Today I want to take a tangent and discuss real estate — specifically real estate agents. I have a good family friend that is looking to buy their first home, and their experience hasn't been easy. That's not to say that buying real estate is ever easy, but dealing with a real estate agent should be easy. That's what they're there for!
Beyond my friend's transaction, I started thinking about my experiences in real estate, as well as discussions I've had with friends and family. Without a doubt, real estate has drastically changed over the last 20 years — even over the last five years since the mortgage debacle. And all of my conversations seemed to point to one conclusion — what do real estate agents really do anymore?
What Real Estate Agents are Supposed to Do
The first thing we should look at is what real estate agents are supposed to do.
According to the National Association of Realtors, a buyer agent should:
- Provide you with information detailing current market conditions
- Help you with financial information, such as how much house you can afford
- Guide you through the home purchase process, including getting financing and what information you'll need to provide
According to the National Association of Realtors, a buyer agent also can:
- Help you understand: real estate values, taxes, utility costs, municipal services and facilities, and local zoning ordinances
- Research homes for you using tools like MLS (Multiple Listing Service)
- Show you homes best-suited to your needs
- Facilitate the negotiation of a home purchase
If you're selling a home, here's what a real estate agent is supposed to do for you:
- Provide up-to-date information on the market to determine a reasonable asking price
- Show you the terms and conditions of competing properties
- Develop a marketing plan that could include repair suggestions, open houses, advertising, etc.
- Provide security for your home when it is being shown to strangers
- Negotiate the best price for your home
- Monitor the sale process, renegotiate as needed, and resolve issues prior to closing
Now that we have a good baseline, let's take a look at what they really do.
The Internet Has Eliminated Most Private Information
It used to be that real estate agents had a secret weapon of information: the MLS. With this private/paid tool, real estate agents could list properties, see transaction histories, and get market analysis. If you, as a buyer or seller, wanted that information, you had to pay for it — in terms of hiring a real estate agent to represent you to get the goods.
However, today, there are 50+ real estate websites that publicly display that same information. You want market comparisons? Check out the recently sold section of Zillow.com. Is that comp really a comp? There are pictures for you to check out as well!
Beyond using these mainstream websites to do your own research, let's look at how the buying process looks in reality. If you want to buy a home, you'll typically contact an agent who will ask you for all the criteria you're looking for in a home. That agent will then take that information, and set up an automatic screening for you in the MLS. Then, each day, you'll get an email digest of all the homes that have come on the market that match your criteria.
While this is a handy tool, the same information can be found publicly. In fact, I look at this more as a way out of having a real estate agent showing homes. In fact, I rarely hear about real estate agents actually taking clients to homes anymore — it only happens on House Hunters. Instead, what typically happens is that the clients do their own research, and then simply tell their real estate agent which houses they'd like to see.
But I'm getting ahead of myself . . . .
Do You Even Need a Real Estate Agent to View a Home Anymore?
Beyond the MLS, many properties are now coming to market with their own websites that have hundreds of pictures of the house. Some even go as far as putting together virtual tours of properties so that you can get a real sense of things.
However, viewing properties online will never replace checking out a property in person, but there are open houses, or you could simply go to the house and peek in the windows!
The only time you actually need to call a real estate agent is if you want to get inside the house without breaking in! And by that point, you've probably already short-listed the property.
So You've Found the Home — They Help You Negotiate, Right?
In my own past, I've put in offers for roughly a dozen different pieces of real estate, and never have I really felt that a real estate agent negotiated for me.
The conversations typically go like this:
Me: I'm thinking about putting in an offer.
Agent: How much do you want to offer?
Me: What do you think I should offer?
Agent: Well, the seller has it listed for this, and the comps look like it could go for this.
Me: Well, what do you think?
Agent: Well, offer what you're comfortable with.
Me: Thanks for being so helpful.
Do you see my point here? I've watched enough Million Dollar Listing shows on Bravo to understand it doesn't usually work that way. I've never had a agent tell me they think they can get me “this great deal,” or that “we should go in at this price.” I've found that real estate agents have simply become messengers — just doing what they're told by their clients.
But They Help With Financing, Right?
Nope. Every real estate agent has a mortgage broker that they work with for kickbacks. 90% of real estate agents have no clue what they're talking about when it comes to mortgages and financing options. They'll simply refer you to the mortgage broker that they know, and the real estate agent will typically get a commission for the referral.
If you don't know how much house you can afford, you need to head over to websites like Bankrate.com, and use their free calculators. If you're still not sure, contact your favorite bank and see what they say you can afford. Don't just take your real estate agent's word for it.
Real Estate Agents Do Monitor the Transaction
Some of it they do. Actually, there is a new trend in the real estate transaction game: real estate transaction coordinators. For the last two properties I've worked on, once the offer is signed by both parties (the buyer and seller), the real estate agents disappear and you start dealing with a transaction coordinator.
The great thing is that the transaction coordinator is typically the smartest person that you'll deal with in the transaction — they're organized and efficient, and know exactly what's going on with all details of the transaction and what needs to be done.
Chances are, if you call your real estate agent to check the status of the transaction, you won't get a call back until the agent checks with the transaction coordinator.
Shoot, the transaction coordinator basically tells the real estate agent when they have to do something at this point — open the house up for an inspector or appraiser, or get the buyer or seller to sign a paper. The real estate agent typically has no clue about the details.
Talking to my parents, they were telling me it used to be the agent who did all the paperwork and ensured that everything was complete from start to finish — not a third-party.
So Let's Look at Our List
Buyer agents:
Provide you with information detailing current market conditions— Zillow.com and Realtor.comHelp you with financial information, such as how much house you can afford— Bankrate.comGuide you through the home purchase process, including getting financing and what information you'll need to provide— transaction coordinator
Buyer agents can:
Help you understand: real estate values, taxes, utility costs, municipal services and facilities, and local zoning ordinances— Zillow.comResearch homes for you using tools like MLS (Multiple Listing Service)— Realtor.com- Show you homes best-suited to your needs
- Facilitate the negotiation of a home purchase
Seller agents:
Provide up-to-date information on the market to determine a reasonable asking price— Zillow.com and Realtor.comShow you the terms and conditions of competing properties— Realtor.com- Develop a marketing plan that could include repair suggestions, open houses, advertising, etc.
Provide security for your home when it is being shown to strangers— This just doesn't happen oftenNegotiate the best price for your home— See my story aboveMonitor the sale process, renegotiate as needed, and resolve issues prior to closing— transaction coordinator
So What Do Real Estate Agents Really Do Anymore?
Well, if you look at our list, it appears that buyer agents simply show you houses and give you the appropriate documents for the purchase. As we discussed, they also only show you houses that you tell them to — there is no real work on the real estate agent's part to do this.
As for getting the appropriate documents — some people still do sell their homes themselves. In fact, it's a trend that is growing in popularity. Since most documents for a home sale are standardized, you could buy or sell a house without using a real estate agent.
As for selling a home, a real estate agent typically is a marketing guy. That's it. When selecting a seller agent, make sure that you're looking for the best marketing person you can find — who cares if they know what your house is worth, you'll have to do that part yourself.
Next time you see a real estate agent out and about, you'll understand why they can enjoy their weekdays.
So, is all of this worth five to six percent of the purchase price? I don't think so . . . . End rant.
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Sadly I have never met a good realtor. The last one wanted over 10% commission to sell my house (read put it on internet and wait for people to come). They are all sweet telling you your house can sell for 1 zillion just to get the business, then do nothing for 3 months and tell you the same property is actually worth $1,000 so they can get a super quick easy sale. I ended up putting the ads myself and sold in 3 months for a better price.
Really awesome to hear that you sold your home yourself. How did you find the process to be?
My mom actually just became a real estate agent this year! I agree with many of your thoughts. (Also, I was surprised to find at how many things she is legally barred from saying/doing. A lot of them would be helpful to the buyer/seller!) However, I think that even if you could do everything that a real estate agent does – and probably few people can, skillfully – they still have a place to serve people who can’t or don’t want to do it all on their own. What you’ve described takes a LOT of work. I have observed that my mom is mostly working with people who are moving in from anther area or have super busy jobs.
I have used the same realtor for all three of my real estate transactions (buying a condo in 1999, selling that condo in 2007 along with buying our current house at the same time). He was a referral from a family friend and I think he did a great job.
He did actually work a better price for us. We made an offer on our house, and the seller came back with a counter offer that was their ‘final offer’. I was prepared to accept it but my realtor said ‘I know the agent, so let’s try once more. Go in $5k cheaper.’ I did so and they accepted.
The commission on my condo was about $6k, and as he later pointed out, his push basically brought that down to practically nothing. Since he got 3% of the commission on the house we bought as well, he effectively cost himself $150 by advising us on the lower offer.
In that case, I think he was very useful and was worth his cost.
I think there are going to be some major changes in how the real estate agent system works in the next few years. There will probably be a lot more agencies with a business model like Redfin. I do think real estate agents provide some value, but I don’t think they deliver 6% value in most cases.
Our agent helped us become familiar with a process that we weren’t familiar with before. He also did help us negotiate a bit. But you’re right, it’s hard to say why commissions can’t come down a bit, because there is SO much information out there that you used to have to go to an agent to get. It’s a tough biz, and we’ll probably see a decline in commissions/agents in the next 10 years. If not, then people are just lazy 🙂
My wife and I use a long time friend who has 40 years experience in real estate. She knows us as well as we do. The information she provides is beyond the standard stuff. Is she worth 5-6%? Yes, but she also rebates part of her commission back to us so the net rate is lower.
Robert–I totally agree with your conclusion: if you’re selling one and don’t want to do the marketing yourself, find the best dang marketer you can who also happens to have a real estate license. There is one area where my Realtor has been gold. She gets the early scoop on the “fell into my lap” investment properties. She’s the magnet for the people who inherited the house from the mother, live 43 states over, and just don’t want to mess with it. Her response is always “I know this guy who can close in 7 days for cash. Are you interested?”
Game over.
For the one of her, I’ve seen 100 clots. I’ve also seen the attempts to break the cabal by fixed price real estate service providers. It’s the exact same problem that hourly financial planners face versus asset managers: people refuse to pay up front, even if they pay 10x on the back end.
So, I agree. 99 out of 100 Realtors waste time. The other one needs to be provided with lots of deals and love because she’ll make you money.
1st of all , Real estate agents, do NOT get kick backs from the mortgage officer!!! I have no idea where you got that priceless info and also, I know for a fact that most of the transactions I have been involved in this year closed because of my diligence and hard work and watching timelines and making sure things were done. And try to do a foreclosure by yourself, not too much fun. I do negotiate and go through hell sometimes to get what my client wants. I recently paid for a client to stay in the home past closing, just to keep peace.
Having a good agent is well worth the commission. Yes, you can go on many websites and look at property. Who do you think puts 95% of the listings online that your looking at genius. Professional real estate agents, and we pay $525.00+ for the privilege, as well as measure, take tons of pictures and do tons of dang paperwork that the lawyers at the state real estate com require. Also, I and most all agents pay a LOT of money to at least 3 different Realtor organizations, as well as the licensing dues and insurance dues and continuing education dues yearly. The MLS is not a magical thing, agents put that information on there. We pay a lot of money for advertising our listings, as well as the internet. I myself pay ZIllow more than you would think. Yes, i’m a real estate agent since 1999, and I know for a fact that there is more to it than most people think. You should try it sometime, for at least 2 years, and then see what you think. Just like running a restaurant, there is a lot more to it than just cooking.
Thanks for sharing your side – I will definitely host your comments as long as they’re respectful.
I do have a question though – how much different is the work for a $60k condo or a $600k house? Does it justify a 10x commission?
I was about to write this article myself, but I did a last resort search and am relieved that you have saved me the time. Thank you. I think most of the articles out are very outdated as , like you said, websites such as zillow , redfin , etc provide pretty much everything any investor or prospective home buyer needs. Orbitz, Kayak was to the travel agent like Zillow, Redfin will be to the RE agent. Fate is sealed. To answer your question tho I bet selling a 60k condo is actually probably more of a hassle than a 600k house! Have to deal with HOA stuff, other tenants in the complex that may hamper the sale etc…It is embarassing that it has taken this many years to unravel a completely ass backwards system. Its crazy that agents are just not salaried employees who receive some performance incentives like any other sales oriented position.
As buyers who are in the process of purchasing our 12th home, we have been in the real estate game for 23 years and actually have found realtors today DO do something very important – they keep potential buyers locked out of the homes they’re interested in until the listing agent decides they’re in the mood to show it. This insane procedure of being forced to be at the mercy of mercurial divas who work bankers hours does NOTHING for the home buyers OR sellers; it only works for people who cash the tens of thousands of dollars commissions checks for no work at all. It is a ridiculous monopoly and I wish Help-U-Sell had broken them once-upon-a-time.
As someone already pointed out, since Dodd-Frank, kickbacks from mortgage companies are illegal.
Also, keep in mind, a single agent isn’t pocketing 6%. In a typical transaction, that 6% is getting split 4 ways between both the buyer’s and seller’s agents and the agents brokerages (1.5% each). As the model continues to change and evolve, costs will be removed and the commission drop. It’s inevitable.