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Checking out the real estate agents

by Philip Brasor and Masako Tsubuku

Several months ago we looked at a house that had been bought at auction by a housing company, fixed up and then put on the market. We found it among the listings on the home page of a realtor we’ve dealt with in the past, and he agreed to show it to us.

It was a nice house but we had questions, mainly about the stability of the land and the quality of the construction. He couldn’t tell us anything because he said he didn’t know, though while we were inspecting the kitchen he removed a panel in the floor, exposing the foundation, and invited us to have a look. We weren’t sure what we should be looking for, and he didn’t know either. Later, we asked if he could get us the information we needed from the company that was actually selling the house, and he seemed put out. “They’re very scary,” he said.

Though this is an extreme example, it illustrates a problem we sometimes have when looking for a used house to purchase. Some real estate agents don’t have much knowledge about the properties they represent. Our budget is limited, which means the chances are greater that a house or condo we see is going to be of lower quality, and we understand that, so we’ve tried to educate ourselves and always inquire about things important to us, such as whether or not a property has been renovated and if so what sort of renovations were carried out; the attendant property taxes; the environment and whether a particular open view is going to vanish in the near future because of a housing development or tall building.

Most agents have answers to at least some of our questions, but they aren’t required or expected to know that much (see box), which makes us wonder how they justify their commissions.

When home owners want to sell their property, they make contracts with realtors. There are three types of agency contracts. An ippan (regular) contract is simply an agreement that says the agency can represent the seller. Sennin (full service) and senzoku sennin (exclusive full service) contracts make the designated agent the sole representative for the seller. What this means is that the realtor has a certain amount of time to sell the property — usually up to a week for a sennin contract and up to two weeks for senzoku sennin — before it will list it on the national database of the Real Estate Information Network System, at which point all licensed realtors with access can try and sell the property.

The advantage to the agent of a full-service agreement is that he has no competition in the beginning. If the agent can find a buyer for his contracted seller, he can receive a ryōte (both sides) commission, meaning up to 3 percent of the property’s price each from both the seller and the buyer. But after the full-service period is up, any other realtor can “introduce” the property to a potential buyer and receive the buy commission if successful.

Depending on the contract, however, an outside agent may not be permitted to advertise the property. The most common advice for house hunters is to choose the place where you want to live and then cultivate local real estate agents by letting them know you are looking and what your criteria are.

Nowadays, all agents use the Internet to advertise the properties they are contracted to sell, but conventional wisdom says that the most desirable properties never make it to the Web because agents have lists of potential buyers and when a good house or condo becomes available they directly contact those buyers, thus saving a lot of advertising and sales costs. However, there is a glut of used housing in Japan, so more and more agents are having to advertise their properties, either on their own home pages or on aggregate “portal sites” such as Suumo and At Home, for which they pay fees. Many of the major real estate companies use both methods.

The advantage of exclusivity to the agent is obvious, and some realtors, usually local ones, only deal in exclusive contracts. Once, we inspected a condominium by appointment and afterward decided to go to an open house for another unit in the same building, which was being handled by a different realtor. Agent A, who showed us the first condo, said he’d like to tag along, but Agent B, who was supervising the open house, barred both Agent A and us from even getting through the front door, because if it turned out that we did want to buy Agent B’s unit, then Agent A by rights could wrangle the commission. We later found out that Agent B’s company only deals in full-service contracts.

But what’s the advantage of an exclusive contract to a seller? Isn’t it easier to find a buyer for your house if you have as many agents as possible trying to sell it? Certainly, but it can also be more trouble. Rather than deal with one realtor the seller would potentially have to deal with many. It’s also assumed that a realtor with an exclusive contract will try harder.

Most realtors throw in extras with exclusive contracts, such as detailed reports on all transactions with interested buyers. One agent for a major national real estate firm told us that his company sold about 40 percent of its exclusive contract properties, and the rest were sold by different realtors. In the long run it’s better for the exclusive agency that somebody sells the property, even if it isn’t the exclusive agency, otherwise the agency can’t even get the 3 percent commission from the seller. After all, contracts are usually limited to three months, so property owners can switch to another exclusive agent if they’re not happy with the one they’re using.

It’s easy to spot properties without full-service contracts. You’ll find them listed on multiple home pages and portal sites, and differences in realtor attitude are reflected in the way they’re presented. Some agents save money by not including photos of the interior, elevation data, or information about the surrounding environment; only a floor plan and an exterior shot.

Because we are looking at cheaper properties, many of the agents we talk to are not responsive to our needs. If the price is low, the commission is going to be low, too, and some realtors don’t see the point in making the extra effort. Once we inspected a house going for ¥7.5 million with an agent who did not have a contract with the seller. We asked lots of questions about renovations and how much they would cost. He said he’d find out but never got back to us. Several weeks later we discovered the house had been sold to someone else.

Philip Brasor and Masako Tsubuku blog about Japanese housing at www.catforehead.wordpress.com.

Government plans to expand the housing marketOn Sept. 8, Japan’s land ministry announced that it would develop a system to provide information about earthquake-proofing and structural “resumes” for used houses and condominiums that go on the market.

As it stands, realtors tend to list a property’s price, layout, size, age and location, but not much else, and many are reluctant to discuss matters such as quake-proofing because they don’t want to be responsible for such information after a sale is made. And while renovations are on file with the pertinent authorities, many agents don’t always know about them.

The ministry wants to expand the housing market to include more used homes. In 2008 only 13.5 percent of all homes sold in Japan were used, while the equivalent portion in the United States in 2009 was 90 percent and 85 percent in Britain. The ministry believes that if consumers had more confidence in used homes they would buy more of them.

So far, it is only planning to study the matter, but the result could be laws making it mandatory for realtors to provide detailed data about a property’s structural integrity. Right now, if a potential buyer wants such information, he has to hire an expert to carry out an inspection at the buyer’s expense, which can amount to hundreds of thousands of yen.