Further Analysis of a Real Estate Broker’s Ability to Represent Buyers*

The method by which a real estate agent is compensated undermines the agent’s ability to represent his clients, particularly clients who are buying property. Before I get into the substance, though, I need to define the term “represent.”

Yes, the term is used in the “brokerage relationships” statute, RCW Chapter 18.86. However, I am unwilling to conclude that EVERY agent “represents” his clients simply because that’s what the statute says. In my book, “representation” requires more than the legislature’s decision to use that term in the statute as shorthand for acting as a real estate agent. Rather, I use the term to mean “to manage the legal and business affairs” of the client.

With that preliminary matter out of the way… Representation requires a high degree of loyalty to the client. Loyalty to the client is undermined by any interest that competes with the client’s interest, including self-interest of the person providing the representation (i.e., a conflict of intererst). Agents are paid by a seller, not by the client/buyer, and clearly there is a conflict of interest between the seller and the buyer. Moreover, the agent has no obligation to inform the buyer/client of the compensation paid by any particular seller. This system creates a serious conflict of interest that undermines an agent’s ability to represent a buyer.

Want proof? There is a general consensus that a seller should offer the “full” SOC of 3%. Correct me if I’m wrong in that regard. Assuming I am correct, this “general consensus” is de facto recognition of the reality that a substantial portion of agents put their own interests — getting paid a 3% commission versus something lower — above those of their client. If anybody believes otherwise I’d love to hear the argument, as this seems like a “slam dunk” point to me. There is simply no other explanation other than that an increased fee to a buyer’s agent will influence the agent to convince his client to buy the subject property versus some other. This influence over the buyer derives entirely from the agent’s self-interest to make as much money as possible, regardless of what may be best for the buyer.

The same logic is at work for a “bonus” SOC for a full-priced offer, which is permissible and not that uncommon. How on earth is it in the buyer’s interest to make a full price offer in this market? And in a situation where a full price offer is merited, it is merited because of the needs of the buyer, not the interests of the agent — or at least it should be if the agent is providing “representation.”

Want more proof? It is common for some listing brokerages to send a letter to the Selling Agent when a property is placed under contract. I recently received such a letter that reads as follows:

Knowing that selling a house at competitive market value can be a challenging process, I want to take this opportunity for professionally selling the subject property.

Wow! What an emphasis on “selling”! If an agent is truly “representing” a buyer, how is that agent “selling” the home? Those two terms are mutually inconsistent. A “salesperson” does NOT look out for the interests of the buyer. To the extent a “salesperson” claims to do so, it is — to a degree at a minimum, if not entirely — subterfuge to build a relationship of trust between the buyer and the salesperson, which in turn facilitates the sale. Does anyone really believe a salesperson when they say, “As a favor to you, I’ll…”. Salespeople sell, they don’t represent. Representatives in contrast look out for the interests of the client, they don’t work to convince the buyer to buy. Any decision to spend several hundred thousand dollars should be made by the client uninfluenced by the representative.

These are built-in conflicts of interest that undermine an agent’s ability to represent buyers. But even worse, these conflicts of interest are concealed from the client! The MLS refuses to reveal to consumers the SOC being offered on any property. Thus the buyer has no way of knowing that his “representative” may have a powerful self-intererst that is counter to the buyer’s.

Finally, I must note again one other example of how the system is inconsistent with an agent’s “representation” of a client. The client/buyer should have the right to select his/her own “representative.” After all, “representation” must arise out of a relationship built on trust. However, the seller’s SOC can be paid to ANYONE who sold the home, regardless of whether that person provided any representation at all. In other words, the fee paid is totally disconnected from the service ostensibly provided. Indeed, the fee is paid for a service — selling the home — that is INCONSISTENT with the service that the agent claims to provide.

In the final analysis, this state managed to get halfway to “buyer representation.” RCW 18.86 was a big step forward for buyers because agents now have at least some limited legal duties to their buyer clients (in the “good old days” EVERY agent worked for and had a duty ONLY to the seller, even if they only worked with a buyer). But they didn’t fix the underlying system. And that system seriously undermines the ability of agents to “represent” buyers.

To address this shortcoming, I formed Quill Realty. Every Quill client gets both an agent AND an attorney (and Quill pays the attorney’s fee). So Quill clients are truly “represented” in the transaction.


* Following “competing” posts by me and Ardell, Seattle Bubble asked its readers to weigh in, framing the issue as “Real Estate Agents: Advocates, or Dead Weight?” Both Ardell’s “rebuttal” and SB’s “poll” muddied my point significantly. I recognize that there are really great agents out there who do fantastic work for their clients and who hold themselves to an ethical standard that far exceeds what is required of them by law. My point is that there are substantial flaws in the system in which agents operate, and these flaws undercut an agent’s ability to truly “represent” his clients, particularly on the buyer side. Consumers should be able to rely on a fair SYSTEM and should not be charged with responsibility for finding one of the “good” agents. Similarly, its unfair and inaccurate — and overly inflammatory — to suggest that agents are EITHER an advocate or dead weight. That’s hyperbole, not a fair comparison, and serves only to inflame the passions of the audience, which again obscures my point. So from here on out, its “clinical” titles for me only.

Redfin Circles Back to an Old Biz Model…

Redfin‘s been through so many business models over the years, I can completely understand why some folks would think that Redfin is entering a new area by working with real estate agents, but I can’t help remind folks that this is a business model that they’ve tried in the past… and it failed miserably the first time.

In only the 2nd time Redfin was mentioned on RCG, Anna was upset (to put it mildly), that Redfin had gone from being a company that did only referral business to agents (accepting a 20% cut), to including a flat-fee option for FSBO’s to get their listings in the MLS.  (Jun ’05)

A few months later, RCG agreed to give Redfin a 2nd chance after they had dropped all references to the flat-fee option for sellers from their website. (Oct ’05)

However, the Redfin evolution when Glenn Kelman took the helm of Redfin in Sept ’05.   From this article Galen published in Jan ’06, Glenn Kelman is being quoted talking about Redfin’s referral busines to agents saying:

“How do we make money now? People sign up for a real estate agent… The real estate agent and Redfin share the fruits of that.”


I SOOO wish I had a screenshot of Anna’s profile she had on the Redfin site back in early ’05 because the content on the page would be shockingly similar to the current agent profiles.     I can’t remember exactly what the profiles looked like, but I’m almost positive they listed the agent’s recent transactions and had consumer reviews (I vaguely even remember a star system for the agents).

I honestly wish no ill will on the Redfin folks and wish them the best in their latest endeavor.   It’s just that the blogger in me can’t believe so many folks are letting them get away with saying they are doing something new.   About the only thing I see new with this program is that they are charging a 30% referral fee instead of the 20% they used to charge to agents back when Anna took part in ’05.

Are you making your client homeless?

I’ve been wanting to warn sellers and seller’s agents about this for the last 10 days or so.  Courtney’s new post is a great lead in to this added consideration for sellers and listing agents.


Having had the benefit of working in a market exactly like this one, back in NJ/PA in 1992 or so, I think this warning will be timely advice for many.

When an agent is called to sell a house, they touch on the subject of “Where are you going to go when this house sells?” But most often the antennae of the agent is focusing on whether you will also be buying a house with them, or if they can get a referral fee by referring you to an out of area agent (usually 25% of the commission.)

WARNING TO SELLERS: IT IS VERY HARD TO GET A MORTGAGE.  In the last market like this, many sellers assumed that since they had a HUGE downpayment, they didn’t have to worry about qualifying for a mortgage on the house that they were planning to buy.  NOT SO!

Having 50% down and little income could leave you homeless, as NWMLS does not permit “provisional” listings.  There’s no turning back.

Here’s how it usually “plays out”:

1) Seller doesn’t want to look at homes until their house has a contract. With houses sometimes sitting on market for well over 100 days, looking at what you will buy when your house sells is often put off until you have an actual buyer for the home.

2) Once the contract is signed around, the seller goes out and makes an offer on a house they are buying with 30% to 50% down.

3) Often the seller and the agent for the seller of the home they are buying are so impressed with the big downpayment, everyone all the way around assumes that someone with that large of a downpayment can get a mortgage.

REMEMBER:  The buyer of a home has a legal out phase lasting about 10 days, but the seller does not have a legal out phase if they can’t get a house to go TO.

Often you can’t just go to the buyer and say, “Sorry.  I can’t buy a house so you can’t have mine.”

So to listing agents, I know you want that listing, and your are primarily interested in getting the seller to sign that listing contract.  But be careful that you are not making your clients homeless. If they are people living on a fixed income, saying they are planning to buy, part loan, your ears should perk up.  Make sure they check with a lender as to getting that loan…before you sell their house out from under them.

We are often in the business of “GETTING PEOPLE FROM HERE TO THERE” moreso than simply “selling houses”.  Don’t leave your seller’s homeless, as you walk off to the bank to cash your commission check for “selling their house”.

Does every buyer or seller need an agent? Does every distressed homeowner need an attorney?

In the comment thread to a recent post, Ardell wrote:

You can’t just tell people they should or should not have an attorney the same way that you can’t tell them they should or should not have a real estate agent LOL! Either can be a waste of money if you have the wrong agent or attorney. If the agent is not going to help you value the property you are buying…if the lawyer is not going to advise you regarding release from the deficiency…either is a waste of time if they are just shuffling papers around. Every buyer and seller should have an agent the same as everyone facing default should have an attorney.

This raises an interesting question: Are agents and attorneys comparable in terms of the services they provide? And more to the point: Are they equally important in protecting a person’s interests?

I think not. Now some may quickly accuse me of being a “typical” ego-driven attorney with an overinflated sense of self worth. But rather than attacking me personally, the more discerning reader will respond to the merits of my argument.

Similarly, I suspect there is a lot of common ground between agents and attorneys — more than a reader might realize. For example, everyone agrees that there are poor agents as well as poor attorneys, and hiring either one will either be a waste of money outright or will get you a poor return on your investment (money spent on service when compared to benefits of receiving service). Moreover, there are always exceptions to every generalization, so specific examples are not very useful in addressing general issues. So, for purposes of this post, let’s focus on a “generic” competent agent — i.e. the abstract, non-specific “everyperson” agent — compared to a similar competent attorney.

So why do I think that an attorney is more important? Or, as Ardell framed the issue, why do I think that people should not have an agent when buying or selling a house, but they should have an attorney when facing foreclosure? The analysis begins with recognizing the different skill sets of each professional. Practically speaking, an attorney must have completed both college and law school, a three year graduate degree. The attorney must also have passed the bar exam, which is recognized as quite demanding. In contrast, an agent must have completed a 60 clock-hour course offered at most community colleges and passed the state license examination. Both professionals must undergo continuing education, so presumably once the career is started they grow professionaly at the same rate. But is there really any question that the attorney is better educated (and thus has the prerequisite intelligence and diligence necessary to complete seven years of advanced schooling)? Furthermore, given these vastly disparate educational requirements, can anyone dispute that the practice of law is more complicated and more intellectually demanding than the brokerage of real estate?

Consideration should also be given to the actual work expected of the two professionals. Again, as Ardell framed the issue, an essential task expected of an agent is valuation of the property at issue. A property’s “true” value is unknown until a willing buyer and a willing seller agree on a price, neither being compelled to do so. Until that time, any estimate of a property’s value is just that, an estimate. This estimate is based on many factors, most of which can be obtained and understood by any competent adult — i.e. sales data and current prices for similar homes in similar areas. Everyone will have a different opinion, even between two agents with the same amount of experience. There is simply no way to confirm that any reasonable valuation — from anyone — is “right” or “wrong” until the property sells.

In contrast, when faced with acute (or chronic) financial distress, there are different strategies that may be employed to address the problem. All of these strategies require an understanding of the debtor’s legal rights and obligations. In comparison to valuing a property, it is much more difficult for a person to do the necessary research (federal statutes, state statutes, cases interpreting both) that will allow the person to reach an informed and correct conclusion. Moreover, an error in valuation is likely to be small as there is a range of “right” answers anyway, and if the buyer/seller formulates their own number and then gets that number, the outcome at least in the short term is good. In contrast, there are many different options that may be available to the debtor. The option chosen by the debtor — after researching the issue himself — may be, in fact, a very poor choice in the near and short term.

Finally, I must also note the costs incurred in using the services of either an agent or an attorney. At least in the realm of residential real estate, I would wager a lot of money that agents are actually more expensive than attorneys. In a “typical” transaction, a consumer will pay his agent (including the broker required for the agent’s license) $12,000 (3% of a $400k house). This is a substantial bill for the services provided, particularly in light of the requirements for becoming an agent. In contrast, even if the consumer files for bankruptcy, he is unlikely to incur such a bill with a lawyer. If the debtor is simply consulting the attorney for options, the bill will be much, much less.

In summary: a consumer need not hire an agent in all circumstances. Look at the services you hope to receive and the value of those services in light of the cost incurred, taking into account the licensing requirements of the professional providing those services. By considering the licensing requirements, a consumer addresses the merits of hiring the professional versus performing the work on the consumer’s own behalf. However, a homeowner should always consult a lawyer when faced with default on a mortgage — or when faced with any other legal issue involving hundreds of thousands of dollars of liability. If cost is an issue, then there are free legal services and low cost services available. Regardless, the money will be well spent. The same is not necessarily true of an agent.

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Open Houses in Bryant Sunday 7/13

Hi everyone,

I can’t give you the whole list here in a blog post, as it is against one of the many mls rules 🙂 But tomorrow there will be at least 15 Open Houses in Bryant.  Many agents from different offices have gotten together to have their properties open tomorrow.  Most from 1-4, but some for other times within that range.

Generally they are between 25th Ave and 40th Ave NE.  Mine is at 6806 27th Ave NE from 1-4 and I will have a list and map of the other Open Houses at that location.  A good opportunity to see a lot of properties within a short distance.  They range in price from $479,000 to $850,000 with most of them $600,000 or less.

Agents are still sending me info, so I don’t have a complete list yet.  But for those who like to view property, it’s a good opportunity to maximize the number of homes you can see in a short period of time, complete with a guide map.

Does it matter who you list with, who you close with or who your loan officer is?


Being in the escrow business is really fascinating. You see lots of things. You hear lots of things. You get to observe what is efficient and what slows down transactions.

Escrow can be confusing too. We really serve two masters: those that are our clients (the principals such as the seller or buyer or borrower) and those that are our customers: agents and loan officers who suggest and refer work to us or any other service provider. It’s also something to experience such a large transaction “quality control” chasm between different agents working for different brokerages even within a major brokerage franchise network.

But this post really is about how agents and consumers decide what you decide.

1) For example, an interesting thing occured. In the mail, I received a post card from Greg Perry of John L Scott marketing a home not far from my place. It’s not strange that I receive things in the mail from Realtors, but that the owner of the home is a broker from another company—why did they hire another agent to list the house? I know this owner because our kids play together and we’ve closed transactions for him. It is a fascinating move.

2) We have had several transactions with repeat clients who have used a different service provider (agent or loan officer) the second or third time around. Why are they doing this?

3) In escrow we work in high collaboration with just about every title company. Obviously, we do not have primary contact with the sales staff (title reps) but rather the attorneys, title officers and back office staff that are largely the engine under the title insurance hood.

One of the things that I have always wondered and one question that my wife actually raised while we discussed business matters is the following: how do agents choose one title company over another since the perception of agents in the market is that title insurance companies (heck, even escrow firms) all do the same thing and the end result of issuing a title policy or a closed transaction is the same result? In other words, agents have a tendency to say they receive good service, but what is that service they receive? Agents have very little if no contact with the title company other than the with the title rep. How are the title companies differentiating themselves especially when many are using just another name plate but are in fact a subsidiary of a large national title company.

Consumers have no idea how to differentiate Pacific Northwest Title (First American) from First American Title. Or, comparing Land America Title from Commonwealth or Rainier Title (Land America companies). It is kind of like comparing the Nissan Quest with the Mercury Villager. Both are virtually the same vehicle. Consumers rely upon their agent to differentiate for them. How do the agents differentiate between service providers for their customer?

4) Along those same lines, competition is cut-throat between service providers such as escrow and title, especially in a market where sales volumes are significantly lower than over the past four years. Agents are very fierce in fighting for their respetive loan officer or title or escrow company if involved in a sale. Tradition has it’s place, but what is the compelling proposition of one service provider or closing agent over another?

5) What is more important to an agent when suggesting a loan officer: closing the transaction, lowest rates and fees for their customer or client, or a combination? For example, one of the loan officers we work with does average volume but gives phenominal service to the client, loan docs are usually ready days in advance and nothing has ever not closed due to a problem created by this LO. On the other hand, we work with LO’s that due boat loads of loans and there are the occasional problems with service to their clients or other issues.

Are you going to Vegas?

or more interestingly, are you going to my presentation on Tuesday morning?

If so, I’d love to know. I’m just finishing up the presentation now and would love to include a few screenshots of people’s blogs who will be in the audience.


By the way, the impetus for this blog post is that I like to localize my presentation. But considering most of the people in the audience will not be from Vegas, I’m looking for another way to personalize the show… Maybe it will work, maybe it won’t… but it won’t do much harm to try.

And there are lots of clues for what the talk filed under the seminar tag

Does the NAR & the Big Brokers really want to fight The Blogosphere?

There have been a lot of discussions lately regarding Blogging, both it’s merits and potential for fallout on many levels. The problem with trying to keep Blogging under wraps: If you do, you have the potential for political backlash, both from the agents that build the brand of the broker (Re/Max, Windermere, Coldwell Banker, etc. ) and the Blogosphere itself, an enormous Goliath. Is it a battle anyone really wants to have?

Over at the Seattle PI Real Estate Professionals Blog, agent Sandy Kaduce remarked, “they will take away my blog from me when they pry it from my dead cold hands.” And, our friends howling down in the Sun in Phoenix take on the National Assn. of Realtors possible policy on curbing blogging for its membership.

But, what if an agent’s very own client blogs about their very own listing for sale and soliciting advice from the general public? For example, this case at Seattle Bubble from blogger “Econ101”. (a little more than halfway down in the comment fields)

I’m not certain anyone understands the possible repercussions of curbing blogging.

What's in the best interests of agents?

Jan at the logical dog has set up a petition that requests the NWMLS board to reverse it’s decision and continue sending listings to Realtor.com.

This got me thinking about the often-interesting dynamic between the “best interests” of brokers vs the “best interest” of agents, which is something I’ve heard Russ Cofano talk to quite eloquently. However, I really don’t have a feel for how agents feel about this issue. Is the decision to stop sending listings scene as something that was “thrust” upon agents, or is it something they advocated for? Because of the NWMLS unusual status of a “broker-owned” MLS, I’m assuming the former, but I’ve been wrong before so I’d be interested in hearing from agents in the audience…

What I admire about real estate

I was thinking about what my technology & business development plan is going to be for the next version of Zearch, and it reminded me what I really admire about real estate professionals.

You see, it’s occurred to me that people in this industry are self-employed entrepreneurs, free agents, and independent consultants. It doesn’t matter if they own a RE/MAX franchise, an independent brokerage, or is just an agent starting out. They don’t have a safety net of a 9-to-5 job. They also don’t have to deal with the inane responsibilities that life in a cube farm curses you with. But most importantly, they bare all the responsibilities and they reap the ultimate rewards of their eventual success or failure. For the most part, they only answer to themselves and their clients.

As somebody who shares the dream of becoming self-employed, I certainly admire the difficulties of obtaining that objective. Which brings me to asking the following questions of my entrepreneurial mentors?

  1. How did you get involved in real estate? Was it your first career choice or your second (or third, etc.)? Did you have any mentors or role models when you started?
  2. Why did you get involved? Was it the freedom that working for yourself brings? Was it the possibility of having a larger income (with a lot of effort, of course – there is no easy way)? Did you enter the industry because you enjoy helping people attain the American dream of home ownership?
  3. How long did it take you to “make it”? When did you know that you’ve “made it”? Did you try to work a day job when you got started or did you jump in with both feet with no safety net?
  4. If you haven’t made it yet or didn’t make it, what have you learned from experience?
  5. Knowing what you know now, what would’ve done differently when you started out?
  6. Any other insights you’ve gained on the road to being your own CEO? Has the journey been all that you hoped it would be?