[Hey, I know I am a little late, but I just got back from my vacation. Contrary to the speculation given in Curbed (see reader comment number 2)] and my hiatus from Three Cents Worth weekly post till after Labor Day, it was a West Coast/Midwest thing avec ice tea.]

In Vivian Toy’s excellent article Lets Make A Deal on the state of real estate negotiation in this weekend’s New York Times, the graphic was unbelievably good. Its exactly how I think the negotiability of property should be portrayed. The idea that negotiability will keep expanding until list prices fall in line with market prices is a key point.

However, one of the aspects of the process that keeps coming up in market condition articles like this is the generic anti-broker position that seems to come from academia.

Max H. Bazerman, a Harvard Business School professor and an author of “Negotiating Rationally” (Free Press, 1992), warned against using brokers as advisers at all. “The broker’s most important goal is to close the deal, and that’s not necessarily your goal as a buyer or seller because you care more about the quality of the deal,” he said.

In other words, bypass the broker to make the deal. Professor Bazerman seems to either be stereotyping all brokers as bad negotiators or failing to see the advantage of having a middleman (person) in the process. It would appear from this comment that he sees the process as similar to the car salesman who gets up from their chair to fight for you with their manager to get you a good deal. I am not saying this doesn’t happen, however, but I think its the exception, not the rule.

I would guess that most people are not trained negotiators, especially with something they are emotionally attached to. My feeling is that for the average person, they will end up with an inferior deal if they negotiated directly rather than through an intermediary. That insulation is key to providing room to move in a transaction. Otherwise people get personal when they are frustrated and that essentially ends the deal. In other words: Checkmate.

I am not sure why this position seems to come from academia though. I have yet to see this proved empirically in a reasonable way.

UPDATE: Here’s NYT Real Estate Editor Bill Goss briefly discussing the article (after summarizing the Bensonhurst market).



14 Responses to “Drawing The Line: Buyers And Sellers Try To Meet – Is The Broker In The Way?”

  1. Todd Tarson says:

    I have been told numerous time that if I am representing both sides of a deal, then I am really only loyal to the deal… not the clients. This is one reason I choose not to be the main representative for both sides of a transaction.

    If an unrepresented seller is handed our state contract for sale, possibly with addendums, that seller will want to seek out his or her own representation from another representative in most cases.

    I believe it is worth the money spent to have a representative working for client interests, rather than the transactions interests. Afterall, if you are going to court you wouldn’t want the same attorney working both sides of the case, right??

  2. jf.sellsius says:

    Yes, brokers and agents clearly want to close the deal, but so do the parties, so the interests align. The broker’s fiduciary duty to the client should cover advising of those instances when closing a particular deal is not in the client’s best interest.

    There is every reason to get advice from as many sources as you need or want, the experienced agent being one. Ditto negotiating skills.

  3. Bubbleboy says:

    Jonathan, I’ve read that halstead reports average sales price for manhattan apts is down 12% from july-august. Whats your crystal ball showing.

  4. Jonathan J. Miller says:

    Hi Bubbleboy – its been a while.

    I’ve never owned a crystal ball (just a magic 8 ball) and I also don’t place much faith in monthly reports in any local market. National monthly stats are problematic enough.

    One month down 12% one month up 15%, one month down 10%, etc.

    Think about a 12% monthly decline for a second – thats a 144% decline annualized. Is that the pace of what actually happened between July and August? Not in this market.

  5. techy lname says:

    “Yes, brokers and agents clearly want to close the deal, but so do the parties, so the interests align”

    That may be true most of the time, but not all of the time. There are overpriced properties that are purchased and under-priced properties that are sold, and Bazerman’s point is that its not in the brokers interest to inform the buyer/seller of these inequalities.

  6. jf.sellsius says:

    “..it is not in the brokers interest to inform the buyer/seller of these inequalities”

    But it may be their fiduciary duty to inform. Licensing law, Code of Ethics — those little things. Nobody wants to invite a lawsuit either.

    “..most of the time but not all of the time”

    “Most of the time” is what we should be looking at since rarely is anything “all of the time”. Don’t you agree?

  7. Jonathan J. Miller says:

    I don’t follow your last point jf. Can you elaborate?

  8. jf.sellsius says:

    It is the same as my first point, or I wanted it to be, which is, that there is a “higher law” at work in any real estate transaction involving a broker and a client. An agent must act in the best interests of their principal. Consequently, the self interest of the broker must play second fiddle to the client’s interests. And my experience has shown that brokers are looking out for their clients.

    I thought the second part “most of vs.some of the time” was clear, perhaps not. While we should be mindful of the exception, we should be governed by the rule.

    BTW, how was your vacation? Do any fishing?

  9. Jonathan J. Miller says:

    My wife and 4 kids caught fish, while I caught none. One of my sons caught 40 fish so I was thoroughly shamed.

  10. jf.sellsius says:

    Ha. Now that’s a chart you don’t want to see 🙂

    Welcome back to the pond you’re best in.

  11. Sandy Mattingly says:

    Overall, I thought the best thing about the article was to highlight that things other than money can be important. Especially in coops, the listing agent’s job is to get the best price from the best buyer, and help the seller evaluate the risk that the highest bidder may not be the “best” (if that bidder would have a materially more difficult time passing the board).

    But the article made me cringe.

    I am not anti-broker (hardly!) but the story about the agent who knew what the buyer would spend and used that against the buyer plays into the hands of the anti-broker camp.

    “When the buyer offered $390,000, [name omitted] urged her to go higher, even though she knew the $390,000 would have been accepted. The house eventually sold for $400,000. “I was working for the sellers, and my job was to get the best price,” [name omitted] said.”

    Looked at from the seller’s perspective, that doesn’t sound too bad, right? And one can argue that the buyer should have known the agent was the seller’s agent, not her agent.

    But from the spare details provided, it is likely that the buyer had no clue about agency and the agent did not tell her. (Hard to believe that the buyer told the agent the top price she would pay if the agent had already explained her fiduciary role to get the highest price for the seller.)

    I took out the agent’s name because I do not know what conversations they had about agency, but if it played out as I suspect that was not much of a “negotiation”: the naïve buyer was “urged” by the agent to spend her max (I wonder what that conversation was like?) to squeeze another $10k for the seller. I hope that buyer reads the article.

    Sorry about the fishing, JM. You are competitive with your son??

  12. Jonathan J. Miller says:

    Sandy, don’t you think the buyer knew about the agency? Interesting. I don’t do brokerage for a living but I sure get a lot of feedback that buyers talk to the broker anyway after agency disclosure.

    No, its more like they teased me for my lack of fishing skills (all of my sons did this) continually, with glee.

  13. Sandy Mattingly says:

    “I sure get a lot of feedback that buyers talk to the broker anyway after agency disclosure”

    You must be talking to different people than I am. Most buyers with whom I have an agency discussion in Manhattan find it a novel experience.

    Manhattan folk tend to think of themselves as sophisticated and suspicious (which is one reason there are so many unrepresented buyers walking into open houses), but I don’t think many people would let a seller’s agent tease out of them their maximum price, once they understand that it is the seller’s agent’s obligation to squeeze as many dollars out of them as possible. And they should draw that conclusion about the agent’s obligations from any worthwhile agency discussion, no?

    But I will use your impression from feedback in the future, when talking to buyers about why they should be represented. It’s a jungle out there!

  14. Jonathan J. Miller says:

    My guess is that they really don’t understand agency when its presented to them or apply it to their situation when they get close to making an offer. There’s a lot of info being flung their way. Why else would so many brokers see themselves as psychologists, with their customers opening up themselves to the brokers.