Tuesday, February 16, 2010

Enjoy Competition? Becoming a Realtor is for you! Part II

About those darn realtor commissions:


The complaints are that realtors are not competitive; do charge too much; and they by-pass houses listed for lower commissions and FSBO! Excuse me!

You do not have to sell through a realtor as shown above. But a realtor makes it a lot more easier. The realtor sets up a custom made searches on his fabulous database. By the way, did you ever ask the Bay how much underwear they sell and for how much and what the manufacturer got paid for it? So you can go to Superstore and see if you get it cheaper? Of course not. But that is what many of you want from MLS. The Multiple Listings System only tracks sales made through CREA realtors. In fact realtors are happy to share this data with you so you can make a buy or sell decision. But... you have to pay for it and obey the rules.

You can buy just MLS data from some realtors – though of these go broke and can’t make a living. MLS access is only a small part of the services offered. How many hours does the realtor spend making appointments to enter listed homes; to show the homes; to check out the data of the properties that you would want to make an offer for? They are even liable if they do not help you sell or buy according to the laws of the land, province or according to the interpretation of those laws by the Real Estate Council of Alberta(RECA).

RECA’s sole purpose is to protect the public against erroneous, omitted and misleading behaviour by realtors. It is funded by mandatory payments (outlined in law) by realtors. They also provide errors and omission insurance to compensate the public for damages suffered. MLS means that the data on properties meet certain standards to ensure accuracy and disclosure. If it is not in MLS, it is the realtor’s job to find and disclose issues important to their buyer or seller clients as much as is possible. While at the same time there is a commitment to confidentiality between client and realtor even after their contract has ended.

So you, inexperienced first-time buyer or seller goes up against a sophisticated investor or an experienced home owner without a realtor. You can, be my guest. Oh, by the way, who needs a lawyer, or a home inspector or a mortgage broker or a condo doc reviewer? After all, all those people charge too much commission and you can do this by yourself as well.
Yeah... right. You need a realtor who does this all for you and he should do this for free or only for what you think he/she should be paid! Yeah... right!

In fact, you actually can determine how much you pay in commissions. But guess what... you get what you pay for, or better what the seller pays for. The commissions are part of fair market value! So whether you buy with a realtor or ala Ron Le Grand, you pay market value (unless you a have special situation). It is really the seller who pays the commission.

So now you go to the For-Sale-By Owner (FSBO). This person is not there to sell you below market value; he/she just does not want to pay for the commission. In fact, FSBO’s often overestimate the value of their property, often do not disclose issues even if they have to by-law (with which they are often not familiar); they do not adhere to RECA rules and standards; they do not adhere to MLS standards and you have no errors-or-omissions insurance or tribunals to resort to (other than a court-of-law) and thus you buy unprotected.

Guess what, realtors can and do help you with FSBO deals. But, they won’t do it for free. Of course you are less protected even with a realtor when buying from an FSBO. The realtor does not have ESP. But with a realtor there is a lot of knowledge about real estate at your side and he/she can help ensure the transaction is done properly.

Realtors in Alberta work these days with a Buyer-Brokerage agreement (or a Seller-Brokerage agreement). This agreement spells out what the buyer and the realtor (representing the brokerage) expect from each other, including fully negotiable commissions.

Under commissions, the agreement states that the commission is so-and-so and that with MLS listed properties this is paid for by the seller. However, the commission is paid for by the buyer, when dealing with a FSBO or a developer (or builder) who normally pays little or no commissions when you decide to buy new.

Usually this commission paid by the buyer will be reduced by any contribution that can be negotiated from the FSBO or developer. This way you are covered and the realtor has absolutely no incentive to avoid showing you other properties than those listed in the MLS.

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