than capable of selling the home themselves. Or that the internet allows for easy and widespread dissemination of market information. Or that nobody – nobody – “brings a buyer” to the sale anymore. Buyers usually find the home themselves, and very few – if any – buyer’s agents today actually “sell” a house to their client. Buyer’s agents today simply are not, either legally or ethically, “selling” brokers (a fact long recognized by Ardell).
So why do sellers continue to pay a selling office commission? Because it is a requirement of entry into any MLS (understandably so, given their cooperative nature). And for whatever reason – conspiracy theories abound! – sellers today continue to pay at least 2.5% and usually 3% to buyers’ agents. So the price of admission to the MLS is steep.
Meanwhile, the ability to market a property off of the MLS has continued to grow. The FSBO market has been around for a long time, and today there are more opportunities than ever to list a home in places other than the MLS.
This of course allows the seller to skip paying the selling office commission. Today, non-MLS listings appear on Zillow and Redfin, two very large and very popular real estate web search sites, as well as elsewhere across the web. Plus, in this seller’s market, does a seller even need that sort of high tech marketing? A professional yard sign and a couple of open houses are likely enough to get full market value in this historic seller’s market.
So Quill will be withdrawing from the NWMLS. We will be the very first and only broker in Seattle – as far as we know – to offer “single broker listings.” It’s a brand new term to refer to a listing contract with only a single broker. That one listing broker then has the opportunity to sell the house and earn the commission. Until today, sellers only had access to “multiple broker listings,” notwithstanding the fact that there is no longer any actual reason for or benefit to such a listing, other than that is simply how the system works.
Surely we can do better. Ten years on, and I feel like I might finally be making progress. Single broker listings will of course not appear on any MLS. They will, however, appear in many other marketing channels where buyers are looking (like Zillow, and Redfin). Plus the broker has access to every other marketing tool: a yard sign; high quality flyer; open houses and tours. And what about social media? Surely that offers an untapped opportunity for marketing a home. In other words, sellers simply don’t have to pay a cooperating broker commission in order to sell their home for market value, if they get the professional services of a real estate broker. So that is where Quill is headed.
What do you think? Is there a future in single broker listings? Or is Quill doomed to scuffle along like every other alternative brokerage, staying in business but neither getting rich nor changing the world?
Zillow Talk: The New Rules of Real Estate, by Spencer Rascoff and Stan Humphries
Reviewed by Craig Blackmon
This book by Zillow’s CEO and Chief Economist, respectively, is a wonderful advertisement for Zillow. It’s also a good book. It’s easy to read – really easy, clearly written to appeal to the broadest spectrum of readers – and very informative. It does a good job of illustrating the power of data and how it can be harnessed to make the most informed investment decision possible when buying a house.
But the book aims higher. It concludes with some stirring language about the power of data (don’t worry, this doesn’t require a Spoiler Alert): “Numbers don’t lie. And they won’t lead you astray. Indeed, they’ll help you find your way home.” (The same expression dominates the Zillow home page.)
Ah, home. The term is associated with so many wonderful things: family, laughter, love, shelter, protection, and on and on. “Home” is not just a place. It’s a very special place, a destination that is both more common and more unique than any other.
Is this book going to help you find your way to your home? Probably not. In fact, I hope not. Home requires more than a well-researched financial decision. Much more. Besides, any prediction of the future is just that, a prediction, and in the meantime life marches on. A good life needs a good home, regardless of the financial future.
With its focus on the trees and not the forest, the reader is left with a sense that it is much ado about nothing. The book relentlessly promotes the web site, implicitly and explicitly, from start to finish. You’re left wondering: Is that it? Has Zillow really changed real estate? The web site provides useful insight, sure. But it hardly upends real estate, an industry that continues to operate on a 19th Century model. Does Zillow show us the final, evolved real estate industry of the modern, technological, information age? I mean, nobody uses a travel agent or a stock broker anymore….
The answer is revealed by a closer examination of Zillow and the people behind it. I believe Zillow is an ongoing project that will change dramatically as real estate evolves. And it will be instrumental in that evolution. But Zillow itself cannot lead the change. And in the meantime, it uses a business model that keeps it in business, biding its time until the eventual evolution.
This book is a “must read” for investors and real estate brokers, but not homeowners
In other words, folks who make a business out of real estate will benefit from reading this book. It does an excellent job of demonstrating how data – available via zillow.com, a constant underlying refrain throughout the book – can be used to calculate a property’s current and future value. So if the primary and essentially sole reason for purchasing a house is to make money (or if you sell houses yourself), this is a great book. It’s loaded with a lot of great insight.
For example, did you know that proximity to Starbucks is a good indicator of better appreciation? (Chapter 4) Or that you should list your home between March Madness and the Masters if you want the best chance at the best price? (Chapter 12) Fascinating stuff and worth considering when you are investing hundreds of thousands of dollars. A slightly better percentage return, thanks to in-depth analysis of the available data, can lead to quite a bit more money.
But if you’re looking to buy a home, don’t bother with this book. It’s myopic focus on dollar values simply doesn’t foster a good decision when looking for a home. Should you take into account financial considerations? Of course. But the primary focus should be on finding the right home for you and your family. So, while good schools may be an indicator of future value (Chapter 6), that shouldn’t be the focus. Rather, look for good schools so that your kids get a good education. This is a home. Not just an investment.
Zillow Is Setting the Stage for the Future of Real Estate
In its current iteration, Zillow doesn’t really do much in terms of bringing the real estate industry into the 21st Century. As the book makes clear, Zillow simply wants to attract as many visitors to its web site as possible. Why? Because Zillow makes money as a lead generator for today’s real estate brokers.
In other words, Zillow currently complements and feeds off of traditional real estate brokers. The more people who use the Zillow site, the more leads that Zillow generates, and thus the more money it makes. Zillow is built on web traffic, nothing more. And it doesn’t do anything to disrupt a long-standing traditional industry, because that industry is it’s target market. Even though that same industry is ripe for disruption.
Which is weird. Because the guy who co-founded Zillow previously co-founded Expedia. The web site that put travel agents out of business. Rich Barton is a widely recognized and highly regarded “disrupter.” His motto is “power to the people.” He believes that the internet can empower consumers in new ways that lead to better and more efficient ways of doing things. According to Mr. Barton, his companies Zillow and Expedia have “created new opportunities for new professionals to make new businesses for themselves.”
Except that Zillow hasn’t. Not yet, anyway. It’s merely expanded existing opportunities (lead generation) for a long-standing professional industry that allows it to sustain it’s dominant market position. Nothing new there.
But what if Zillow is a work in progress? What if, in only the highest level strategic planning documents, there is a plan for Zillow 2.0? That would start to make some sense.
What the Future of Real Estate is Going to Look Like
Today, there are two ways to sell your home: FSBO, or using the traditional cooperative real estate broker system. Home sellers can market their properties via many different channels other than the local MLS. Including, of course, Zillow, which shows both “Make Me Move” and true “for sale by owner” listings. So an owner is empowered by the internet and can forego using the real estate broker system, which includes payment of a commission to a cooperating agent.
But what if the home seller wants the professional insight and counsel of a real estate broker? From advice on preparing the home to market, to staging, to keeping the seller informed and educated, a real estate broker provides substantial value. And the broker is a trained marketing professional who will efficiently and effectively utilize the full array of marketing channels available in the 21st Century: yard sign, flyer, and open houses and tours, of course; but also web sites and social media.
Today, that real estate broker can exist, thanks to Zillow. With its brand recognition and size, it is used by a large number of home buyers. A “listing” on Zillow can lead buyers to the home, without paying for other agents to bring them. So a home seller can sell for a fraction of the cost, as they will no longer need to pay the 3% buyer agent commission.
In other words, Zillow has positioned itself to be one of the successors to the multiple listing services maintained by cooperating real estate brokerages all over the country. And by positioning itself there, it provides the platform necessary for meaningful change in real estate. But until that change happens, Zillow will sustain itself (and its shareholders) by working within the existing system.
Ardell recently posted on this subject. She noted there really isn’t that much out there about this now-common aspect of buying or selling a home (common, that is, for MLS-listed homes, you can avoid the frenzy by looking for homes on MLS alternatives). She and I then engaged in some typically spirited discourse, which in turn helped me to further frame and analyze the issues raised.
Multiple Offer Situation and Bidding War defined
First, some definitions. A “multiple offer situation” is where a seller receives two or more written offers on the property. A “bidding war,” in contrast, typically refers to oral negotiations between the listing agent and two or more of the buyers’ agents. A bidding war typically erupts, if at all, after the seller has received several written offers. The listing agent then “shops” the best offer in an attempt to negotiate the absolutely best contract possible. (Note that a listing agent can also “shop” the first offer received and before receipt of others, particularly where the seller will not be looking at all offers on a specific date.)
Sellers encourage multiple offer situations by telling buyers that the seller will look at all offers on a particular date in the future. In response, most buyers will submit an offer that includes an escalation addendum (which automatically escalates the offer amount above some competing offer) as well as waive some or all of the usual contingencies (inspection, financing, title, and information verification). So the seller can expect to receive better offers that bid against each other, resulting in a winning offer at the highest offer amount. The seller can sign the winning offer, and the house will be under contract.
If you’re looking for information about how to win a multiple offer situation or bidding war, I’ve written about the topic on the Quill blog.
When a Multiple Offer Situation becomes a Bidding War
Sometimes, the seller might counter one of the buyers in an effort to get even slightly better terms. If it stops there, not a bidding war. But if the seller – or more accurately the listing agent – then calls ANOTHER buyer’s agent and gives THAT buyer the chance to beat the first buyer… Well, that’s a declaration of “war.”
It sucks to lose a multiple offer situation. For the losing buyers, of course, but also their agents who invested time and effort in the now unpaid endeavor. Bidding wars? That’s acid in the face of buyers and their agents. They are inherently unfair, as not every buyer is included in the bidding war negotiations. So buyers and their agents frequently cry “foul!” when they are subjected to a bidding war.
So is a Bidding War legal? Or ethical?
But is it a “foul” for the seller to instigate a bidding war? No, it is not.
First, the law. A real estate broker owes very few legal duties to the other parties to the transaction. And a broker has no legal obligation to keep the amount or the terms of any offer confidential. So can a listing agent legally shop an offer? Absolutely. Can a listing agent legally call one buyer’s agent, then another, then another, revealing details along the way in order to extract the best offer possible? You bet.
OK, well, what about ethical considerations? Does a broker have a professional ethical obligation to not shop an offer, or not instigate a bidding war? Nope, no formal ethical obligation either.
In the world of real estate, professional ethics are generally set by the National Association of Realtors. Most – but not all – real estate brokers are members of this association, thus earning the title “Realtor.” It is generally accepted that the NAR Code of Ethics sets the parameters of professional ethics.
The NAR notes that offers “generally aren’t confidential.” The Code of Ethics requires a broker to protect and promote the interests of the client. Thus, a seller may “even disclose details about [a buyer’s] offer to another buyer in hope of convincing that buyer to make a ‘better’ offer.” While the Code requires honesty in dealing with others, it does not require “fairness” given that term’s inherent subjectivity. On the other hand, the preamble to the Code notes that the title “Realtor” has “come to connote competency, fairness, and high integrity.” So at least arguably, if a broker discloses the facts of an offer to one buyer, the broker should disclose to all buyers, particularly if that broker is a “Realtor.” [All information in this paragraph pulled from linked sources.]
But that’s a long way from prohibiting a bidding war in the first place. So in fact, there is no legal or professional obligation to avoid a bidding war. Instead, if the seller so instructs the listing broker, the broker has an obligation to instigate one.
So why doesn’t every multiple offer situation result in a bidding war? First, because there are strong informal professional ethics in play, as well as personal ethics. Almost all agents represent both buyers and sellers at various times. So we’ve “walked in the shoes” of a buyer’s agent, and we know first hand how unfair a bidding war can be. And since most of us are in the industry for the long haul, we may need to work with the same agents again down the road. If we treat them poorly today…. Plus, most folks just have a general distaste for this sort of ruthless negotiating.
Second, and perhaps more importantly, bidding wars – like any war! – can end in disaster. If the listing agent shops the offer but all of the buyers are turned off by the aggressive negotiating, then the seller will have wasted the momentum of the multiple offer situation. So there is a good argument to be made that a bidding war, being so exceptionally aggressive, isn’t in the seller’s best interests.
I hope you found this information useful! And if you’re a buyer, hang in there. While inventory is unlikely to improve much today, it certainly will over the next year, or two or three. And if you must buy in the meantime, recognize that it will be a tough row to hoe. Best of luck.
A seller setting a time in the future when they will review all offers at the same time has become common enough to warrant a blog post explaining the general pros and cons and procedure for this type of listing instruction. I just did a spot check of new listings in Kirkland 98033 and a full 2/3rds have this instruction, including both single family homes and condos. If you look only at the single family homes, the percentage is even higher. There is very little written on this topic that can be googled, so I will try to explain the ins and outs of this process best I can. Everyone does it a little differently, so this is by no means a full explanation or an absolute description that pertains to all listings with this instruction. But it should serve well as a guide to those who have not run into this yet, such as first time buyers just starting to look at homes to purchase.
First it should be noted that the SELLER, and not the Agent, must direct this instruction. Usually as a result of a conversation with the seller regarding whether or not they “have to” respond to the first offer quickly. In fact while I noted 2/3rds of the listings have the direct wording “…will look at-review offers on…” At least half of those who didn’t show that restriction, throw in vague language insinuating that the seller will not be responding quickly because they are out of town for a few days. A roundabout way of saying “…will look at offers on…” loosely.
Let’s lay out the mechanics of how this works before discussing the pros and cons from both the Seller and Buyer side of things. To that end I will describe how I do it.
Usually I list a property on Wednesday night after midnight, which is actually Thursday morning. I do this because the public sites don’t always pull the photos in the same data pull as the listing information, causing the listing to appear in mobile instant alerts with no photos. By listing a property in the middle of the night, the photos have time to catch up with the listing by the time people wake up and view the new listing on their phones or laptops. So I do this whether there is a “…will look at offers on…” instruction or not. Most often the “…will look at offers…” day and time will be Monday in the evening with a deadline for receipt of offers in the afternoon. This gives the agent for the seller time to print out and review the offers, call agents if needed for explanations or changes, and often summarize the offers in advance of meeting with the seller to review them.
It really is as simple as that without going into the particulars of how, when and why to apply this instruction or not. So we’ll move quickly into what this means for Buyer and Sellers with some of the pros and cons.
When you first see a listing come on market that you want to see, you usually contact your agent. These days the first thing the agent looks for is this instruction, because it almost never shows in the public remarks and only in the Agent Only remarks. I don’t have a good “why” for that except that the public remarks has a limit as to number of characters, and most if not all of that is used to advertise the property with no room left to go into other topics. The agent only remarks area is even more limited, but there is usually room to very briefly describe this agent instruction.
The main reason the Agent for the Buyer first looks for this instruction noting how FIRM…or not…the instruction is, is to determine how quickly the agent needs to meet the buyer at the property.
If you see a property come on market on Wednesday or Thursday and they are not looking at offers until Monday, you still want to see it as early as possible to have time to consider the property before writing an offer. But if this instruction appears, you might not have to jump up from work with no notice or leave the children standing in front of school waiting for you to pick them up or interfere with the baby’s normal nap time. ALSO not all agents can jump up “right now” to run over to the property the minute it hits the market.
So the primary benefit to buyers and their buyer’s agent is it gives them a bit of time to schedule a convenient and mutually agreeable showing time.
That does not mean you wait until a Sunday Open House if the property comes on Market on Thursday and they are looking at offers on Monday. In fact most of the time I do not do an Open House during that 4 to 5 day period which encourages the buyer and their agent to view the property privately, which is usually better for the buyer. The more time you have after seeing the property to investigate further, collect your thoughts, make a good and firm decision before writing an offer…the better. The time frame is short enough from list to review date. Use that time wisely.
The second and possibly only other benefit to the buyer is it gives them some time to fully consider both the property and their offer before needing to submit that offer.
Some people are very quick decision makers and others are not. From what I have seen, buyers who have competed in multiple offers without success respond much more quickly than those for whom this is their first offer. This is not a “how to win in multiple offers” post, and in fact my next post may be “how to LOSE in multiple offers”.
This is just a basic outline of a common practice that most all buyers need to be aware of if they are looking for homes in some of the most popular neighborhoods in the Seattle Area.
Cons to the buyer of course are that they have to wait until Monday for an answer from the Seller and they are more likely to have to deal with multiple offers than if they could write an offer within an hour of the home coming on market and put a response time of same day. However this “con” from the buyer side will be addressed more as a “pro” from the seller side.
Whether it is a strong or a weak market, over the 25 years I have been helping sellers sell their homes and buyers buy them, most every seller likes the property to get past the weekend before responding to offers. Given the best buyers often work for a living, unless they are cash buyers, the seller would like the people who are working for a living to have a chance to see their home before the seller responds to offers. They like their home to be listed before the weekend and they like to look at offers after the weekend. This is nothing new. In fact I just saw a house that used a wishy-washy “…will look at offers on…” stated as “Seller would like to wait until after the Open House on Sunday to respond to any offers.” I’m not a big fan of wishy washy as it leads to confusion. Some buyers will read that as a hard and fast indicator that they have plenty of time, only to be very upset to find that the house was sold earlier and the Open House was cancelled.
It is very important for the Agent for the Seller to have a very LONG and detailed “What IF?” conversation with the seller, to pin this down very clearly as to the sellers’ wishes. If the seller is a couple, you need to have this conversation with BOTH sellers.
This is not to say that the Agent should guide the seller to a “…will look at offers…” instruction. But it is important for the agent to know the sellers intentions by asking questions such as:
“If you receive an offer on the first day the property is on market and the buyer wants a same day response, are you prepared to accommodate that offer as written?”
The answers to that question are many and varied and almost no one answers a clear YES. That surprises some buyers and even some agents that the seller wouldn’t be very happy to have a good offer on the first day and take it on the first day. But in my experience the answer is usually another question as in “Do I HAVE to?” Once the seller has indicated a reluctance to accept an offer, the Agent for the Seller needs to go through a whole series of what ifs to come to a full understanding of the Seller’s intentions as to how they plan to react to offers.
Historically the “reasonable” time frame for responding to offers has been 2 days, not counting the day the offer is submitted.
In the above noted scenario of listing by very early Thursday morning, the anticipated response date and time would be Saturday by 9 p.m. here in the Seattle Area where a day ends at 9 p.m., unless stated otherwise. HOWEVER the buyer is the one who types in the response date and time in the offer and what was previously reasonable and customary is not what all or even most buyers will do in a hot market.
Since control of that response date in the offer is on the buyer side…it is important for the seller to give an instruction if they do not intend to comply with whatever a buyer may write. It is not good for anyone to start off on the wrong foot by the seller being angry at the time given or the buyer being angry that the seller chose not to respond by the time given.
Most sellers whether they have an Open House or not would prefer the home be shown all weekend when most people are available to see it, than respond on Saturday night. So Sunday night would often be the earliest date the seller expects to respond and Monday night is not a stretch and gives those buyers who weren’t available until Sunday, or even very early Monday if they were out of town for the weekend, a chance to see the property.
You might ask why not longer, and the answer to that is buyers are often frustrated with waiting 4 days and so extending that to a week or 10 days is really pushing it and usually causes more harm than good. That is a conversation the Agent for the Seller and the Seller discuss in the “what ifs” discussion. Every Seller will have a different opinion and there are no hard and fast rules and every Agent for the Seller will have a different counsel on that subject. For the most part, since I can’t speak for every Agent in the Country, I am basing most of this on how I do it and on conversations I have had with actual sellers. But the options can be many and varied.
The obvious Elephant in the Room from the buyer side is “Aren’t you just trying to start a bidding war?” Or from the seller side “Do I HAVE TO take a full price offer?”
This is where the issue gets very controversial and it is not uncommon to get some very angry calls within the first hour the home is on market.
1) NO the purpose is NOT to instigate a bidding war. The purpose is to give the seller a reasonable time to market his/her property before having to accept an offer. By any definition and anyone’s perspective, 72 hours seems reasonable. So Thursday to list, Friday-Saturday and Sunday to view and prepare offers, and Monday to submit and respond, seems more than reasonable. Except to the person who wants to be “The Early Bird Who Catches the Worm”, and I don’t blame them. But that, in many if not most cases, does not give the Seller ample time to market his/her home.
For some sellers “ample time” could be much longer or possibly shorter. But the bottom line is the seller gets to decide what is and is not “ample time”.
2) Pretty much yes…you do “have to” as to the seller’s question of whether or not they have to accept a full price offer. At least this is the conversation BEFORE the home is listed for sale. Mainly because the Agent for the Seller needs to confirm that the seller is willing to take the price at which they list the home.
It’s OK to hope for multiple offers and a price higher than the list price. BUT it is NOT ok to list the home for less than you are willing to take.
To some extent the rules and practices of this particular topic have changed somewhat since Craig wrote a post with his concerns Titled “Offers to be Considered on a Future Date” Is this Really Fair to Buyers?” in that sellers have to attach the instruction before the home is listed and must note whether or not they intend to reserve the right to NOT wait until that date to respond. Still, reading his post via that link in conjunction with this one is advised.
I wish I had 10 or more links to others expounding on this topic, but the only other has been here on Rain City Guide that I can find. If you see any others on “…will look at offers on…” vs simply multiple offer situations which I will cover in my next post, please do put those links in the comments. Thank you.