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Hidden differences of Mediocrity vs. Mastery -- The Agency Problem

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Terry Moore, CCIM

The seasoned client was furious -- again. “Cancel it,” he bellowed. “I’m fed up with their B.S.!”

Most agents would have quit by the second time a big client gave up in disgust. “Just give it a little more time,” I asked. “I truly believe we can make this happen.”

My client had reason to be upset. The listing broker had posted the property as five units, but the tax records showed it was four legal units. The preferred lender, bound by the government records, would not make a five unit loan on a four apartment property. The four unit lenders saw five units. Federal regulations prohibited lenders from ignoring the undeniable truth of the fifth apartment. My client was under time constraints. Abandoning the transaction would cost him $25k in non contingent money. The property mis-classification meant this deca-millionaire would have to pay much higher interest. An ordinary agent would have given up. The listing broker did not know that a solution was possible, nor did he even try to find one. No extra effort was required to sell to the back up buyer and the listing broker would almost as much.

The 80+ year old asset was built as five units. For generations the government mis-classified it as four units. It had been sold repeatedly, always incorrectly labeled as four units. Several major lenders made loans as if it were only four units. Now banking regulators were fussy about what had been accepted practice in the past.

My client needed local government and his preferred lender to reverse their recorded stances and classify it as a five unit asset. A peer in my circle of relationships provided me a tip about a little known process. Then because of 40 years of experience in negotiation and some strategic pleading, a government official confirmed the facts which I cited. He changed the classification. The lender had insisted on conventional, but non-existent documentation, but I politely reasoned and they relented, reversing the position they had held for more than a decade. My client was elated with the loan and the rate.

That true story was told to not impress you, but to impress upon you that excellence is worth what it costs.

Many owners suspect that ordinary agents can close most deals and that many agents are overpaid. Those owners are right. Mediocrity’s costs are often hidden.

Two things separate the masters from the mediocre. In real estate, masters cure problems that common agents can’t even correctly diagnose. Excellent brokers obtain the last bit of benefit, whether it is price or terms, even though it costs them dramatically more than the marginal fee.

Even an ordinary agent can get 95% of what a property is worth. Average agents settle for that result. The champion knows when and how to capture the gold medal instead of a finisher medal.

Some investors falsely assume that brokers are interchangeable and that any agent will give his or her all, regardless of the compensation. Many transactions have hidden problems that stymie mediocre agents. Master brokers clear these routinely. The best agent sometimes decline assignments when fee is too low. The second rate agent, glad to have the job, often delivers adequate results. The owner rarely realizes the proven professional would have produced a superior solution.

The agency problem involves different motivation between principal and agent. The agent’s incentive is to maximize her income while minimizing her time: do just enough to close the escrow, and then move on. Agent compensation per hour often overrules the clients’ best interest. Principals want the best results--and don’t care how long it takes agent to achieve it. Mediocre agents often lack the commitment to maximize their clients’ benefit. That is part of why they are average.

A star broker may strive to obtain the last benefit, whether it is price, terms or some dispute near the closing, expending $5000 of time and effort for the reward of an extra $200 commission. Most clients don’t grasp that reality.

Brokers negotiate scores of details; the best can usually exceed the average. That is what makes them the best. The more skilled negotiator is more likely to prevail on details. The best usually don’t charge more, but even when they do, their superior performance nets the owner a better result.

Aristotle believed that “excellence was not an act, but a habit. We are what we repeatedly do.” Think of it this way. If you, or the love of your life, needed vital surgery, would you seek the best surgeon or would you settle for “probably good enough”?

How do you find trusted advisors? The same way you would the best brain surgeon or cancer doctor: research, referrals, reputation and then schedule an interview. Since you know about the agency problem, you can ask the best to describe their solutions to tough problems.

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Terry Moore, CCIM, has won three county-wide awards for income brokerage excellence. Each was awarded by peers and competitors. For more than 20 years he has taught and trained brokers to aim for excellence. He is part owner of Apartment Consultants Inc., the most active apartment brokerage in San Diego. He can be reached at tmoore1031@gmail.com, 619-889-1031, or SanDiegoApartmentBroker.com.

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