Agency and the Ascending Market

The role of a Real Estate agent in a transaction is an ever-evolving one. Remember sub-agency? No? That is a testament to how quickly and totally the job description has changed over the past couple of decades, with every passing generation bringing more empowerment to consumers and choices in levels of service.

The relationship between consumer and agent has shifted from the “customer” model to a “client” model in which a fiduciary obligation is owed to each principal in a Real Estate transaction. Unless otherwise agreed, the professional shuttling a buyer around on weekends in the hunt for a new home is no longer an agent of the seller, but is retained by that buyer to represent his/her interests in full in that pursuit. This is the age of buyer agency in which most modern markets currently operate.

While the relationships and allegiances in a transaction are more clearly defined now than ever (aside from the still-murky waters of dual agency, which is another post entirely), the proper representation of a buyer by a buyer’s agent is not as cut and dry as one might think; rather, market forces dictate that said agent be malleable in tactics.

Take the buyer’s appraisal contingency, for instance. It is a widely conceived and unchallenged notion that an appraisal is performed for the benefit of the buyer (more on the appraisal fallacy). After all, if the property does not appraise for the purchase price during the escrow period, the buyer has the ability to walk from the contract or to use the cudgel of a low valuation to re-negotiate with the seller. As such, it follows that a buyer’s agent would do well to simply stand aside and hope for the appraisal to come in low as it provides an opportunity to secure a potentially better deal for the client.

One thing about conventional wisdom? It typically applies to conventional circumstances.

What of an ascending market in which values are on the uptick and competition for properties is fierce? I, for one, posit that the laissez faire approach to the appraisal by a buyer’s agent may actually run contrary to the client’s interest. You see, appraisers are beholden to concrete data rooted in the values of the recent past. That’s all well and good, but there will not be support for current value in an appreciating market in three month old sale comps. There is a very real likelihood that your (as the buyer) appraisal is going to come in low in such circumstances.

So what’s the problem, you ask? Why not use that happy eventuality to your advantage to secure a better price?

Because the seller has four backup offers.

In a market such as the one we are currently experiencing here in Scottsdale, with heavy buyer demand and a drastically reduced supply of homes (down to approximately 17,000 active listings across the greater Phoenix area), bidding wars tend to result. After fighting off ten other buyers for the home of your dreams, a bad appraisal is, in all reality, going to procure one of two outcomes: 1) You bringing additional cash to closing to offset the difference between appraised value and sales price, or 2) The sale tanking.

The seller is NOT going to reduce his price when he has ready and willing backup buyers waiting in the wings to give him his price.

The role of the agent changes in that rather than the listing agent sweating out the appraisal and the buyer’s agent kicking back with his feet up, the inverse is potentially true. In my current representation of buyers, I have taken to meeting appraisers at the property (with the buyer’s permission, of course) with a copy of the contract, tax record, sales comps, pending sales, active competition, market trend reports … blueberry muffins, candy hearts, etc.

Long story long, do not accept representational practices from your agent that line up more with conventional wisdom than current reality. As market dynamics are in constant flux, so too are the tactics employed to reach your goals. Don’t buy into the notion that “x” is “good” and “y” is “bad” in a Real Estate transaction. Most every facet of a purchase is merely a variable, made positive or negative by its interpretation against the broader context of an ever-shifting landscape.

The buying and selling of homes requires a nimble partnership between principal and agent to keep up with the high-paced game of musical chairs that is the Real Estate market.

Save the dogma for your momma.

Please like & share:
About the author
Paul Slaybaugh is here to sell houses and chew bubble gum. He's all out of bubble gum. More About Me >>>

Enjoy this blog? Please spread the word :)