Here is the List of worst business practices in the Residential Real Estate Industry that you should know.
- Price Fixing of Real Estate Commissions. This is as a protection to the realtors’ commission that takes 30% of the consumers’ equity. This prevents the consumer from negotiating their commissions and forcing them to pay for the buyer broker.
Solution: If you are the seller then use a discount, or use a buyer broker who is willing to rebate part of their fee.
- Dual Agency. This is when the listing broker and the buyer’s or selling agent work for the same brokerage firm. In a dual agency, the broker gets paid double and the buyer and seller forfeit their right to representation on such things as negotiation of price and terms.
Solution: Never call on real estate advertisements or visit open houses. Look for quality agents from a brokerage that exclusively represents either buyers or sellers.
- Controlled Business Arrangements with the title and closing services. This when Title companies are owned or affiliated with a brokerage/real estate professional that use paid kickbacks for referrals.
Solution: Never use an affiliated business in real estate. Choose only those company that is truly independent of another real estate business.
- Lawyers who sell title insurance. Attorneys cannot negotiate title coverage on behalf of their client when the attorney also represents the title underwriter providing that coverage.
Solution: Find an attorney who focuses only on real estate.
- Marketing Manipulation that fosters dual agency. Real estate brokerage engages to this usually disguised as selling strategies. Do not buy or sell a home warranty. If a home warranty is required as part of the transaction, require your broker to pay you the compensation that they would have collected for selling this.
Solution: Only use brokerage firms that offer a complete marketing plan.
- Buyer Broker Compensation. Combine that with the fact that the listing broker actively conceals this offer of compensation from both the buyer and seller and the result can be outright bribery. Many listing companies and builders will provide huge secret incentives to buyer brokers who are successful in convincing buyers to purchase their listings.
Solution: Negotiate your buyer broker’s fee upfront and before you are shown any properties. Insist that your broker disclose all compensation being offered prior to showing you any house. Insist that your broker pay all seller or listing broker incentives to you.
- Open Houses. Open houses are traps for home buyers and sellers that foster dual agency and double commissions. Open houses serve no purpose other than to provide the listing broker with a free platform to solicit buyer clients to find other homes.
Solution: Do not let your Realtor hold ANY open houses and do not go to any open houses unless you can claim to be working with another agent.
- Home Warranties. They are usually unworthy of your money and provide hidden incentives to real estate agents/brokers.
Solution: Do not buy or sell a home warranty. If a home warranty is required as part of the transaction, require your broker to pay you the compensation that they would have collected for selling this.