The Competent Broker

Seeking Competence and Integrity in the Real Estate Business

Current version:  20201014

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Introduction

Competence is a choice.  In the business of real estate brokerage, this is an absolute.  Brokers have a duty to their clients to be competent.  A duty of competence.  So competence is a character trait and a function of integrity.  It is not that brokers choose to be incompetent.  But they do choose to focus their attention elsewhere.  Competence simply falls by the wayside.  Unnoticed and unattended.

The purpose of this book is to help readers find and identify competence and integrity in an often murky and counterintuitive business.  We start with Competence is a Choice and a Code of Competent Conduct, which we expand into sections on Brokers, Buyers & Sellers, Fees & Business Models, Marketing, and Negotiation.

   

There are a few different and sometimes overlapping potential audiences:  People thinking about entering the real estate market either as new buyers or sellers, or perhaps those with a less than ideal experience in the past.  People thinking about getting a real estate license or newly-minted brokers just finding your way.  And finally, disaffected brokers seeking a better way.

Brokers

Chapter 1:  The Two Primary Jobs of a Broker

Real estate brokers have two primary jobs:  Client Acquisition and Conveying Real Property.  These two jobs involve entirely different skill sets.  In fact I would argue that the type of person who is good at either one of these jobs, that has the skill set to make them good at it, is almost always not the type of person who is good at the other.  Many very successful brokers are quite brilliant at client acquisition, but not terribly competent at conveying real property.

Chapter 2:  Sell Quickly and Get Paid Fast

Brokers will gladly take the first acceptable offer or the offer that closes earliest.  Why?  Because this way they get paid faster.  Brokers do not care about the highest and best offer for their client.  They do not even care about which offer will pay them the highest commission.  No, what they care about is getting paid as fast as possible.

So brokers will often take the first offer.  Or perhaps an offer from an office colleague before the property even goes on the market.  The broker will then brag about how quickly they got your property sold.  But unless you specifically instructed your broker to dump the property as quickly as possible, ask yourself who wins and who loses in these situations?

Chapter 3:  Underpricing

For the same reason, brokers prefer to underprice properties.  They will make all sorts of arguments about pricing it right from the start and not allowing the home to become stale.  But I can think of no other product or asset class marketed this way.  No, it is really about a quick sale and a quick payday.

Special Section:  Buying the Listing

Chapter 4:  Brokers Lack Business Savvy

Residential real estate brokers are often not very business savvy.  Many could benefit from some basic classes in accounting, interpersonal communications, negotiation, and yes, even marketing.  And perhaps most importantly, on what it means to be a fiduciary.

Chapter 5:  Brokers Lack Technical Skills
Further, many brokers are not terribly technologically savvy.  This can be a mere inconvenience when engaging a broker.  It can be a huge disadvantage in, say for example, a quick-moving multiple-offer scenario.  Brokers do not need to be the most technically proficient people you deal with.  But find a broker who is at least of average technological competence.

Chapter 6:  Dual Agency and Broker Ethics
Dual agency is bad for clients, both buyers and sellers.  If you do not know what dual agency is, then you should educate yourself on this practice before you hire a broker.  If a broker defends the idea of dual agency, you know immediately that they are not honest.  Some brokers love dual agency because they get paid more, often double.

Chapter 7:  Coming Soon
If your broker wants to market your property as Coming Soon, they are really attempting to lead you into a dual agency situation.  If you prohibit dual agency, the broker will become rather indifferent about the whole coming soon idea.

Chapter 8:  Scripts & Objection Handling
If you get the feeling that a broker is reading from a script, they probably are.  But most likely they are not actually reading.  Oh no, they have memorized their scripts.  Just ponder on this for a minute.  And then go find someone genuine.

Chapter 9:  On Malarkey
One thing that brokers are afraid to say to you:  I don't know.  I think they fear this will make them seem unknowledgeable or even incompetent.  So what you get instead is some complete malarkey.  I have seen buyers and sellers do the most ridiculous things based on this problem.

Chapter 10:  Licensing & Education
In North Carolina, it takes 75 hours of class time to obtain a real estate license.  Meanwhile it takes at least 1,200 hours of class time to obtain a license to cut hair.  Now either our stylists are incredibly over-educated or our real estate brokers are woefully under-educated.  Make of this what you will.

Chapter 11:  Continuing Education and Ethics

Questions:  Do real estate brokers receive enough continuing education?  And can adults learn ethics?

Chapter 12:  The REALTOR® Code of Ethics

If the National Association of REALTORS® really wants to demonstrate the high ethical standards that they proclaim, they should ban single-agent dual agency.

Special Section:  Is there an Article 15 hearing in my future?

Chapter 13:  Words to Watch:  Coach & Team

Words to watch:  Coach and Team.  Of course there is nothing inherently wrong with either of these words.  But brokers shamefully use these terms to mislead potential clients about their role and how they conduct business.

Chapter 14:  And Brokers Have Their Own Coaches
In sports, players will hire a coach to help them perfect their game.  Some real estate brokers will hire a coach to help them increase their business.  Now one might think that doing more business would help these brokers perfect their game.  It does not.  Sports coaches do not help players play more; rather, they help them play better.  Real estate coaches do not help brokers play better; they only help them play more.  And this is what these brokers want:  Not better, just more.

Chapter 15:  Pushy Brokers are Stupid Brokers

Aggressive, pushy brokers are stupid and lazy, and they will gladly sacrifice your best interests to put a quick and easy deal together.

Special Section:  Rhinestone Cowboys, Gunslingers, and George Baileys

Buyers & Sellers

Chapter 16:  The Solid Brown Zebra

People have a preconceived notion about what a real estate broker should look like and sound like.  If someone does not fit into their idea of a broker, they will not hire them.  Competence and integrity rarely come into it.

Chapter 17:  The Pretense of Competence & Authority

It is extremely difficult to get good reliable information about brokers and the sales process.  Oh there is plenty of information out there.  But most of it is bad.

Chapter 18:  Ratings, Signaling, and Peer Reviews

Most people will do more research on what new toaster to buy than they will on which real estate broker to hire.

Chapter 19:  How to Find a Competent Broker

If you want to find an honest and competent broker, ask them if they practice dual agency.

Chapter 20:  Anecdotal Advice

Be cautious of accepting and acting upon anecdotal advice from even trusted sources.  This is what worked for us and no doubt it will work for you too.  Well maybe.  The problem is:  Every transaction is different.  And it can be difficult to extrapolate lessons from one transaction to another.  The only solution to this is experience.  And not one or two past deals.  Rather, one or two hundred.  But even then, plan on the unexpected.

Chapter 21:  Objectivity
Let's be honest, when it comes to buying or selling a home, people can be emotional, even irrational.  Some brokers will pander to this.  So try to find a broker that will inject some objectivity into the process.

Chapter 22:  Real Estate Lags the Digital Age

The real estate business cannot be conducted via text message.  When it comes to communicating with your own broker, you need to answer the phone and read and respond to your emails.  If you are not adult enough to do this, maybe go rent an apartment.

Likewise, if you are a first-time buyer, it is time to learn how to use your checking account.  You may be able to PayPal or Venmo some sellers, but the escrow agent and other vendors are going to expect checks or bank wires.  Note that the contract most often does not allow for the time needed for your bank to mail checks.  Alternatively, expect to get official checks from your bank.  I know you are hip children of the digital age, but the real estate business is not.  And for now, that's just the way it is.

Fees & Business Models

Chapter 23:  The Six Percent, Part One

Question:  If you have a $500,000 house, should it cost you $30,000 to sell it?  Set aside everything you know or think you know about real estate, and just answer this question with common sense.  Please.

Chapter 24:  The Discounters & Their Clients

On the other hand, if you hire a low-price discount listing broker or a buyer's broker who pays you part of their commission, there will be things that these brokers will not do for you.  And that is okay.  But you cannot then expect the broker on the other side to do them for you (see just below).  So plan on taking a greater role in the entire process than you might otherwise.

Chapter 25:  Duty Shifting

One reason a seller, through his listing broker, agrees to pay the buyer's broker, is to compensate the buyer's broker for showing the property to the buyer.  As I mentioned just above, if the buyer's broker refunds part of his commission to the buyer, there will be things that the broker will not do.  In fact, some brokers will not show their buyers any houses.  Rather, they will say, if you want to see a house, just call the listing broker.  But why should a listing broker pay the buyer's broker AND do the buyer's broker's job?  The fact that a buyer's broker does not keep all of this payment has nothing to do with the seller or the listing broker.  And per MLS rules, the payment is still made in full.  Some people have a difficult time with this; they seem to believe that the listing broker has a duty to the seller to show the property.  This is most often not true, and certainly never true for represented buyers.

Chapter 26:  On Paying Buyer's Brokers

Even for full service, it is not difficult to find a broker who will list your property for a dramatically less-than-average sell-side fee.  The primary reason commissions remain stubbornly high is the amount that sellers continue to offer the buyer's broker.  I think out of fear that brokers will not show their property, or will steer buyers away from it.  But in this mature internet age, brokers cannot hide your house from buyers.  Weigh the pros and cons, do the math, and then pay them whatever makes sense to you.

Chapter 27:  A Coming Clash of Discounts

In time, the buyer's brokers might have to accept the discounts all too common on the list side today.  This would be a big change.  Leaving little or nothing to rebate to the buyer.

Chapter 28:  iBuyers

As for the so-called iBuyers, they offer convenience and expediency, not economy.  They buy low, sell high, AND charge the seller a fat fee for their service.  Sure, it can be a legitimate alternative, but I suggest you do the math.

Chapter 29:  The Six Percent, Part Two

There is a firm here in our market that always charges a full six percent commission, nothing less.  As buyer's brokers, when we deal with a property listed by that firm, we know we are dealing with an unsophisticated seller.  Not savvy and perhaps even irrational.  The kind of person who buys shoelaces at Neiman Marcus, because, you know, they're better.

   

Did you know that Warren Buffett's Berkshire Hathaway is one of the biggest real estate brokers in the country?  Why?  Because it is very profitable, especially at the six percent level.

Chapter 30:  The Future Will Be Online

There is so much money at stake that the traditional players are not going to be the ones to introduce radical changes.  Rather, change will have to be imposed on the industry from the outside.  It can be done and it is overdue.  But I don’t see anyone doing it.  The insiders have too much to lose and the outsiders never seem to take the time to truly understand the business.  Or they get co-opted by the traditional business.  Take the two most prominent as examples.  Zillow is, now, primarily an advertising platform for the traditional players.  Redfin is, now, a fairly conventional brokerage with a fancy website.

   
What the Silicon Valley whiz kids need to understand is that there is no part of the process that people will do without.  Very few people are going to buy a house without:  Seeing it and alternatives, researching an offer price, negotiating the best possible deal, generating an enforceable contract, having it inspected, appraised, and if necessary, re-inspected, etc.  So as cumbersome as the process may be, for any new model to be truly successful, the process must be maintained.

Chapter  31:  For Sale By Owner (FSBOs)

Yes, you are perfectly capable of selling your own property.  This is not rocket science.  The reason you hire a broker is not because you cannot do it.  Rather, the reason you hire a broker is to save yourself time.  The time to do it, but also, the greater amount of time spent learning how to do it.

However, many and perhaps most FSBO sellers overestimate their real estate knowledge.  And therefore do not take the time to learn the intricacies of the market and the process.  Brokers and savvy buyers take advantage of their hubris.

Marketing

Chapter 32:  Marketing is a Commodity

There are any number of things that a broker can do to market your property.  But for most properties, the basics will get the job done.  Price and presentation including excellent photos and floor plans, a MLS listing with internet syndication (to Zillow and other sites), an attractive, noticeable yard sign with flyers, accessibility to the property.  Beyond the basics, anything else is fine.  Just don't pay extra for them, no matter how eloquent the broker's Marketing Plan.
   
I will let you in on a little secret:  Assuming you hire a minimally competent broker, these marketing basics are commodities and should be priced as such.  Sure, some brokers are worth more than others.  But the price differential should not be based on anything other than transactional competence.  Any idiot can add your property to the MLS; a savvy real estate negotiator is something else entirely.

Chapter 33:  Marketing Will Not Sell Your House
No amount of marketing will sell your house.  The goal of real estate marketing is to alert actively searching buyers that your house is available for sale, that it may fit their needs and desires, and to get them to come take a look at it.  Then the house itself will either meet their needs and desires, or it will not.  Don’t pretend otherwise.  Any marketing that stretches beyond this goal is a waste of time, effort, and money.

Special Section:  The Basics of Online Marketing

Chapter 34:  Open Houses are a Sham

I question the efficacy of open houses.  But every time I express my skepticism, someone always reports a positive result.  So let me put the question this way:  If a potential buyer attends an open house, and is serious enough to subsequently make an offer, would that same potential buyer not have been willing to make an appointment to see the house?  With his own broker, on his own schedule.  It seems to me that the only reason to have an open house is to convert tire kickers into offer-writers.  I am not saying that it cannot happen; but what are the odds?
   
So why do brokers hold open houses?  Well it has very little to do with selling your house.  Rather, brokers see an open house as an opportunity to pick up buyers as the broker on the buy side.  Personally, I find the whole enterprise to be a bit of a sham.  When holding an open house, a broker misleads the seller as to his true intentions and thereby falsely raises the hopes of the seller.  And at the same time, the broker is meeting potential buyers (for other properties) under false pretenses.

Chapter 35:  Buyer Feedback
No honest broker will promise the seller feedback from every showing.  Yet in order to help secure a listing, some brokers will do just that.  They make this promise even though this is not in their control.  The problem is that feedback may not be in the buyer’s best interest, and so savvy buyers may not provide it.  This may or may not be important to you.  But it is a great little indicator of how honest a broker is.
   
Buyers should ask their broker whether or not she is providing feedback to the sellers on every showing.  It is unfortunate that this is necessary.  But many brokers will do this as a matter of course, never even discussing the matter with their client.  They do this, supposedly, as a courtesy to the seller and the listing broker.  Yes, they seem to forget for whom they work.  Yet feedback may not be in a buyer’s best interest and may even weaken a buyer’s negotiating position.  Again, this may or may not be important to you.  But it is a great little indicator of a broker's integrity and how serious they take their fiduciary responsibilities.

Chapter 36:  On Pricing Real Estate Like Groceries
Another question:  Do you really believe that $499,900 is a better and smarter price than $500,000?  Someone who can afford to purchase your property is not going to be swayed by such nonsense.  Why insult them?

Negotiation

Chapter 37:  The Negotiating Platform

Understand that residential real estate negotiating is different from most other negotiations.  Whether the parties use the actual standard contract form or not, it is the platform on which the negotiation takes place.

   

And regardless of how the negotiation takes place, once the parties reach an agreement, they will reduce it to writing, almost always using the standard form.  Therefore, for each party, a favorably executed contract form is the negotiating goal.  So advanced knowledge and understanding of this form contract is a tremendous advantage.

Chapter 38:  Negotiating Due Diligence

A complete understanding of the Due Diligence provisions of the standard Offer to Purchase and Contract is a huge negotiating advantage.  Use it.  Even if they have read it, most people, including many real estate brokers, do not understand it.

Special Section:  Negotiating Due Diligence:  An Example

Chapter 39:  Try Not to Care (Too Much)

The side that cares the most about the deal or the potential deal, loses.  If you are a buyer, be willing to walk.  If you are a seller, be willing to lose the buyer.  If you find yourself in a situation where you do care the most, for whatever reason, remain calm.  And try not to communicate this to the other side.

Chapter 40:  Be Deliberate

Be deliberate.  Do not be in a rush.  Or at the very least, do not appear to be in a rush.  Further, people have a natural tendency to prematurely accept the other side's terms.  So be cautious of early or hasty acceptance.

Chapter 41:  On Seriousness
There is an inverse relationship between a buyer's represented urgency and their seriousness.  There are exceptions, but this is true enough as a general rule.

Regarding viewings and inspections, there is a direct correlation between a seller's willingness to be accommodating and their seriousness.  There are exceptions, but this is true enough as a general rule.

Chapter 42:  Be Prepared

Be prepared.  The side with the most knowledge is not always the winner, but it is a huge advantage.  Read the contract, read the HOA documents, read the inspection reports, etc.  Call the town, talk to the neighbors, get a survey, etc.

Chapter 43:  On Cultural Differences
Not surprisingly, people from different cultures have differing manners and attitudes about negotiation.  Some purposefully more passive than what Americans expect; others quite a bit more aggressive.  So it pays to do a bit of homework on this factor.  But an understanding of the real estate process and contract is much more important than knowledge of cultural idiosyncrasies.  In the end, they will use the same process and contract as anyone else.

Chapter 44:  Be Awake

Be awake.  No one negotiates well when they are tired.  And yet many residential real estate negotiations happen after work, in the evening, and sometimes late at night.  Try to avoid this (on your side).

Chapter 45:  No Offer is Insulting
No offer is insulting.  Period.  Most of the time when sellers say that an offer is insulting, this idea comes from their non-business-savvy real estate broker.  Be aware:  Many financially able and savvy buyers will start low.  So my advice is to always counter.  But whether you counter or not, the correct response to ANY offer is:  Thank you very much for your offer.

Chapter 46:  Always Be Nice
Always be nice.  I don't care if you are a world class reprobate, being nice is a proven negotiating tactic.  Save your bad temper for the paperwork.

Special Section:  The Andy Griffith Negotiating Strategy

Chapter 47:  The Golden Rule
The Golden Rule applies to negotiation and the entire real estate transaction.  Do not lie about anything.  If discovered, you will lose the goodwill of your counterparts and maybe the deal itself.

Chapter 48:  Be Skeptical
However, be skeptical of what the other side tells you.  If the broker tells you that she just received another offer, well maybe she did and maybe she didn't.

Chapter 49:  Excessive Talk & Clever Questions
People including most real estate brokers tend to talk too much.  Just don't.  No need to be taciturn, but do not be loquacious either.  Rather, one might ask mild, unassuming questions.  It is amazing what most people will answer and how much they will say.

Chapter 50:  Discussion is Not Always Helpful
During a transaction, at the first sign of trouble, move communications to writing, preferably email.  Trouble can take any form.  Examples:  Hostile, aggressive, prickly, or belligerent counterparts.   Writing is also a good way to deal with the scripts discussed above.  Discussion is not always helpful; if necessary, shut it down.

Chapter 51:  Difficult People

People who are difficult to deal with on the front end will be difficult all the way through the transaction.  Decide early how much you are willing to tolerate.

Chapter 52:  The No Response Response

Remember that one legitimate form of response is:  No response.  Tactically, this can be very effective.

Chapter 53:  Watch Your Net, Not the Details

Financially, real estate negotiating is a zero-sum game.  Do not focus on where every dollar is gained or lost.  Focus on your net.

Chapter 54:  Better Than Expected Offers

From time to time you will receive offers or counter-offers that are better than they should be, especially from inexperienced or unprepared counterparts.  Focus negotiation on enforceability and execute quickly.

Chapter 55:  On Win-Win

Finally, something should be said about the whole win-win negotiating construct.  If the other side says, we're looking for a win-win deal, the only possible response is, yes absolutely.  And to the extent that understanding what the other side wants helps us get what we want, that is true.  But the fact is that most deals do not turn out as win-win.  Anyone who tells you otherwise is naive, inexperienced, or lying.  Deal with this as you think best.

Conclusion:  Gresham's Law for Real Estate

   

Afterword:  Competence and Integrity

   

Glossary

A real estate glossary like no other.

   

Acknowledgements

   

About the Author

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