So the other evening I was having dinner with a friend of mine who has been a real estate agent for a long time. She was my agent before I got into the business, she is a good agent, very successful and many of her friends are former clients.

Anyway, the subject of earnest money came up. I had stated that I felt when representing a buyer one of my goals is to negotiate the earnest money to be as low as possible. She felt that was a mistake because (and I am paraphrasing) if I wanted to make sure I got paid I should make sure it isn't to easy for the buyer to default on the contract.

For the sake of our spouses, children and getting through the rest of the evening I let it drop.

Lay it on me!

(Note: It is not uncommon here for attorneys to make the earnest money the "sole remedy for default")

I'm sure the same agent ranks properties to show by the commission they will receive. As the market changes, and it is doing so, those that still think "it's all about them" won't be around anymore.

I look forward to it.

You represent the buyer. It is your responsibility to your buyer that if your buyer defaults, they have to pay the least amount of "damages".
Just pretend you are the attorney defending Ken Lay of Enron, saving his millions and from going to prison. With that in mind you wont go wrong.
Our MLS shows an earnest $ amount that is requested by the seller and most will not entertain anything less.
It's called "liquidated damages" vs. "specific performance", with the latter you can sue for damages.

Anyway, the subject of earnest money came up. I had stated that I felt when representing a buyer one of my goals is to negotiate the earnest money to be as low as possible. She felt that was a mistake because (and I am paraphrasing) if I wanted to make sure I got paid I should make sure it isn't to easy for the buyer to default on the contract.

The bottom line is, we don't want our Buyers to default. However, if for some reason, they want out of their contract, it's our job to help them. The way I see it, they will, at some point in time, put in an offer on another home and use me as there agent - hence, I won't be out a commission.

I agree that getting the E.M. as low as possible is part of the Buyers Agents duties. I have even negotiated a weekly E.M. payment for a month with seller paying closing costs for a client that just started in a higher paying position and had very little cash on hand.

We gave other concessions, and my client was very happy with the deal. Could we have gotten the home a little cheaper? Probably, but it was the home they wanted so I feel it was the best deal possible with the situation.

You represent your buyer and if you do you will get paid in spades. By this, I mean they will know they were protected by an honest agent and if they still want the property they will proceed if there is a problem. The fact that you gave them protection will be enough to enshrine your value to them. At least this is my perspective.

There is another side to this coin. In the case of multiple offers, many times the buyer with the most earnest money will win out. I have seen this happen; thank goodness it was my buyer. They really wanted the house and had in mind their top dollar to offer. I advised them that the only edge they might have is earnest money. There were two offers the same, and my client won because it was thought he would be more serious with more earnest money. It is a fine line to walk sometimes. If you advise your client to offer low EM, sometimes it may lose them the deal.

True.

In my experience I have never been in a blind multiple offer situation. I have always known going in there were other offers or have been told the sellers have received other offers and given an opportunity to revise our offer.

I have often been in blind multiple offer situations. At times our market has heated up to the point that you just expect a multiple offer. You condition your buyer but are you doing them a service they may overpay, or they may lose the property. If you give them the information they will make an informed decision and then its up to them.

If working for the buyer i am always walking the fine line of "best for the buyer" and "acceptable to the seller". The key here is to make it acceptable for the seller, ie have enough money down that they will accept the offer.

Multiple blind offers are hard to deal with and often it is the buyers agents role to submit a fractionally better offer (what ever that is) than the other buyers. Remember that you only need to be a bit better to get the offer accepted.

My feeling is that there is no fine line. When working for the buyer you do what is best for the buyer, period. Yes, find out what the seller is willing to accept, but you should do that from the bottom up. If the sellers don't say "no" at least once, you have left money on the table for your buyers.

You might want to read Secrets of Power Negotiating, the best book on negotiating I have ever read. We give it to all of our new agents.

This is a great topic.

It is not as black and white as many seem to think it is.

The first argument would be what your agent friend put forward. Your trying to get a deal done.

However, there is a flip side to this. By commiting larger funds you are accomplishing (among other things) the following:

- Demonstrating to the seller your level of seriousness. (We all know this is not really true. But many sellers find comfort with this. Since we have to deal with seller perceptions, this works in our favor.)
- Potentially saves a cagey buyer from him/herself. We have all seen them. Buyers who start to freak out when the papers start getting signed. You have worked with them, you know what they want out of the deal. You know that this home will fill their needs - because you have been paying attention. So do you try to facilitate a situation where the buyers sense of commitment to the deal is heightened to try and save them from themselves?

This goes beyond the deposit. We all know that there are 101 ways to get out of a real estate deal without losing the deposit.

So, since we are supposed to be putting the interests of our clients first. If we know that our clients are being irrational or are acting out of fear late in the escrow process - should we - at the front end - try to make the circumstances encourage them to stay in the deal?

I prefer not to take that route. I will try to get them into contract with as little commitment as possible. You never can tell what might happen at the 11th hour that makes buying the property a bad idea.

When I find myself with a client who is shooting themselves in the foot by considering backing out of a deal, I usually turn to brutal honesty.

I am sure many of us have had to "Talk down" a client. I am still friends with one of my first clients who nearly backed out of buying their first home. I have heard regularly how grateful they are that I saved them from themselves! She bought that place back in 1988 and we sold it for her in 2002 I think. She walked away with $750k in her pocket.

So is this unethical? I think you can rationalize doing what your friend suggests when you apply some of the theories I just touched on.

However, if I really am focused on putting my client in the best position possible, I have to say that what your friend proposes is not something I think is a good idea. A big part of our job is trying to give our clients options to deal with whatever circumstance might come around the corner.

Getting the deposit high for no other reason than to keep the buyer in the deal just does not live up to that standard.

Just my 2cents.
R

There is very little ethics left in this industry. The current and past few years of the housing market have shown how much unethical dealings with brokers/agents/fly-by-night mortgage companies are existing these days.

A blind eye is turned in many cases and situations where it may be legal but not ethical...a state like California has no incentive whatsoever to stop the ludicrously high priced housing market from bringing in huge HUGE amounts of revenue for the state.

There's something wrong with an industry that's run by desperation and greed. If no one believe's me, I suggest you come and visit how homes are being bought and sold in California...it's worse than being part of a pack of hungry wolves.

What would you know about the ethics of the real estate business since your profile says engineer.

The consumers drive the housing market, not the state. Consumers decide what the ultimate value of a home is worth. You talk about legal but unethical dealings but provide no facts to back your feelings. This is not the norm but the exception as I am sure there is legal but unethical things that happen in your industry.

Blind eye! Do you not watch the news. More scrutiny than ever before is on mortgage fraud and the problems it causes. Run by desperation and greed...welcome to capitalism...what bubble have you been living in?

Do I have to be a politician to have realized by now how crooked they are? You don't have to be an agent to realize what sort of an industry it has become.

 Quote:

The consumers drive the housing market, not the state. Consumers decide what the ultimate value of a home is worth. You talk about legal but unethical dealings but provide no facts to back your feelings. This is not the norm but the exception as I am sure there is legal but unethical things that happen in your industry.

I never said the state drives the market...but it certainly doesn't stop shaddy practice if it's lining it's pockets...it's human nature and that's what happens.

Consumers decide whether they are to buy the property or not ultimately but this market has been driven into a panic market with false claims of supply/demand issues. Brokers and agents alike cause a false sense of urgency about "you'll miss out" and "get in before this happens or that happens..." It's all buttering up to the consumer to make them sell or buy. Who in their right mind would by a 900 sqft home, built in the 30's, needing $100K plus of renovations for $450k+? A payment close to $3000K even with an interest only loan...or should we really a dig a whole and push for a flex payment? Just think about it for a second...if it makes sense to you then it's obviously due to the big check you'll receive.

It's been 5 years+ since the ludicrous driving of prices....and NOW there's scrutiny? Geez...thanks...it's good to know someone's looking out for us. :rolleyes:

Well...at least you admit that this industry is indeed run that way...not sure what you think of that but to me that's pretty damned unethical.