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What's Really Happening in the Oahu Real Estate Market

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The Coopering Brokers Separate Agreement, a document well known to Agents on both sides of the sale of a property, but almost never seen by the principals in a real estate transaction. Buyers and Sellers alike almost never see this document and neither of them know truly how important this document is to the successful culmination of a real estate sale.

Please notice the title contains the words “Separate Agreement.” This is only an agreement between Brokerages governing how the Commission is going to be split up between the two Brokerages representing the Buyer and the Seller. This document comes with all offers to buy, only the buyer and seller never see it. The Listing Agreement, which precedes all offers, clearly spells out the what the Brokerage Firm, it’s Agent and the Client are going to do in order to put the home onto the market and sell it. The Listing Agreement also spells out the commission the seller will pay upon the successful completion of all the terms of the listing agreement. (This does not mean successful completion of the sale. It is possible to meet all the terms of a listing agreement and no sale happens and the seller is still responsible to the Brokerage to pay the commission.)

If a Seller lists his property to sell for say a 6% commission the seller acknowledges this by signing the listing agreement. When the offer is written up, the buyers never see the Cooperating Brokers Separate Agreement and when the offer is presented to the Seller for review the Cooperating Brokers Separate Agreement is not shown to the seller.

The 6% is normally split between the brokerage representing the buyer and the brokerage representing the seller. How this is done is accomplished through the Cooperating Broker’s Separate Agreement. The agreement states that each brokerage will receive no less than 50% of the amount paid in commissions. It also states the total amount of the commission just like it does on the Listing Contract.

This month I had an interesting experience involving this Cooperating Brokers Separate Agreement.

Right before I received an offer on one of my listings from the Buyer’s Agent this agent called me on the phone to discuss the terms of the offer. This is only customary with more knowledgeable realtors in an effort to not waste each other’s time by writing an offer the receiving agent knows will most likelihood not be accepted by the Seller. There are other considerations such as who will be the escrow company and often times whether or not an As Is Addendum is going to be necessary, so all these issues are discussed on the phone first in anticipation of writing up the offer and then receiving it.

However…when I got the call and we got all the issues out of the way I was told “I don’t work for less than 3%.” Hmmm…I said “Didn’t you review the MLS and the Cooperating Brokers Commission total on the MLS?” The reply was “Yes, but I don’t work for less than 3%.”

Now this presents a dilemma of sorts. I am bound of the Realtors Code of Ethics to fairly present all offers to my seller client and under no circumstances am I not to do just that. Only now I find myself in the position of either going back to the seller and asking for another .5% or cutting my brokerage commission by another .5%

Now, when I asked the Buyer’s Agent why she didn’t work for less than 3% she said “My brokerage doesn’t allow it.” In fact I later learned after interviewing several other agents from this same brokerage that if that brokers agent takes anything less than 2.5% then it comes out of their pockets to the brokerage for the loss in commission. This same brokerage in fact refuses to take a listing for less than 6%...period. I was told this by the buyer’s agent. I thought to myself…no way?! I checked this brokerage companies listings on the MLS and sure enough none of the 100’s of listings they have are less than 6%. She was right!

To make a long story short, I took the offer and agreed to the loss in commission. It just didn’t seem right to go back to my client and ask for another .5%. A deal was a deal. Too bad this buyer’s brokerage doesn’t honor ‘a deal is a deal’ as after all the commission was clearly spelled out on the MLS.

So, you have to think as a realtor all the time that paying attention to Ethics is the key in doing the right thing. If I didn’t take the offer to my seller right away it was the wrong thing to do and course the buyer’s agent wasn’t going to present her clients offer to me, I assume, unless she had the Cooperating Brokers Separate Agreement filled out to 3% and signed by my broker. An interesting dilemma and my first time dealing with this issue. But this brokerage has 100’s of agents. I know this is going to come up again.

So in summation of relating this experience to you I suggest that although the Cooperating Brokers Separate Agreement is just that, a Separate Agreement, that as a buyer or seller I would strongly suggest you ask to take a look at it when either presenting an offer or receiving an offer. I personally think it’s a good idea for the all the principals to see all the paperwork and have a working knowledge of what’s really going on.

Now, some might say “isn’t this practice controlling the commission rates?” Per Federal law, all commissions are negotiable between a home Seller and their Real Estate Brokerage. Individual companies may have specific policies as to a minimum commission that they will charge, but as long as different companies do not discuss or set their specific policies together, this should not violate Federal Anti-trust and price fixing statutes.

Obviously, if an agent cannot discount a commission as per this brokerages policy they may be loosing listings to those agents that do discount. It is the agent’s duty to themselves as sole proprietors of their business to decide if they want to stay with any particular brokerage or not. Many of this brokerage’s agents have left just for this reason.

At RE/MAX Honolulu the Agents have complete control over what they deem necessary to charge the client in order to cover their expenses and make a profit for their time and experience. This seems fair. After all if I take a listing for only 30 days, that’s probably 1/3 the normal time it takes to sell a home in this market now. Actually, because of this market it makes more sense as a business owner not to charge anything less. It almost makes more sense to charge more! It takes so much longer to sell a home in today’s market and the agent’s expenses for marketing are now dramatically going up.

Of course the key here is the selling price and always will be. A correct price will always result in a quick and fair sale and everybody is happy. An overpriced home will result in a dissatisfied seller, dissatisfied seller’s agent and a home that will not sell. When I take a listing to sell a home if the price chosen by my prospective client is not realistic and they still want to do market their home at an unrealistic price after I have shown them the why and what the correct price is…I do not take the listing. It is just good business sense to do so.

Conversely, if you under price the home, you are losing the clients equity. You can’t do that either unless it’s the clients wishes to do so. Perhaps they are in danger of foreclosure? Maybe that is the time to do this.

Now, there is yet another very prominent Brokerage out there who is telling their agents to price their client’s properties slightly under market. Actually this is a ‘key’ tactic in selling a home quickly in today’s market. With so many homes on the market and the high inventory, why not do this in order to solicit the most bang for your buck right up front at the beginning of the listing? You might even get multiple offers to consider and some of them will result in offers above asking price. It’s a great way to go, but you also have to consider if you are leaving money on the table. To make it a policy to do this I don’t think is right. This sales tactic should be used as the situation warrants.

I checked these brokerages selling prices on the internet. Yep, they were all under market value.

Buyers and Sellers, if you learn anything else about Real Estate Sales and Market Analysis, learn how to understand a Comparative Market Analysis (C.M.A.) to properly price your property to fit your needs and carefully judge the knowledge of your prospective agent in your interviews before deciding whom to list your home with and definitely be sure you are priced correctly. This one thing will save you from lots of frustration and will lead you towards reaching your goals much, much faster. A ‘Win-Win’ situation for both Seller and Buyer is really what you want to do. It results in everyone being happy.

A Word or Two from a Reader…

Rich van Bodegom
C.P.A., Certified Mortgage Planning Specialist  G.M.A.C. Mortgage
Richard.vanbodegom@gmacm.com  808-263-8759


In last month’s article I included some information on how to qualify for a Mortgage and I spoke of G.F.E.’s or Good Faith Estimates from lenders. This single sheet a paper spells out exactly what a lender is charging you for a loan and what your payments will look like and why. Mr. Bodgegom had written me and wanted to make a few points clearer to everyone that I had made and to correct me as needed. Now since I am neither a mortgage officer nor a mortgage broker I thought it might be in everyone’s interest to post Mr. Bodgegom’s comments concerning mortgages.

Aloha Mike,

I just wanted to make a quick correction.  According to RESPA (Real Estate Settlement Procedures Act) found at www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm, lenders are not required by law to issue a GFE without a formal loan application.  Once a loan application is taken by the lender then the lender has 72 hours to respond with a GFE and whether or not the applicant has been approved for the loan. 

A lender may issue a GFE if they wish, but is often to the detriment of the lender and the borrower.  In that, the lender can not give a fair estimate to the borrower with regards to rates and costs without further personal and financial information.  It would also behoove the borrower to actually spend time with a lender face to face so he can ascertain for himself if this is a person that is qualified to help him find the correct debt instrument for his financial situation and short and long term financial goals.  In other words, that borrower should take more time than 10 minutes per lender!  Predatory lending is still prevalent out there!  Often when shopping the borrower will hear of a very low rate only to find that at closing that rate was available at 2 points and not 0 points as the borrower had thought.  This is a violation of RESPA but often goes unreported.  Remember if it is too good to be true it often is.

This is why it is so important to get pre-approved before the borrower looks for a property.  Often a new home buyer will spend six months looking for a home and 10 minutes for a loan.  The buyer should spend the appropriate amount of time to find a person and company they feel comfortable with and that will give the borrower trusted advice that will save them money over time and help them create wealth with the proper strategy.  Your Loan Officer should also be one that is willing to educate you.  That is, he should not just wait for questions from the borrower but let the borrower know up front about all the pitfalls that may occur from the time a loan application is taken.

It is my sincere wish that you all have had a wonderful Thanksgiving with friends and family and that you have a wonderful Holiday Season!

I wish you all much Aloha,
Mike Gallagher
Realtor/Broker/Broker in Charge
RE/MAX Honolulu Mikeg@hawaii.rr.com 808-384-9015


Now some data…

 


For additional detailed data for specific neighborhoods please visit my website: http://www.hawaiirealestatestatistics.com/

Mike Gallagher
Realtor/Broker/Broker in Charge
RE/MAX Honolulu Mikeg@hawaii.rr.com 808-384-9015


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