Everyone has heard the advice about not being your own (fill in the blank: lawyer, doctor, various other professionals), but does that advice apply to buying or selling a home? The answer depends on whether you accept the above premise, and if you believe that real estate is as important as these other professional fields. An equally relevant question: Is it wise to use a friend or family member as your real estate advisor?
In my experience, the vast majority of luxury home buyers and sellers want independent professional representation for their personal and investment properties. You might be wondering: If that’s the case, then why write a blog post about this?
One of the most important skills a luxury agent should have is an intimate knowledge of the market.
This means having insight beyond the basic trends; the most critical aspect of the market is referred to as understanding the “trades.” Agents need to stay in the know on who is buying and selling and who is representing such properties. The majority of agents have a daily habit of reviewing the Multiple Listing Service (MLS) “hot-sheets” to see what recent activity is occurring in their target markets. These target markets are typically defined by location and price point.
Upon reviewing the MLS, I’ve noticed some interesting developments in the luxury space over the last six months. Several high-profile properties have been represented by family members of owners who are co-listing or pairing up with more experienced agents in their brokerage. There are also instances of very inexperienced agents who are taking on multi-million dollar listings on their own and for sale by owner properties in the luxury price range that are unusual in the market. I believe most of this activity is being driven by the low-inventory seller’s market where owners feel their home will essentially sell itself—so why pay commissions to agents? Ironically, I have seen this occur with professionals like doctors and lawyers who would always argue that not using a specialist would be unwise. Hypocrisy has not gone out of style during or post-pandemic.
How do I know about the details of these transactions? The agent view of the MLS shows data that is not available to the public. Websites such as Zillow and Redfin only publish a portion of available data from the MLS. In the agent view, private remarks are noted on the listings that inform agents on whether an agent or a family member is involved in the transaction. Arizona real estate law requires full disclosure of “related parties” in a transaction. Additionally, a review of public records from the county assessor and recorder’s office can shed light on what may be motivating a particular individual. For instance, liens on the property or a development deal that failed to move forward could have motivated them to pursue non-traditional representation in an effort to save money. Anecdotally, these situations are occurring to reduce the commission paid on the transaction or to direct the commission to individuals such as friends and family who have become licensed.
There is nothing wrong with hiring friends and family, however, the relationship can create conflict that may not be obvious until much later in the transaction.
In reference to his work with buyers of luxury properties, a real estate mentor of mine is famously quoted as saying, “people hate to be sold but love shopping with friends.” This is why I have come to believe that buyers tend to gravitate towards their inner circle when looking for an agent because they prioritize the agent’s personality and, in some cases, with no regard to the qualifications of the person they are hiring. Inherently, we believe the potential negative outcome of hiring an inexperienced friend as a real estate agent will not have the same impact as working with a doctor who is not a top specialist in their field.
There are very few instances where buyers terminate their relationship with an agent, but many cases in which it takes multiple listing agents to finally sell a property. Part of the reason why this occurs is that an inexperienced agent, who could be a friend, is hired first to list the property. The property doesn’t sell until passed off to an experienced agent with the financial resources and marketing skills. Skeptics would point out that price reductions and time on the market are the reason why the third agent always sells the property. I would suggest that if an experienced agent with superior market knowledge is able to convince a seller that a price reduction is required, then that is a significant value proposition to the client regardless of when the successful agent obtained the listing.
Managing the entire real estate sales process, especially for a luxury property, requires a unique set of skills.
As the example about pricing illustrates, a friend may be unwilling or unable to have the difficult conversations that are necessary and may be more inclined to agree with a client’s unreasonable expectations. It’s not easy to be confrontational with people close to you. For that reason, in almost all instances when asked by friends and family to provide advice or representation while working as a practicing real estate attorney and wealth manager, I made referrals to other professionals. The fiduciary duty that is required of agents is difficult to adhere to when friendship presents a potential conflict of interest.
The good news is that the decision to hire the most experienced and specialized luxury agent doesn’t require a much greater investment than working with someone who is not equipped to handle your transaction. Although commission rates are always negotiable and there is no fixed rate, the difference is negligible between working with the best agent and working with someone inexperienced who might offer a slightly lower commission rate. This is different from other professional services industries such as law where billing rates can vary dramatically. Of course, this analysis is predicated on looking for “full-service” real estate agents and not limited representation agents who simply list property on the MLS or for sale by owner situations. In those cases, the old adage “you get what you pay for” applies and the only person to blame if something goes wrong is yourself.
Markets always shift and the current seller’s market is already starting to move more in favor of buyers.
We will have more information on this when our proprietary VLP Luxury Real Estate Market Report is produced for the second quarter. The value of sophisticated marketing for luxury properties will become even more important once this market shift occurs in earnest and sellers trying to save a little money on commissions can ultimately become frustrated at netting less in terms of proceeds from a sale than if they had worked with a top full service agent from the beginning.