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.
Pauline says
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.
Robert says
Really awesome to hear that you sold your home yourself. How did you find the process to be?
Emily @ evolvingPF says
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.
Money Beagle says
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.
Michelle L Shelton says
Love this as this is how it is supposed to be! Kuddos to your realtor
Jacob says
But doesn’t that illustrate the problem perfectly? “How [they’re] supposed to be”, in your interests, is against their own interests. Therein lies the problem.
BT says
That is a feel-good story but what about the seller’s agent? What did he do for his $6K? He caved and cost his clients $5K. It sounds like both agents just wanted to get the deal done so they could get their commission. Agents claim to be able to save buyers money and get the top dollar for sales. However, you can’t have it both ways.
Chuck says
“It sounds like both agents just wanted to get the deal done so they could get their commission. ”
You do realize there’s nothing wrong with wanting to be paid for working, right? Everybody says “commission” like it’s a four letter word, yet what nobody ever wants to poitn out is that it’s the only way Realtors get paid. All those times we show you property or coordinate appointments, or market listings, or chase lenders for you because you’re not getting your phone calls returned, or chasing the HOA because your question about fencing or whether you can purchase a 5 pound dog – we don’t get ANYTHING unless you actually buy a house. We have families, mortgages, car payments, just like everybody else, and all of that costs money. So honestly – why do you begrudge us getting paid? What is your problem with us getting a commission?
Furthermore – it’s not “caving” if it’s a contract that everybody’s agreeing to. This idea that everybody has to be adversarial in a transaction is honestly very ignorant and makes the entire process miserable for everybody. Do yourself a favor and tell any future Realtor who draws the short straw to work with you what your intentions are up front so they can never return your calls or emails, because at the end of the day all you’ll do is frustrate everybody with your self-centered attitude and hurt your agent’s reputation for even associating with them.
Andy Hough says
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.
jacob | iHeartBudgets says
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 🙂
krantcents says
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.
Jason Hull says
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.
K Hobbs says
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.
Robert Farrington says
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?
Billy jones says
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.
Matt Slechta says
Robert,
The fact that you ask that question, and I’m not trying to be rude here, proves your ignorance about the process. The market, supply of buyers, for a 60k home is literally hundreds of times larger than the market for a 600k home. I can sell sub-200k condos in a weekend and get multiple offers just by pricing it competitively and placing it on the MLS. Then my seller gets to pick the offer they like the best, usually the highest one that is all cash, close in a week.
A 600k home doesn’t have even close to that many buyers looking at it. I literally have to go find the buyers (do some real marketing) to find someone willing to shell out over half a million for a home. And if the stats are even close to accurate of a realtor selling your house from 10-15% more than you’d do it yourself, that 10-15% means a lot more on that 600k than it does the 60k.
Robert Farrington says
I think that clearly depends on the location – major cities (like my location) will see multiple offers on most properties on listing weekend, up to about $1.2 million range. You won’t find a property less than $200k, even for a dirt trailer park stall.
Chuck Wilson says
how much different is the work for a $60k condo or a $600k house? Does it justify a 10x commission?
NONE – NO
SGordo says
Some Agents do receive kickbacks…..that’s why it became illegal. (@ K Hobbs)Still happens…don’t be naïve. Talk to any mortgage lender that has worked in the industry over 12 years. Amazing that you even think your statement was believable. And I guarantee, as hard as you think you worked on those previous transactions….The Escrow/Title and Lender (including Processing and closing) did over 95% of the work and got paid a fraction of your commission. So you paid a per diem because your Seller couldn’t find a place to live past closing? You should receive a medal- thanks for making sure we all know you’re a “stand up” Real Estate Professional. If you had negotiated the transaction correctly….that wouldn’t have been necessary.
The fact is, a weekend crash course that instructs you how to pass the test and $1000 can get you a license to start “THAT” new career.The majority, not all….but the majority have no clue what they’re doing. They saw the same thing ALL Agents did….big commissions, little education required. Plain and simple. Those that value perfecting their craft will always succeed in any Real Estate Market. But where there’s professionals with integrity and drive, there’s also Part-time Uber drivers and bartenders that call themselves Real Estate Agents.
Nancy says
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.
Bill says
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.
ArealREagent says
Mr. Farmington,
I think you should shadow an experienced agent before you go spouting off on a profession that you very apparently know next to nothing about.
Robert Farrington says
As a client, I can only share my experience in multiple transactions, and those of people around me.
Ben says
I’m a second generation Realtor. I grew up watching my top-producer mother work all hours, weekends and holidays. Ironically, I swore I never wanted to be a Realtor, yet here I am. There is a ton of value that a good Realtor can bring, and often they save clients more than their commission amount (typically 3% to the listing agent and 3% to buyer’s agent in my market, which is split again with the brokerage before agent’s expenses are taken out).
But… the fundamental problem in the industry is that the barrier to entry is too low. The ‘average’ Realtor only sells a few home a year and has been in the business for less than three years. As long as brokerages continue to hire anyone with a pulse and a license Realtors will continue to get a bad reputation. With so many transactions being done by agents with little more knowledge than their clients, it’s no wonder so many people are underwhelmed by their Realtor.
Many of our clients are older and downsizing from large homes with lots of deferred maintenance to catch up on, or updates to be made. Contractors in this area (I suppose most areas) can charge thousands for jobs that I can get done (with preferred/trusted vendors) for hundreds. A new agent in my office paid $5,000 to have the insulation in her own crawlspace replaced. I just got the invoice from my favorite handyman to do one of my client’s homes for $780. If the owner decides to replace the roof, I could save her another $3-5,000 over the typical contractor quote in this area. That’s just one of the ways we deliver more value than owner-posted listing on Zillow.
If I ever meet with you to list your home, I’ll gladly give you the full list of value added services we offer… and we could even meet outside of banking hours.
Robert Farrington says
Sounds like you understand customer service and helping clients more than most. Interesting about the barrier to entry. I’m curious about what you’d like to see changed?
Serena says
I have a few thoughts.
First, I HAVE to comment on the fact that you’re getting your research data from reality tv… REALLY?
So, lets just dive in, shall we….
Yes, we get the same information as you, because our MLS syndicates to those sites. Although, not everyone allows the syndication, but lets breeze by that shall we? Do you know that those site are not able to get the rest of the info? When a house goes off the market, when a house goes under contract and falls out, when a house cancels…. nope. But ok, lets just say that you don’t care, you can find a house, see if it’s still active and go through that… sure, that’s easy. I tell people all the time, I do not find homes. Searching is much more complex, especially since 99% of buyers don’t buy the home they originally described… but ok
You want comps? Sure, cause the data from the most inaccurate site is an excellent way to determine value. Nevermind that some of those stats are refi’s or that some closed 2 years ago… did they not teach you that on HGTV?
Do those sites also teach you that it doesn’t matter what you WANT to buy the home for, or what the seller wants for it. It mostly matters what the appraiser thinks you should buy the home for. Do they walk you through the process of valuing a home based on upgrades vs updates? (did you know those were different and that there are 3 levels of it) Do they tell you how to determine the value based on condition or that some conditions will prevent you from even getting a loan? No?
Lets say you’re comfortable with the value. Do you honestly think that price IS the negotiation? What about the close date, the concessions, the warranties, the HOA, the inspections… oh… the inspections. Do you feel confident enough in your 15 min. tour to determine price appropriately? What happens when something is found in disrepair? Do you know the laws governing either side? Approaching the other side to get your ‘number’ accepted is only one step. It’s not always about the bottom dollar, but it’s only one step. Do you know how to get yourself through a 10-100 page contract without getting sued, losing leverage, or losing your earnest deposit? What happens when your lender decides he can’t get you the loan… are you SURE they checked the right box on the disapproval, that gets your earnest back?
People pay 20 times this every year in car, home, health and life insurance.. but you don’t believe that we have ANY value when it comes to your future return in investment?
Are there lazy, uneducated agents out there that think you’re an easy target for a quick paycheck? Hell yeah there are… but only a uneducated simpleton will actually go through the process of interviewing an agent to represent them in the biggest investment of their life and choose the one that could’n’t even show their value enough to support their own paycheck. Why not interview your agent better? How knowledgeable are they? How would they negotiate for YOU… because it’s different for everyone. How much do they know about financing, inspections, appraisals, escrow, the contract etc.
Sorry, but YOUR failure to find a competent agent, is NOT reflective of those of us out there that take out industry seriously.
Robert Farrington says
I was tempted not to approve your comment because it’s pretty disrespectful, but you bring up a poorly-worded valid argument I found worth responding to. I’m a client or potential client – keep that in mind at all times. I’m a user of your industries services, and this has been my experience through a decade+ of various transactions. I don’t purport to be an expert on the insides of how it works – but I have experience. I also don’t purport to be an expert on how your industry works – once again, I’m just a client. Maybe you should take some of the criticism in my article and view it through one of your client’s eyes.
But do realize that I’ve personally been a part of more real estate transactions than the average person. I’ve seen first hand what can happen when real estate and law mix in a lawsuit. I’ve dealt with shady appraisers, and lenders than don’t get loans done on time. I’ve dealt with home inspectors, problems with the house that need repair, and more. While they are all difficult situations on their own, it’s not something that the agents I’ve worked with have had to deal with much directly.
Due Diligence? While my agent put together the contract, I read every line, ensured every boxed was checked, etc.
Lawsuit? Lawyer
Appraiser? Dealt with the lender, agent just kept in loop, maybe asked for extension if needed
Deal fell through due to lender? Agent sent cancellation form, earnest money back in my pocket next day
Home inspector? I found them every time, agent let me into property
Problem? I arranged my own contractors, agent let me into property
I don’t dismiss that an agent can provide value – especially as a buyer (where they’re basically free). As a seller, though, you need to ensure you get your value for what you pay.
As to my question to your sassy last sentence – how would you vet an agent to see if they are competent? Maybe a reader in the future could find value in your insights.
Alan May says
As an agent, you are right, this article does strike a “chord”. And I’m sure you’ll be ‘blasted’ by some agents.. in fact you already have.
This will be too long, but what the heck… here we go: There is a lot of truth in your article… along with some fiction. We don’t assist with the financing, however, we do point you to qualified loan officers who will walk you through the process and deliver you timely, safe and sound to the closing. And, “no”, we do not receive a kickback of any kind from them… that would be a RESPA violation (having nothing to do with Dodd-Frank). Finding a good loan officer is no small feat these days, and we know who the reputable ones are, based on experience.
The same applies to inspectors. We know who the ones that gloss over issues and the ones who do an excellent job. Finding a reputable inspector is no small feat either.
The recommendation of these two professionals (as well as a good real estate attorney, for those areas that use them) isn’t us just sloughing-off our fiduciary duties to them. It’s actually making sure our clients are well cared for by our stable of professionals.
And “no”, we don’t get kickbacks from any of them, unless you count the occasional holiday chocolates or bottle of wine.
Transaction Coordinators are a relatively new thing, and are not in use nationwide. They are rare, in my area, but when they are used, it is the Realtor who pays them because that Realtor is just so busy, they can’t keep track of all the documents, dates, deadlines involved without one.
Regarding negotiation… yes, there are agents who respond in what I like to call “Psychotherapeutic real estate” (ie: I don’t know… how much would YOU think we should offer?), but there are also those of us who offer heavily-detailed CMA’s recommending the true value of the property, and an opening bid based on how to arrive at that point. This may, indeed, be a situation of: “You just haven’t found the right Realtor”… and you could/should have done a better job of interviewing your buyer’s agent.
MLS information is far more current and accurate than anything a consumer may find online. I can’t tell you how often clients contact me about a property they’ve found on one of the many public websites and ask why I haven’t sent/shown them that one. It turns our that the reasonis it went under contract, or even closed, months ago… and yet it still appears as live on one of the websites.
And yet, from a consumer’s viewpoint, I agree… much of the landscape appears as you’ve described. I don’t think you’re terrible, or stupid. You’re merely representing the experiences you’ve had, and I’m sorry it hasn’t been better. We, as Realtors, have to do better.
Robert Farrington says
Thanks for sharing – especially on the “kickbacks”. It’s so odd though, especially in my last interaction this past fall, that a seller’s agent was so demanding on using a specific mortgage broker to pre-qualify, even though we were already pre-qualified, putting 50% down, and the loan was relatively small. The entire thing seemed very shady – and the mortgage broker ended up being pretty shady too.
Alan May says
It’s easy. Sometimes the buyer will arrive with a pre-approval from an unknown lender. We, as a fiduciary for the seller, might ask (insist) that the buyer gets pre-approved by one of our known and trusted lenders… to prove that they’re truly approved.
The buyer is not obligated to use the lender we insisted do the 2nd pre-approval… we just want our guy to “vet” him.
Capiçe?
Robert Farrington says
Yes, but what does “vet” include…
What if the offer includes no financing or appraisal contingency? What does it matter?
The whole thing was shady…
Alan May says
If the offer includes zero financing (whether it has an appraisal contingency, or not), then there is no pre-approval, and no reason to “vet” it.
And what does “vet” mean? It means that a loan officers that I (the listing agent) know and trust has confirmed that they are approved and have the wherewithal to actually get the loan.
Robert Farrington says
50% financing, but no loan contingency or appraisal contingency on the offer – so no risk to the seller effectively (I guess the deal still couldn’t close, but they’d collect the earnest money, which was $100,000).
Insp says
They definitely receive some sort of kickback from these shady lenders (and they’re ALMOST ALWAYS shady). The agents act as if they’re the only people that could get the loan done and no one else.
Kathy Howe says
Interesting read.
I am a real estate broker of 28 years (3 more years as a salesperson), AND I teach real estate (I own and operate a real estate school) and have for most of those 28 years.
Entry level too low? No. The point of basic licensing is to ensure they meet the minimum standards and then on to the Broker for training. Recent example: one of my prelicense learners has been licensed for 2 months and has 3 properties in escrow and is getting his 3rd listing this week. A rockstar! He cares. Most others are still without training from the brokers…but, they are independent contractors. And then, some are just not suited for the business and drop out.
The good people in real estate are the best. We do much behind the scenes that clients don’t see, but, your article makes the point that we could be involving our clients more. I agree with you.
The difference between being a listing agent and a buyer’s agent. Agreed on some levels. Yes, we still have agents taking pictures of the home with their cell phone. This week I have been trying to get the BEST photographer for our new listing… to include drone shots. Cost: $200-$400. Seller has multiple lots surrounding the home/lot. Making sure that the subdivision laws of our state are met… protecting the seller by going to the county to determine ownership, dates, etc. Sellers do not usually understand subdivision laws. Will need much more info before even putting properties on market. A good listing agent wants to be sure their seller is “bulletproof”. Yes, we are planning 2 special invitation open houses and we will be doing private showings and open houses. We are almost complete with our marketing plan. My agent and I are a team. We don’t have a “coordinator” but we do a great job of making sure our clients are aware of everything we do.
When I receive offers on my listings, I offer each buyer agent the opportunity to be at the presentation of the offer (Through MLS rules). In 12 years I have not had one agent accept my offer…they have just emailed the offer for me to present. Sad.
As a buyer’s agent, those I know schedule the inspections, including any contractors, bids, and work closely with the listing agent to be certain we get everything ready for any further negotiations. Agreed that not all agents are equal.
I do wish that buyers agents were paid by the buyer. Let each side negotiate their value. Yes, many of us rebate commissions on transactions which are easy… we use the commission portion to pay a buyer’s closing costs. Many of us even advertise our commission rates: Example: mine for almost 20 years has been: 5-4-3%. 5% if any two agents are part of the transaction; 4% if I am the only agent in the transaction (in my state we do “limited representation” in lieu of dual agency), and 3% if the seller brings me a buyer to close. Yes, I’ve had 2 people in the last 3 years who have brought me their buyer to close.
I do take your words seriously and know we are going through huge changes. Thanks again for the post.
Austin Wolff says
I have a couple things to add. There are weeks where I’ll show properties to buyers I’ve educated and qualified where I’ll put hundreds of miles on my car, dozens of hours digging through records and property searching tools, and even a few hours writing offers – and at the end of those efforts, I’ll receive $0.
While I sometimes do see a check for $20,000 and think something like “wow, this was a really smooth transaction – not sure if I can justify my own cost on that one” – I also see a check for $700 that, when broken down hourly, comes out to less than $3 per hour.
Right now, as an example, I have 6 transactions under contract that equate to roughly $20k. That’s $3,300 / transaction, and that seems totally fair to me based on the amount of work I’m doing toward each one of the files in an overall, big picture manner.
There are transactions that take 15 hours, and others that take 150 – sometimes the 15 hour transactions are the ones where we see a huge check (huge being drastically different, based on the market), and other times, it’s a 150 hour check — of course, before taxes, advertising costs, Realtor Association costs and licensing / continuing education fees.
Interesting read!
Joe Logsdon says
I think a buyer’s realtor in today’s age is completely useless. As I am buying a $750,000.00 property, is a buyer’s agent worth the $21,000 when I likely find the home through an amazing platform such as Redfin? No. The work of a buyer’s agent should barely pay minimum wage, and I am very excited about the prospects of Amazon and Google entering the space.
Think about this, my offer of $735,000 without a buyer’s agent beats a $750,000 offer with a buyer’s agent by $6,000. Those are some serious numbers. I will say that at a realtor on the sell-side makes much more sense. They have to juggle the offers (assuming a hot market) and organize all of the people to make your listing shine. Let us all boycott the buyer’s agent! It will be tough… many will pitch you their BS. Say no!
S. D. says
Actually, that’s not how it works. The money you think you’re saving is often pocketed by the listing agent if you choose not to have representation. At least, that’s the way it’s done in our listing agreements in D.C. The offer of a cooperating fee (buyer agent commission) is to a cooperating broker IF ANY. Otherwise, the seller’s broker keeps the full commission.
NM says
Actually, you can have your real estate lawyer stipulate in the contract that 3% kicks back to you since you’re not using an agent.
Lucas says
I am a real estate investor (rentals), I have bought properties with and without a real estate agent.
My wife recently became an agent. I now get to see how much work an agent puts in. That 6% which gets split to 3%, which then the broker takes a share of becomes very little… Unless of course the house is worth 1 million, but in our area houses are 60k-200k. Her average pay is probably around $10 per hour currently. I expect it will max out around $25-$35 per hour, as she starts selling more, gets more efficient, etc. Her office is also helpful in that they go through a house to be sold and point out which fixes will bring the most value.
All that being said, at my current job I make more than $35 per hour. So assuming I can work overtime or assuming I have a certain amount of time I set a side for other things in my life (leisure, time with the dog, etc) I often find it advantages to save a few hours of searching through houses myself and just pay an agent. Also trying to find the real price that a house sold for can be time consuming. (Zillow is often way off on sale prices!! Which is surprising since it is public town/city/etc records.)
While I find it appropriate to use an agent time value is different for different people. My time is worth roughly $45 an hour. if my time was worth $11.50 an hour I would most certainly take on all of the real estate duties myself.
How does this help others?
I would recommend people look at this from a time value perspective, nothing a real estate agent does is very hard, but then again most jobs aren’t very hard, except rocket science of course ;).
Here are some everyday examples a person could change their own car oil, brakes, etc. It is easy, yet mechanics are in business still. Why? because it is not worth it for most people.
You could also cook your own breakfast, lunch, and dinner every day and never go out to eat. Yet people still go out to eat.
Why do we seemingly waste money all of the time? Because we have deemed (consciously or unconsciously) some things worth our time and some things not.
When evaluating whether or not to use a real estate agent make sure to analyze the time cost. I am fine with people using one, or not. If you make $100 an hour at your job, I can guess you are not going to be using an agent. Of course if you really really wanted to learn about what a real estate agent does and such, then maybe you will anyways despite the fact that you are losing money by not using an agent!
As a side note I have never done a closing without a lawyer, yet! 😉 NYS does not require a lawyer for closing, however with how cheap they are for closing I find it is not worth my time to handle that myself, the same is true of evictions.
NM says
This article is spot-on. My husband and I were young buyers that just didn’t see the value of using an agent when we purchased, so we didn’t, and saved a bundle.
8 years later as sellers, we came to the same conclusion and again saved a bundle.
My tip – a good real estate attorney is INVALUABLE. They do all the essential things needed to buy or sell, but for about $1,000.
Now we’re about to sell another house and are really strapped for time, so we will use a discount realtor like Redfin.
Chuck Wilson says
I have several problems with real estate agents/brokers. One is that the fee is simply too high. On a $300,000 property they will typically get $18,000.00. $18,000.00! For what? Providing a purchase agreement and collecting signatures? Real estate people make the most of anyone in the transaction and they have absolutely no “skin” in the game.
No one involved in the transaction.. not even the lawyers or even the mortgage companies, make this kind of money, and they do a lot more work.
A point to consider.. if you are buying this house, you are paying this $18,000 real estate commission. Yes I know they will tell you it comes from the seller but in reality that is a crock. The seller would be inclined to reduce his price if there were no commissions. The buyer is really the one paying. This fee rolled into the loan, which means you are financing it for 30 years. Over the life of the loan, that $18.000.00 ends up costing you over $30,000.00…. and your monthly payment?? About $90.00 per month of your monthly payment goes to cover the cost of the real estate commission. These are some big numbers for something for which there is so little value. I don’t know about you, but I would rather have that 18G to buy furniture, or a car, or to simply reduce the cost of the house.
Another issue is the way the transaction is handled, from the seller’s perspective. Again, using this $300,000 house as an example, the seller at closing will receive only 282,000. The real estate broker will receive a check for $18,000.00. Then, the closing attorney will hand the seller a 1099 for 300,000. The seller gets a 1099 for $18,000 that he never received! Yes, I know the seller can adjust his cost basis to allow for the commissions, but why on earth is it done this way? One of the main reasons for a 1099 is so that the irs is informed about where the money went. Here we have a real estate guy who receives $18,000 and no notice (1099). It would be very easy for a less-than-honest broker with to pocket some of the cash and only report part of it.. or, in some situations, report none of it at all.
Bottom line is this. The services provided by real estate people are simply not worth what they charge. Everything they do one can do themselves. The fees should in no way be a percentage of sale. There is no difference in the amount of work for a $50,000 house or a $500,000 house. Real estate commission should be fairly priced and a flat rate.
Realtors are awful says
Totally agree, it’s the worst system run by bored housewives who barely graduated high school
Realtors are awful says
Realtors will be gone within 2 years, it is the most archaic system I have ever seen. People fail at other parts of life then do this, it’s a joke. I am sure there are good ones but out of 100, 3 are decent. I have a masters in economics from an Ivy League, that is hard, comps and a sign and your stuff face everywhere is not revolutionary, is bs and dumb. McDonald’s will have a ton more cashiers when this crashes. Hope you all saved the money you ripped off from educated hard working people.
Kate says
Interesting article. I understand where you are coming from because when we sold our house 1.5 years ago I too didn’t understand why the commission structure was set up to pay agents for what I thought was a little amount of work. Then I became an agent myself 7 months ago. (Prior to being an agent I was a teacher and thus college educated with a degree and credentials, so not a bored housewife like someone mentioned above). One thing that some people don’t realize is how little of the commission an agent sees versus what people think they get. I closed my first transaction as a buyer’s agent in January. I had worked with the clients since October, nearly 3 months due to our competitive market. I was in contact with the clients every single day throughout the process. For the closing, the sellers paid $20,0000 in commission. Most commission rates are 5%, you rarely see 6% where I am at. My share was technically $10,000. Except you have to remember an agent’s broker split if you are with a big company is 35-50%. So my brokerage got $4000 and I got $6000. Then you have to pay 30% taxes being that you are self employed so that brought it down to $4800. Then you take out expenses (gas, fees, $400 for a closing gift, etc.) and I truly made about $4200. For 3 months work. I get no benefits, no insurance, no retirement paid by an employer. So the $20k an agent looks like they are making is an illusion, agents are not making as much as you think with the multiple splits and the expenses.
A good agent is worth their weight in gold. There are many agents out there who are unscrupulous, but there’s also a ton of agents who really care about their clients.
Mark says
But the $20k the customer pay is not an illusion to the customer. Why would customers care about anything other than what they are paying?
Even though you were in contact with your client every day for 3 months, I doubt seriously you spent 8 hours/day with the client.
If you want to make real money then reinvent the market and put all of these realtors out of business. Use travel agents vs online travel planning as an example. I am in the cell phone design and manufacturing business. We reduce the cost of our parts while reducing size and increasing functionality every year. We are constantly attacked by competition and have to fight for spots in phones every year. Realtors just want to drive people around in nice cars, give them bottles of water and collect thousands of dollars.
Mark says
Of course realtors are not going to like this kind of talk and will be defensive. We are going after their income. Well realtors… Welcome to the real world. Whether you know it or not, all jobs and industries are always under attack from competition and customers. Realtors have been very lucky in that they have no competition. By competition I don’t mean other realtors I mean how Walmart is competition to the mall and how amazon is competition to Walmart. There has been no innovation in the real estate industry because of the MLS and realtors protecting what they have. Sites like Zillow, realtor, etc have taken away some of that protection but it still exists with the MLS. Realtors have a dollar situation to government workers in that everyone must go through the MLS to participate. This is why all monopolies are bad.
Realtors should not see this as an attack on their industry but as a bit of advice. Something will come along to change real estate. You can hear customers voicing concern about it now and it’s only increasing. So as a realtor you can either be defensive and stick to your guns or be on the leading edge of the change and get rich doing it.
I hear a lot of realtors say that they do not actually make much as a realtor because they have to split the commission, then split the split with their broker and then subtract expenses. To be honest as a customer I don’t care where your expenses are. In every other business we must figure out where our expenses are and reduce them or we go out of business. I will give you a hint of where expenses can be reduced and that is with the broker. As a customer the broker acts as nothing more than a pyramid scheme and pimp for the agents under them. Brokers are taking half of your income for what? If agents would do a deal for 1.5% each or half what they charge now I think most people would be happy to pay it. If you are an agent get creative and stick it to the brokers, make your customers happy with lower fees and make money doing it.
Mark says
“Realtors have a dollar situation to ” should be ” Realtors have a similar situation to “. Thanks autocorrect.
Banks replacing Realtors says
The fees Realtors charge are not only for the hours worked during the transaction but for the hours of education. They are educated in the activities of buying and selling real estate but also in protecting the public from unscrupulous or predatory buyers and sellers. “Buyer Beware” is a law in most states. I suspect we will see a rise in stores of people that completed a “Do It Yourself transaction” and were victimized.
The big banks are about to take over the whole process.
Within a few years an hourly paid bank employee will be assigned to help with your RE transaction, in conjunction with your loan financing.
Julie says
Just ran across this excellent story. I was looking for some information on why the big realtor dot com site has taken down public status on listed homes. (Example. Offer-show). As of today the sales status is not showing. I can only imagine this was put in to place for the realtors so they seem more valuable. Just wait until a couple from out of town runs down a list of homes they want to see… only to find out that they all already have offers!! Happened to me once in the 90’s. We wasted an expensive trip to look for a home only to end up with nothing. I have sold 2 homes fsbo in the past and thought I would try a listing agent this time. As soon as my contract expires I am going flat fee mls. For today I have a sellers agent. She lists and markets my home. I see her work and I see my house on the mls. Is it worth 18k? No for that I should be getting tv commercials every day. At the same time I am at the mercy of buyers agents to walk someone through my home. Since my sellers agent/listing agent does not come to the showings (they say that would be awkward and this is never done on my area) Who I ask is actually SELLING my house? No one. In fact not even all buyers agents want to be honest with you about buying a house. I got a phone call from a friend who had a customer in her flooring store to purchase some tile. The woman just purchased a home in the area. She told her that it took a long time to find the right home and did so after realizing her buyers agent was always taking down the houses she wanted to look at in order to get her to buy a home that was also listed by their agency. So why get a buyers agent? Hire yourself a real estate attorney for a few hundred bucks and then call the sellers agent direct. Negotiate a 3% discount off the house since no buyers agent was involved. In the end it is the title company that does all the work and will not go to close if everything is not completed.
Lisa says
This has been my experience the past year and its horrible!
As a buyer I have do e the leg work, the agent never knows the answer to any questions I have and I wonder why there needs to be this person involved.