Why Good Realtors Will Only Work With Buyers On An Exclusive Basis

Why Good Realtors Will Only Work With Buyers On An Exclusive Basis

This is one of those rare moments when I'm actually in agreement with the real estate industry zealots but I didn't always see it this way. Before I became a realtor I felt like, as a home buyer, I should be able to work with multiple real estate agents and whoever found me the best home would get the sale and the commission. Seems fair, right? However, real estate agents didn't see it that way and were horrified that a home buyer would even consider working with multiple realtors simultaneously. Most realtors insisted (and most still do) that home buyers work with them on an "exclusive basis".

Of course, back then there was no Internet or databases and realtors needed to apply a lot more skill to find homes for their clients than today. Being tied to a single realtor meant that if you just happened to pick the wrong agent you wouldn't get a very good home. I also had the incorrect perception back then that realtors had access to different homes.

But since then databases and the Internet have dramatically leveled the playing field between realtors. Anyone who knows how to navigate a database and listen to their clients should be able to do a decent job of finding a home for them. Not to mention that, with the Internet, most home buyers are extremely active participants in their own home search process - to the point that most of the time the real estate agent only needs to look at the homes their clients have already flagged. So differing skill levels is mostly a non-issue today - provided you aren't working with any of the many really bad agents out there. And the databases ensure that all real estate agents really do have access to the exact same properties.

Nevertheless, some home buyers still don't want to commit to a single agent because they don't realize how level the playing field really is or they don't want someone constantly bothering them trying to make a sale or maybe they think they might find a situation where they can cut out their agent and save some money. Who knows why?

The problem is that any halfway decent real estate agent will only work with home buyers on an exclusive basis and for a really simple reason. Without an exclusive arrangement there is a significant risk that the buyer will end up buying with another agent, in which case they (the halfway decent agent) won't get paid. How hard will they work for the home buyer with that risk hanging over their head? They'd rather spend their time with a home buyer that they know will pay off someday.

I was actually first sensitized to this perspective when I learned about how the executive search industry works from one of the best career management books out there: Rights Of Passage at $100,000 to $1 Million. The best headhunters only work on an exclusive basis. Even if their client ends up promoting someone internally to fill the position the headhunter gets paid. And for the same reason as above: why would they work really hard if there is a reasonable chance they won't get a dime out of the deal?

There is another economic reason for exclusive buying arrangements. Working without them is a hugely inefficient process. If a buyer is working with multiple real estate agents then most of the work these agents do will be redundant.

Then there are the practical considerations. Think about it. Would you hire two lawyers to prepare a will for you or give you other advice? You would probably end up with conflicting suggestions and then how do you resolve them?

Because of this it's not unusual for a real estate agent to ask their buyers to sign a formal, written, exclusive buyer's agreement which covers the following terms in addition to a few more:

  • Length of the agreement
  • Real estate agent's responsibilities
  • Home buyer's responsibilities - the most significant of which is that they work exclusively with this agent
  • Compensation - the most significant of which is that the buyer is responsible for making up any shortfall in the commission being paid by the seller.

That paragraph about compensation can be a bit off-putting to home buyers. The idea is that the buyer's agent expects to get paid at some agreed upon commission rate. Sometimes the commission on a specific property falls short of that number. The best example is that, after working with an agent for 3 months, the buyers decide to buy the home they are renting and their landlord is not going to pay a buyer's commission. Well, in that case the buyers would be responsible for paying the commission to their agent. That may not be as onerous as it sounds. Since this is a fee normally paid by the seller it should be viewed by the buyer as equivalent to an extra fee imposed on the purchase and they should simply incorporate that fact into their offer price. In other words the seller can be forced to pay this fee whether they know it or not :)

This whole concept of an exclusive arrangement is not as bizarre as it first sounds. If a home buyer and real estate agent are going to work together their working relationship has to make sense for both sides.

#RealEstate #RealEstateIndustry #Realtors

Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.

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