Should You Use a Real Estate Broker?

Whether or not you use a real estate agent to sell your home is entirely up to you. Ultimately, costs may determine how you decide to proceed. Not just the cost of the sales commission, but also the cost of not selling the property quickly, holding a property past the point of a profitable return or not being able to sell a property with low appeal.

Single-family homes in desirable neighborhoods sell quickly and are always in demand. But some other types of properties-office buildings, for example-are often a tougher sale.

A real estate broker can be especially helpful when trying to sell a problem property. He may know investors willing to take a hard look at your offer, where the average seller will not. Consider the cost of using a broker versus holding a property for six to nine months while trying to sell it yourself.

Like any industry, however, there are good players, bad players and the downright ugly ones. We have all heard stories of the real estate salesperson who attempted in one way or another to take advantage of the property owner just to get that big commission check. Remember, brokers and agents are salespeople. They only get paid when they deliver their service. A bad deal for you can still be a good deal for the broker because he gets paid.

Selecting a Real Estate Broker

Select a broker with a good local reputation. Try to get referrals from friends or relatives, from a local real estate association, or by using a prescreened service.

Make sure the broker understands your needs and your desire to market the property aggressively. Ask how soon he expects to show the property and at what price he thinks he can sell it for.

Make sure that you can sign a short-term contract stating that the property must be sold for at least your minimum price.

Try not to sign any agreement that gives the broker exclusive rights to advertise or promote your property. Most of them will fight you on this, but your goal is to negotiate a listing agreement that will allow the broker an exclusive broker's listing, while allowing you to market your property simultaneously.

Listing Agreements

There are several different types of listing agreements. The least popular for the broker, which may be the best for you, is the "non-exclusive" or "open listing agreement." Here, a broker enters into an agreement with the homeowner whereby the broker will be paid a commission if he sells the property.

However, this does not preclude you from selling the property yourself or entering into the same agreement with several brokers.

If the broker does not sell the property, he doesn't get paid.

The downside to the practice of using several brokers is that they will all know that an open listing means there are several brokers on the case. Knowing that the chance of earning a commission is low, little or no effort may be made on your behalf.

The "exclusive agency agreement" gives only that broker the authority to sell the property. This agreement requires all other brokers to work through the listing broker when showing the home or submitting offers. The homeowner does retain the right to sell the property on his own, and if he does, the broker would not be entitled to a commission for the sale.

The third and most common agreement is the "exclusive right to sell" listing. Here, the homeowner gives the broker the exclusive right to sell the property for a specific period of time. More important, however, is that the broker receives a commission even if the homeowner sells the property himself.

No matter which type of listing agreement used, it constitutes a legally binding agreement between the broker and the seller whereby the broker is attempting to locate a suitable buyer according to terms set by the seller. If a broker procures a buyer, a commission fee is deemed to have been earned by the broker.

A basic listing agreement should include:

• The amount of compensation due the broker
• A set period of time the agreement will be in effect
• At what point the commission is deemed to be earned
• A description of the home to be sold
• The scope and authority the broker has in locating a suitable buyer

These items are suggested and preferred but not required in the agreement.

Further, the law will sometimes infer these elements from the circumstances surrounding the transaction.

Commissions

While there are no set commission fees and everything is negotiable, the typical commission ranges from 5 to 8 percent with the average at 6 percent.

A real estate broker does not generally receive a commission until the closing has occurred. There are, however, situations where the broker may be entitled to a commission even if the sale does not close.

If the homeowner changes his mind or refuses for some reason to sell to an acceptable buyer with no justifiable or legal reason, the broker will most likely be legally entitled to collect a commission from the seller.

Some typical scenarios where a broker would be entitled to his commission even if the property is not sold include the following:

• Defects in the seller's title that have not been corrected prior to closing
• Any actual fraud committed by the homeowner that prevents the completion of the sale
• The homeowner insisting on certain restrictions or terms not mentioned in the listing agreement
• The homeowner insisting on certain restrictions not allowable by law, such as refusing to sell to certain minority groups

Under the above circumstances, a commission is deemed to have been earned even though a formal closing did not transpire. However, the bad public relations and the costs involved usually prevent a broker from suing for his commission. It is very rare that a commission is paid when a closing has not been achieved.

Brokers: The Good, the Bad and the Ugly

So, who are these people who want to sell you homes, or sell yours for you?

Real estate brokers and salespersons are licensed by the state. They have to pass a test that demonstrates they know the basics and the legalities regarding the buying and selling of real estate, though little else beyond that.

During the real estate boom of the 1980s, real estate schools were filled with those who wanted to cash in. Unfortunately, good business practices and skills are not taught in these classes. Neither are important topics such as real estate evaluation or property analysis.

Every industry has its good practitioners and its bad. There are some very good brokers and agents out there who know how to properly deal with their customers. They continually educate themselves in order to provide the best service possible. They work hard to make sure their customers are satisfied.

To avoid being talked into a bad deal, know the value of your home, and do your homework before you select a broker.