6. Buyer Broker Compensation (click here to learn how to negotiate your buyer broker’s fee). Buyer brokers typically get paid by the seller which creates a horrible conflict of interest. Combine that with the fact that the listing broker actively conceals this offer of compensation from both the buyer and seller and the result can be outright bribery. Many listing companies and builders will provide huge secret incentives to buyer brokers who are successful in convincing buyers to purchase their listings.
Solution. Use a small brokerage and hire the broker (they don’t have to split their commission with agents). Negotiate your buyer broker’s fee upfront and before you are shown any properties. Insist that your broker disclose all compensation being offered prior to showing you any house. Insist that your broker pay all seller or listing broker incentives to you.
7. Open Houses (click here for story). Open houses do not even make the list of effective ways to sell a house. Open houses are traps for home buyers and sellers that foster dual agency and double commissions. Walking into an open house could easily result in a commission dispute if the buyer decides that they want to hire their own broker to negotiate the transaction. As a result, it is likely that the buyer will forfeit both their and the seller’s right to representation. Open houses serve no purpose other than to provide the listing broker with a free platform to solicit buyer clients to find other homes. They also create a security risk for sellers.
Solution. Do not let your Realtor hold ANY open houses and do not go to any open houses.
8. Bad Forms (click here for Consumer Friendly Listing Contract) (click here for Consumer Friendly Seller Representation Clauses) (Click here for Consumer Friendly Buyer Representation Clauses) . The negotiating power of buyers and sellers are ignored in the industry forms (mostly drafted by Realtor Associations). The forms that exist include many unsavory elements to which no consumer should ever agree. Extra fees and commissions payable even if the deal does not close are two examples.
Solution. Use a small brokerage firm that is willing to negotiate their contract (large firms rarely do.) Hire an attorney to help negotiate this key form.
9. Home Warranties (click here for story). Home warranties are rarely worth the expense and provide secret incentives to real estate brokers and agents. There exists so much mis-information about home warranties that a google search of “problems with home warranties” now leads you to many self-serving blogs. Try searching “home warranty rip-offs” or go to sites like the Ripoff Report. Many Realtor Associations have now included a check box for buyers to select on the purchase agreement requiring the seller to pay for a home warranty as part of the transaction.
Solution. Do not buy or sell a home warranty. If a home warranty is required as part of the transaction, require your broker to pay you the compensation that they would have collected for selling this.
10. Arbitration (click here and see clause 8). Many Realtors advise their buyers and sellers to agree to arbitration if a dispute arises in the transaction. Arbitration only benefits the broker in that it reduces their liability. The act of advising a client to agree to arbitration is most likely the unauthorized practice of law reserved for lawyers, not Realtors. Arbitration usually costs a lot more than Small Claims court, has a reduced statute of limitations and the arbitrators are often unqualified and sometimes biased.
Solution. Do not ever sign the arbitration clause unless your attorney advises you to do so.
Bonus 11. Bad Laws. Realtor Associations are the top lobbiests in the country (click here for link to statistics) and that comes with a high price tag for consumers. Whether it be the one year statute of limitations on RESPA violations (most laws have a 6 year statute of limitations) or states that legalized the price fixing of buyer broker fees, the fact is that there are an unreasonably large number of anti-consumer laws that serve to abrogate common law rights and manipulate licensing and regulatory laws to protect brokerage firms from consumer legal actions.