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?
Before you jump to conclusions – I’m not advocating you skip an agent. They still bring some value to both buyers and sellers. What I am going to talk about is what they are supposed to do, what they do looks like in practice, and what value their services should cost.
Let’s break it down.
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.
Want tax information? It’s online. Want local parks and school ratings? It’s online. Want to know about crime in your area? It’s online. What to know how the neighbors are? Sign up for Neighborhood.com and get a glimpse yourself.
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. 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.
I don’t know what the agreements they have look like – but I have a hunch there is something. For example, on a deal I recently looked at, the sellers agent made me get prequalified with their mortgage broker to even consider presenting our offer to their client. It felt extremely dirty – and the sleezy mortgage broker just put us on his list and hounded us for months until we finally got out number removed.
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.
Plus, there’s online mortgage lenders now that will help you without ever setting foot into an office somewhere!
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.
This Is Always Controversial To Real Estate Agents
A few times a year, this post comes up in circles of real estate agents and it always strikes a cord. Some agents are happy about this post (in the minority), because they understand the modern day client, the way things are progressing with technology, and realize they need to step up their game to provide value to the transaction.
Sadly, I get more upset agents that read this and think I’m a terrible (or stupid) person for writing it, or I clearly dealt with “bad” agents. Maybe I did – in the big scheme of the United States, I’ve dealt with and worked with maybe a dozen different agents in my life (buyer, seller, other party’s agent, etc).
What I think it really comes down to is justification of value. Let’s take the sale of my home – $1,000,000. Did the agent really earn $50,000 for the work they did (or really, $25,000 because of the split with the buyers agent)? Did they do more work for me that when I sold my $200,000 condo and only earned $10,000?
I’m not purporting that people sell their homes themselves OR not use a buyers agent. I think as someone using an agent for both sides of the transaction, you need to assess the value you receive, and ensure that the compensation reflects that. I fully realize that the agent has fees involved, especially the selling agent. There’s photos, drones (today), time, not to mention the overhead of licenses, insurance, splitting fees with their broker, etc. All that means is that agents need to bring value more than ever.
If they want to earn their commission, they have to do more than add their clients to the MLS, send them automatic updates, and go to a showing. Or if they’re selling a property, they need to be marketing, and not just data entry into the MLS system.
What do you think? Are real estate agents worth a 6% commission? I’ve never passed 5%, but even that’s pushing it to me . . . . End rant.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.