Why choosing a good listing broker matters

Some people have the impression that who your listing (selling) broker is doesn’t matter that much. After all, whoever it is is going to put the property up on the MLS, maybe have an open house or two, and then collect offers. Who cares how knowledgeable that person is? Why not just hire your cousin and be done with it?

Unsurprisingly, I think this is a big mistake. Here’s an example of what happens when you have a listing broker who doesn’t know what he’s doing:

I just had a client go into and then cancel escrow on a flipped triplex in Silver Lake.

The owner had bought the property at a trustee sale, done a VERY light rehab, and then put it back on the market for a lot more than he bought it for. When we went in to inspect the property, we found some minor things wrong with it, including construction odds-and-ends undone and missing appliances.

If we were all cash buyers getting a deal, we would have gone through with the purchase. But we were using an FHA loan and paying top dollar. This raised two distinct problems for us:

  1. FHA is very wary of flipped properties. If the agree purchase price exceeds what the seller himself paid for the property by a certain percentage, FHA will require two separate appraisal inspections, only one of which the buyer can pay for. Then FHA will use the lower of the two appraisals to set the value of the property, and therefore of the loan they will provide. This increases the risk of the deal falling through.
  2.  FHA requires that properties be in very good shape. In particular, they require that the heater work and that there be a stove and (I believe) other appliances. In this case, because the property wouldn’t have passed the inspection, we were inevitably going to get into a debate with the seller about who should pay to get the property up to snuff, who would stand behind the quality of the work, etc.

What does this have to do with the listing broker? Well, the seller presumably got a whole bunch of offers on the property. On the advice of his listing broker, he chose ours. But this was horrible advice, because it was never particularly likely that this property was going to close with an FHA buyer in the state it was in.

So the seller ended up rejecting a bunch of offers that were likely to close in favor of one that wasn’t likely to close. Not good business: Those buyers have probably all moved on in the five days since we got the property under contract.

Bottom line: Who your broker is matters on the sell-side, too.