The real cost of using a real-estate agent
When it comes right down to it, is your real-estate agent really working for you?
This post comes from partner blog The Dough Roller.
I knew something was amiss when my wife and I bought our first home way back in 1993. We had a "buyer's agent" represent us. That means in theory the agent was representing us, not the sellers.
But when a problem with the inspection surfaced, our agent wanted us to eat the cost of repairs.
It wasn't much, about $500 as I recall. But for us (read: my wife) it was the principle of the matter. So we held our ground. Eventually, the real estate agent took the $500 out of her commission. But she made it abundantly clear that she thought we were being ridiculous.
What become clear to us, however, was that the real estate agent was first and foremost looking out for herself.
- Bing: What is a Realtor?
Fast-forward almost 20 years and the folks at Freakonomics have reached the same conclusion, as you can see in this most excellent video.
Sales commissions for residential real estate brokers historically average nearly 6% of a home's closing price. Do brokers add sufficient value to justify those commissions? We address this question using a unique data set pertaining to sales of faculty and staff homes on the Stanford University campus. We find no evidence that the use of a broker leads to higher average selling prices, or that it significantly alters average initial asking prices. However, those who use brokers sell their houses more quickly.
And that brings me to a great business idea if you are so inclined: Start an FSBO (for sale by owner) website in your area.
That's exactly what Christie Miller and Mary Clare Murphy did, as reported by Jeff Bailey of The New York Times. Their site, www.FsboMadison.com, brings homebuyers and sellers together without the cost of a real estate agent. For just $150, a homeowner can list his or her home, and FsboMadison even throws in a "for sale" sign.
Once again, we see an example of the Internet cutting out the costly middleman. Power to the people!
More on The Dough Roller and MSN Money:
This article is overly simplistic and rather naive. First, the average sale takes much more than putting a sign out and collecting a commission. Second, if an inspector identifies something to be fixed, it can be negotiated between the buyer and seller as part of the sale or the buyer can elect to reduce their offer (or not). The realtor has no responsibility for the condition of the house other than helping the buyer be sure they understand what that condition is.
We have bought and sold 8 houses and used a realtor all but one time. In that case, we were in a neighborhood where houses were in such demand that you just had to spread the word to neighbors and they sold themselves. We used a FSBO site that time and it did not contribute to our selling the house. They have probably improved since that time.
An earlier contributor pointed out that the best realtors offset their costs. I concur in most cases for homes of average value. We have two realtors that we still use to point us to quality contractors and services well after the sale and they do it gladly, knowing it will improve their reputation and lead to referrals. We had another who found us a very thorough and knowledgeable inspector who identified several problems we overlooked and saved us $25000 in the cost of the house. It pays to dig around and find realtors with experience and knowledge who know your market.
In the case of high end homes, realtors can generate exorbitant commissions on a flat commission rate. However, one cannot forget the marketing costs (advertising in high end outlets is extremely expensive). And, building a strong brand name and reputation that attracts interested parties is a long and expensive process. Not everyone uses or trusts the internet.
Realtors will tell you that those big sales commissions offset the many situations where the realtor spends infinite hours in chasing prospects, doing marketing and never making the sale. Personally, I think a more complex compensation system of a fixed fee plus a declining commission rate tied to the sale price would be fairer for all parties. The fixed fee would cover the average sized sale, and while they would get more for making more expensive sales, the rate would not go up as fast.
I worked as a full time agent and now as a part time Real Estate agent and I do agree with a lot of the comments here. I really enjoyed working with my clients and several times cut my commission to make a deal come together. I believe in loyalty and did a lot of the things I did in hopes that they would refer others to me and come back to me when it was time to sell their homes. Most did and most didn't for whatever reason. I have had some try and knock me down and some times I did without a problem but when I have a client who has their Dad call me and yell and scream at me over things about his son's deal..then I have a problem. I have a problem when I have spent hours upon hours, writing contract after contract for a couple who refused to sign with me but did continue to call me when they wanted to look at homes and then use another agent to purchase. I then have lost out and get paid NOTHING. Yes 3% is a lot in some cases. But I don't receive all of that 3%. Some companies will take up to 50 or more of that. Which leaves us with not much after all the monthly, quarterly and annual fees we pay. I have ran across several low life agents that I refuse to do deals with and these are REALTORS that have a code of ethics to follow. I no longer belong to the Realtor association, I got tired of paying $500 a year so I could call myself a Realtor. The Association really does nothing for you. Some companies don't give you an option. Good agents are hard to come by, I do agree with that. I enjoy my work because I don't have to make a sale to feed my family or make ends meet.
This is a great article! I loathe real-estate agents.
I believe that they are the exact greedy, self serving individuals that drove home prices beyond real values...so they can can get a bigger paycheck. Banks are not setting or suggesting the price on homes...its the real-estate agent because they are "qualified" to do so. Follow me here?
I also had an experience where we had one of our homes FSBO, on Zillow. We had a great buyer lined up...unfortunately, this buyers' agent killed the deal for both parties.
Get this...the people that had the agent, found our house FSBO on Redfin. They contacted us directly, even stopped by on their own, and we showed them the property (no agent working for them here!), we struck a deal.
They came back with their agent, unfortunately, they had made the mistake on signing a contract with this scum bag. Agent expected ME to show the house again...umm, isn't this your job Mr. Agent??? (Ken Ryerson of ryersonrealty.com)
So we talk every thing over again, nothing changes on what the buyer and I agreed to initially.
We just about get out the door and the agent has the balls to bring up his 3% commission due on the deal, and had the nerve to ask if we wanted to be represented as sellers. I literally laughed in his face.
Since this agent had not found the property for their client, had not made any of the initial contacts to me, and had not shown the property either originally or the second time, I was pretty sure of myself that this agent had not earned his expected draw.
Anyway, I outright refused. He did not earn his commission in any respect. Blew the deal for his clients.
Yeah, agents really are complying with their duty to act in the best interest of their clients. LMAO! The whole realtor association is an even bigger joke of an organization. Pay dues for MLS access...lol, what a great scam.
Useless job, useless people. And very, very greedy. Most of them uneducated. A couple of classes mean nothing. Do it yourselves! Since when this is considered a job?
Being a doctor, a teacher or an engineer is a real job. Not a realtor. All of us can do better than they do.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
A Fidelity study found that adult kids and their folks aren't on the same page when it comes to discussing finances.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'