Parachuting & Buyer Rep Contracts

The Perils of Overconfidence, Experience

What do parachuting and Buyer Rep contracts have in common?

I recall from my one time parachuting, almost 30 years ago (I knew the experience would prove to be useful in later life), that parachute fatalities actually fall into two groups.

Unceremoniously referred to as "bouncing," the first group -- no surprise -- consists of the greenest, most inexperienced parachutists: people who are doing it for their first or second time, and are presumably too panicked to deal with a parachute malfunction (assuming they even knew what to do) should circumstances require. (And by "require," I mean the 12 seconds or so you have to jettison the snarled chute and open the reserve one in time to break your fall.)

Inexplicably, however, the second group of parachute fatalities consists of the most experienced parachutists.

It turns out that these types are so confident and relaxed, that they lose track of the fact that the (very hard) ground is coming up, faster and faster, to meet them.

So, they simply wait too long to open their chute.

Real Estate "Parachutes"

Thankfully, the consequences of inattention in real estate aren't so high.

But revisiting the topic of Buyer Rep Contracts from yesterday, it seems obvious that agents who rue skipping this important step split into two, similar types.

The first type is the "newbie" Realtor who doesn't know how any of it works.

They don't know what's in the Buyer Rep contract (and so therefore are uncomfortable presenting it), don't know the appropriate time to discuss it, etc.

So they don't.

When, after months or even years of hard work the would-be client buys something from someone else (or never does), they learn their lesson.

However, the second type is the very experienced agent, who knows the contract backwards and forwards.

Frequently, they may even know the client from previous deals.

Which is actually the germ of the problem.

Namely, all that familiarity and experience can breed an undue comfort level, and even -- dare I say it -- a sense of sloppiness.

Different Outcomes?

Unlike the newbie Agent, the experienced agent in this situation often makes out fine . . . precisely because they are experienced.

They know the client, the client knows them, everyone knows their assigned role and performs it well.

But still . . . it just seems that you never hear about the agent who regretted insisting on getting a signed Rep contract, early in the relationship.

But surprisingly often, you do hear about -- and from -- the one who didn't. (And yes, you're not really experienced until you've had it happen to you.)

Real Estate Representation Contracts

Playing "Gotcha?" Nope, Just Setting Expectations

It's always a good idea for a Realtor and the Buyer they're representing to have a signed Representation contract.

That's true even if the Buyer and Realtor have known each other for years, and already done multiple deals together.

In fact, that's especially true if the Buyer and Realtor have known each other for years, and already done multiple deals together.

What a Contract Does

As a former corporate attorney, I know that a good contract -- and the standard, MN Buyer Rep contract is -- makes everyone's expectations explicit.

How long will the Realtor and Buyer be working together?

What happens if the Buyer wants to buy a home where the Seller is only offering a tiny pay-out? (the part of the commission offered to Buyers' agents).

What if the Seller is a FSBO ("For Sale by Owner"), and isn't offering to pay any commission?

And so on, and so on.

Timing is Everything

All these questions are easily addressed ahead of time (for example, I have a standard way of handling FSBO's, which I explain to all my prospective clients).

However, if and when issues arise in the course of a relationship, when emotions are running high and the Realtor has already invested months (years?) of their time, they can be (much) harder to navigate.

So, in practice, when are Realtors most vigilant about having their clients sign a formal agreement?

Right after a client they were working with without the benefit of a signed contract burned them (unfortunately, even very experienced agents have this happen occasionally).

P.S.: And no, a written contract isn't a panacea, and won't prevent every conflict or problem.

Attorneys often say that if there's good faith and a course of dealing between two parties, a one page contract is sufficient. If there isn't . . . . a 100 page contract won't help.