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.

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.

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.

Why don't you just move to an area you can afford, since that seems to be the main issue here.
That's why we've seen such a large increase from Calif. in engineers and technicians here, and we do have the jobs and better quality of life.
(from an ex Torrance, San Pedro, San Joaquin Valley resident)

That would be a good idea..to move that is.

I've been all over the US and while I don't like California much, I can't say I like many other places either. The effort would be to great for the pay off...at least for right now.

Having a home is not that important to me...ownership is not the issue. I just find it amusing to sit back and watch the whole shark eat shark cutthroat RE market. It's quite disgusting how people treat each other in this climate. It's toned down alot but not even a couple of years ago, home-seekers in California would run you over to get ahead of you.

Blah, blah, blah, The Real Estate business is in the same level of other lucrative business in the US. Ironically, the same thing is happening in Europe and we all know that housing is one of the basic things in life!!! Love my career maybe is time for you to make a 'career change' even lawyers, law enforcement officers and doctors joined us in the last 5 years. You're more than welcome to take your state's RE principles test and try to obtain the license, that way you can send your opinion with more foundations.

LOL...don't put yourself up on such a high stool. The California RE rules I know. The foundations are very simple and you don't have to be an agent to understand how to buy and sell homes at all.

At the height of the stupid buying/selling craze, it was amazing how many FOR SALE BY OWNER signs were up. I couldn't blame after all..why let a couple of opportunist realtors take 3-6% for a week's worth of work? Clause 14 anyone?

Many people have tried RE from many different professions...you are right...but they do it for six months and then quit. THey realize their regular jobs are far more rewarding most of the tie without the dog-eat-dog environment RE has formed itself into.

A veteran RE broker told me once how much this industry has changed. He told me how little respect people have for each other these days and all the newcomers want to do is bulldoze over everyone to get their sale. The market a present showed us what it was all about.

Nozferatu, how many homes have you bought and sold in your lifetime? From what I hear you say, your level of real estate experience seems very limited, due to your financial situation.
Have you considered going back to school to make yourself more marketable?
I have spent over 22 years in the Civil Engineering field all over the world, and when my job became non-existent in the late 80’s and early 90’s (I was ready to retire, but my wife wouldn’t let me), I went into real estate and have enjoyed it tremendously.
Maybe a change for you might be called for, it will widen your horizons and maybe more successful.

Nozferatu, If you ever decide to move again I know the perfect agent for you. He goes by the name Rick Mense.

I appreciate your opinion and you make some good points but how on earth did you get my financial situation out of all of this??? I've got a master's degree and make a good chunk of change between myself and my wife. We sock away in excess of 5K a month after expenses and taxes. I was merely making a point about how ludicrious it is to see the current housing market eat people up the way it does.

I'm not in the market for a home at all but it doesn't take much to be a prudent, calculated buyer if need be. It's not rocket science...but it can be if people fall for the bait tactics and shaddy practices I was talking about earlier.

If RE works for you, by all means more power to you...I just couldn't work in such an unethical, cut-throat environment as I have witnessed here (not saying that's the way it is where you currently are).

If you have maybe bought 1 or 2 homes in your life just how much exposure can you have possibly had to all these bait & switch and other shoddy practices you say you see everywhere around you?

Are you practicing in LA?

These are your statements, you are lying to yourself if it’s not about money. (you might be educated, but not smart)
“It's been 5 years+ since the ludicrous driving of prices....”
“The effort would be to great for the pay off...at least for right now.”
“Who in their right mind would by a 900 sqft home, built in the 30's, needing $100K plus of renovations for $450k+?”
“…a state like California has no incentive whatsoever to stop the ludicrously high priced housing market…”

The reason for my statement was based on what you said.
If you were one of the 8 Powerball winners in Nebraska, you wouldn't be on this board bellyaching about how expensive houses are, you'd be out there buying one, correct?
If you weren't, I have to assume that you either don't have enough money, or the education to be able to afford a house.

LA is by far not the entire industry but yet you seem to be unable to see this! So how is it you seem to be exposed to all this but are not in the market to buy or sell a home? You need to stop watching so much TV. Everything you hear on TV is not the truth or the whole story...Dan Rather is a great example of that!!!

I do see it...I've been talking exclusively about LA but you seem to want to include the whole country. I'm not talking about the whole country. Perhaps if you started there, you'd get a better understanding of what is being said.

Sorry but that's not correct. Buying a home is a very easy thing to do. Stop making it sound as though it's brain surgery.

Regarding the powerball comment, it's obvious then that you think it's easy manipulate people who are ready and desperate to spend...your comment clearly suggests that as you think anyone with money will be stupid enough to pay more for something that isn't worth it's asking price.

Not everyone who makes money wants to overpay for a house. When a new model Mercedes comes out, the dealers add a huge mark-up and people desperate enough will pay it. Alot of people who are smart just don't do it. It's no different in the housing market. Perhaps they see through the games the brokers and agents play. It's the way you make your living. It's an artificially created environment to feed an industry that anyone with half a brain could by a "HOW TO" book and buy and sell themselves. People want convenience so they turn to you.

“Not everyone who makes money wants to overpay for a house.”
True, but everyone who makes enough money to buy a house owns one. (unless time, job/money, family circumstances don’t allow it)

“When a new model Mercedes comes out, the dealers add a huge mark-up and people desperate enough will pay it.”
There you go again! It is about the money, isn’t it?
Why do men buy diamonds for their wives/fiancées?
You don’t, because there is a “mark-up”?

“People want convenience so they turn to you.”
Now that is the smartest thing I’ve heard from you yet and right on the money.

The primary thing that we as agents or the broker/owners of companies need to do is to read the Realtor Code of Ethics. This has been modified over the years to reflect changes in society & our industry.

When it comes to what is "right" the "golden rule" should be our primary concern - "Do unto others as you would have done to you". When representing clients we must always ask, "Who do we represent - both legally & by our actions". Check your state laws 1st - Who do you legally represent? Then check your actions - Who thinks that you represent them? If there is a conflict - your actions may dictate whom you represent. This is the primary reason that some people do not trust our profession - our actions contradict reality.

Nozferatu - Perhaps when the public sees an agent who is not a Realtor acting a certain way, they assume we all act that way. Untrue. Even the public can report an agent to their local Realtor Board if they violate the Code of Ethics. Always make sure you work with a member of the National Association of Realtors. Also, make sure you know who represents whom in a transaction. Don’t assume an agent represents you – a listing agent represents the seller, not buyer & it is their job to get the highest price for their client. Even someone who works with a buyer may represent the seller – it varies from state to state. I don’t make blanket opinions about your profession, please do not make those statements about ours without knowing all the facts. Please limit those comments to an individual’s actions – most of those in our profession are ethical, good people who look out for their client & do a fantastic job helping individuals with their housing & real estate investment needs.

Agents & Brokers - If you adhere to the Code of Ethics and always look out for your client (who you represent) within that context, you will be viewed as a Professional that serves an important role in one of the most important aspects of another's life. You will elevate yourself as a Professional & Expert and protect our business’s reputation and your own.

Hi Annette,

Thanks for the reply.

I'm not making blanket statements since I'm talking specifically about one area of the country and always have been. Other posters keeping thinking others...that part I can't help since I already made it clear which area I was speaking of.

Also, I have never made a comparison between my profession and yours. That again is something other posters keep bringing up with no relevance whatsoever.

What you must understand is in this climate (in my area), the amount of competition and cut-throat practice to buy/sell and take advantage is rampant. It's a frenzy in which buyers/sellers/brokers/agents/mortgage brokers alike are all responsible for spurring on. It's gotten out of control and perhaps that's why NOW the state is actively seeking wrong-doers...alot of people didn't have the time to educate themselves properly because out of fear of missing the boat shall we say.

So we have agents and brokers pushing people into situations that for some turned out very well and for others didn't. But for the brokers and agents it's a no-lose situation. THere are plenty of clients out there for return a return customer base to be irrelevant UNLESS you are in a niche market where everyone knows everyone else.

I believe you need to work here as a broker or agent to realize what's actually going on...and for those who do and don't admit it, then you're playing the self-denial card or are in it yourselves neck deep.

Ethics is a very difficuly thing to define in a market where no one has time to breath or think about what they need to do.

Not true at all. Not everyone who makes money has or wants a home. There are alot of expenses associated with home-ownership that some would rather do without...regardless of their income. I think it's a rather arrogant thing to believe that people would come running to RE agents if they had the money to buy a home.

No it's not about money. I'm trying to point out a thinking process that doesn't involve desperation and panic....I think it's clearly passing over your head!

Men buy diamond rings because it symbolizes something in a relationship and brings stability to the situation. So...you walk into the first jewler and get ripped off?

“Not true at all. Not everyone who makes money has or wants a home. There are alot of expenses associated with home-ownership that some would rather do without...regardless of their income.”
Again, you mention “expenses” and “regardless of income”; if you have sufficient income, why worry about expenses? Either you can afford it or you can’t. I don’t know of anyone, unless they are feeble and or will require nursing care soon, who wants to spend their well-earned money on the landlord.
If you are talking about a housing bubble and or timing to buy, we are talking philosophic and economic decisions, but we are not talking about that.
If you are scared to buy from/through an unscrupulous Realtor or lender, buy from a FSBO and pay cash.
To blame Realtors and lenders for your real estate prices assumes they have allot of power. In reality, it’s supply and demand.
In my city limits we are just opening a 24k acre ranch for development, how are you going to do that in LA? When I worked in El Segundo, people were driving 4 hours each way to get to work, why? Because they couldn’t afford a house closer in. It was economics. However, once their income rose, they would move closer to their work.
It’s always about money, I hope that you will do what’s best for you and your family. If it means renting until you make more money, or move to where home prices are less. It doesn’t matter, because if it isn’t price, it might be 18% interest rates that could determine if you are going to be a renter or home owner.

What do you consider affordable? It's not black and white at all. The current housing market has shown that quite clearly. You personally may think it's ok to spend 60% of your income on a ortgage...others don't. Some may rather rent and enjoy a low montly rental and go out and travel, have a nice car, eat out at nice restaurants.

If I were a millionare I could do all of the above at the same time...but I don't think you grasp this one concept...JUST BECAUSE I have money it doesn't mean I want to be taken for a ride.

That's what you'd like people to think...supply and demand. In reality it's been a panic driven market with people killing each other and clammering over each other to bu and sell. This situation has placed a huge smile on realtors' faces like yourself because you know it's quite easy to play with people's emotions and drive them into a frenzy about buying something. If it were a supply and demand issue, it'd be a constant equation because the demand would always outstrip the supply and you'd never have a slow down. Is that the case? Let's not forget 1996 when people lost their shirts in real estate IN LA too...where demand is so high. Where was the frenzy then?

Again, you're assuming people want to buy rather than rent. Owning a home is great if that's what you really want. Some people do, some don't. For me, while I can afford it, it doesn't make sense to do so and pay what I think is far too high for a home...given the quality of the homes out there and the neighborhoods they are in.

What you are describing to me, are individual choices people make because of economic conditions. For some people owning a home is more important than going out to eat, drive a new car or go on vacations, for others it’s the opposite, and than you have the ones who can afford to do both, own a home and have all the other niceties also.

Have you decided to rent for as long as you live in LA, or are you saving to move into the quality type of neighborhood you desire? What do YOU consider affordable, that’s important. What I consider affordable means nothing, I own my home and my payments are less than most peoples car payments.