10/11/2009

The Exclusive Buyer Agent (EBA) - Part 2 of 2

[Full Lecture on Exclusive Buyer Agent]

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Go to PART 1
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WHAT ARE THE FUNCTIONS OF AN EBA?

Functions for Buyer-Clients

- Assist the buyer in researching the various listing from unlimited sources.

- Ensure that all properties that will be shortlisted have proper property information folder or full disclosure paperwork.

- Research and inform the buyer of any hidden defects and hazards of the property and location (i.e. flood, fault-line, soft-soil, undesirable neighborhood, water utility monopoly, etc.).

- Reverses any overpricing and represents the buyer in negotiation to pull the price down.

- Prevent future problems by ensure that all details of the contract does not put the buyer in a disadvantageous position in scenarios involving "surprise" expenses after the signing of sales contract such as special taxes, charges, and fees that are not previously known.

- Represents the buyer in case the buyer have after-purchase complaints against the seller or against the seller's agent. These complaints are lodged and settled in the arbiters' offices of the Housing and Land Use Regulatory Board (HLURB), wherein only licensed real estate professionals can make representation. The HLURB is also the place where complaints against unregistered agents who sell real estate projects are filed.

Special Function for Non-Buyer-Clients

Another special function of an EBA is related to private investigation. Some clients discretely engage an EBA to watch over, review, investigate, and look for irregularities in a specific real estate purchasing transaction. Some are being conducted for political mileage purposes, some are for journalism purposes, and some are for anti-corruption advocacy purposes. This is the reason why I took advance courses in the US Academy of Private Investigation to supplement my professional expertise in real estate broker services.

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WHO PAYS THE AGENTS?

This is a classic frequently asked question -- "who pays the agents"? Even brokers ask me this question.

My repeated answer was always "wherever that money came from" - in short the BUYER.

So, regardless of whoever actually does pay the agent, regardless of whoever issued the check to the agent, whether the seller or the developer, it is always the buyer's money that is used to pay the agent. It is the buyer who pays for the property being purchased, the closing fees and taxes, and the agent's commission.

With an EBA, it is not only the price of the property that will be pulled down, but all the add-ons that are calculated based on the final price. Every peso that these items go down is a savings of the buyer. The term "buyer's savings" is the reason why EBA exists. A buyer could save half a million pesos by just spending a hundred thousand pesos to an EBA.

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HOW ARE EBA's PAID?

Before I jump into the discussion of how EBAs get compensated, let me beg to disagree to the classic trending of EBAs in the United States. They are saying that getting an Exclusive Buyer Agent will cost a buyer nothing. Well, that is true if you will not consider the commission of the agents as one of the proceeds of the money that is used to pay the price of the property that comes only from the buyer. In how I see things clearly, I would rather honestly say that getting a services of the EBA will cost the buyer less.

There are two best options to pay the professional services of an EBA. You will need to talk freely with your EBA and ask for a presentation of comparative analysis of the options so you can decide which option works well in your case.

Split Commission

The first and simplest option is called Split of the Commission between the listing agent and the buyer's agent. This option is always taken when (1) the buyer agrees to this option, and (2) the seller agrees to this arrangement.

Under this option, the buyer gets the representation without directly paying the EBA. This option is always acceptable, as it is inevitable, because in most cases, the seller of the property almost always offers a commission to agents.

Professional Fee

The second option is called Professional Fee. This fee could be a (1) pre-agreed fixed amount, (2) periodic retainer, (3) percentage reward out of the amount the EBA can pull the price down from the listing price down to a negotiated price, or (4) combination of the three.

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WHEN SHOULD BUYERS CONSULT WITH AN EBA?

This part will discuss TIMING. There are two parts of EBA services. The first is Needs Analysis, and the second is Actual Engagement.


Needs Analysis is the focus of discussion during initial consultation with an EBA. A potential buyer should go to the EBA at the moment the idea of purchasing a property crosses his mind. An EBA usually interviews a potential buyers financial situation to come up with a recommendation as to the correct timing to buy.

For buyers with big wants but limited resources, the EBA can explain long term planning, savings preparation, and credit strengthening -- no hurry and no pressure. For buyers who have ready money and tight deadline, an EBA, during initial consultation, can immediately develop a workplan to achieve the goal on time. EBAs can work well and effectively in the fullest extent when the buyer signs up for his services before the buyer start searching for properties in the market.

Everything the buyer does or says, without EBA representation, are pieces of actions and information that are released to the market that can be used by sellers agents to defeat the strategy of the EBA. In short, the buyer must get an EBA before talking or dealing with anyone, even with their internal purchasing staff.

If it is a huge buy, it is very important that the buyer must remain silent, or much better if identity is unexposed, all throughout the pre-buying period while the EBA leads the negotiation with listing agents and sellers. The reason being is that once the intent of a huge buy is exposed to the market, it naturally increases the prices of properties in that particular area -- and this is not good for the buyer.

There are moments when the EBA will turn down a client's request for services. One is when the EBA already has an existing client with almost similar requirement - same budget, type of property, location, and intended use. The reason being is that the EBA cannot present the best property to two clients for some reason that it may contaminate the "100% loyalty principle". Besides, it will create an "auction effect" that will push the price up, which is basically contrary to the mission of the EBA. When this happens, the second client must wait after the EBA is done with the first client.

The other instance that may lead to EBA non-acceptance of a client is when the EBA detects during the first consultation that the buyers does not need EBAs -- buyers who believe (1) that they can find their best choice as a result of their own research and (2) that it is much easier to bargain the price with sellers if they go in without a professional price bargainer.

Actual Engagement of an EBA the the implementation of the planned workload. Most EBAs are very selective of their clients under this part of the workload -- acceptance of engagement has three criteria. The primary criteria is financial readiness of the buyer. The second criteria is the price of the property that is intended to be purchased. The third criteria is the work schedule capacity of the EBA to accept a new workload.

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WHERE DO EBAs GET LISTING INFORMATION?

Take note that EBAs are not listing agents. They don't have listings. They don't have an inventory of properties to sell where they can get commission from. But they know where these listings can be found.

In order to meet the reqirement of client buyers, EBAs get their listing information from various sources, such as:

- Various Multiple Listing Services
- Suggestions of the buyer
- Properties foreclosed and are nearly foreclosed by banks
- Properties expropriated by local government units for failure of owners to pay real estate tax
- Properties advertised in the newspapers, classified ads, and internet
- Developers (big and small)
- Various realty companies
- Multiple listing baskets of brokers' associations
- Search on foot and saturate the whole area with an offer to buy fliers

Will the EBA broker any property a buyer points his/her finger to? Yes, even if it is not advertised for sale, an EBA can talk to the owner to present an offer to buy such property. Take note that finding probable properties is a joint effort of the EBA and the client buyer. The main objective of the EBA-Buyer teamwork and collaboration is to come up with sufficient number of comparisons. After the teamwork comes up with the wide range of choices, it has to be the EBA who will do the initial contact with the sellers to ensure that the shortlist of properties that will be inspected by the buyer are readily screened and worry-free.

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WHO ARE THE IDEAL CLIENTS OF EBAs?

An Exclusive Buyer Agent is highly recommended to be engaged in expropriation proceedings by Government and major land or business acquisition by Real Estate Investment Trust Corporations (REITS).



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Go to PART 1

3 comments:

Joel Chua said...

Would there be any conflict of interest for an EBA to also be a property owner/investor?

JOHN ODONNELL R. PETALCORIN said...

Yes there would be conflict of interest because the owner/investor will not be able to provide wide range of options to the buyer. The owner/investor will always be biased in his presentation and will always present his property with favor. In short, real estate developers can never be EBA.

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