ADVisor or ADVersary?

These words are almost the same, but what a difference there is between them. In determining which people you want to work with in buying real estate business and in arranging financing, it is especially important to know which they are. Most want you to think of them as advisors, but their actions can be adverse to your interests.

If you read the last two articles about agency, it should be obvious that not all people who are agents act that way, and others aren't even under any legal obligation to represent the best interests of their clients. If you deal with the wrong people what kind of home you buy and what you pay for financing may well be different than what you hoped for.

I have seen real estate agents who, from my viewpoint, would sell a client any property if they could earn a commission. That's different from carefully working out the client's goals and preferences and then carefully finding a home that best meets their goals. The agent's goal, however, was to sell them something quickly with a minimum of effort. You'd think that if the clients are assertive enough, they could avoid being railroaded into the wrong home, but there is ample evidence that manipulative salespeople are very adept at pushing people to do things they later regret.

A few weeks ago we got the purchase contract on a new transaction. It was the most one-sided agreement I had ever seen, and I have seen more than a thousand such contracts. Not only was there no appraisal contingency clause, an addendum said that they acknowledged that the home was not going to appraise for the purchase price! There was almost no way the buyer could get out of this contract! Warning bells and whistles were going off in my head!

I immediately called the buyer and told him my opinion. Maybe it was not my job to butt in, but he was my finance client and I felt it my obligation to express my views. He said he appreciated it and he was able to work out one last "back door" out of the contract. As it turned out, he needed it. The appraisal came in $50,000 below the purchase price and he used his "back door." A day later, they agreed to a dramatic reduction in the purchase price and we proceeded. As I write this, my client is signing loan docs on that home.

In another situation my wife had opened a home she had listed so another agent could show her clients. The potential buyers has several children and, wanting some playmates for them, asked if there were other children in the neighborhood. To my wife's surprise she said, "Yes." The truth is that my community is practically geriatric with a larger percentage of retired folks. There are a few children, but certainly not in the quantity they were interested in. The proper response would have been, "Let me check that out and I'll get back to you."

I recently got a call from an old client who, as it turned out, got talked into buying a home that he really can't afford. He was working with a greedy agent who had a co-conspirator, a loan agent who got him approved for a loan, and the deal closed. It wasn't until a couple of months later that he realized his predicament and he called me for help. As it turned out we concluded that his best course was to tough it out. If property values keep rising he'll be OK because he can sell the home after two years and the gain will be tax free and he can go find a more suitable home. The real estate commission on that sale will take a big chunk of his profit, however, and he would have been better off had he bought a more suitable property in the first place.

In the financing arena I think that the opportunities for taking advantage of clients is a lot easier. Remember that even mortgage brokers are trying to avoid being labeled agents because they want to take advantage of their clients and make more money if the opportunity presents itself. Those people are definitely the ADVERSARIES of their clients!

Buyers are not as well educated about loan options, the disclosure process is complicated and the regulations are not enforced. This makes it easy for them to take advantage of people. Some industry experts who see more deals than I do suggest that in a sizeable number of cases, the client gets something they don't want, like a pre-payment penalty they failed to notice in the final docs. In others they get the wrong loan just so the loan rep can get an extra spiff.

In conclusion, you ought to select your agents but getting referrals from satisfied clients, your friends. Get references and check them out.

Be careful out there.