Accredited Buyer s Representative (ABR ) Designation Course

Transcription

1 Accredited Buyer s Representative (ABR ) Designation Course Instructor and Student Manual A program by the Real Estate Buyer s Agent Council of the National Association of REALTORS 1 V 1.1

2 NOTE: The Real Estate Buyer s Agent Council, Inc. and National Association REALTORS, its faculty, agents and employees are not engaged in rendering legal, accounting, financial, tax, or other professional services through these course materials. If legal advice or other expert assistance is required, the student should seek competent professional advice. Real Estate Buyer s Agent Council, Inc. 430 North Michigan Avenue Chicago, Illinois rebac@realtors.org 2

3 Guidelines for REBAC Instructors Every effort has been made to make the content of this Instructor Manual as widely applicable as possible by providing information and terminology generally in use in the real estate industry. After the acknowledgments, the Instructor Manual and Student Manual are identical with the exception of marginal notes to the instructor (I-Notes). I-Notes, PowerPoint slide numbers, and exam question references are shown in the outer margin of each page. It is strongly recommended that instructors take time to thoroughly review all of the material and use a highlighter to mark notes and instructions. State-specific Topics and Local Practices Requiring Research Areas needing greatest preparation from the instructor are those that differ according to state or local law and practice. For this course, research the following state-specific topics: Agency laws Common-law practices, if applicable Types of agency relationships allowed How agency relationships are defined Whether agent duties and responsibilities are fiduciary or statutorily defined Required agency relationship disclosures Whether or not confidential information survives the term of the agency relationship Provisions of buyer representation agreements Whether vicarious liability, imputed notice, and imputed knowledge apply Definition of reasonable care and diligence Penalties for breach of duties Fair housing state/local protected classes Purchase contract forms Permissibility of retainers Local practice in presenting offers 3

4 Use the following checklists to ensure your presentation of this course proceeds as smoothly as possible. 1-2 weeks prior to presentation Confirm time, location, room set up, and number of students. Confirm availability of AV equipment: projection unit, projection screen, microphone (if needed), flip charts, and markers. Plan class agenda and prepare discussion questions to be included in the presentation. Ask sponsor if course will be offered for continuing education credit and what requirements are to be met. Obtain permission from publisher to photocopy any magazine, journal, or newspaper articles that will be used as handout material. Copy PowerPoint presentation to computer hard drive for optimum performance. Practice use of PowerPoint presentation. Obtain required materials and prepare examples. Confirm availability of any others who will participate in the course presentation. Days of presentation Arrive one hour before class begins. Make sure the room is properly lighted, has a comfortable temperature and ventilation Close blinds or shades to reduce glare and outside distractions. Set out handouts. Check AV equipment: projection unit, projection screen, microphone (if needed), flip charts and markers. Hook up computer to projection unit and practice blanking projection unit screen. Turn off the computer screen saver. Check availability of Student Manuals and copies of completion exam. Welcome students as they arrive. Inform students of agenda for class and any continuing education requirements. Take attendance. Distribute and collect evaluation forms if provided by course sponsor. Administer final exam. 4

5 Additional Notes for Presentation of This Course Maintain High Level of Energy and Enthusiasm Use the Instructor Manual as a reference for presentation and discussion, but not as a text to read to students. Maintain a high energy level and spirit of enthusiasm and interact frequently with the class, calling upon students by name to answer questions. Do NOT Allow Discussion of Commission Rates DO NOT DISCUSS COMMISSION RATES OR ALLOW STUDENTS TO DISCUSS ANY SPECIFIC AMOUNTS OR PERCENTAGES IN RELATION TO COMPENSATION! Help Students Prepare for the Final Exam The final exam for the ABR designation is closed book. This means that students may NOT access their course materials when taking the exam. To help ensure that students are confident in taking the final exam and to maintain the integrity of the ABR designation program, instructors are provided with the following guidelines. Do: Encourage students to highlight or underline key topic areas Engage students in a review of key concepts before the exam, time permitting Don t X X X X Denigrate the necessity for a final exam Tell students: There will be a test question on this topic later Reveal the answers to exam questions Administer the exam as an open book test 5

6 Table of Contents Acknowledgments..8 Introduction 9 Welcome.. 9 Steps to Earning the ABR 9 Frequently Asked Questions (FAQs) Agency Relationships.. 31 What It Means to Represent Buyers 18 Parties in the Real Estate Transaction 18 Types of Agency Relationships 20 Non-Agency Relationships..22 Office Policy Duties to Clients and Responsibilities to Customers..25 Working for Clients and with Customers. 25 Duties to Clients: OLD CAR. 26 Responsibilities to Customers. 28 Additional Considerations When Working with Clients 35 Breach of Duties to Clients. 38 Undisclosed Relationships with Vendors. 40 Fair Housing and Buyer Representation How Agency Relationships Are Established. 45 Express and Implied Agreements.. 45 Agency Disclosures. 48 When Agency Relationships Change.. 52 Disclosed Dual Agency Complications The Interview and Counseling Session 55 Get Personal Meet with the Buyer.. 55 Steps in the Interview and Counseling Session 57 6

7 5. The Buyer Representation Agreement 76 Buyer Loyalty 76 Review the Buyer Representation Agreement. 78 Compensation Considerations Offer through Accepted Contract 90 Formulating an Offer..90 Negotiation Know-how. 91 Additional Considerations.. 96 Working toward a Purchase Contract 97 Presenting the Offer in Person 97 Offers and Counteroffers. 100 When You Cannot Personally Present the Offer..101 Handling Multiple Offers Negotiation Core Competency for Buyer s Representatives Follow Through. 109 Client Relationships after the Sale Marketing Fundamentals Know Who the Buyers Are Build Your Personal Brand Create Your Marketing Plan Find the Buyers and How Buyers Find You Appendix. 127 Questions to Ask Your Broker 128 Prospect Identification Form. 129 Possible Resources for Finding Properties 130 Demonstrating Reasonable Care and Diligence Checklist. 131 Interview and Counseling Session Checklists 133 Sample Agency Disclosure and Brokerage Fee Agreement for Unlisted Property Showing 134 Assessing the Negotiating Position 135 7

8 Accredited Buyer s Representative (ABR ) Designation Course Acknowledgments The success of the Accredited Buyer's Representative (ABR ) designation program is driven in large measure by the standards of education excellence that our course providers, instructors, and fellow buyer s representatives uphold. For the revision of this course, the Real Estate Buyer s Agent Council (REBAC) engaged a team of subject matter experts (SMEs) that consisted of instructors and buyer s representative practitioners. REBAC expresses gratitude and appreciation to the following for their commitment and participation in the course revision process: Mary Ann Bush, ABR, CRS, GREEN, GRI, SRES, Portage, Michigan Melanie Glick, ABR, Chicago, Illinois Curtis Hall, ABR, CRS, GREEN, GRI, Chandler, Arizona David Kent, ABR, ABRM, Mt. Pleasant, South Carolina Frank Ledermann, ABR, CRS, GRI, e-pro, Scarsdale, New York Lynn Madison, ABR, ABRM, GRI, SFR, SRES, Kildeer, Illinois Eloise Eriksson Martin, ABR, SRES, GREEN, Dallas, Texas Frank Mears, ABR, ABRM, CRB, GRI, SRES, Augusta, Georgia Michael Toomey, ABR, CRS, GRI, Seattle, Washington REBAC would also like to thank the Institute of Real Estate Management (IREM) for the discipline and integrity with which IREM s curriculum developers conducted the SME panel discussions and revised the content of this course. 8

9 Introduction Introduction Slide 1 In this section: Welcome Steps to Earning the ABR Frequently Asked Questions (FAQs) WELCOME Welcome to the Accredited Buyer's Representative (ABR ) Designation Course. This two-day course serves as the core of the ABR designation program, which is the benchmark of excellence in buyer representation. REALTORS with this highly coveted designation demonstrate: Commitment to protecting the interests of real estate buyers Experience in representing buyers and helping them find the right property for their specific needs Professionalism by completion of the ABR designation program The ABR designation is conferred by the Real Estate Buyer s Agent Council (REBAC), a wholly owned subsidiary of the National Association of REALTORS (NAR). With more than 40,000 members, REBAC is the world s largest organization of professionals who specialize in representing buyers in residential real estate transactions. STEPS TO EARNING THE ABR Students who complete this course are on their way to meeting requirements for the ABR designation. Use Figure I.1 as your checklist and roadmap for earning the ABR. Slide 2 I-Note: BEGIN the course by asking students to introduce themselves. ASK students to share their years of experience and the approximate number of buyers they have represented. Slide 3 Slides 4-8 9

10 SECTION 1 Accredited Buyer s Representative (ABR ) Designation Course Figure I.1: Checklist for Earning the ABR Designation Complete the 2-day ABR Designation Course Score 80% or higher on the final exam Be a member of REBAC Be an active member of NAR or cooperating international association The final exam is closed book and consists of 50 multiple-choice questions. The 2-day ABR Designation Course includes a free year of membership with REBAC. Your membership begins when REBAC receives your student roster information from your course provider. When REBAC receives your student roster information, we will you a confirmation along with the following: An ABR designation application Your REBAC membership ID A link to REBAC.net where you can update your member profile 10

11 SECTION 2 Introduction Complete an approved ABR elective course Go to REBAC.net to learn about ABR elective courses. You have 3 years from when you completed the ABR Designation Course to complete an approved elective course. Maintain active membership with REBAC and NAR or cooperating international association Second year dues for REBAC are $110 USD, prorated based on the month you began your membership. REBAC dues for the third year and all following years are $110 USD. Complete your ABR designation application and include documentation of 5 closed transactions where you only represented the buyer Valid transactions are limited to any time prior to and 36 months after you have completed the ABR Designation Course. Send your application by at REBAC@realtors.org or in hard copy to REBAC, 430 N. Michigan Ave., Chicago, IL Allow REBAC staff 2 business days from receipt to process your application. 11

12 ONGOING Accredited Buyer s Representative (ABR ) Designation Course When REBAC approves your application, we will notify you by , after which you may add ABR to your credentials and marketing materials. Depending on instructions from your local Board, your ABR kit will be sent either to your preferred mailing address in the National REALTOR Database System (NRDS) or your local Board. Maintain active membership with REBAC and NAR or cooperating international association Active membership with REBAC is required for ABR designees to use benefits, including use of the ABR designation and logo. Every year REBAC updates its benefits and introduces new ones. Visit REBAC.net to take full advantage of the benefits available to you. FREQUENTLY ASKED QUESTIONS (FAQS) Which elective should I choose? Students can choose from more than a dozen approved elective courses. Elective courses are available for most residential real estate specialties. A number of elective courses allow students to work toward additional NAR certifications and designations. For a full list of elective courses, see Figure I.2. 12

13 Introduction If You Want to Learn More About: Choose: Figure I.2: Choosing an ABR Elective Applies Toward Additional Designations/ Certifications: Auction Introduction to Real Estate Auction Distressed Short Sales and Foreclosures: Short Sales and properties What Real Estate Professionals Foreclosure Resource Need to Know (SFR) certification Diversity At Home with Diversity At Home with Diversity (AHWD) Generational Generation Buy differences Green, NAR s Green Designation Core NAR s Green sustainability Course Designation (GREEN) International International Real Estate for Certified International buyers Local Markets Property Specialist (CIPS) designation Internet e-buyer: Understanding Real Estate e-buyers and How to Market to Them Course Also Available Online: Yes Yes Yes Yes Yes No For More Information, Visit: versity Internet e-pro e-pro certification Yes Investment Land sales Marketing Negotiating New-home sales Performance management Relocation Resort and second-home buyers Seniors, 50+ buyers Creating Wealth through Residential Real Estate Investment Land 101: Fundamentals of Land Brokerage Real Estate Marketing Reboot: Innovate > Relate > Differentiate Effective Negotiating for Real Estate Professionals Successful Buyer Representation in New-Home Sales Harnessing the Power: Skill Based Performance Management Successful Buyer Representation in Relocation Resort and Second-Home Markets Course Seniors Real Estate Specialist (SRES ) Designation Course Certified Residential Specialist (CRS) designation Accredited Land Consultant (ALC) designation Performance Management Network (PMN) designation Performance Management Network (PMN) designation Resort and Second- Home Property Specialist (RSPS) certification Seniors Real Estate Specialist (SRES ) designation No Yes Yes No Yes Yes Yes Yes

14 Accredited Buyer s Representative (ABR ) Designation Course Slide 10 I-Note: CONVEY the benefits. Slides As a Candidate for the ABR Designation, Are There Any Benefits Available to Me? In one word: Yes! The price of this 2-day course includes a free year of membership with REBAC to students who are current members of the NAR and who successfully complete both days of instruction and pass the exam. The benefits of REBAC membership include: > A subscription to Today s Buyer s Rep, REBAC s award-winning monthly newsletter, containing news, events, and education pertinent to buyer s representatives. > REBAC TBR HotSheet, a weekly update containing concise summaries and links to current articles of interest to buyer representatives. > A listing in REBAC s Find a Buyer s Representative directory at > Free access to REBAC Connection Webinars on timely topics and national experts via Ask the Expert > Member discount pricing on the Home Buyer s Toolkit, a 36-page educational booklet designed specifically for consumers Do My Benefits Increase When I Earn the ABR? Students who earn the ABR designation receive benefits above and beyond what REBAC members receive (Figure I.3). For a visual representation of these benefits, see Figure I.4. 14

15 Introduction Figure I.3: Benefits for ABR Candidates versus Benefits for ABR Designees Figure I.4: Visual Representation of Benefits 15

16 Accredited Buyer s Representative (ABR ) Designation Course Slide 13 Exam Question 8 Slides I-Note: REVIEW course goals, structure, and learning objectives. When May I Begin Promoting Myself as an ABR? Students may only promote themselves as ABR has conferred the designation to them. What Will I Learn in This Course? designees after REBAC Put simply, the goal of the 2-day ABR Designation Course is to set the foundation of training, skills, and resources to help you succeed in today s marketplace as a buyer s representative. Let s look at what you can expect to learn over the next two days. Chapter 1: Agency Relationships > Identify the parties in a real estate transaction. > Explain the different forms of representation available to clients and customers > Describe non-agency relationships and the roles that licensees may serve in these relationships > Understand the broker s office policy Chapter 2: Duties to Clients and Responsibilities to Customers > Differentiate what a real estate professional owes to clients and the responsibilities a real estate professional has to customers. > Define breach of duty > Explain how the buyer s representative may uphold all federal fair housing laws when working with clients and customers Chapter 3: How Agency Relationships Are Established > Describe how agency relationships are formed and how buyer s representatives work with clients. > Make timely and meaningful agency disclosures to buyers and sellers. > Recognize situations that create conflicts of interest in agency relationships. Chapter 4: The Interview and Counseling Session > Discuss the steps involved in a buyer interview and counseling session > Differentiate between customer- and client-level services. > Respond to buyers frequently asked questions, concerns, and special circumstances. > Avoid unproductive situations with unmotivated, unqualified, and other types of problem buyers. 16

17 1. Agency Relationships Chapter 5: The Buyer Representation Agreement > Explain ways in which the real estate professional may win the buyer s confidence > Identify the necessary components of a buyer representation agreement > Discuss methods of compensation available to buyer s representatives Chapter 6: Offer Through Accepted Contract > Assist buyers in formulating offers and responding to counteroffers. > Present a buyer client s offer. > Identify factors that produce a beneficial outcome for the buyer client when handling multiple offers. Chapter 7: Follow Through > Identify strategies for building your business by keeping clients and customers after the sale. Chapter 8: Marketing Fundamentals > Know who the buyers are > Build your personal brand > Create your marketing plan > Find the buyers and how buyers find you Throughout the course we will highlight a number of features (Figure I.6). Figure I.6: Features of This Course Slide 16 17

18 Accredited Buyer s Representative (ABR ) Designation Course 1. Agency Relationships Slide 1 Slide 2 Exam Question 1 Slide 3 Slide 4 Exam Question 5 In this chapter: > What it means to represent buyers > Parties in the real estate transaction > Types of agency relationships > Non-agency relationships > Office policy WHAT IT MEANS TO REPRESENT BUYERS In the real estate profession, the terms buyer s rep and buyer brokerage are quite common. But what does it truly mean for real estate professionals to represent buyers in the sale of real property? At its core, buyer representation is a form of agency, which is defined as a relationship when one person delegates to another the right to act on his or her behalf in business transactions. 1 In an agency relationship, the agent puts the best interests of the client above the interests of all parties, including the agent s. In addition, the client relies on the agent to represent him or her and puts confidence and faith in the agent. Agency relationships are governed by common law (law that is based on traditions, customs, and court judgments and decisions) and statutory law (law that is based on statutes, rules, and regulations). The relationship between an agent and the client is legally binding. In buyer representation, the buyer s representative, by definition, is the agent of the buyer and owes fidelity in all transaction matters to the buyer, the client; in contrast, the seller s representative (listing agent) is the agent of the seller. PARTIES IN THE REAL ESTATE TRANSACTION In addition to agents and clients, real estate transactions involve brokers and customers. To understand the role of all parties, see Figure Reilly, J.W. with M.S. Spodek, contributing editor. The Language of Real Estate. 6th ed. Chicago, IL: Dearborn Real Estate Education;

19 1. Agency Relationships Figure 1.1: Defining the Parties Slide 5 I-Note: CLARIFY that technically speaking, the broker is the agent of the client and that agents are subagents of the broker. Know Your Code: Agency Obligations The Code of Ethics of the National Association of REALTORS (NAR) outlines the obligations of REALTORS to clients and customers in real estate transactions. Slide 6 NAR CODE OF ETHICS Article 1 When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS remain obligated to treat all parties honestly. (Amended 1/01) 19

20 Accredited Buyer s Representative (ABR ) Designation Course Exam Question 48 Slide 7 Exam Question 9 As a reminder, where the NAR Code of Ethics is more restrictive than the state real estate laws, REALTORS must comply with the standards set out by the NAR Code of Ethics. TYPES OF AGENCY RELATIONSHIPS While an agent s specific duties in a real estate transaction are determined by state license law and broker office policy, an agency relationship can be described as belonging to one of four types: 1. Single agency 2. Dual agency 3. Designated agency 4. Subagency See Figure 1.2 for further details. Figure 1.2: Agency Relationships: Who Represents Whom 20

21 1. Agency Relationships Single Agency The broker works for only one client in a real estate transaction, such as the buyer or the seller, the landlord or the tenant, not both, with primary duties to that party only. Some brokerages practice only buyer agency or only seller agency. Dual Agency Working simultaneously with both parties in a real estate transaction, such as buyer and seller, landlord and tenant, is known as dual agency. Dual agency situations frequently occur when buyer clients are interested in properties listed by their broker or agent. Slide 8 Exam Question 45 Slide 9 Exam Question 12 NAR CODE OF ETHICS Standard of Practice 1-5 REALTORS may represent the seller/landlord and buyer/tenant in the same transaction only after full disclosure to and with informed consent of both parties. (Adopted 1/93) As we will explore in Chapter 2, dual agency is inherently conflictual. Real estate professionals should note that there are some states where dual agency even with full disclosure and informed consent from clients is not legal. Designated Agency In states that allow designated agency, when a seller lists a property the broker appoints the listing agent as the designated agent of the seller to the exclusion of all other salespeople in the office. The only agent the seller has is the listing agent. When an agent is working with a buyer, the broker appoints the agent to be the designated agent of the buyer, again to the exclusion of all other salespeople in the office. The result is that dual agency does not occur on all in-office transactions. Slide 10 Exam Question 11 21

22 Accredited Buyer s Representative (ABR ) Designation Course Slide 11 BALANCING ACT Discussing Disclosed Dual and Designated Agency If it is allowed in your state (and by your office policy), the possibilities for disclosed dual agency or designated agency should be discussed and disclosed to a buyer during the counseling session and certainly no later than the time an agency agreement is entered into. Both the buyer and the seller have the right to know how these situations will be handled. Slide 12 Subagency While subagency has virtually disappeared from real estate practice, it was initially created as a way to address issues that arose after multiplelisting services (MLSs) became widely accepted. When a listing was inserted into a MLS, cooperating selling brokers and their salespeople became the subagents of the seller. And since the seller paid the commission to the listing agent, who worked for the seller, it therefore followed that any agent who brought a buyer into the transaction must also work for the seller. NON-AGENCY RELATIONSHIPS In some states, real estate licensees work with buyers and sellers in a non-agency capacity. Here, the real estate licensee acts in a neutral capacity for either or both parties in a transaction. Non-agency relationships vary considerably from state to state, both as far as the responsibilities owed and the terminology used to describe the relationship or role of the licensee (Figure 1.4). 22

23 1. Agency Relationships Figure 1.4: Real Estate Licensee s Role in Non-Agency Relationships Slide 13 Exam Question 40 There are varying viewpoints on the advantages of non-agency relationships in the real estate transaction. Some argue that non-agency relationships are the fairest way to mitigate the risk of dual agency and protect buyers and sellers. Others assert that the motivation to limit risk cheats buyers and sellers particularly new and/or inexperienced buyers and sellers of their opportunity to have fair representation. OFFICE POLICY Each brokerage company should have its own policy based on the business practices of the marketplace, business approach, liability, and the laws of the state. If you are not sure what your office policy is, take this questionnaire to your managing broker or use it for a discussion on forming office policy. 1. Is there currently a statement of agency policy? 2. How is the policy implemented? 3. What are the types of agency relationships practiced? 4. What is the rationale for the company s agency policy? Exam Question 32 Slide 14 I-Note: ASK students if they have office policy questions about the topics presented in this chapter and INSTRUCT them to jot them down in the Questions to Ask Your Broker list, located in the Appendix. 23

24 Accredited Buyer s Representative (ABR ) Designation Course I-Note: If this class presentation is for one office only, BEGIN discussion and review of the brokerage firm s office policy here. 5. How should the licensee treat the consumer in each type of relationship? 6. What disclosures must be made? 7. When and to whom are disclosures made? 8. What standard forms are licensees required to use? 9. What kind of training does the company provide to licensees? 10. Has an attorney reviewed the policy for conformance with state laws? BRIGHT IDEA Referring Out of State When referring clients out of state, be sure to ask what forms of agency relationships are practiced in the state where the client is relocating and ask the broker to explain the relationships fully to your client. 24

25 2. Duties to Clients and Responsibilities to Customers 2. Duties to Clients and Responsibilities to Customers In this chapter: Slide 1 > Working for clients and with customers > Duties to clients: OLD CAR > Responsibilities to customers > Additional considerations when working with clients > Undisclosed relationships with vendors > Breach of duties to clients > Fair housing and buyer representation WORKING FOR CLIENTS AND WITH CUSTOMERS In agency relationships, real estate professionals strive to obtain the best advantages for their clients. For example, real estate professionals provide clients with advice and counsel. Real estate professionals also give clients their undivided loyalty. However, when working with customers, what services are real estate professionals expected to provide? Put simply, agents work for clients and with customers. Expressed another way, agents owe duties to their clients and have responsibilities to customers (Figure 2.1). Slide 2 Exam Question 19 Figure 2.1: Duties to Clients and Responsibilities to Customers 25

26 Accredited Buyer s Representative (ABR ) Designation Course Slide 3 Exam Question 37 The terms duties and responsibilities may seem synonymous or even interchangeable. With respect to agency relationships, there are underlying and important differences: The relationship between agent and client is legally binding. For example, an agent has a duty to place the client s interests before those of any other parties. An agent s duties to the client do not mean, however, that the agent may misrepresent the facts of the transaction or the property to customers. Agents have responsibilities to customers to treat them honestly. In the following sections, we will review the distinctions of duties and responsibilities further. Slide 4 DUTIES TO CLIENTS: OLD CAR The relationship between the agent and client is certainly one of the most critical components of the real estate transaction. Real estate professionals must follow the laws in their state, their office policy, and NAR Code of Ethics with respect to clients. Many details of the relationship will be spelled out as we proceed through the course, but the acronym OLD CAR shows the big picture. See Figure 3.2 on the following page. O = Obedience L = Loyalty D = Disclosure Exam Question 43 C = Confidentiality A = Accounting R = Reasonable care and diligence 26

27 2. Duties to Clients and Responsibilities to Customers Figure 2.2: Duties to Clients OLD CAR Duty What It Means Where This Duty Is Reflected in NAR s Code of Ethics Obedience Exam Question 34 Loyalty (undivided) Exam Question 21 Disclosure (full) Confidentiality Accounting Reasonable care and diligence Act subject to the client s continuous control (following all lawful instructions) X Do NOT exceed the scope of authority conferred by the client X Do NOT make decisions for the client X Do NOT advance any interests adverse to the client s interest or conduct the client s business in such a way as to benefit a customer, oneself, or any other party to the detriment of the client s interest Disclose affirmatively and honestly all information concerning the transaction and property that might affect the client s decisions X Do NOT divulge confidential information about the client told to or learned by the agent within the agency relationship. - Note: material facts about and defects of a property are not confidential. Promptly report to the client all money and property received and paid out and, upon request, give an accounting of these actions Safeguard money and property held on behalf of the client Protect the client from foreseeable risks or harm and recommend that the client obtain expert advice or assistance when the client s needs are outside the scope of the agent s expertise Article 1 Exam Question 34 Article 1 Article 2 Standard of Practice 1-9 Article 8 Articles 1 and 13 Exam Question 47 27

28 Accredited Buyer s Representative (ABR ) Designation Course Slide 5 I-Note: REFER to state required dual agency disclosure form(s). Duties and Disclosed Dual Agency In states that allow for disclosed dual agency, the duties of confidentiality, undivided loyalty, and full disclosure cannot be reconciled between two clients. For example, the duty to one party of confidentiality compromises the duty to the other of full disclosure. Most commonly, the buyer and seller will be asked to help the resolve the conflict by allowing the brokerage company to modify its fiduciary duties. The brokerage must first provide clear and complete written disclosure of all facts and consequences of dual agency, including the impact on the interests of both parties in the transaction. The parties must then provide written informed consent to allow the brokerage to act as a disclosed dual agent. Slide 6 RESPONSIBILITIES TO CUSTOMERS An agent s responsibilities to customers honesty, accounting, reasonable skill, and material fact and agency disclosures can be remembered as HARD, as in it can be HARD to work with customers because they want to be treated like clients (Figure 2.3). The above stated, responsibilities to customers must be adhered to in addition to any legal duties or responsibilities imposed by state laws and regulations. 28

29 2. Duties to Clients and Responsibilities to Customers Figure 2.3: Responsibilities to Customers Responsibility What It Means Where This Responsibility Is Reflected in NAR s Code of Ethics Honesty Accounting Reasonable Skill Disclosure (Material Fact and Agency) X Do NOT make statements or actions that can result in fraud or misrepresentation Ensure all laws and regulations pertaining to the transaction are obeyed Report any money or property received and paid out and, upon request, provide an accounting of these actions Safeguard money and property held on behalf of the customer Provide customers with standards of practice and competence that are reasonably expected X Do NOT try to provide specialized professional services for a type of property or service that is outside your field of competence Disclose material facts about properties Disclose agency relationships Explain the difference between a customer and client relationship in a timely fashion so that customers can protect their own interests Article 1 Article 8 Article 11 Articles 1 and 2 29

30 Accredited Buyer s Representative (ABR ) Designation Course WORKSHOP #1 Mary Byers, a new home builder, hired Sara to represent her in acquiring properties containing a house and at least one subdividable lot on which she could build. Sara, a salesperson with Acme Realty, took Mary to a property listed with Titanic Realty. Sara believed the property had as many as four subdividable lots. While showing the property to Mary, the seller, an 84-year-old widow, told Sara and Mary that she did not want to move, but her fixed income was not sufficient to meet her living expenses. Sara did not know if Titanic Realty had discussed alternative solutions with the seller that might enable her to stay in her home. However, Sara s buyer client, Mary Byers, wants to make an offer immediately because this is the best deal she has seen in years. Should Sara contact Titanic Realty or the seller to find out if anyone had discussed alternative solutions with the seller? Why or why not? 30

31 2. Duties to Clients and Responsibilities to Customers WORKSHOP #2 In October, Joan contacted a buyer s agent, asking him to help her find a quiet neighborhood. She had recently retired and wanted to relocate to a smaller town and enjoy a slower paced lifestyle. The agent informed Joan that he was a market specialist, having grown up in the area, and that he would begin the search for quiet neighborhoods. After discussions, Joan and the agent agreed to buyer representation and formalized the agency relationship. In November, the agent showed Joan a home on the outskirts of town. It appeared to be everything Joan was looking for and subsequently she bought it. However, five months later, on the first warm day in April, the roadway outside Joan s home became active with motorcycle riders. What the agent had not disclosed was the fact that about a mile past Joan s new home was a biker bar, which catered to motorcyclists on road trips. For the next six months, Joan contended with groups of motorcyclists driving past her home on their way to the bar at all hours of the day and night. Did the agent violate his duties of disclosure and reasonable care and diligence to Joan? Why or why not? 31

32 Accredited Buyer s Representative (ABR ) Designation Course WORKSHOP #3 I-Note: LEAD a discussion based on the question. The answer to both questions is No since the action would demonstrate undivided loyalty to one client to the detriment of the other. Amanda has a client who listed her property for $259,900. There was an accepted offer for $235,000 that did not close due to buyer financing problems. Amanda now has a buyer client who wants to make a $245,000 offer on the property. 1. Can Amanda advise her buyer client to make an offer of $235,000? 2. The same buyer client told Amanda that he would like to make an offer of $240,000, but is willing to go as high as $255,000. Can Amanda share this information with her seller clients? 32

33 2. Duties to Clients and Responsibilities to Customers WORKSHOP #4 You write up an offer from your buyer to your very motivated seller. Your seller wants you to call the other agents who have shown the property to let them know of the offer. What should you do? I-Note: ASK students what other conflicts they have experienced with disclosed dual agency. What do you do as a disclosed dual agent when your buyer wants to make an offer contingent on the sale of a house, which is overpriced and rundown and requires significant repairs? I-Note: If the state in which you are teaching does not allow for disclosed dual agency, INSTRUCT students to use this workshop with the agent serving as a transaction broker. 33

34 Accredited Buyer s Representative (ABR ) Designation Course WORKSHOP #5 Your buyer client is making an offer on either a limited-service listing or for-sale-by-owner (FSBO) property. Are agency disclosures required? 34

35 2. Duties to Clients and Responsibilities to Customers ADDITIONAL CONSIDERATIONS WHEN WORKING WITH CLIENTS Depending on the states where real estate professionals practice, the concepts of vicarious liability, imputed knowledge, and imputed notice can add considerable complexity to an agent s relationship with clients as well as to the agent s day-to-day tasks. For a comparison of definitions, see Figure 2.4. Figure 2.4: Defining Vicarious Liability, Imputed Knowledge, and Imputed Notice Slide 7 I-Note: BE aware if the sales contract in the state you are teaching alters notice after the contract has been signed. Vicarious Liability Vicarious liability means that actions or statements made by agents and subagents are the responsibility of the client, even if the client was unaware of the actions or statements. For example, if an agent made a misstatement and damages resulted from that misstatement, the client may be legally responsible for those damages. For states where vicarious liability still applies, agents should disclose the potential for vicarious liability for the actions and statements of an agent or subagent prior to obtaining the client s consent. In addition, the agent should obtain the client s consent to offer subagency to other brokerage companies. 35

36 Accredited Buyer s Representative (ABR ) Designation Course Imputed Knowledge According to the concept of imputed knowledge, the knowledge of one licensee in a real estate brokerage company is the knowledge of all licensees in the company. State laws vary regarding the details of imputed knowledge. In states where imputed knowledge applies, brokers should have a policy for how information is communicated to all agents. If state law and office policy allow for designated agency, confidential information about clients should not be shared. Consider the following scenario, which is based on an actual court case. WORKSHOP #6 Nan wanted to buy a vacation home in upper Vermont. Bridget, a new licensee with Sterling Performance Realty, was Nan s buyer s representative. Nan wanted a home with lots of land and trees. Bridget encouraged Nan to take a look at a property listed with Mountain Properties Realty. It was perfect. Nan purchased the property but did not do a final walkthrough or go to the closing. Later, when Nan arrived to spend some time at her new retreat, she found that approximately half the trees on her property were felled and that the home s windows were broken out. The grounds looked as if a tornado had blown through. Upon further investigation, Nan discovered that the area was regularly subject to high winds. Neighbors informed her that most of them kept wind gauges on their home so that they would know when to batten down the hatches. Nan contacted Bridget to ask her why this had not been disclosed to her prior to purchasing the property. Bridget stated that she had no knowledge of the high winds. But upon checking with her colleagues, Bridget discovered that her manager previously had lived nearby and moved because of the winds. Since Nan believed that this was a material fact that should have been disclosed, Nan sued Bridget and Sterling Performance Realty for failure to disclose. 36

37 2. Duties to Clients and Responsibilities to Customers 1. Was Bridget liable for the failure to disclose, despite the fact that she was new and had no knowledge of the wind issue? 2. What steps should the manager have taken to ensure that incidents such as this would not happen? 3. Were the seller and the listing broker, Mountain Properties Realty, also guilty of failure to disclose the winds to the buyer and the buyer s representative? 37

38 Accredited Buyer s Representative (ABR ) Designation Course Imputed Notice Imputed notice holds that informing an agent is the same as informing the agent s client. Information provided to an agent is assumed to be communicated to and binding on the client, even if the agent never conveys the information to the client. For example, when the listing agent communicates an unconditional acceptance of an offer to the buyer s representative, it is the same as providing notice to the buyer. When the listing agent informs the buyer s representative that the roof leaks, this fact is imputed to be noticed to the buyer. The rule of imputed notice becomes especially critical when subsequent decisions are dependent on the notice or when the notice is disclosure of a material fact. Real estate professionals should strive as much as possible to provide timely notice when revoking an offer prior to acceptance, satisfying a contingency on or before a specified date within the parameters of the sales contract, or exercising an option on or before a specified date. Slide 8 Exam Question 4 BREACH OF DUTIES TO CLIENTS What happens when real estate professionals knowingly or unknowingly violate their duties to clients of obedience, undivided loyalty, full disclosure, confidentiality, accounting, and reasonable care and diligence? The term is breach of duty. According to the 2009 National Association of REALTORS Legal Scan, more than half of surveyed respondents indicated that breach of duty was the basis for a significant number of current disputes. 2 Penalties The consequences of failing to fulfill duties to clients can be quite severe. State licensing laws define the threshold of illegal conduct and penalties. In addition, the NAR Code of Ethics defines ethical business practices and consequences for membership-related acts of noncompliance. See Figures 2.5 and National Association of REALTORS Legal Scan: Legal Issues Facing Real-Estate Professionals. Available at 38

39 2. Duties to Clients and Responsibilities to Customers Figure 2.5: Range of Penalties for Breaching Duties Slide 9 Exam Question 46 Figure 2.6: What These Penalties Mean Slide 10 Exam Question 35 39

40 Accredited Buyer s Representative (ABR ) Designation Course Slide 11 UNDISCLOSED RELATIONSHIPS WITH VENDORS The NAR Code of Ethics states that you must disclose any potential financial benefit you or your brokerage firm would receive, beyond referral fees, from the customer or client s business. NAR CODE OF ETHICS Article 6 REALTORS shall not accept any commission, rebate, or profit on expenditures made for their client, without the client s knowledge and consent. When recommending real estate products or services (e.g., homeowner s insurance, warranty programs, mortgage financing, title insurance, etc.), REALTORS shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the REALTOR or REALTOR s firm may receive as a direct result of such recommendation. (Amended 1/99) Note that under the Real Estate Settlement Procedures Act (RESPA), service providers are prohibited from giving anything of value in exchange for referrals of business. Slide 12 Exam Question 44 FAIR HOUSING AND BUYER REPRESENTATION All federal, state, and local fair housing laws and regulations must be obeyed in all dealings with clients and customers. Federal fair housing law specifies seven protected classes: race, color, religion, sex, handicap, familial status, and national origin. A handy method for remembering the seven protected classes is the sentence: REALTORS (race) Can (color) Really (religion) 40

41 2. Duties to Clients and Responsibilities to Customers Sell (sex) Houses (handicap) Fast (familial status) Now (national origin) Some state and local governments have defined additional protected classes such as: age, sexual preference, source of income, marital status, military status and/or discharge, ancestry, parental status, and housing status (homeless). Which Law Prevails? What if, for example, the local law does not prohibit discrimination based on handicap, but the federal law does? Federal fair housing laws always apply. Federal statutes can be added to state and local fair housing protected classes. A general rule for understanding fair housing is that the federally protected classes can be added to, but never removed. Slide 13 Exam Question 30 Clients may put the buyer s representative in a bind when seeking information about a house, schools, or community. You must NOT violate fair housing laws. If a client asks you characterize the ethnic makeup of a neighborhood do NOT give an opinion or estimate. Make sure you provide the same information to all clients. SUGGESTED SCRIPTS How to Respond to Fair Housing Issues Slide 14 Buyer: What is the racial composition of this neighborhood? Do you service any areas that I would feel at home in? What kinds of people live in this neighborhood? Real estate professionals should never estimate or give an opinion on the racial, religious, or ethnic, composition of the neighborhood. Focus on providing objective data from third-party sources, such as the chamber of commerce, and make sure you provide this information to all clients. Refer home buyers to sources of information such as the library, public Web sites, or local municipal offices so they can research themselves. Focus on economic status and occupation, which are not protected by fair housing law. If you mention people you know or have worked with in the area, do NOT describe them in a way that includes a protected class. A real estate professional s possible response is: This is a middle-income 41

42 Accredited Buyer s Representative (ABR ) Designation Course neighborhood. Many of the folks who live here work at the businesses downtown because it is an easy commute Slide 15 Buyer: How are the schools in this area? Are they good? Are the schools integrated? Provide the buyer only with reliable and authoritative information, such as: Student-teacher ratios Expenditures per pupil Percentage of students who go on to college The number of National Merit scholars School statistics are available at click on moving tools on the Moving page. Refer the buyer to sources of information, such as the school or the school district s main office. Maintain the same type of information for each school; never show favoritism for one school over another. Never attempt to influence a housing choice with either complimentary or negative general comments about the school or give an estimate or opinion of the racial, religious, or ethnic composition of the student body. A real estate professional s possible response is: Our office does not maintain the statistics you re asking for. To get the best answers to your questions, you should contact either the school or the school district s main office. Also, you might want to check with some of your potential new neighbors about how they feel about the schools their children attend Slide 16 Buyer: Why don t you just pick out some nice properties in a safe area for us? Would you live here? Give your honest opinion, whether it s positive or negative, to this question and give a non-discriminatory reason that focuses on the attributes of the property. Never mention or volunteer information related to the racial, religious, or ethnic makeup of the area. 42

43 2. Duties to Clients and Responsibilities to Customers A real estate professional s possible response is: The house would *or would not] be a fit for our family. Also, the house would [or would not] be well located for commuting to the office Statement of Fair Housing Policy It is recommended that a buyer s representative include language in their buyer representation agreement indicating a commitment to equal housing opportunity and a statement that the agent may not lawfully disclose information regarding race or other protected classes. Slide 17 The following is suggested language for such an agreement: It is the policy of (firm name) to abide by all local, state, and federal fair housing laws and not discriminate against any individual or group of individuals. The agent may not lawfully disclose the racial, ethnic or religious composition of any neighborhood, community, or building, nor whether persons with disabilities are housed in any home or facility, except that the agent may identify housing facilities meeting needs of a disabled buyer. BRIGHT IDEA Equal Professional Services Model Slide 18 Use systematic procedures Obtain objective information Let the client or customer set the limits Provide a variety of choices Document the service you provide Fair Housing Self-Assessment Questionnaire Real estate professionals who continually evaluate their performance are likely to perform well. By asking yourself questions such as the ones that follow in Figure 2.7, you will develop a heightened awareness of the importance of providing consistent service to all clients. In addition, these questions help the agent to better identify the needs of prospects. Slide 19 43

44 Accredited Buyer s Representative (ABR ) Designation Course Figure 2.7: Fair Housing Self-Assessment Questionnaire 1. Meeting the Prospect for the First Time 3. Selecting Properties How is the prospect greeted? What information is distributed to the prospect? Do you explain the firm s commitment to fair housing laws? What information about the prospect is recorded? How is the information recorded? Do you request the same information from everyone? What questions do you ask the prospect? Do you make suggestions? Do you record information regarding the suggestions you make? How? Do you ask about preferences concerning home features and location? Who sets the priorities? Do you record this information? How? Does the prospect set limits, not merely in terms of price and features, but also location? Who decides where to look for housing? Do you rely on the prospect to make the choices? Do you develop a list of properties to show? What resources do you use to locate properties? Does this process vary with different prospects? 2. Qualifying the Prospect 4. Viewing Properties Do you always seek the same information from all prospects or does it depend on your personal assessment of each prospect? Do you let prospects determine their price range? Do you calculate the price range for the prospect? Does your method vary by the price range or location requested? When does the qualifying usually take place? Does this vary by prospect and circumstance? Do you suggest that the prospect be pre-qualified by a lender prior to showing? Do you require a credit check prior to inspecting properties or submitting a bid? How do you record this information? Do you use a standard form? Are prospects told they will need to locate their own financing? Do you refer prospects to lenders? Do you explain financing and quote interest rates? Is this information recorded? How? Do you schedule appointments and accompany the prospect? Do you offer a variety of choices? Do you offer a list and suggest that the prospect drive around to narrow the list? Do you point out positive and negative aspects of each property? Some properties? Do you always record the prospect s likes and dislikes? How? What materials does the prospect receive concerning each listing? 5. Performing Follow-up Activities Are your follow-up techniques more aggressive with some prospects than with others? What information is kept on completed sales? What information is kept on prospects that do not purchase? 44

45 3. How Agency Relationships Are Established 3. How Agency Relationships Are Established In this chapter: Slide 1 > Express and implied agreements > Agency disclosures > Creating agency relationships with buyers > When agency relationships change EXPRESS AND IMPLIED AGREEMENTS In the previous two chapters, we have explained agency relationships as well as the real estate professional s duties to clients and responsibilities to customers. But how are agency relationships established or formed? Are agency relationships only established when the relationship is formalized in writing? Can an agency relationship be created by a description of terms and an agreement by hand shake? Depending on your state laws, the answers can be no and yes. In the broadest sense possible, agency relationships can be created by express or implied agreement (Figure 3.1). Slide 2 Exam Question 6 Figure 3.1: Ways Agency Relationships Can Be Formed 45

46 Accredited Buyer s Representative (ABR ) Designation Course Slide 3 Defining Express Agreements In an express agreement, the terms of the agreement are expressed or spelled out between both parties. Express agreements are common throughout the real estate industry and can be in writing or made orally. Examples of express agreements are identified in Figure 3.2. Figure 3.2: Types of Express Agreements in Real Estate Exam Question 10 Slide 4 Defining Implied Agreements According to statutes in many states, when the licensee acts or speaks like an agent and the consumer relies on those statements and actions, the licensee and the consumer have entered into an agency relationship (Figure 3.3). 46

47 3. How Agency Relationships Are Established Figure 3.3: How an Implied Agreement Can Be Made Exam Question 14 Slide 5 In these states, agency relationships can result even unintentionally, accidentally, or inadvertently. Because formal overtures are not required to create an agency relationship, an agency relationship can result from the conduct of the parties, regardless of either party s intent, description, or understanding of the relationship. Key facts to remember about implied agreements include: Exam Question 21 An agency relationship created by implied agreement may occur when the duties and obligations of agency arise without the agent s knowledge. The conduct of the parties can create an agency relationship even if they have signed an acknowledgment denying the existence of such a relationship. The matter of implied agreements is highly state specific. For example, agency laws in Illinois and Tennessee make it impossible for an implied, inadvertent, or accidental agency to occur since an agency relationship is created at first contact. Slide 6 BALANCING ACT Implied Agency Relationships and Buyer Customers Implied agency relationships may occur when a seller s agent, who does not make the proper disclosures, works too closely with a buyer customer. The buyer may presume from the agent s conduct that the agent is working on his or her behalf. In such a situation, the agent has created an undisclosed dual agency relationship, which is illegal in all states. 47

48 Accredited Buyer s Representative (ABR ) Designation Course Slide 7 Exam Question 3 AGENCY DISCLOSURES In order for a real estate professional s relationships with clients and customers to be successful, it is essential that clients and customers know the forms of agency representation available to them. Clients and customers also need a clear understanding of whom real estate professionals represent. NAR s policy recommends that licensees make timely, meaningful, and written agency disclosure so that consumers can make informed choices. Disclosures must be made to both clients and customers. NAR s policy recommendations are codified into many states laws on agency disclosure. Specifically, the policy states: 3 NAR shall encourage state associations to achieve, through legislation or regulation, state-mandated agency disclosure which requires that all licensees provide timely, meaningful, and written disclosure to consumers of all possible types of brokerage relationships (e.g., buyer s representative, seller representative, disclosed dual agent) not types of listing agreements available under state law and the most significant implications of choosing one type over another. See Figure 3.4 for a summary of these important requirements of disclosure. Figure 3.4: Defining Timely, Meaningful, and Written 3 National Association of REALTORS, Presidential Advisory Group, Report on Agency, March

49 3. How Agency Relationships Are Established Timely Disclosure to clients must take place before a representation agreement or contract is entered into. Disclosure to customers must take place before a licensee enters into substantive discussions about real estate needs and financial capabilities or exchanges any confidential information. Timely Disclosure with Internet Consumers Note: The NAR Code of Ethics requirement that REALTORS disclose whether they represent the buyer, the seller, or both parties applies to consumers that REALTORS have met online. Slide 8 Exam Question 31 NAR CODE OF ETHICS Standard of Practice 1-2 The duties imposed by the Code of Ethics encompass all real estaterelated activities and transactions whether conducted in person, electronically, or through any other means. WORKSHOP #7 Meeting the Timeliness Requirement 1. How can the timeliness requirement be met when a buyer calls about one of your listings? 49

50 Accredited Buyer s Representative (ABR ) Designation Course 2. How can the timeliness requirement be met when you are holding an open house and meet a prospective buyer? 3. How can you meet the timeliness requirement if your Web site generates an from a buyer? Slide 9 Exam Question 38 Meaningful What makes a disclosure meaningful? The disclosure must provide clear written explanation of all legal forms of brokerage relationships with consumers available under state law, even if the brokerage does not offer all of those options. Sellers must be advised of the broker s office policies for cooperation with other brokers if such policies could have more than an insubstantial impact on the marketing of the property or the client s exposure to liability. If state law allows and the broker s policy permits disclosed dual agency, buyers must understand and agree that their agents may also serve as agents to the seller in the transaction. Buyers should confirm this understanding and agreement in writing. Disclosed dual agency is a viable option, but only if timely, meaningful, and written disclosure is made and if all parties consent to this relationship following such disclosure. 50

51 3. How Agency Relationships Are Established NAR CODE OF ETHICS Standard of Practice 1-13 When entering into buyer/tenant agreements, REALTORS must advise potential clients of: 1. the REALTOR s company policies regarding cooperation; 2. the amount of compensation to be paid by the client; 3. the potential for additional or offsetting compensation from other brokers, from the seller or landlord, or from other parties; 4. any potential for the buyer/tenant representative to act as a disclosed dual agent, e.g. listing broker, subagent, landlord s agent, etc., and 5. the possibility that sellers or sellers' representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties. (Adopted 1/93, Renumbered 1/98, Amended 1/06) Written Many states have developed standard disclosure forms and mandated their use by all licensees within the state. Slide 10 NAR CODE OF ETHICS Article 9 REALTORS, for the protection of all parties, shall assure whenever possible that all agreements related to real estate transactions including, but not limited to, listing and representation agreements, purchase contracts, and leases are in writing in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties. A copy of each agreement shall be furnished to each party to such agreements upon their signing or initialing. (Amended 1/04) 51

52 Accredited Buyer s Representative (ABR ) Designation Course Agency Disclosure Reality Check Although the need for timely, meaningful, and written agency disclosure cannot be overemphasized, NAR survey data (Figure 3.5) shows that some licensees are not making agency disclosures, an alarming statistic. Slide 11 Figure 3.5: Agency Disclosure, First-time and Repeat Buyers Source: National Association of REALTORS Profile of Home Buyers and Sellers. Available at WHEN AGENCY RELATIONSHIPS CHANGE In real estate, there are circumstances that require the real estate professional and client or customer to change the form of representation, modifying duties to responsibilities or responsibilities to duties. Consider the questions in the following workshop. WORKSHOP #8 1. In your experience, what are the reasons an agency relationship changes? 52

53 3. How Agency Relationships Are Established 2. What steps can you take to ensure that the client or customer understand the change in your duties or responsibilities? BRIGHT IDEA Discuss Possible Change in Agency Relationships with Client Before They Happen Slide 12 Changes in agency relationships are not unusual. Aside from the processing required paperwork, the interpersonal dimension of changing roles must be considered so that the former client understands the changes in role. This situation can be managed by discussing the possibility during the initial steps of forming the agency agreement and describing how the situation will be handled. DISCLOSED DUAL AGENCY COMPLICATIONS Certain buyer profiles impact if you may work with them as buyer clients or as buyer customers or, if allowed by your state laws and office policies, pursue disclosed dual agency. Those buyers are: Two buyer clients interested in the same property Yourself: If a brokerage company represents a seller and a company licensee wants to purchase the listing, it creates a de facto dual agency situation. If you are the principal in a transaction, you must represent yourself. Present or past client buyers: These buyers need client-level service because you may have confidential information that cannot be disclosed without consent. First-time buyers: First-time buyers, due to inexperience and a lack of knowledge in real estate matters, generally want services that a disclosed dual agent or transaction broker cannot provide. Slide 13 Exam Question 15 53

54 Accredited Buyer s Representative (ABR ) Designation Course Slide 14 Out-of-town buyers or corporate transferees: These buyers, due to lack of knowledge of the area and perhaps real estate practices in the state, will generally want services that customer status cannot offer. Close friends or relatives: You may have information about the friend or relative that will harm their negotiating position if you work with them as a disclosed dual agent or transaction broker. Present or past business associates: As with close friends or relatives, you probably have information that will harm the negotiating position. Buyer customers who require anonymity: Keeping the buyer s identity confidential creates an implied agency relationship. If your duty is to the seller, this may violate your duty to the seller. I-Note: ASK students if they have office policy questions about the topics presented in this chapter and INSTRUCT them to jot them down in the Questions to Ask Your Broker list, located in the Appendix. 54

55 4. The Interview and Counseling Session 4. The Interview and Counseling Session In this chapter: Slide 1 > Get personal meet with the buyer > Steps in the interview and counseling session GET PERSONAL MEET WITH THE BUYER Knowing that real estate is a business founded on and driven by relationships, it is vital for real estate professionals to meet with prospective buyers and successfully facilitate the interview and counseling session. For real estate professionals, the goals and steps of this session are: Build rapport Fulfill your agency disclosure requirements Determine previous home search efforts Review presentation packet Make the case for buyer representation Identify your point of differentiation Win the buyer s confidence make a pledge of performance Identify priorities and motivations Pre-qualify the buyer Determine whether or not to represent the buyer Slides 2-3 Exam Question 2 Exam Question 25 For many real estate professionals today, the greatest initial challenge, however, is convincing a prospective buyer to meet (1) in person and (2) get preapproved for financing before viewing properties. How do real estate professionals overcome objections like these? Consider Workshop #9. 55

56 Accredited Buyer s Representative (ABR ) Designation Course WORKSHOP #9 How would you respond if the buyer says any of the following: "Why do we have to meet first? I just want to look at these houses." "Why do I have to talk to a lender? Can't you just show me the house?" Slide 4 BRIGHT IDEA Require ALL Prospects to Meet with You Your time is a constant juggling act, so you may be tempted to agree to meet a prospect for the first time at a showing. Doing so can expose you to great harm. It is wise to insist on a meeting with potential clients first as: You should ultimately work with clients whose needs are suitable to your services. Your meeting is an opportunity to educate prospects and let them know your role in their successful transaction. It is safer to meet with prospects in a public place than at the property. 56

57 4. The Interview and Counseling Session Additional safety tips for meeting with prospects are: Make sure you are not alone in the office when meeting a prospect. Ask every prospect or new client to stop by your office to complete a Prospect Identification Form (visit the Appendix for a customizable sample form), preferably in the presence of an associate. Use a registration book for all prospects, clients, and other visitors. Be careful to make sure that everyone signs in. Introduce the prospect to someone in your office. A would-be assailant does not like to be noticed or receive exposure. Slide 5 Exam Question 49 Source: Adapted with permission from REALTOR Magazine Online, Your First Safety Step: Meeting a New Client. Available at: STEPS IN THE INTERVIEW AND COUNSELING SESSION Build Rapport Although the steps in an interview and counseling session outlined earlier in this chapter may fall into a different order, based on state license and agency law requirements, all interview and counseling sessions begin with building rapport. The point here is that through conversation, the real estate professional and buyer can make a connection. And through connection, the real estate professional can begin to earn the buyer s trust. Slide 6 Exam Question 17 The first few minutes of any initial meeting can make or break a relationship, so real estate professionals should be mindful about how they prepare: Dress professionally. Choose attire that communicates your professionalism. Start with polite small talk. Make the buyer feel comfortable. 57

58 Accredited Buyer s Representative (ABR ) Designation Course Give the prospect your full attention. Forward your phone calls and leave your smartphone tucked away. Make direct eye contact. Ask open-ended questions and take notes. Listen more than you talk. BRIGHT IDEA Sales and Marketing Resources from NAR s Library NAR s Library has a suite of sales and marketing resources to help you take your sales and marketing skills to the next level. Visit to take advantage of the following: Field Guides Resources with links to articles, books, web sites, statistics, and other material on each subject ebooks Chose from hundreds of titles to download and read on your PDA, laptop, smartphone, or digital audio player Free electronic access to more than 1,700 journals, newspapers, and magazines through ProQuest Slide 7 Slide 8 Fulfill Your Agency Disclosure Requirements Real estate professionals should make agency disclosures to prospective buyers consistent with state laws but no later than substantive discussions about the buyer s real estate needs and financial capabilities. Prospects and Confidential Information In states where agency is not created until a written agreement is signed, agents should caution prospects against sharing confidential information: Because we don t know yet if I will be representing you in your real estate transaction, please don t give me any information you would not want another party to know. Slide 9 In states where agency is created at first contact: By virtue of this conversation, I am your agent. This means that what is said in this room stays here. You can feel free to talk about your real estate wants and needs with me. 58

59 4. The Interview and Counseling Session NAR CODE OF ETHICS Standard of Practice 1-9 The obligation of REALTORS to preserve confidential information (as defined by state law) provided by their clients in the course of any agency relationship or non-agency relationship recognized by law continues after termination of agency relationships or any nonagency relationships recognized by law. REALTORS shall not knowingly, during or following the termination of professional relationships with their clients: 1) reveal confidential information of clients; or 2) use confidential information of clients to the disadvantage of clients; or 3) use confidential information of clients for the REALTOR s advantage or the advantage of third parties unless: a) clients consent after full disclosure; or b) REALTORS are required by court order; or c) it is the intention of a client to commit a crime and the information is necessary to prevent the crime; or d) it is necessary to defend a REALTOR or the REALTOR s employees or associates against an accusation of wrongful conduct. Information concerning latent material defects is not considered confidential information under this Code of Ethics. (Adopted 1/93, Amended 1/01) Determining Whether or Not the Prospect Is Already Represented Real estate professionals need to determine if an agency relationship already exists between the buyer and another agent. A possible question to ask is Have you looked at any houses yet with an agent? If the buyer has, you should determine if the buyer is in an exclusive agreement with the other brokerage company. 59

60 Accredited Buyer s Representative (ABR ) Designation Course NAR CODE OF ETHICS Standard of Practice 16-9 REALTORS, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service. (Amended 1/04) Slide 11 Determine Previous Home Search Efforts In the interview and counseling session, it is useful to determine how long the buyer(s) have been searching and what steps they ve taken to find information about homes for sale. Key questions to ask are: How have you been conducting your search? Did you see any properties you liked? What kept you from buying? Do you have a home to sell or a lease commitment to complete before buying? How long is the lease? How soon do you need to move? Slide 13 Exam Question 18 Review Your Presentation Packet Many real estate professionals create a formal presentation packet that may include the following: Client information sheet New-home checklist Information on the process of the real estate transaction Resume, bio, and photo Lending and title insurance Checklist of information required at loan application Disclosure City/neighborhood facts Environmental disclosures 60

61 4. The Interview and Counseling Session Information on inspections and warranty programs Home inspection FAQs Home warranty FAQs Sample brochures List of sources for homeowner protection plans Local insurance agents Checklist for moving State real estate forms WORKSHOP #10 Are there additional components in your presentation packet? Does your broker have guidelines on what should and should not be included? Make the Case for Buyer Representation One of the most critical steps of the interview and counseling session is making the case to represent the buyer as a client. Although prospective buyers may not know the difference between client and customer, they do understand service and levels of service. What you can provide depends on the agency relationships allowed in your state. Let s spend some time identifying the services you can provide buyers. See Workshop #11. Slide 14 I-Note: The point of Workshop #11 on the following pages is to require students to identify the services they can offer as a disclosed dual agents or transaction brokers and to compare these services to what they can provide as buyer s agents. INSTRUCT students to write in the forms of representation (e.g., disclosed dual agent) using the blank column headings. 61

62 Accredited Buyer s Representative (ABR ) Designation Course WORKSHOP #11 Slide 5-15 Buyer s representatives provide a high level of service to their clients. Individual state laws, however, may allow for other forms of representation e.g., disclosed dual agency, transaction brokerage. Using the blank column headings, write in two other forms of representation available in your state and then place checkmarks for all the services you may provide. This exercise will assist you in showing the buyer the benefits of working with you as a buyer agent. Buyer s Agent Needs Assessment Pay full attention to the buyer s needs, e.g., financing, motivation, and timing Ensure the buyer that he or she can talk freely with you without harming their negotiation position Property Selection Use available resources to find the best property for the buyer: - MLS - Your personal network of top agents and producers in the area - For-sale-by-owner publications - FSBO file maintained by your brokerage - FHA/VA foreclosures and REO properties - Auctions - New construction - Fax broadcast or lists Notify the buyer of new listings before they are placed in the MLS Exam Question 16 Advertise the buyer s search criteria through Property Wanted promotions to seller s representatives and property owners 62

63 4. The Interview and Counseling Session Buyer s Agent Viewing Properties Provide the buyer with facts and advice and help the buyer make objective evaluation of the property Disclose known material property defects to the buyer Help the buyer compare competing properties Negotiating the Purchase Contract Counsel the buyer on price Plan negotiating strategy with the buyer; suggest tactics and techniques that will strengthen the buyer s bargaining position Unless buyer agrees otherwise, share information about seller, if known and if the information is not confidential Negotiate on behalf of buyer and promote and protect the buyer s interests Suggest approved protective clauses for the purchase contract to safeguard the buyer s interests Explain financing alternatives that may be in buyer s best interests During negotiations, enhance the buyer s position by continuing to search for other appropriate properties Follow Through After Purchase Contract Attempt to solve problems to the buyer s advantage and satisfaction 63

64 Accredited Buyer s Representative (ABR ) Designation Course Slide 5-16 Slide 15 Reasonable Care and Diligence Reasonable care and diligence ( R in the acronym OLD CAR) is one of the duties that an agent owes to the client. Figure 4.1 lists measures that buyer s representatives can take to protect their clients. Figure 4.1: Demonstrating Reasonable Care and Diligence Obtain a property disclosure Include a request form for the seller's disclosure of the property condition with your buyer's agreement Present the property disclosure to the client and answer any questions they may have about the property disclosure Recommend inspections Present a list of types of inspections (environmental, heating and cooling, roofing, well water, plumbing, on-site sewage system, foundation inspections, and others as appropriate) and the professionals for the client to choose from Advocate that any repairs resulting from inspections be corrected at seller expense Remind clients that they are responsible for damage to the home done by an inspector Include approved protective clauses in the purchase offer Explain to clients the possible approved purchase clauses they may choose to include in the offer Advise the client on seller acceptance of/resistance to protective clauses based on market conditions Advise the client that protective clauses may be reviewed by an attorney Prepare a comparative market analysis (CMA) Exam Question 13 Provide a CMA on the property with an explanation of the results to help the client make an informed purchase offer 64

65 4. The Interview and Counseling Session Provide home warranty information Let buyers that home warranty is an option Explain what the warranty covers and excludes Inform the buyer that the warranty may be negotiated into the purchase offer and paid by seller Provide lists of other professionals Provide your research on options for a home inspector, title company, insurance company, pest inspector, appraiser, or mortgage lender Inform the buyer that the selection of other professionals is made by the buyer, not by the buyer's agent Explore special needs Does the client require access to hospitals, public transportation, or other facilities? Provide information about issues affecting value of salability of the property List and discuss aspects of the property that may impact property value (such as lot size, dimensions, square footage, shape) Zoning and additional restrictions: uses allowed and disallowed in the property from zoning or homeowner association restrictions Stigmas: alleged haunting or crime scene (Note: consult your state laws regarding stigmatized property) Flood plain: Explain FEMA flood charts and how proximity to flood plains may influence insurance availability and cost Quality of title: easements and restrictions affect the quality of the title. The buyer may consider making a purchase agreement contingent on the review and approval of easements and restrictions. Schools: Provide local school performance ratings compared to community, city, and national averages. All buyers, including those without school-age children, should consider this data as it affects resale value. Future development: If you are aware of future construction approved for the area, advise the client on how to research the plans 65

66 Accredited Buyer s Representative (ABR ) Designation Course Advise on additional charges Verify in writing additional charges, such as property taxes, impact fees, assessments, local income taxes, or utility charges, that will impact the cost of homeownership Do NOT rely on verbal information from the seller or the seller s representative. Inform your client of the source of information, especially if it came from the seller or seller s representative and was not verified Describe traffic What are traffic loads and patterns at rush hours and other busy times? Notify the client about potential negative influences Clients considering a property should be informed of negative influences such as certain manufacturing plants, sports stadiums that may cause traffic and parking problems, nearby landfills and toxic waste sites as well as the presence of registered sex offenders. Slide 16 Exam Question 29 Slide 17 BRIGHT IDEA Keep a Record of All Reasonable Facts or Sources of Reasonable Facts Provided to the Buyer One of the frequent areas of controversy between clients and buyer s representatives is whether all reasonable facts were provided to the buyers. For this reason, keep records of research and documents you provide for your client. Ask clients to initial and date any market information, such as a CMA, you provide. BALANCING ACT Don t Practice Law Without a License In the pursuit to give buyers best-in-class service and education, real estate professionals may cross the line and provide legal advice, which is a serious error and violation of the NAR Code of Ethics. Article 13 states: REALTORS shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it. 66

67 4. The Interview and Counseling Session SUGGESTED SCRIPTS Overcoming Objections to Buyer Representation Slide 18 Buyer: The sales agents who show me property are really nice. Why do I need a buyer s rep? Possible response: In many cases the agents you have been looking at property with have been the listing agents agents of the sellers. Being nice is their job. What you want is someone working for you helping you get the best price on the right house Buyer: If sellers can go FSBO, why can t I make a purchase on my own? Possible response: You certainly can buy on your own. My job is to protect your interests and help get you all the information you need to make an educated decision. Once we ve determined the proper value of a piece of property I will also help you negotiate the best price and terms. After that, I m there with you all the way to the closing to take care of the transaction and you until you move in Buyer: I m interested in new homes and the developers all say I can work directly with them. Possible response: You certainly can, but if you ever needed an agent it is when you are buying from a professional seller such as a builder. My job is to point out the pros and cons of what the builder is offering, such as, Is the premium they are charging you for the corner lot really going to make sense when you go to re-sell? I can help you save thousands in the long run no matter what you re buying by helping you buy smart Buyer: Every agent has access to the MLS, what is the advantage of working with you? Possible response: Helping you buy a home is more than just finding one. My expertise in negotiating, following up from contract to closing and maybe most importantly is my working relationship with the attorneys, title companies and other agents in the marketplace. You want to be working with someone who understands what it means to play well with others yet has the ability to look out for your interests at the same time. That s my specialty. 67

68 Accredited Buyer s Representative (ABR ) Designation Course Identify Your Point of Differentiation Once you have had an opportunity to make the case for buyer representation and outline the services you can offer as a buyer s agent, it s time to explain how you are different from your competition. Is it: Years experience? Education and training? Ability to make the home-buying process as smooth and hassle free as possible? Exceptional client service? Understanding of specific neighborhoods and markets? Network of reputable licensed professionals, e.g., home inspectors, contractors? Negotiation skills? Community involvement? Something else? For a look at how Michael Toomey, ABR, and David Kent, ABR, differentiate themselves in their markets, see Figures 4.2 and

69 4. The Interview and Counseling Session Figure 4.2: Practitioner Spotlight: Michael Toomey, ABR Market: Seattle, Washington Years representing buyers: 22+ Transaction types: Residential (resale and new construction) Slide 1-9 One way Michael differentiates himself in his market: I offer a 100 percent commission-back guarantee of my services to clients. The thinking is: I m here to serve your interests, and if I do my job right, you won t ask for your money back. The guarantee does several things: It separates you as an agent from anyone else in the business. It raises the bar to force you to be better to work harder. You have to make sure that the client understands this deal. It will get the quality of service on the table as a dialogue between you and the client. 69

70 Accredited Buyer s Representative (ABR ) Designation Course Slide 1-10 Figure 4.3: Practitioner Spotlight: David Kent, ABR Market: Charleston, South Carolina Years representing buyers: 14+ Transaction types: Residential (resale and new construction) and land One way David distinguishes himself from his competition: I make a point of providing my clients with clear understanding of what they can expect of me throughout the buying process and then following through on what I say. I let them know when I return calls, how best to get in touch with me, and that I am their advocate throughout the entire process. By setting expectations upfront, it helps avoid confusion. 70

71 4. The Interview and Counseling Session Win the Buyer s Confidence Make a Pledge of Performance To help win a buyer s confidence for full representation, consider using a pledge of performance (Figure 4.4). Figure 4.4: A Buyer s Representative s Pledge of Performance Because I am committed to preparing you to be an educated buyer, I will:... give you the most vital information on available homes... keep you aware of changes in the real estate market... arrange a tour of areas, schools and key points of interest... provide neighborhood information on municipal services, schools, churches, etc.... check applicable zoning and building restrictions... disclose all known facts about properties I show you... collect pertinent data on values, taxes, utility costs, etc.... point out strengths and weaknesses of all properties you choose to view... explain forms, contracts, escrow and settlement procedures... discuss loan qualification and processing Because I am committed to helping you save time, I will:... provide ready access to all MLS listed properties... assist you as needed on all unlisted properties... help you select for viewing only those homes that fit your needs... show you homes only in the price range most suited to your finances... provide you a list of qualified attorneys, home inspectors or other service providers... arrange for necessary property inspections Because I am committed to helping you find the best value, I will:... prepare studies of property values in chosen areas... perform a market analysis on chosen properties... discuss financing alternatives... see that you get a complete estimate of all costs involved... advise on offers on properties... write and present your purchase agreement to the seller... negotiate on your behalf Because I am committed to you my buyer I will do all of this plus:... keep your personal information confidential at all times... stay in touch with you from the day you start your search until the day you move in... coordinate all aspects of the sale and closing... be reimbursed with a commission only when we have a successfully closed transaction Contact Information Slide 5-20 Slide 20 Office phone Fax Web Site: Agent Signature Mobile Date Courtesy of Lynn Madison Seminars, 71

72 Accredited Buyer s Representative (ABR ) Designation Course Identify Priorities and Motivations If the buyer is not under contract with another buyer agent, you may decide to go to the next step. In this phase, you can help buyers probe and test their priorities. Ask the buyers what is important to them in the selection of a property, such as price, location, and features. To assist in prioritizing, consider asking, If a property meets all of your other needs but does not have (a desired feature), should I eliminate the property or would you like to see it? See Figure 4.5 for a checklist of recommended questions. Slide 21 Figure 4.5: Key Questions to Determine the Buyer s Priorities How many bedrooms do you need? Square feet? Units? What is your dream house? What are the things you do not want in your new home? Tell me three things you like about your present home? Is there a particular location you prefer? Is there a particular style of home you have in mind? What special requirements do you need in a property? Slide 22 Level of Motivation What is the buyer s current living situation compared to the property the buyer would like to purchase? Generally, buyers looking to make a big change in their housing situation are more motivated than buyers looking for a home similar to what they already own. Time constraints also create greater motivation. Ask, If we find the right property, are you prepared to make a decision now? Will anyone else help you make the decision? Some buyers may appear unmotivated or indecisive, when in fact they are apprehensive about process. Ask if they are uneasy about some aspect of the process and let them voice their concerns. 72

73 4. The Interview and Counseling Session Pre-Qualify the Buyer Prospective buyers may arrive at the interview and counseling session with a pre-approval letter and with a firm understanding of the down payment they can make, the monthly mortgage payment that is within their budget, and the target price range home they wish to buy. Less experienced buyers, particularly first-time home buyers, may need a lot more guidance from the buyer s representative. Slide 23 Some real estate professionals ask buyers to meet with lenders and obtain a mortgage pre-approval prior to the interview and counseling session. Other real estate professionals use the interview and counseling session to discuss financing and provide the buyer with a list of lenders that the buyer can contact. With either approach, it is essential to get a sense of what a buyer can afford because if the real estate professional would like to represent the buyer, the professional can manage the buyer s expectations and home search appropriately. There are times when the buyer cannot meet with a lender, but is eager to look at a specific house. Use this dialogue to approximate what the buyer can afford and to see if the house fits in the buyer s price range. Agent: Have you spoken with a lender regarding your financing? Buyer: No. Do we have to do that now? We are really anxious to look at this house. Agent: At some point we will need to talk with a lender. We will need a lender pre-approval letter when we submit your offer, but for now, just to be sure we're in the ballpark, may I ask you a few questions? Buyer: Sure. SUGGESTED SCRIPTS When the Buyer Hasn t Yet Met with a Lender Agent: Thanks. Have you given any thought to how much you plan on putting down? Buyer: We've got about 10% to put down. 73

74 Accredited Buyer s Representative (ABR ) Designation Course Agent: Great. Let's just use the list price of $300,000 for our example. That would mean $30,000 down, leaving you with a $270,000 mortgage. Do you have other funds to use for the closing costs and miscellaneous expenses - I'll cover those later - but I just want to be sure we've got all the bases covered. Buyer: Yes, we have other funds for that. Agent: Perfect. Let's calculate the payment on the $270,000 mortgage. At 6% interest we're looking at $6.00 per thousand per month for principal and interest. That comes to $1,620. Taxes on the property are $6,000 a year and insurance will be about $900, which brings us to a total of $2,195 or $2,200 a month. Will that fit in to what you were planning on spending? Buyer: Absolutely, we're fine with that. Agent: Great. Let's go take a look and we can talk with the lender to fine tune all of our numbers when we get back. Slides Exam Question 39 Determine If You Want to Represent the Buyer By this time, you should have formed an impression of the buyer and a picture of the buyer s wants, needs, expectations, motivations, and capabilities. There are times, however, when you may encounter buyers who you may not want to represent. The success of your business is dependent not only on you, but on good understanding and communication between you and your client. Be wary of the following clients who can drain you of your time and resources. Unmotivated Buyers May not be in a position to move now, but want to get a "feel" for the market to see what's out there Say that they want to "not rush things" and may not decide on a purchase for over a year Are reluctant to sign a buyer representation agreement Potentially Unqualified Buyers Will not seek pre-qualification until you find them the home that meets their specific needs Share that they have lousy credit 74

75 4. The Interview and Counseling Session Unrealistic Buyers Demand that you to find properties far below current market value Are habitually late, miss appointments or otherwise treat you unprofessionally Will not follow advice given in their best interest Buyers Who Create Conflicts of Interest Want to purchase a property you own or have interest in Have family members who are real estate agents and will not sign a buyer's agreement with you Are working with several buyer's agents Persist in trying to negotiate with the seller directly Are dishonest with you Buyers Who Ask You to Perform Unlawful Acts Make demands that violate fair housing laws, knowingly or unknowingly Tell you that you shouldn't "look too closely" at W2 or 1099 tax statements Take or damage a seller's property during a showing and expect you to "look the other way" Want access to see homes without you I-Note: ASK students if they have office policy questions about the topics presented in this chapter and INSTRUCT them to jot them down in the Questions to Ask Your Broker list, located in the Appendix. NAR CODE OF ETHICS REALTORS shall not provide access to listed property on terms other than those established by the owner or the listing broker. (Adopted 1/10) 75

76 Accredited Buyer s Representative (ABR ) Designation Course Slide 1 5. The Buyer Representation Agreement In this chapter: > Buyer loyalty > Review the buyer representation agreement > Compensation considerations Slide 2 BUYER LOYALTY Similar to your pledge of performance to the buyer, you can describe the buyer s agreement as the buyer s pledge to you. See the following article by Peter West, ABR, CRS, GRI, for how to make the case to buyers for a buyer representation agreement (Figure 5.1). Figure 5.1: Getting Buyers to Give You a Sign : A Sign of Loyalty, That Is, In the Form of a Signed Agreement It happens at least once in everyone s career. You work with a buyer for a long time and they end up buying with someone else! As a practical matter, this is one of the best reasons for buyer representation. It seems that whenever buyer representation is discussed among agents, the familiar issue is how do you get someone to sign a buyer representation agreement? This naturally leads to the all-time million-dollar question: How do I get buyers to be loyal to me (i.e., sign an agreement)? In my experience, certain steps can be taken to dramatically improve results. It All Begins With You: The very first step in the process is to develop a mindset that you will only work with buyers who are willing to sign an agreement with you. You already believe in the concept of client loyalty for sellers. When it comes to working with buyers, however, we are willing to drop whatever else we are doing and, without hesitation (much less an agreement), run out to show them a house or two, or maybe many more. The solution for most agents is to make a business decision decide not to work with a buyer until they sign an agreement. It is easier to do than we think. 76

77 5. The Buyer Representation Agreement Believe In Yourself And Your Value: The easiest way to determine your value is to retrace your actions on the last buyer deal that you successfully completed. Jot down all of the things you did, in order, from the first time you made face-to-face contact with the buyer until you closed the deal. These are the items that you will use to build your value. When you have completed the list you may be surprised by all of the things that you actually do and that most buyers take for granted. After you review your list, you can compile this information and use it in your buyer presentations. Counseling is Key: It is a fact that we as consumers do not like to be sold. One of the best ways around this practice in real estate is to embrace the concept of counseling. This is an effective approach where you truly work as a partner with the client. The relationship is developed by working with each other towards the buyer s common goals. To do this you have a meeting or a series of meetings in which you review every step of the transaction process and examine it in small pieces. Then you take all the small pieces and build a platform that becomes the foundation for this particular client. The Value of Due Diligence: Another great way to build value is to explain to buyers the amount of due diligence work that is done by you, their agent, on their behalf. As agents, we have sources for due diligence information at our fingertips (zoning, utilities, easement information, restrictions, inspection issues, pricing, etc.). This is a value-added service. Sure, in today s hightech society anyone can get the information. But does a buyer have direct access or know how to find it and do they have the time to do it? As part of due diligence, it is a buyer s representative s job to create a market value range for the buyer to determine the price they are willing to pay for a property. This is probably the one service most valued by buyers. Source: Peter West. Getting Buyers to Give You a Sign : A Sign of Loyalty, That Is, In the Form of a Signed Agreement. Today s Buyer s Rep, Real Estate Buyer s Agent Council, Inc.;

78 Accredited Buyer s Representative (ABR ) Designation Course Slides 3 I-Note: REVIEW the state or local buyer representation agreement and its provisions. REVIEW THE BUYER REPRESENTATION AGREEMENT It is in your best interest to work within the parameters of the buyer representation agreement. It is also best to agree with the buyer client on terms that are broad enough to cover many situations and conditions. Common provisions covered in a buyer representation agreement are explored in the following sections. Property Type, Description, and Price Range Is the client looking for residential, commercial or rental property, or land? What is the buyer s preferred location? The description of the buyer s desired property should be more general than precise. Likewise, price, if it is addressed in the agreement, should be defined in a range, not an exact amount. It should be broad enough to include all properties the buyer client is qualified to see or may want to see. Exam Question 23 Scope of Work What is the range of duties and tasks you are agreeing to perform? And what is expected of the buyer client? It is also important to define what you as the buyer s representative will not do, for example, make cold calls on potential sellers. Duration of Relationship How long will the buyer be your client? Factors that may influence this include your marketplace, desired property type, buyer needs, and the like. An addendum can be used to extend the duration of the original contract. Consent to Show Properties to Other Buyers State regulations may affect this, but generally such a provision allows both you and your company to show the same property to other buyers. 78

79 5. The Buyer Representation Agreement Exclusive or Non-Exclusive Although availability of an exclusive buyer representation agreement may vary by state and company policy, an exclusive agreement is preferable to a non-exclusive agreement. NAR CODE OF ETHICS Standard of Practice 1-13 When entering into buyer/tenant agreements, REALTORS must advise potential clients of: 1. the REALTOR s company policies regarding cooperation; 2. the amount of compensation to be paid by the client; 3. the potential for additional or offsetting compensation from other brokers, from the seller or landlord, or from other parties; 4. any potential for the buyer/tenant representative to act as a disclosed dual agent, e.g. listing broker, subagent, landlord s agent, etc., and 5. the possibility that sellers or sellers' representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties. (Adopted 1/93, Renumbered 1/98, Amended 1/06) Standard of Practice 16-3 Article 16 does not preclude REALTORS from contacting the client of another broker for the purpose of offering to provide, or entering into a contract to provide, a different type of real estate service unrelated to the type of service currently being provided (e.g., property management as opposed to brokerage) or from offering the same type of service for property not subject to other brokers exclusive agreements. However, information received through a Multiple Listing Service or any other offer of cooperation may not be used to target clients of other REALTORS to whom such offers to provide services may be made. (Amended 1/04) 79

80 Accredited Buyer s Representative (ABR ) Designation Course Standard of Practice 16-6 When REALTORS are contacted by the client of another REALTOR regarding the creation of an exclusive relationship to provide the same type of service, and REALTORS have not directly or indirectly initiated such discussions, they may discuss the terms upon which they might enter into a future agreement or, alternatively, may enter into an agreement which becomes effective upon expiration of any existing exclusive agreement. (Amended 1/98) Standard of Practice 16-9 REALTORS, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service. (Amended 1/04) Potential of a Disclosed Dual Agency Situation If disclosed dual agency is allowed by state law and your office policy, the potential for it should be included in the buyer representation agreement. Fair Housing Policy As explained earlier in this course, all federal, state, and local fair housing statutes and regulations must be observed. Discrimination is unacceptable under any circumstance. Remember that it is unlawful under fair housing laws to provide information that relates to the race, color, religion, sex, handicap, national origin or familial status of individuals in the area. Cancellation Provisions All state regulations must be observed with provisions for cancellation of the buyer representation agreement. Typically, a cancellation provision will address the circumstances in which a buyer s agreement can be cancelled, and if fees will apply. 80

81 5. The Buyer Representation Agreement Miscellaneous The agreement can also address the following issues: Agreement assignability Recourse if a commission dispute or other problem develops Dispute resolution mediation, arbitration, or court action Working with the buyer client on a short trial-period basis BALANCING ACT Clarifying Scope of Services in the Agreement Slide 6 It is important for a buyer s representative to define the limits of the services that will be performed on behalf of the client. For example, if the property search will be limited to those properties listed by the MLS and exclude forsale-by-owner (FSBO) properties, this should be reflected in the buyer representation agreement. One of the areas to review in the language of your buyer s agreement is the duration and scope of the relationship. It should be clear with your clients that you cannot show properties that you do not know about. Therefore, an addendum to the buyer representation agreement might clarify that the representative agrees to show properties that you are aware or have been brought to your attention. COMPENSATION CONSIDERATIONS The buyer representation agreement should set forth the circumstances under which will you get paid, how much, and by whom. There are different modes of compensation available to buyer s representatives and your office policy will likely delineate the options. Slide 7 Exam Question 7 81

82 Accredited Buyer s Representative (ABR ) Designation Course NAR CODE OF ETHICS Article 3 REALTORS s shall cooperate with other brokers except when cooperation is not in the client s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. (Amended 1/95) Article 7 In a transaction, REALTORS shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the REALTOR s client or clients. (Amended 1/93) Slide 8 It is usually in the best interest of your clients to always try to negotiate your fee so that the seller or seller s broker pays your fee. Ultimately, however, your clients are responsible for your fees. They should be informed that if the seller or seller s broker does not pay your fee they must do so. Remember, that according to the NAR Code of Ethics, a buyer s representative may not attempt to interfere with the terms of the listing agreement between the seller and the seller s agent nor should the buyer s representative interfere or attempt to modify the listing broker s offer of compensation. NAR CODE OF ETHICS Standard of Practice REALTORS, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker s agreement to modify the offer of compensation. (Amended 1/04) 82

83 5. The Buyer Representation Agreement What If s Discuss the following situations upfront with buyer clients and agree in writing on how these what ifs will be handled. What if: Slide 9 It is an MLS-listed property? It is a FSBO, not MLS listed? It is new construction? The MLS offer of compensation is more than what your agreement authorizes you to accept, creating an overage? The MLS offer of compensation is less than what is defined in your agreement? SUGGESTED SCRIPTS What to Say with the What If s Buyer: We understand that this contract states that your fee for representation is X%. What if the offer of compensation from the seller is less than what is stated in the contract? Possible response: That is the fee for my services to represent you. Many times the seller through the MLS has offered a percentage to the buyer s agent. In some cases the amount is equal to the contract that you and I have agreed to. In other cases it is less than what we have agreed to. If it is less than our contract, we have options as to how the balance will be covered Buyer: We understand that this contract states that your fee for finding us a home is X%. What happens if we find a home on our own that is a FSBO? Possible response: That is the fee for my services as your representative. If we find a home that is not listed through our MLS system we will need to determine how my contract will be paid. One option is that you can pay the fee as a closing expense. However, as your representative, one of the negotiations that I will handle for you is in having the FSBO seller pay for your expense of a buyer s representative. We have several options to handle that. 83

84 Accredited Buyer s Representative (ABR ) Designation Course Slide 10 BALANCING ACT Veteran s Administration Loans and Compensation Under the policies of the United States Veteran s Administration, a buyer is not allowed to compensate a buyer's representative with financing from the VA. If you are working with a VA buyer, be sure to discuss with the buyer how the buyer's representative must be compensated only by a commission split with the listing broker. Be careful not to state a compensation percentage in the buyer s agreement that will not be possible as a percentage of the split with the listing broker. Determining Payment It is important to understand the options that are available to your client. For payment to be made to a brokerage company, the following three conditions must exist: Slide 11 Exam Question 20 Exam Question 33 Slide 12 Slide 13 Exam Question 36 All parties must know and understand who represents whom in the real estate transaction. All representatives, subagents, and non-agents (e.g., facilitators or transaction brokers) must speak and act in a manner that is consistent with their legal relationships. All parties must know, understand, and agree to how the brokerage fees will be paid. Buyer s representatives can work on a contingency fee basis, which means a fee is paid only if a purchase is completed (also known as a success fee ). Consumers often respond well to this option because it parallels the way selling and listing brokers often are compensated. Fees can be determined using the price of the property as a factor: Percentage of purchase price Percentage of list price Percentage of purchase price plus a percentage of the amount less than the listing price 84

85 5. The Buyer Representation Agreement Fees can also be determined using the time spent in the search and purchase as a factor: Slide 14 Hourly fee or hourly fee plus expenses Hourly fee plus non-refundable retainer, if retainers are allowed under state law Either of the above with a minimum commission Salary (employee of the broker or firm) is another way to determine fees. BALANCING ACT Payment of Fees and Accounting Considerations Slide 15 In the case of non-contingency fees and retainers, there are accounting considerations. Does payment of these fees go into the same escrow as sales deposits? Regulation of fees is state specific and should be checked before accepting fees. For example, retainers may not be allowed in some states. BRIGHT IDEA Commission Protection Clause Slide 16 To help ensure that you are compensated for your efforts in the transaction, include a commission protection clause in the buyer representation agreement. This will help to protect your commission in case the buyer is negotiating with the seller at the time the agreement expires, or you show the buyer client a property during the term of the relationship but the buyer delays making an offer until after the agreement expires. Ways in Which Payments Are Made When the Seller Agrees to Compensate Slide 17 The seller pays the listing broker and authorizes the listing broker to share the commission with subagents. The buyer has no representative and no obligation to pay compensation to anyone. The seller provides written authorization to the listing broker, through the listing agreement, to share the brokerage commission 85

86 Accredited Buyer s Representative (ABR ) Designation Course with a buyer s representative. The buyer s representative, seller s representative, buyer, and seller all agree in writing that the payment of this fee is made solely as an economic adjustment in this transaction and does not create or imply that an agency relationship exists between the buyer s representative and any person other than the buyer. Some buyer s representatives prefer to receive their compensation from the buyer, not the listing broker or the seller. They include language in the purchase agreement stating that the buyer s representative refuses the compensation offered to them from the listing broker and the seller; and the seller will pay to the buyer directly so that the buyer can use the funds to compensate the buyer s representative. Slide 18 Exam Question 22 Slide 19 Exam Question 27 When the Seller Refuses to Compensate The buyer pays the buyer s representative fee and compensates for this in the amount offered to the seller for the property. This is generally not an appropriate option with a cash-poor buyer. Include a provision in the purchase contract, stating that the seller agrees to pay a specified fee to the buyer in order for the buyer to pay the buyer s representative, such as this offer is subject to and contingent upon the seller reimbursing the buyer at closing x% of the purchase price to pay the buyer s closing costs, and buyer agency compensation. Note: Including a provision is subject to state requirements, the type of financing, and the type of property being purchased. Again, according to the NAR Code of Ethics, buyer s representatives cannot use the purchase contract to renegotiate the agreed-upon commission. In addition, please note that buyer s representatives can provide for the agreement of the seller to compensate the buyer s representative with a specified fee, but you cannot state that the seller will compensate the buyer s representative out of the selling price directly. The offer should NOT include any language that resembles The listing agent shall pay to the buyer s representative x% of the selling price. 86

87 5. The Buyer Representation Agreement NAR CODE OF ETHICS Standard of Practice REALTORS, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker s agreement to modify the offer of compensation. (Amended 1/04) When the Seller Is Not Represented (For Sale by Owner) Slide 20 The buyer can pay the buyer s representative fee and compensate for this in the amount offered to the seller. This is generally not an appropriate option with a cash-poor buyer. The seller and the buyer s representative enter into a commission agreement, specifying that the seller agrees to pay the buyer s representation fee on behalf of the buyer. The buyer can include a provision in the purchase contract, stating that the seller agrees to pay a specified fee to the buyer s representative on behalf of the buyer. In each of the preceding points, the purchase contract should stipulate that the payment of the fee is made solely as an economic adjustment in the transaction and does not create nor imply that an agency relationship exists between the buyer s representative and any person other than the buyer. For a sample disclosure form, see Figure

88 Accredited Buyer s Representative (ABR ) Designation Course Figure 6.2: Sample Agency Disclosure and Brokerage Fee Agreement for Unlisted Property Showing Seller acknowledges that (Buyer Broker) has been retained by Buyer to represent Buyer and has designated one of its sales agents as Buyer s Designated Agent (Buyer s Agent). Seller understands that Buyer s Agent is the agent of the Buyer with a duty to represent the Buyer s interests. Seller further understands that the Buyer Agent is NOT the Seller s agent and that any information given to the Buyer s Agent by the Seller will be disclosed to the Buyer if it is in the Buyer s best interests. If this showing results in an offer to purchase by Buyer, the seller agrees to pay the Buyer s Broker on behalf of the Buyer % of the sale price. Seller acknowledges that the payment constitutes an economic adjustment in the transaction and does not create any agency relationship between the Seller and the Buyer s Broker or Buyer s Agent. Seller shall complete all disclosure reports required by law, including but not limited to the Residential Real Property Disclosure Report and the Lead-Based Paint Disclosure and authorizes Buyer Agent to make all disclosures available to the Buyer. Dated: Seller Broker Seller Designated Agent Property Address Company Name City/State/Zip Company Address Phone Fax City/State/Zip Phone Fax 88

89 5. The Buyer Representation Agreement After-the-Fact Referral Fees Although after-the-fact referral fees are declining, the issue is still present in the marketplace. Relocation companies and networks earn referral fees when they direct relocating employees to real estate brokers. Customarily, the broker agrees to pay a referral fee to the relocation company for each referral received as a result of this relationship. However, a problem arises when relocation companies demand referral fees when in fact they were not the sources of the referrals to the real estate agents. These situations arise when the relocating employee works outside of the network and the relocation company in turn tries to extract a referral fee from the real estate agent after the work has commenced. Sometimes the relocation company threatens the withdrawal of an employee's relocation package unless a referral fee is paid. This places the real estate agent in a very difficult position; often the agent feels forced to pay the referral fee because the employee is at risk of losing relocation benefits, like payment of moving expenses. To avoid this situation, in the course of the initial counseling session, ask the buyers if they are being transferred by their company. Then you are in a better position to decide whether or not you want this business given that a referral fee will most likely be requested. Some questions to ask are: What company do you work for? Is this a job transfer? Are you receiving any relocation benefits? If so, what are they? Are you required to work with a particular real estate agent in order to qualify for relocation benefits? If you agree to pay an after-the-fact referral fee, get the specifics in writing and also advise the buyer in writing that you will be paying the referral fee and specify the amount. Slide 21 I-Note: ASK students if they have office policy questions about the topics presented in this chapter and INSTRUCT them to jot them down in the Questions to Ask Your Broker list, located in the Appendix. 89

90 Accredited Buyer s Representative (ABR ) Designation Course Slide 1 Slide 2 Slide 3 Exam Question 41 Exam Question Offer through Accepted Contract In this chapter: > Formulating an offer > Negotiation know-how > Working toward a purchase contract > Presenting the offer in person > When you cannot personally present the offer > Offer and counteroffer procedures FORMULATING AN OFFER When your buyer clients have found the right property, the next step is formulating an offer that will hopefully lead to an accepted purchase contract. As a buyer s representative you may advise the buyer on the factors that go into an offer but remember that the client is the ultimate decision maker. The factors that go into formulating an offer include: Price of similar properties: A CMA will help establish price. Property condition: Is it in good condition or must the buyer invest substantial money in repairs? Length of time on the market: A long time on the market may indicate a slow market or some inherent problem with the property. Supply and demand: In a sellers market (high demand, low supply) your buyer s offer may have to compete with others. Seller s motivation: A seller under pressure to close a deal may be more receptive than one who can wait until the right offer comes along. Terms: What terms and contingencies must be written into the offer? Terms that make an offer attractive are items such as an allcash transaction, pre-approval for financing, short closing period, and few contingencies or seller concessions. Caution buyers that too many contingencies or expectations for seller concessions will likely make an offer less attractive. 90

91 6. Offer through Accepted Contract Return on investment (ROI): For commercial and investment buyers, the future income stream and ROI are essential considerations in developing an offer. NEGOTIATION KNOW-HOW Negotiating power is derived from knowledge and knowledge is derived from information. A buyer s representative should strive to learn as much as possible about the buyer client, the seller, the property, the listing agent, the area, and the market. Of course, all the information in the world will not be much help if there is no strategy for applying it. The following five steps will lead you and your buyer clients through the process of transforming information into knowledge and power in order to negotiate a successful outcome. 1. Identify your buyer client s priorities 2. Assess the strength of your buyer client s negotiating position 3. Plan a negotiation strategy 4. Assess the big picture 5. Write the offer 6. Follow through Identify Your Buyer Client s Priorities You are negotiating to reflect the buyer s priorities. You will have identified these priorities during the initial interview and counseling session, but reassess them regularly in the negotiation process because they may change especially in the give-and-take of offer and counteroffer. You will want to determine which of the terms of the contract are top priority for your buyer: Price Closing date Closing costs Seller s personal property included in transaction Slide 4 Slide 5 Identify points of agreement and differences between your buyer client and the seller. Focus the negotiations on areas of disagreement and concentrate on resolving those issues. 91

92 Accredited Buyer s Representative (ABR ) Designation Course Slide 6 Assess the Strength of Your Buyer Client s Negotiating Position If you understand that negotiating power ultimately derives from information, it only makes sense that the first step in creating a successful negotiating strategy is to assess your buyer-client s negotiating position. This step involves collecting and evaluating information from different sources, such as general market conditions, property selection, the buyer s financial strength, and the seller s situation. General Market Conditions The housing market has major influence on how you negotiate. Examine the factors that influence market conditions such as the seasonal cycle, interest rates, national and local economy, unemployment levels, and inflation. In general, a strong economy strengthens a seller s negotiating position. High interest rates generally mean fewer buyers, but a better negotiating position for them. Low interest rates attract more buyers, strengthening the seller s negotiating position. Property Selection The principle of supply and demand has a strong influence on the strength of your buyer-client s negotiating position. The seller s representative, as well as the buyer s representative, can manipulate this by trying to differentiate the property or including it in the mix of properties. A small supply of appropriate and similar properties in a search area weakens a buyer s leverage, particularly if the seller knows that the supply of appropriate properties is limited. New construction in the area may drive potential buyers away from existing properties, weakening the negotiating position for sellers of existing properties. Buyer s Financial Strength A buyer-client s financial strength impacts the negotiation position. A strong financial situation favors a buyer-client. In general, the more financially strong your buyer-clients are, the more attractive their offers will be. For example, with a low risk of a deal falling through due to financial problems, the seller may accept a lower price. A problematic financial situation creates a weaker negotiating position for your buyerclients. Sellers are less likely to negotiate price with buyers who may need financial concessions. Of course, not all buyer-clients come ready to flex their fiscal muscles. There are some steps even buyers with a weak 92

93 6. Offer through Accepted Contract financial situation can take to strengthen offers, such as a loan preapproval or a large down payment. Seller s Situation The seller s situation impacts your buyer-client s negotiating position. For example, a seller who will only sell at top dollar weakens a buyer-client s negotiating leverage. Learn as much as you can about the sellers in order to better understand their negotiation strengths and weaknesses. Simple human nature can also be a factor. As a rule of thumb, the more compatible your buyer-client is with the seller, the better the negotiating position. Some of the intangible factors that affect the relationship between the buyer and seller may also affect your relationship with seller s representative. However, it would be unprofessional to allow your personal feelings about the seller and the seller s representative, negative or positive, affect your client s negotiating position. See the Appendix for a chart that summarizes factors that can work to the buyer s advantage or disadvantage, questions to ask, and ways to enhance the buyer s advantage. Strategies for Buyer s or Seller s Markets Buyer s market Keep up-to-date on price adjustments Shop around for good mortgage terms Request contingencies or extras like a home warranty Ask the seller to assume some of the closing costs or fees Shorten the time period for the seller s acceptance All cash or pre-approved mortgage commitment provides even more leverage than in a sellers market Sellers market Slide 7 Slide 8 Obtain a mortgage commitment pre-approval before making an offer Offer the list price or more Make the first offer the best offer as there may not be a counteroffer or another opportunity Keep contingencies to the minimum and do not ask the seller to pay closing costs or provide financing Pay cash for all or the majority of the purchase 93

94 Accredited Buyer s Representative (ABR ) Designation Course Slide 9 Plan a Negotiation Strategy Review the strengths and weaknesses of the negotiating position with your buyer client so that the strengths can be emphasized. Discussing these strengths helps you articulate the buyer s negotiating position and rationale. Given your buyer client s primary objectives, negotiating rationale, and all other information, establish the overall strategy starting with the initial offering price and terms, and include the acceptable price and terms as the ultimate goal. Your buyer client may inquire how you will assist in deciding how much to offer. One possible answer is as follows: Our offering strategy is a compilation of experience and knowledge. Experience is the best teacher and I have [state years of experience] years of experience creating offers. We will for example, blend market knowledge as evidenced by inventory levels, supply and demand, whether it is a buyers or sellers market at the time, with information we gather about the property via research and viewing the property. We will weigh a number of factors. Those factors include the following: o o o o o What has the listing agent told us How long has the property been on the market Does the property have a history of price reductions How many times and at what prices it has been listed What information can we gather from recorded documents, comparable sales activity, and current competitors. Slide 10 Remember, the key to a successful negotiation is the ability to see and understand your buyer client s and the other party s positions. Only with this perspective can a win-win result be achieved. Make sure your buyer clients understand this. Less successful and desirable, though sometimes achievable, is when both parties make concessions that may be too great to be considered win-win. Keep in mind that the essence of negotiation is agreement not competition or combat. The goal of a negotiation process is to reach agreement, not to grind the opponent into the ground. 94

95 6. Offer through Accepted Contract Assess the Big Picture The next stage is to take a step back and review the overall picture of the negotiation. Provide your buyer client with any information that may be helpful for making informed decisions as you progress together through the negotiating process. Slide 11 Plan logically and rationally, understanding that responses may sometimes be illogical and irrational. Review the seller s listing price and terms with your buyer client and any other information about the seller that may impact the negotiations. Review an up-to-date CMA so that your buyer client has an informed frame of reference. Review the buyer s needs, wants, and level of affordability. Write the Offer Negotiations begin officially with an initial offer and end when the final offer is accepted. Because oral promises are not legally enforceable in the brokerage of real estate, buyers must enter into a written offer to purchase. The offer will include: Property address Sales price and terms Seller s promise to provide clear title Date for closing Earnest money Prorated amounts for payment of real estate taxes, utilities, assessments and other costs that may be incurred by the seller before closing but not billed to the property until after closing Who will pay for title insurance, surveys, inspections and other costs Type of deed to be transferred Federal- and state-required provisions Final walkthrough inspection prior to closing Length of time for which the offer is valid Slide 12 95

96 Accredited Buyer s Representative (ABR ) Designation Course Slide 13 Follow Through Be ready to implement the rest of your negotiating strategy when the seller makes a counteroffer. Keep the negotiating process at a professional level. You will harm your buyer client s negotiating position if the process becomes personal. Though most concessions are often made at the end of negotiations, and patience achieves the best outcome, caution your buyer clients that the longer the term of the negotiations, the greater the risk that a competing buyer will make an offer, perhaps one that is more attractive. ADDITIONAL CONSIDERATIONS Ensure Your Buyer Is Fully Informed Make your buyer aware of the following: Slide 14 Exam Question 28 Oral promises are not enforceable, therefore, everything regarding the transaction must be in writing. An offer is a proposal of price and terms and if the seller accepts the offer it becomes a binding contract, which means no further negotiations. An offer is the opening step in negotiations, not the start of negotiations fever. Multiple counteroffers of price and terms risk annoying the seller or losing out to another offer. If the seller makes a counteroffer, the buyer may accept or reject it, or make a counteroffer. If the buyer makes a counteroffer, the seller may accept or reject it or make a counteroffer. If sellers reject an offer, they cannot change their mind later and hold the buyer to the terms of the offer; likewise if a buyer rejects a seller s counteroffer. An offer may be revoked up to the time it is accepted or the buyer is notified of acceptance; however, once an offer is accepted and becomes a contract, attempting to walk away is a serious misstep that can result in loss of earnest money or a lawsuit brought by the seller for recovery of damages. 96

97 6. Offer through Accepted Contract WORKING TOWARD AN ACCEPTED CONTRACT As an offer is developed, presented to the seller, and acted on, the buyer s representative must always remember that the client is the decision maker. The role of the buyer s representative is to provide information and advice, not to determine what is best for the client. Working toward a purchase contract involves presenting the client s offer in the best possible light, preparing to respond to counteroffers, and planning a strategy if there are multiple offers. Slide 15 Questions to ask the listing agent include: Is there a variable rate commission? Are there multiple offers being received for the property? PRESENTING THE OFFER IN PERSON In many markets, it is customary for the buyer s representative to fax their client s offer to the listing agent for seller consideration. In these same markets, buyer s representatives may be extremely reluctant to present the offer in person. There are distinct advantages to personally presenting the offer. Consider Figure 6.1. Slide 16 97

98 Accredited Buyer s Representative (ABR ) Designation Course Slide 17 Figure 6.1: To Fax or Not to Fax When you submit your buyer s offer via fax, consider what happens: You re entrusting another agent to present your client s offer to the decision maker. Since that agent probably hasn t even met your buyer, how can they possibly present with any realistic confidence the buyer s terms, conditions, and qualifications? You re possibly exposing your client s offer to all other agents in that office, eliminating the confidentiality of the offer. Were you really providing the best service to your buyer when you didn t protect their offer s terms and conditions? You failed to protect the buyer s information and interests! The practice of the buyer s representative being with the listing agent when the offer is presented to the seller is fully supported by NAR s MLS Policy Statement 7.73, Rights of Cooperating Brokers in Presentation of Offers, and in corresponding sections of the model MLS rules. Slides There are a number of reasons why personally presenting a buyer s offer benefits the buyer s representative: You will know more about the seller s situation and concerns, and be better prepared to advise your buyer in a counteroffer. You will be confident that your buyer s offer was put in front of the seller and that its terms were described in a manner that hopefully favors your buyer. Your buyer client will have a better feeling that you handled the negotiation process in a professional manner. Source: Alec Hagerty. Earning the Full Measure of Our Worth: Negotiating Opportunities at the Heart of Buyer Representation. Today s Buyer s Rep, Volume XVIII, Number 2. Copyright 2009, REBAC. Slide 7-17 Slide 20 Exam Question 26 Tips for a Successful in-person Presentation Create a Friendly Atmosphere Every seller wants to see offers, but not every offer is one that a seller wants to see. Regardless of the particulars contained in an offer, you can enhance its acceptability by creating a friendly atmosphere and setting a constructive tone. 98

99 6. Offer through Accepted Contract People are more likely to consider concessions when dealing with people they like. Strategies to create a friendly atmosphere include: Introducing your buyer clients into the conversation as real people, not adversaries Telling the sellers how much you enjoyed showing their home Describing aspects of the home that your clients particularly like Avoiding discussion of any negative attributes of the property Explain the Offer As you present the offer, explain the buyer s rationale, concerns, and limitations. Include a CMA if appropriate. Stress the positive attributes of the offer, such as your client s financial qualifications, large down payment, agreement on the settlement date and personal property, and the like. It is best to avoid emphasizing negative aspects of the property or seller s circumstances as a defense of the offer. Once the buyer s representative presents the offer, the representative of the sellers will ask the buyer s representative to leave. According to NAR policy, if the seller makes a counteroffer, the seller s agent may present the counteroffer to the buyer and buyer s representative. Unless invited to stay, the buyer s representative will be asked to and should leave after presenting the offer so that the seller and seller s representative can discuss it privately. The seller may reject the offer, accept it (in which case it becomes a contractual obligation), or make a counteroffer. The seller s representative has the right to participate in the presentation to the buyer of any counteroffers the seller might make. Timely Presentation of Offers According to the NAR Code Ethics, a timely submission of the buyer s offer is your duty to the buyer. Also, responses to counteroffers should see as timely a return as possible. Failure to do so may imperil the transaction. Slide Slide NAR CODE OF ETHICS Standard of Practice 1-6 REALTORS shall submit offers and counter-offers objectively and as quickly as possible. (Adopted 1/93, Amended 1/95) 99

100 Accredited Buyer s Representative (ABR ) Designation Course Be ready to implement the rest of your negotiating strategy when the seller makes a counteroffer. Keep the negotiating process at a professional level. You will harm your buyer client s negotiating position if the process becomes personal. Though most concessions are often made at the end of negotiations, and patience achieves the best outcome, caution your buyer clients that the longer the term of the negotiations, the greater the risk that a competing buyer will make an offer, perhaps one that is more attractive. Six top seller concessions are: 1. Letting the buyer move in quickly 2. Helping with financing 3. Letting the buyers rent with an option to buy 4. Permitting certain contingencies 5. Paying closing costs that are usually paid by the buyer 6. Paying for improvements such as exterior painting Slide 22 OFFER AND COUNTEROFFER PROCEDURES The NAR Code of Ethics states that all offers and counteroffers must be presented to the clients up to closing or until such time that the clients, in writing, no longer want to entertain offers. Buyers should be advised that the seller or seller s representative may not treat their offer as confidential unless required to. If client requires confidentiality, the buyer should request, prior to presentation of the offer, that the seller enter into a confidentiality agreement. The confidentiality agreement should not be a part of the offer. You also must advise clients that the seller or seller s representative may not treat your offer as confidential unless required to. Therefore, if your client requires confidentiality, the buyer s representative should ensure that by determining the confidentiality requirements on the part of the seller and offering a confidentiality agreement if no requirements are in place. 100

101 6. Offer through Accepted Contract NAR CODE OF ETHICS Standard of Practice 1-8 REALTORS, acting as agents or brokers of buyers/tenants, shall submit to buyers/tenants all offers and counter-offers until acceptance but have no obligation to continue to show properties to their clients after an offer has been accepted unless otherwise agreed in writing. REALTORS, acting as agents or brokers of buyers/tenants, shall recommend that buyers/tenants obtain the advice of legal counsel if there is a question as to whether a pre-existing contract has been terminated. (Adopted 1/93, Amended 1/99) Standard of Practice 1-13 When entering into buyer/tenant agreements, REALTORS must advise potential clients of: the possibility that sellers or sellers' representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties. (Adopted 1/93, Renumbered 1/98, Amended 1/06) Standard of Practice 1-15 REALTORS, in response to inquiries from buyers or cooperating brokers shall, with the sellers approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORS shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. (Adopted 1/03, Amended 1/09) WHEN YOU CANNOT PERSONALLY PRESENT AN OFFER Because you know your client s objectives, concerns, and priorities, it is in your client s best interests for you to present the offer. But what if the seller refuses to allow buyer s representatives to present any offers? Your client can add a provision to the purchase agreement that makes the offer contingent on the buyer s representative making the initial presentation to the seller. This, however, may not be in your buyer client s best interest, because the opportunity to purchase the property may be lost. 101

102 Accredited Buyer s Representative (ABR ) Designation Course Slide 23 Slide 24 Slide 25 For a variety of reasons, it is becoming more common to not have the opportunity to present the offer in person. Therefore, it is your responsibility to ask yourself How can I enhance my buyer s interests absent of the ability to present the offer? Rather than simply faxing the offer over to the listing agent, consider taking the following actions: Verify that the listing agent is available to receive the buyer s offer before faxing it. Consider personally presenting the buyer s offer to the listing agent. Include a cover letter written by the buyer. Request upfront, if not already covered in the contract, that the seller counter or reject the offer in writing HANDLING MULTIPLE OFFERS It does not have to be a seller s market for a seller to receive multiple offers on a property. Multiple offers complicate the situation because buyers must consider not only their own interests and capabilities along with the property s condition, but also the unknown factor of other buyers interests and capabilities. When a multiple-offer situation arises, consider the following factors as you help your buyer client formulate an attractive offer: What is your responsibility, as the buyer s representative, to your buyer client and how do you best meet it? Who made the other offers? A customer from the listing office or another cooperating brokerage? A buyer client or customer of another salesperson from the listing office? Who should present the buyer client s offer? Should the buyer s representative request to be present when other offers are presented? Or, is it in your buyer client s best interest for the listing agent to present that offer to the seller along with other offers? Or, would it be better to ask the broker of the listing office to present your buyer client s offer, instead of the listing agent? Presentation and negotiation of multiple offers is one of the most misunderstood areas of practice. Basically, there are two ways multiple offers can be presented. 102

103 6. Offer through Accepted Contract 1. Individual presentation: Each contract is presented to the seller and listing agent only; the contents of each offer are not shared with anyone else. 2. Group presentation: All offers are presented at the same time with all representatives present. The contents of every offer are made known to the representatives of all buyers. Since some buyers may not want their information disclosed to other parties, all buyers should be notified if this method is to be used by the seller. Some real estate professionals believe, incorrectly, that they are required to automatically disclose the existence of multiple offers on a property, whether or not the buyer s representative asks about other offers or the seller wants to divulge this information to buyers. The buyer or buyer s representative must ask for this information and the seller must consent to divulging it. Exam Question 42 It should be obvious that the presence of multiple offers weakens a buyer s leverage. Sellers are neither obligated to consider offers in the order that they were received, nor accept the highest bid if a lower bid presents more attractive terms. If a multiple offer situation arises, do not panic or counsel buyers to withdraw an offer; they may be the highest bidders and will never know it if they pull out. Although the situation may be nerve wracking and the final outcome disappointing, it is worth the time and effort to go through at least one round of negotiations before withdrawing. Counsel buyers to have a price in mind, remain objective, and stay in the negotiations until that price is reached. Multiple offers present a complex situation and although there is no single standard approach or procedure, NAR does provide guidelines on how proceed. See Figure

104 Accredited Buyer s Representative (ABR ) Designation Course Figure 6.2: Presenting and Negotiating Multiple Offers - White Paper "When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS pledge themselves to protect and promote the interests of their clients. This obligation to the client's interests is primary, but it does not relieve REALTORS of their obligation to treat all parties honestly." (from Article 1 of the 2002 REALTORS Code of Ethics) "REALTORS shall submit offers and counter-offers objectively and as quickly as possible." (Standard of Practice 1-6) Perhaps no situation routinely faced by REALTORS can be more frustrating, fraught with potential for misunderstanding and missed opportunity, and elusive of a formulaic solution than presenting and negotiating multiple purchase or lease offers and/or counter-offers on the same property. Consider the competing dynamics. Listing brokers are charged with helping sellers get the highest price and the most favorable terms for their property. Buyers' brokers help their clients purchase property at the lowest price and on favorable terms. Balanced against the Code's mandate of honesty is the imperative to refrain from making disclosures that may not, in the final analysis, be in a client's interests. (Revised 11/01) Will disclosing the existence of one offer make a second potential purchaser more likely to sign a full price purchase offer or to pursue a different opportunity? Will telling several potential purchasers that each will be given a final opportunity to make their best offer result in spirited competition for the seller's property or in a table devoid of offers? What is fair? What is honest? What is to be done? Who decides? And why is there not a simple way to deal with these situations? As REALTORS know, there are almost never simple answers to complex situations. And multiple offer presentations and negotiations are nothing if not complex. But, although there is not a single, standard approach to dealing with multiple offers, there are fundamental principles to guide REALTORS. While these guidelines focus on negotiation of purchase offers, the following general principles are equally applicable to negotiation of lease agreements. (Revised 11/01) Be aware of your duties to your client seller or buyer both as established in the Code of Ethics and in state law and regulations. (Revised 05/01) 104

105 6. Offer through Accepted Contract The Code requires you to protect and promote your client's interests. State law or regulations will likely also spell out duties you owe to your client. The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. REALTORS need to be familiar with applicable laws and regulations. Be aware of your duties to other parties both as established in the Code of Ethics and in state law and regulation. Remember that the decisions about how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted, are made by the seller not by the listing broker. (Revised 05/01) Remember that decisions about how counter-offers will be presented, how counter-offers will be negotiated, and whether a counter-offer will be accepted, are made by the buyer not by the buyer's broker. (Adopted 05/01) When taking listings, explain to sellers that receiving multiple, competing offers is a possibility. Explain the various ways they may be dealt with (e.g., acceptance of the "best" offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.). Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their "best" offer may produce a better offer[s] than what is currently on the table or may discourage offerors and result in their pursuing other properties). Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do. Remember and remind the seller that the decisions are theirs to make not yours, and that you are bound by their lawful and ethical instructions. 105

106 Accredited Buyer s Representative (ABR ) Designation Course When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyerclient, that more than one of your clients or your firm's clients may be interested in purchasing the same property, and how offers and counter-offers will be negotiated if that happens. (Adopted 05/01) Explain the pluses and minuses of various negotiating strategies (that a "low" initial offer may result in the buyer purchasing the desired property at less than the listed price or in another, higher offer from another buyer being accepted; that a full price offer may result in the buyer purchasing the desired property while paying more than the seller might have taken for the property, etc.). (Adopted 05/01) Explain to the buyer that sellers are not bound by the Code of Ethics. Sellers, in multiple offers situations, are not prohibited from shopping offers. Real estate brokers may - unless prohibited by law or regulation - "shop" offers. Therefore, REALTORS assisting purchasers in formulating purchase offers should advise those purchasers it is possible that the existence, terms and conditions of any offer they make may be disclosed to other purchasers by sellers or by sellers representatives except where such disclosure is prohibited by law or regulation. (adopted 05/05) Remember and remind the buyer that the decisions are theirs to make not yours, and that you are bound by their lawful and ethical instructions. (Adopted 05/01) If the possibility of multiple offers and the various ways they might be dealt with were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers and get direction from them. When representing sellers or buyers, be mindful of Standard of Practice 1-6's charge to "... submit offers and counter-offers objectively and as quickly as possible." (Revised 05/01) While the Code of Ethics does not expressly mandate "fairness" (given its inherent subjectivity), remember that the Preamble has long noted that "... REALTOR has come to connote competency, fairness, and high integrity...." If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed. Article 3 calls on REALTORS to "... cooperate with other brokers except when cooperation is not in the client's best interest." Implicit in cooperation is forthright sharing of information related to 106

107 6. Offer through Accepted Contract cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 05/01) Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, "... REALTORS can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, 'Whatsoever ye would that others should do to you, do ye even so to them.' " (from the Preamble to the Code of Ethics). (Revised 05/05) Source: National Association of REALTORS. Presenting and Negotiating Multiple Offers - White Paper. Available at: NEGOTIATION CORE COMPETENCY FOR BUYER S REPRESENTATIVES Negotiation is considered a core skill for all real estate professionals, buyer s representatives included. Seek advanced training on this topic. For a look at additional negotiation tips, see Figure 6.3. Slide

108 Accredited Buyer s Representative (ABR ) Designation Course Figure 6.3: Additional Negotiation Tips Use metaphors and analogies. You ll be more effective helping someone understand your (or your buyer s) perspective if you communicate with both the left brain (numbers) and right brain (pictures and emotions). We use metaphors and analogies to communicate with the right brain. For example, if you re trying to get the buyer to sign your representation agreement you might say, Think of it this way it s just like the listing agreement the seller signs on the other side of the table with the listing agent. Or if you re counseling a buyer on the risk of a low-ball offer, you might say, You have to realize that for some sellers, receiving a low-ball offer will be like telling new parents their baby is ugly! Metaphors create mental images that can make you more persuasive. I-Note: ASK students if they have office policy questions about the topics presented in this chapter and INSTRUCT them to jot them down in the Questions to Ask Your Broker list, located in the Appendix. Use fairness as a tactic. In our culture, most people want to be perceived as fair. In negotiating, if you position your offer as fair there is pressure on the other side to accept because they want to be perceived as fair. If they disagree, there is also pressure on them to convince you that something else is more fair. Use low-ball offers cautiously. A low-ball offer, faxed over, can stir up lots of negative emotions. If your buyers only qualified for this amount and truly can t afford more, explain this to the listing agent and tell them that your buyers are not trying to insult the sellers. If, on the other hand, the house is seriously over-priced, it s fair to explain this too. Always provide some type of justification for any offer, especially a low-ball offer. Beware of taking too much. Housing transactions are actually a series of negotiations, with several opportunities for one party to bow out after the contract has been signed. If someone feels they ve been treated unfairly during the initial negotiations, they may later dig in their heels once an opportunity presents itself, potentially jeopardizing the whole transaction. Even in a strong buyer s market, when negotiating scenarios are stacked to the buyer s advantage, you still want to strive for win-win results. Source: Tom Hayman. Negotiating: What Every Buyer s Rep Should Consider. Today s Buyer s Rep. Volume XVIII, Number 2. Copyright 2009 REBAC. 108

109 7. Follow Through 7. Follow Through In this chapter: > Client relationships after the sale Slide 1 CLIENT RELATIONSHIPS AFTER THE SALE One of the most important ways for you to build your business is to follow through after the sale. As we noted in the beginning of this course, buyer referrals and repeat business are still the most common way that agents get their business. It makes sense then to see each buyer as a potential customer for life. Examples of follow through are listed in Figure 7.1. Figure 7.1: Follow Through After the Sale Slide 2 It is essential that you communicate with the buyer soon after move-in when the home purchase is still new and the buyer s experience is fresh. A few of the requests you can make after the move-in include: Asking the buyer to take a satisfaction survey (see Figure 7.2) 109

110 Accredited Buyer s Representative (ABR ) Designation Course Requesting a letter of recommendation from the buyer Sending a friend request on social networking sites you use in the course of your business Figure 7.2: Buyer Survey *Client s name and address here+ Is your name and address presented accurately? If not, please accept our apologies and indicate corrections above. [Your company here] would like to ask your help in evaluating the service you received during your home buying experience. Your opinions about the service will be extremely helpful in evaluating not only [your company and your name], but the industry as a whole. Please complete and return this survey in the enclosed postage-paid envelope. 1. How would you describing the services received? A. Associate B. Company 1 excellent 5 excellent 2 good 6 good 3 fair 7 fair 4 poor 8 poor 2. Would you recommend the: A. Associate B. Company 1 yes 4 yes 2 no 5 no 3 undecided 6 undecided 3. Have you ever had a previous transaction with: A. Associate B. Company 1 yes 3 yes 2 no 4 no 4. Has your Associate been in contact with you? A. Mail 1 yes 4 no B. Phone 2 yes 5 no C. In Person 3 yes 6 no 5. Was the purchase of your home: 1 your first home 2 second home purchase 3 third or more 6. Did the purchase of your new home involve: 1101 A move within [Your City] 2 A move to relocate to [Your City]

111 7. Follow Through 7..Did your move involve the use of a Relocation Service? 1 yes 2 no Name of Relocation Service used: 8. Did you 1 own 2 rent your previous residence? 9. What was the age of the home in your transaction? 10. What influenced you most to work with [Your Company]? 1 reputation A television 2 past experience B relocation service 3 referral of friend C newspaper 4 knew associate D convenient location 5 yellow pages E magazine 6 direct mail F web site 7 lawn sign G internet 8 open house H agent recommendation 9 billboard I other, explain: 11. What influenced you most to buy? 1 selling price 7 convenient location 2 down payment 8 style/features 3 monthly payment 9 condition of property 4 interest rate A schools 5 loan conditions B other: 6 neighborhood 12. How did you choose your Mortgage Company? 1 used in previous transaction 2 employer recommendation 3 friend recommendation 4 other: 13. What one feature influenced you most in the purchase of your home? 1 lot size 6 storage 2 two stories 7 size of garage 3 game room 8 home office 4 landscaping 9 master bath suite 5 number of bedrooms A other: 14. Age of respondent filling out this survey: male female

112 Accredited Buyer s Representative (ABR ) Designation Course For a list of ways to stay connected, see Figure 7.3. Slide 4 Figure 7.3: Twelve Simple Ways to Stay in Touch Don t wait until the client has forgotten your name to establish contact. Begin your client-basebuilding soon after the transaction is over, when your identity and the good service is still fresh in the customer s mind. These simple follow-up tasks will demonstrate that you want long-term relationships, not just closed transactions. 1. Call your clients within 24 hours of the closing to congratulate them on their sale or purchase. 2. Send a thank-you note one week after the closing emphasizing what a pleasure it was to work with the client. 3. If you're in the relocation business, notify the corporate client when the employee s transaction has closed. Send a thank-you note to the corporation s relocation coordinator. 4. Create a binder for clients containing copies of the paperwork, such as appraisals, inspection reports, warranties, settlement statements, generated during the transaction. They ll remember you, and appreciate the organization, when they revisit this information at tax time. 5. Offer to provide referrals for household services, such as plumbers, electricians, contractors, carpet installers, landscapers, or appliance dealers. Offer a free consultation on the value of a home improvement project using REALTOR Magazine's annual Cost vs. Value Report. 6. Send a customer satisfaction survey form two to three weeks after the closing to get feedback on customer reactions. 7. Ask client for an endorsement or testimonial letter you can use in your listing presentations and on your Web site. 8. Find out if the client has any friends, family, or business associates who might be interested in receiving a free comparative market analysis of their homes. 9. Remove sold signs, if you re the listing salesperson. Be sure that you repair any damage the signs may have caused to fence or lawn. 10. Set up a client file that includes personal information such as names, birthdays, ages, pets, and hobbies for the client s family. 11. Add your client's name to your newsletter subscription list. 12. Enter the anniversary date of the closing into your tickler file so you can follow up next year with a card commemorating their purchase. Later, you can use this date as a tickler to determine when the customer might be ready to sell. According to NAR research, the average home owner moves every six years. Condo owners move every four to five years. 112

113 7. Follow Through Timing of the follow through actions should be well planned. If a buyer client is hit with every marketing follow up all at once only a month after the sale, they may tune your requests out. See Figure 7.4 for a potential schedule of marketing follow up. Figure 7.4: Follow-up Schedule Slide 5 I-Note: ASK students if they have office policy questions about the topics presented in this chapter and INSTRUCT them to jot them down in the Questions to Ask Your Broker list, located in the Appendix. ANSWER any follow-up questions students may have regarding the requirements for the ABR designation or how designation applications are processed. 113

114 Accredited Buyer s Representative (ABR ) Designation Course 8. Marketing Fundamentals Slide 1 In this chapter: > Know who the buyers are > Build your personal brand > Create your marketing plan > Find the buyers and how buyers find you Slide 2 Slide 3 KNOW WHO THE BUYERS ARE The success of buyer s representatives is determined in large measure by how well they understand who the buyers are in their respective markets. Demographic data for first-time home buyers and repeat buyers differ considerably. According to NAR research: First-time home buyers Younger (median age is 30) Married Earn, on average, $61,600 each year Repeat home buyers Older (median age is 48) Married Earn more (median annual income is $88,100) Slide 4 In practice, however, there are as many different types of home buyers and buyer motivations as there are types of real estate and real estate markets. As you begin to think of who the buyers are in your marketplace, consider the following categories: Age Marital status Where buyers are moving from Prior living arrangement Type of property purchased Price of property purchased Use Workshop #12 to analyze the buyers you represent. 114

115 8. Marketing Fundamentals WORKSHOP #12 Slide 1-6 It s a good idea to assess the buyers you represent and identify any trends. For example, are 20 percent of your buyers purchasing second homes? If yes, you may want to consider catering to/specializing in this niche. Complete this worksheet to the best of your ability. For each of the following 11 categories, write in the percentage of buyers whom you represent. For example, if 80 percent of the buyers you represent are aged and 20 percent are 55 and higher, write 80% and 20% in the corresponding blanks. The buyers I represent: 1. Are aged: 7. Are first-time buyers: Yes No 55 and higher 8. Are repeat buyers: 2. Have a marital status of: Yes Married No Unmarried Single and male 9. Bought: Single and female Detached single-family home Townhouse/row house 3. Have children: Condominium or townhome Yes Multi-unit property No Land 4. Have extended family members 10. With a purchase price of: living with them: Yes Less than $99,999 No $100,000 $199,999 $200,000 $299, Have pets: $300,000 $399,999 Yes $400,000 $499,999 No $500,000 or more 6. Had a prior living arrangement of: 11. To use as: Renting an apartment or home Primary residence Owning a house Vacation or second home Living with family or friends Investment 115

116 Accredited Buyer s Representative (ABR ) Designation Course BRIGHT IDEA Take Advantage of Market Research Slide 1-7 Extensive research on home buyers and home sales is available free of charge to members of the National Association of REALTORS (NAR). Access for these resources, including home buyer profiles, relocation reports, confidence index reports, and market-bymarket home price analysis. Profile of Home Buyers and Sellers: Published each November Identifies characteristics of home buyers, homes purchased, as well as trends To download, visit County-specific relocation reports: Pinpoints where relocation clients are coming from and where they are going Highlights median income of households arriving and leaving the county To download, visit REALTORS Confidence Index: Updated every other month Measures housing market strength To download, visit Local market reports: Updated each quarter Provide insights into fundamentals and direction of the nation's largest metropolitan housing markets To download, visit and click the link for Local Market Reports In addition, many areas of the country have additional resources available at the state or local board level. For example, the Houston Association of REALTORS offers their members an entire suite of productivity tools (

117 BUILD YOUR PERSONAL BRAND 8. Marketing Fundamentals Real estate professionals who are affiliated with national real estate franchise companies understand the concept of and need for branding a comprehensive and consistent marketing approach that suggests to consumers consistent product benefits and a consistent product experience. But what makes a great personal brand for real estate agents? According to Danielle Kennedy: 4 Top-in-class service Making an emotional connection with consumers All real estate professionals aspire to provide top-in-class service. Forging an emotional connection with consumers and staying top of mind when consumers are ready to buy real estate, however, may seem less tangible goals. To help develop an emotional connection and be top of mind, consider the following: Is your name or your brokerage name easy to remember? - Dreams Come True with Drew - Set Down Your Roots with Jane Root What is your real estate niche? - Historic properties - Condominiums and cooperatives - Investment properties - Vacation and resort homes - Farms and ranches What are your hobbies and interests? - Architecture - Interior design - Photography - Sports - Cuisine - Travel What makes you unique? For a look at the branding approaches of three different practitioners, see Figure 8.1. Slide 5 Slides REALTOR Magazine Online. Becoming Your Own Brand. Available at 117

118 Accredited Buyer s Representative (ABR ) Designation Course Figure 8.1: Practitioner Spotlight: Personal Brands Dana Moos The Swan Agency Sotheby's International Realty Bar Harbor, ME B&B inns, food, and photography are Dana s passions Dana publishes a photo blog of all things food, art, travel, entertainment, and Maine John JR Siewert Coldwell Banker-Siewert, REALTORS Wisconsin Rapids, WI Real estate runs in the family Web site highlights the fact that Coldwell Banker- Siewert, REALTORS is a third generation real estate company Lisa Sutton Harry Norman, REALTORS Atlanta, GA Pet-friendly real estate professional When previewing properties for buyers, Lisa seeks out pet amenities in a neighborhood veterinary clinics, kennels, grooming salons, and pet stores 118

119 8. Marketing Fundamentals CREATE YOUR MARKETING PLAN Real estate professionals who understand the buyers in their markets and how to articulate their point(s) of difference and personal brand are in an advantageous position to develop and execute a marketing plan successfully. While marketing plans may vary in terms of scope and resources, an effective marketing plan should require at least eight steps to develop (Figure 8.2). Slide Figure 8.2: Eight-Step Personal Marketing Plan 1. Define your objectives and goals. First develop a big-picture vision for your business. Then quantify that vision with measurable goals. Measurable goals might include: Representing 10 new buyer clients in the next year Receiving buyer referrals from 70 percent of your past customers or sphere of influence Achieving 60 percent name recognition in your target market area 2. Target a specific audience. Select one or two groups to target with your marketing efforts. Analyze the characteristics of your best prospects; other groups with similar qualities may be the best place to start. Characteristics might be: Income brackets Age groups Geographic areas Ethnic or cultural groups Levels of education or certain professions Lifestyles, such as golfers buying second homes 3. Differentiation. Consider your own strengths and weakness, and focus on the qualities and skills that make you special to potential customers. 119

120 Accredited Buyer s Representative (ABR ) Designation Course 4. Refine your message. Select a message and sales approach that will grab the attention of the people you want to target. The message should highlight what makes you different from your competitors and have an emotional appeal to your target market. An emotional appeal speaks to what people want security, a sense of family, financial security and focuses on their needs and desires. 5. Determine the best media. Select two or three media to convey your message and allow for cross marketing among several different sources. Media choices include print advertising, online advertising, billboards, bus benches, in-person marketing, and more. 6. Create your action plan and schedule. An action plan is a to-do list for a set period that lists every activity you need to do to market yourself and your services. Consistency is a key component to successful marketing. Advertising experts say that people must hear a message 11 times before they remember it. Make a commitment to use one marketing approach for at least six months, and budget accordingly. 7. Prepare a detailed budget. The most challenging aspect of creating a personal marketing budget is estimating costs. Rather than guessing, call your suppliers and service providers, tell them you re preparing a budget, and ask them to provide estimates of the price you can expect to pay for each item. Ask your suppliers about quantity discounts and other ways to cut costs. The total cost for your personal marketing effort will depend on the size of your target market and the media you choose. 8. Measure your results. Are you achieving the goals you set forth in your plan? You'll never know if you don t measure. Always ask consumers how and where they heard about you, and keep track of their responses. Analyze the results of your measurement and use your conclusions to update, revise, and improve your personal marketing campaign. Don t continue to spend money on something that isn t working. 120

121 8. Marketing Fundamentals Set up a separate savings account for your marketing funds so you won t be tempted to dip into them for other expenses. Typically, you should allocate 10 percent of your funds for personal marketing, 30 percent to reach new prospects that fit your customer profile, and 60 percent for repeat business, according to marketing guru Jay Conrad Levinson, author of Mastering Guerilla Marketing. Source: Adapted with permission from REALTOR Magazine, 8-Step Personal Marketing Plan. Available at FIND BUYERS AND HOW BUYERS FIND YOU Prospecting for new customers and clients is a key consideration of any marketing plan. According to NAR research, the majority of home buyers (44 percent) found their agent by referral (Figure 8.3) so it makes sense for agents to dedicate a substantial portion of marketing efforts toward growing their respective networks. Slide Figure 8.3: How Buyers Found Real Estate Agent Source: National Association of REALTORS Profile of Home Buyers and Sellers. Available at 121

122 Accredited Buyer s Representative (ABR ) Designation Course Some real estate professionals, however, do not approach networking as seriously as they might approach the negotiation of a real estate contract. How well, therefore, do you work your network? Use Workshop #13 to get started. WORKSHOP #13 YES NO Do you: Communicate with past clients a minimum of 12 times each year? Each year, are four of your communications with clients face to face, a handwritten letter, or a phone call? Attend national, state, and local REALTOR conferences? Belong to other organizations and chapters for business and real estate professionals? Attend real estate education courses outside of your market area? Volunteer for local community organizations? Belong to local investment groups? What other networking opportunities are there? 122

123 8. Marketing Fundamentals Your Web Site More than the Cost of Doing Business Although only 10 percent of home buyers surveyed by the NAR found their agent online (Figure 8.4), Web sites are a functional necessity for all real estate practitioners in an industry where online multiple-listing services (MLSs), smart phones, and social media loom large. Slide 11 The importance for a buyer s representative to have a Web site increases when the following are considered: The first step for a third of home buyers was searching for properties online Some buyers may incubate for up to 24 months before contacting a real estate agent Web sites are excellent vehicles for buyer s representatives to: Reinforce their point(s) of differentiation and personal brand Communicate the value and benefits they offer to prospective buyers Generate buyer leads Real estate buyer Web sites are not created equally, however. For a checklist of features to consider for your Web site, see Workshop #

124 Accredited Buyer s Representative (ABR ) Designation Course WORKSHOP #14 Web sites that attract real estate buyers have a number of features in common. Of the features described below, how many are reflected on your Web site? Check all that apply. Has property listings, lots of them Explains why buyers need representation Describes the benefits of home ownership Gives an overview of the home-buying process Offers detailed community and neighborhood information Provides mortgage calculators Explains the difference between loan pre-approval and prequalification Provides mortgage information Describes applicable rebates and incentives Explains the basics of making offer Directs buyers to moving resources Other features? 124

125 8. Marketing Fundamentals BRIGHT IDEA Buyer Handouts Available at REALTOR Magazine Online offers more than 30 free buyer handouts that you can personalize with your branding. See Figure 8.4 for an example. Visit to download these brochures today. Also, as part of NAR s Right Tools, Right Now initiative, members can download consumer brochures like It s a Great Time to Buy! for free or buy full-color copies at cost. Go to to learn more. Figure 8.4: Example of Free Customizable Buyer Handout Available at REALTOR Magazine Online 125