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Old 01-06-2010, 09:37 PM
 
261 posts, read 826,751 times
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Hi,

We owned our house in California for many years, and we understood that market well. Now that we are in NJ it seems a bit confusing. How should we use the numbers for the assessed value of the land and home? Do they reflect the market value or not? It seems that quite a few homes are listed at much higher prices, some lower. How does that work?

Also, I would appreciate any advice you may want to offer - we need to educate ourselves as much as possible to avoid making a mistake. The town we are targeting is Warren (if that makes a difference...).

Thank you in advance.
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Old 01-06-2010, 11:13 PM
 
Location: Northern NJ
3,272 posts, read 3,026,486 times
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Default Buyer's Guide to Dual Agency

Hi AAVC,

Ignore the assessments. They are for tax purposes only. In general more expensive homes will have higher assessments than less expensive homes within a given town. However, any given house may be over or under-assessed. You cannot come to a value conclusion at all based on the assessment. It is just not that exact. So do not use it (except: it does come into play if you are trying to determine if a house is overtaxed, but that is a different issue.)

You've already found the town, it would now be a good idea to find a buyer's agent to help you find a home and represent you in the transaction. Since you are set on Warren, I would use an agency that does NOT have a lot of listings in Warren. This seems counterintuitive, but under no circumstances do you want to fall into what is known as "dual agency", where the firm representing you also represents the seller.

Pay attention, this is tricky.

The seller wants the highest possible price for his property. The seller's agent represents the seller and has the same goal. Now, you of course want the lowest possible price for the property. Your buyer's agent represents you and needs to have the same goal.

In New Jersey an agency is permitted to represent both sides of the transaction in what is called a dual agency. That means the agency will attempt to deal fairly with both parties but advocate for neither. This is a terrible deal for you and something you want to avoid.

Why does it happen at all? Because your buyer's agent works for an agency and that agency has listings. If they show you one of their listings and you fall in love with it, then guess what? Dual agency! Bad! It's a conflict of interest and it gets worse. The agency involved gets a double commission so there is intense economic pressure to close the deal if at all possible. Bad! Who is looking our for your interests under these circumstances? Nobody, that's who.

So how do you avoid it? There are a couple of ways.

1) Use an agency that has no listings in the town you like. Now dual agency is not possible. But there is a problem with this approach. What if your agent works for one of New Jersey's uber-agencies like Re/Max, C21, Weichert, Coldwell Banker, etc? In that case they probably WILL have listings in the town you like and dual agency will be a possibility if you like one of their listings. Another problem is agents who work in Warren know it best and by selecting an outside agency, you may not get an agent who knows the area all that well.

2) This is the best way, but it will require you to be very strong and very direct. You select any agent you feel comfortable with but you state in no uncertain terms that you will not consent to dual agency and if the agent shows you one of his agency's listings and you like it, you will seek outside representation from another firm. If you want to be nice, you can allow your buyer's agent to refer you to an outside agent, and he can collect a referral fee. It will be much less than his commission, but that is too bad. A good professional agent wants no part of dual agency. Having said that, most agents, especially old timers, love dual agency because they collect 2 commissions and can exert tight control over the deal.

It is impossible and unethical for an agent to attempt to represent both sides of a real estate transaction, but it is legal in New Jersey, and the dual agency mechanism was invented to handle the conflict. The problem with the law is that even though it mandates that an agency deal with both parties fairly, it prohibits ADVOCACY for either side. And what is the one thing you ABSOLUTELY want from your agent: ADVOCACY. What good is an agent who doesn't defend your interests and advocate for your cause? No good.

So avoid dual agency. NJ law recognizes there is a problem, which is why you have to consent SEPERATELY to dual agency in writing. You have a total right to your own representation so you must NOT CONSENT to dual agency.

Lawyers can never represent both sides of a deal, how in heck can real estate agents do it? Short answer: They can't, even though they do.

Several states have made dual agency illegal. Unfortunately NJ is not yet one of them.

Just make sure your wishes are made crystal clear in advance to your buyer's agent. If he or she resists or gives you grief or excuses or equivocations, dump him and find another. A good agent will not have a problem with this. Most agencies will only have 1 or 2 homes that are relevant to your preferences and pricing. If the agent shows you those homes right away he will not have wasted too much time, and if you want to buy one of those homes, you can let him refer you to an outside firm and he can collect a referral fee, which is more than enough compensation for the time spent showing 1 or 2 homes. Then you get your own independent, outside agent and you can aggressively pursue your interests: getting the house at the best possible price and terms for you!

Oh and by the way, here is a big fat corollary: NEVER CALL THE AGENT ON THE SIGN OR IN THE ADVERTISEMENT OR ON THE INTERNET to show you the house. Why? Dual agency if you like it! Use your own buyer's agent to show you the house and obtain any information you need. Also, if you visit an open house, tell the agent in charge that YOU WILL HAVE YOUR OWN REPRESENTATION. When you sign in, write in the word "represented" by your name so there is crystal clarity that there will be no dual agency.

Any questions? Ask away and good luck with your home purchase!
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Old 01-07-2010, 06:30 AM
 
261 posts, read 826,751 times
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Marc, thank you for the detailed feedback. We'll keep all that in mind.
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Old 01-07-2010, 06:41 AM
 
Location: Forest Hills
555 posts, read 980,261 times
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Just an additional note... where assessments might be helpful is when looking at comps. It does you no good to look at assessments from 1 town to another... but within a given town they tend to be an okay representation of what the city believes the property is worth. Find some comparables with similar assessments and you'll have strong comparables to determine the value of the property you're looking to buy.
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Old 01-07-2010, 07:24 AM
 
Location: Kennett Square, PA
892 posts, read 1,319,510 times
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Wow, Marc, that was VERY WISE and thorough information for we out-of-staters!!!

So do you think it's better to go with a smaller agency in order to avoid this unethical practice? I know that in my own case, when it's time to make the move, I will not budge on a price once I make up my mind and even water boarding won't move me. Also, because of the current market, I assume we could offer pretty low...true? At least as a starting point.

Mod cut

Last edited by Viralmd; 01-07-2010 at 07:26 AM.. Reason: Off topic. NOT a social networking site.
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Old 01-07-2010, 07:37 AM
 
Location: Martinsville, NJ
5,895 posts, read 6,849,120 times
Reputation: 3509
Quote:
Originally Posted by AAVC View Post
Hi,

We owned our house in California for many years, and we understood that market well. Now that we are in NJ it seems a bit confusing. How should we use the numbers for the assessed value of the land and home? Do they reflect the market value or not? It seems that quite a few homes are listed at much higher prices, some lower. How does that work?

Also, I would appreciate any advice you may want to offer - we need to educate ourselves as much as possible to avoid making a mistake. The town we are targeting is Warren (if that makes a difference...).

Thank you in advance.
The assessed value very rarely correlates in any meaningful way to the market value of the house. At best it's mildly informative as to the general value of the house as compared with other houses in the area. That is, iff all the houses on the street are assessed at $400k, and one is assessed at $350k, then you can be relatively sure that is the least valuable house on the street. But as to it's actual market price, assessed value means almost nothing.

Last edited by Bill Keegan; 01-07-2010 at 08:03 AM.. Reason: typos
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Old 01-07-2010, 07:59 AM
 
Location: Martinsville, NJ
5,895 posts, read 6,849,120 times
Reputation: 3509
Quote:
Originally Posted by Marc Paolella View Post
You've already found the town, it would now be a good idea to find a buyer's agent to help you find a home and represent you in the transaction. Since you are set on Warren, I would use an agency that does NOT have a lot of listings in Warren. This seems counterintuitive, but under no circumstances do you want to fall into what is known as "dual agency", where the firm representing you also represents the seller.

Pay attention, this is tricky.
Not as tricky, nor as dangerous or scarey as some will try to make you believe.


Quote:
Originally Posted by Marc Paolella View Post
The seller wants the highest possible price for his property. The seller's agent represents the seller and has the same goal. Now, you of course want the lowest possible price for the property. Your buyer's agent represents you and needs to have the same goal.

In New Jersey an agency is permitted to represent both sides of the transaction in what is called a dual agency. That means the agency will attempt to deal fairly with both parties but advocate for neither. This is a terrible deal for you and something you want to avoid.
This is a twisting of the actual truth, and not nearly so terrible as some people want to frighten you into believing. The AGENCY, that is, the BROKERAGE company, will work with both sides fairly, and will be a dual agent. And while the legal classification of your agent can become Dual Agent (if they inform you of the possibility, explain what it means, and you agree to it) there is NOTHING to prevent them from advocating on your behalf. It is still part of the obligation of your agent to work in your interests, to keep confidential your information, to try to get for you the best deal possible. It's a TRANSACTION broker that deals fairly with both sides and advocates for neither.

Quote:
Originally Posted by Marc Paolella View Post
Why does it happen at all? Because your buyer's agent works for an agency and that agency has listings. If they show you one of their listings and you fall in love with it, then guess what? Dual agency! Bad! It's a conflict of interest and it gets worse. The agency involved gets a double commission so there is intense economic pressure to close the deal if at all possible. Bad! Who is looking our for your interests under these circumstances? Nobody, that's who.
More scare tactics here. Your agent, who may have to be classified as a dual agent because the listing is within his brokerage company, still has the obligation to look out for your interests. This does not change. The agent representing you does not get both sides of the commission. He does not represent the seller in any way. He does not look out for the sellers interests. He does not get any more commission for selling you a house listed by his agency than he gets for selling you a house listed by another agency. He has likely never met or spoken to the seller, as it's not his listing. He has no more economic pressure to close this deal than he has to close any other deal. The listing agent will likely never talk to you, except maybe at the home inspection or the closing. The law in NJ says that if he happens to somehow obtain some CONFIDENTIAL information about you, he is not allowed to share it without your permission.

Quote:
Originally Posted by Marc Paolella View Post
Oh and by the way, here is a big fat corollary: NEVER CALL THE AGENT ON THE SIGN OR IN THE ADVERTISEMENT OR ON THE INTERNET to show you the house. Why? Dual agency if you like it! Use your own buyer's agent to show you the house and obtain any information you need. Also, if you visit an open house, tell the agent in charge that YOU WILL HAVE YOUR OWN REPRESENTATION. When you sign in, write in the word "represented" by your name so there is crystal clarity that there will be no dual agency.

Any questions? Ask away and good luck with your home purchase!
This last part has more vallidity to it than the rest of this scare tactic post. If you call the agent on a sign, you are likely to get not just the brokerage that has the listing, but the actual agent. And on this we agree. There is no way that one agent can possibly advocate for the seller and getting the best deal and highest price, while at the same time advocating for the buyer and getting the lowest price. You should only deal directly with the listing agent of the house you want to buy if you know the process, the laws, the market, etc so well that you don't need true representation, and are willing to work as a customer of that sellers agent.

There are many people who feel that dual agency should be avoided. In certain instances, I agree. And if that's your take on it, good for you. But it's so often mischaracterized. Understand what it REALLY is, and don't allow yourself to be frightened off by someone with an agenda. Maybe by someone who works for a very small firm that doesn't have a large number of listings, and uses that fact, and fear, to steer potential clients away from the larger firms toward his own small one.

In the interest of full disclosure, I do happen to work for one of the big ones, that has many listings in every town in NJ.
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Old 01-07-2010, 08:05 AM
 
1,313 posts, read 2,205,955 times
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Sometimes the assessed values match up fairly close IF the assessed values were just RECALCULATED by the township. But even if they were those calculations usually take 18 months to complete so 18 months in this market can be a dramatic difference in value.

So yeah ignore them except for checking to see if you are overtaxed.
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Old 01-07-2010, 09:33 AM
 
Location: Montgomery County, PA
2,771 posts, read 3,749,603 times
Reputation: 594
In response to Marc:

as a recent shopper -- some of those listing agents are sharks.

I always sign in with my buyer's agent's phone number, and give them my agents card. Even then, some of them ask me if I found the house through my agent, or if I found it independently -- it smells like they're trying to cut my agent out of the deal.

As BK points out, you have dual agency if the same brokerage represents you, but not the same agent. The brokerage I deal with have agents who exclusively serve buyers. Maybe the agent has an economic incentive to pull business towards their brokers, but most of their pay is from their own commission, so I don't completely buy that argument.

I'm a little skeptical of the notion of an agent as an advocate. My two greatest advocates have been the attorney and inspector. The agent will help you find lawyers, mortgage brokers, inspectors etc but you need to get most of these yourself anyway for conflict of interest reasons (though the mortgage broker my agent picked out actually turned out to be the best of the bunch).

The buyers agent is primarily a gatekeeper to MLS data these days.
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Old 01-07-2010, 10:54 AM
 
Location: Northern NJ
3,272 posts, read 3,026,486 times
Reputation: 3382
Quote:
Originally Posted by Bill Keegan View Post
Not as tricky, nor as dangerous or scary as some will try to make you believe.
Quote:
Originally Posted by Bill Keegan View Post



This is a twisting of the actual truth, and not nearly so terrible as some people want to frighten you into believing. The AGENCY, that is, the BROKERAGE company, will work with both sides fairly, and will be a dual agent. And while the legal classification of your agent can become Dual Agent (if they inform you of the possibility, explain what it means, and you agree to it) there is NOTHING to prevent them from advocating on your behalf. It is still part of the obligation of your agent to work in your interests, to keep confidential your information, to try to get for you the best deal possible. It's a TRANSACTION broker that deals fairly with both sides and advocates for neither.


More scare tactics here. Your agent, who may have to be classified as a dual agent because the listing is within his brokerage company, still has the obligation to look out for your interests. This does not change. The agent representing you does not get both sides of the commission. He does not represent the seller in any way. He does not look out for the sellers interests. He does not get any more commission for selling you a house listed by his agency than he gets for selling you a house listed by another agency. He has likely never met or spoken to the seller, as it's not his listing. He has no more economic pressure to close this deal than he has to close any other deal. The listing agent will likely never talk to you, except maybe at the home inspection or the closing. The law in NJ says that if he happens to somehow obtain some CONFIDENTIAL information about you, he is not allowed to share it without your permission.


This last part has more vallidity to it than the rest of this scare tactic post. If you call the agent on a sign, you are likely to get not just the brokerage that has the listing, but the actual agent. And on this we agree. There is no way that one agent can possibly advocate for the seller and getting the best deal and highest price, while at the same time advocating for the buyer and getting the lowest price. You should only deal directly with the listing agent of the house you want to buy if you know the process, the laws, the market, etc so well that you don't need true representation, and are willing to work as a customer of that sellers agent.

There are many people who feel that dual agency should be avoided. In certain instances, I agree. And if that's your take on it, good for you. But it's so often mischaracterized. Understand what it REALLY is, and don't allow yourself to be frightened off by someone with an agenda. Maybe by someone who works for a very small firm that doesn't have a large number of listings, and uses that fact, and fear, to steer potential clients away from the larger firms toward his own small one.

In the interest of full disclosure, I do happen to work for one of the big ones, that has many listings in every town in NJ.


Bill,

Your understanding of dual agency is incomplete and inaccurate. For the benefit of the public, I am going to clarify it.

When you employ a real estate broker or salesperson as your agent, you are the principal. "The relationship of agent and principal is fiduciary in nature, ...founded on trust or confidence reposed by one person in the integrity and fidelity of another.' Included in the fundamental duties of such a fiduciary are good faith and undivided loyalty, and full and fair disclosure. Such duties are imposed upon real estate licensees by license law, rules and regulations, contract law, the principals of the law of agency, and tort law. The object of these rigorous standards of performance is to secure fidelity from the agent to the principal and to insure the transaction of the business of the agency to the best advantage of the principal.

In a purchaser/seller transaction in which dual agency arises, the agent must not only clearly explain the existence of the dual agency issue and its implications to the parties, the agent must also obtain a written acknowledgment from the prospective purchaser and seller to dual agency. That acknowledgment requires each principal signing the form to confirm that they understand that the dual agent will be working for both the seller and buyer, that they understand that they may engage their own agent to act solely for them, that they understand that they are giving up their right to the agent's undivided loyalty, and that they have carefully considered the possible consequences of a dual agency relationship.
The fiduciary duty of loyalty that your real estate agent owes to you prohibits your agent from advancing any interests adverse to yours or conducting your business to benefit the agent or others.
Significantly, by consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours. For example, once you agree to dual agency, you may need to be careful about what you say to your agent because, although your agent still cannot breach any confidences, your agent may not use the information you give him or her in a way that advances your interests.

The bottom line is this: When you hire an agent to represent you and advance your interests, the key characteristic that means anything at all is ADVOCACY. And advocacy is ILLEGAL in a dual agency.

When a buyer signs a consent to dual agency, this is what he is agreeing to: The broker will not aggressively represent the interests of either Buyer or Seller to the detriment of the other. Buyer clients of Broker and Seller shall negotiate on their own behalf, and Broker shall cease to serve as either Seller's or Buyer's sole and exclusive agent and will assume a role as an intermediary, facilitator and/or mediator.

In other words, when a buyer consents to a dual agency he basically just lost his agent and gained a pencil clerk.

Now, here's an example:

Broker A has a listing. The seller is getting a divorce and has a pressing need to sell quickly and is willing to accept a low price to get rid of the home.

Buyer B looks at the house with his agent and decides to buy it and wants to make a nice low offer and get a great deal. Buyer B's agent works for the same agency representing the seller.

Time for a dual agency and time for the consent forms!

Well guess what ladies and gentlemen: Buyer B's agent cannot mention the divorce or the pressing need of the seller to sell the house. Nor can Buyer B's agent communicate the fact that the seller is likely to accept a somewhat below market offer.

The buyer basically just lost his agent and his advocate.

That is unless Buyer B engages in unethical conduct, takes advantage of the situation, tells the buyer about the personal details, thereby violating the rights and confidences of the seller, thereby failing to execute fiduciary responsibility.

By the way, this happens all the time in dual agency. Loose lips sink ships and within a real estate office, there are no confidences. Papers sit on desks, phone calls are overheard, e-mails sit on screens, gossip runs amok, and everybody knows everybody's business more or less.

Now, back to the example and a solution. Let's say Buyer B's agent was ethical, took his vow of undivided loyalty seriously, and was highly protective of his buyers interests. He could, with the buyer's permission, refer them to an outside agent to negotiate the deal, let's call him the Outsider.

The Outsider can now grab the reigns, find out about the seller's situation (which a good agent can), and make the correct lower offer that the seller is willing to accept, and get his buyers the great deal they were looking for in the first place.

Buyer B's agent will now get a referral fee (typically 25% of the original commission). The Outsider walked into a lucky situation and will get 75% of the original commission. Buyer B's agent will have had an unfortunate occurrence because he lost a little money. However he will have gained the knowledge that he acted truly ethically, and he will have maintained undivided loyalty to his client and advanced their interests, which is what he was hired to do in the first place. Also Buyer B's agent will get a reputation for being highly ethical and will get plenty of future business as a result. Short term loss, long term gain.

Another example:

Agent A lists a beautiful Colonial and decides to hold an open house. An innocent, starry eyed, and soon-to-be-married couple walks in and falls in love with the house. They are presently unrepresented. They are ready to make an offer. What should agent A do?

1) Write up the offer and keep his mouth shut.
2) Hand them the Consumer Information Statement which explains dual agency along with the floor plan and listing sheet and hope they don't read it. Then write up the offer and keep his mouth shut.
3) "Explain" dual agency with a sweet smile and stress that he can fairly represent both sides according to state law and that it is no problem. Then write up the offer and keep his mouth shut.
4) Instruct the couple not to reveal any of their personal details, explain dual agency and what they are losing if they accept it, and offer to refer them to an outside firm that can represent their interests with undivided loyalty.

The correct answer is 4.

Now other agents, please do not get all procedural on me, yes in my example the CIS should be handed out immediately before they even look at the house and before any qualifying questions are asked. I know all that, I'm just trying to keep it simple for purposes of illustration.

I know it's simple to call this argument scare tactics. Well it is scary. But it is not tactics. The abuses that have been perpetrated by dual agents comprise a horror story on a grand scale.

The fact that states are making dual agency illegal reflects the fact that scary things have happened to consumers that necessitate these bans.

The brokerage community should do this on its own without any laws. Perhaps real estate agents would then begin to move up in the public's eye above the level of used car salesmen or the losers in the film: "Glen Gary Glen Ross".

[SIZE=3] [/SIZE]
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