Reader Question: I have a friend who is a real estate broker. She wants to be my agent for a home I currently own and the home I buy when I relocate. She has another job and appears overwhelmed. She lives two hours from where I am buying, and the house I am selling is four states away. I would like her to profit from the commissions. She seems to be financially desperate and not thinking clearly. I am very concerned that if I use another agent, it will compromise our friendship. Would it be permissible to tell her of an agent I hear of that I have not contacted and let her approach him and then she can get a referral? Or is it advisable to use her and see the houses on my own and hand out her business card so she can get the commission?
Monty's Answer: You are an admirable person for trying to help your friend. Her suggestion to be your agent in both transactions you are anticipating is not in your best interests, and in fact, could ultimately damage you financially. The "friendship close" and the "financial hardship close" are not rare, but weak pitches for a real estate agent to gain business. If she does not realize she cannot perform, her approach calls her competency into question.
A broker refers a client to a company. Technically, the company pays the referral fee, not the agent. Agents share in the cost of paying referral fees. This tactic is a best practice in the industry. If you use her, this route is best for both of you.
Boots on the ground
In the case of listing your home in another state, most states issue real estate licenses that are not reciprocal with other states. States do this because they know laws vary by state and that having an agent not licensed in their jurisdiction, but permitted in another creates a risk to the public. Additionally, your friend could not gain direct access to the MLS system on either transaction which is an essential part of gathering data to making smart decisions.
Regarding representing you to buy a home two hours away, she is likely unfamiliar with that market. Being a part-time real estate agent makes multiple four-hour round trips seem unrealistic. A productive full-time agent would not accept such an assignment. Home buyers today in many markets need to react quickly, and it is likely you cannot wait hours or days to see a home you like.
Calling to set up a showing and asking the agent to send your friend the commission may create a roadblock to view the house. Local agents will not want to work with you in this fashion. Plus, the learning curve to gain the local knowledge to show you homes in the neighborhoods you are seeking is steep. Local knowledge is vital in considering your choices.
The red flag is waving
Be cautious allowing her to place the referral. Based on what you have shared, it does not sound like she has a good grasp about how the business functions. If dollars drive her, she may ask for a larger referral fee than a company will pay. A common referral fee is a 25 percent of the side-of-sale fee. The two side-of-sale referral fees in real estate are the listing side and the selling side. For example: $150,000 sale price and 6 percent commission = $9,000 gross commission. $4,500 sides of sale x .25 percent fee equals a $1,125.00 referral fee on each side of the sale.
The concern with her calling one agent you become aware of is that you should interview three real estate agents, not just one, on both transactions. The reason is that three opinions will all be different. If you only sought one conclusion, you lose the freedom of choice. With three different views, you have more information to guide you. Here is an article at http://bit.ly/2HWBfih about how to pick a good real estate agent. And another at http://bit.ly/2JWl7iy about how to test agents that may provide additional perspective for you.
While your decision to go in a different direction may anger her and cause you to feel bad, it is illogical to allow her to help when you don’t trust her judgment. I would argue retaining her is not doing her any favor.
— Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Ask him questions at DearMonty.com.