Given the internet, and the ability to search for homes with the features you want (price, age, location, number of bedrooms, etc), why do real estate agents continue to exist?
Having them take a standard 3% “tax” on every house sold, when they don’t really provide much value (IMO) is a bit strange.
So, am I missing something? Are there services that the agent can provide that I can’t do without them? Are they better at finding a house you’ll like than you are?
I wish it were only 3%! I think it’s 7% here.
Where I live now, people don’t sell their homes without a Realtor, so if you want to buy a house you pay the commission. We sold our houses in Wisconsin and Indiana by ourselves, but here in central Illinois, people use Realtors.
I think they don’t want todeal with the paperwork and with people showing up out of the blue and knocking on the door to see the house.
Only indirectly. The seller, not the buyer, pays both real estate agents. So there is zero incentive for a buyer to not use an agent. The 3 times I have bought, I’ve been very glad to have an agent. The agent has seen lots of the houses already, and knows lots of the neighborhoods, so they can weed down the list before it gets to me.
As a seller, the agent has a much better idea of what the market in my area and house style is like. The good ones know where to price a house, and they can talk an emotionally invested owner (but it’s my HOME, who wouldn’t pay megabucks for a kitchen full of rooster and pig paintings) into a more realistic view. I’ve also seen agents that do a phenomenal job of staging and photographing the house, including paying for a professional photographer.
And finally, I’ve had 2 sales/moves that were paid for by an employer. In those cases, the employer is picking up the agents costs, so why wouldn’t I use them? It’s a free (to me) service.
Even though I did most of my searching on the internet, my Realtor was extremely helpful in helping me narrowing down areas and neighborhoods to consider. I mentioned to him a few neighborhoods that I liked and why I liked them, and he was able to suggest more. I monitored the suggested areas for a while, went and saw a few, until I found the perfect place for us.
He then was very helpful in the negotiations and helped us get the price down considerably. When things got testy about details, he smoothed them over and helped us work things out with the owners. Oh, and I only had to pay him in referrals!
In the end I didn’t use one when I bought the house (OTOH, most of my rentals have been through agencies), but the good ones can and will help you figure out what a realistic price range is for you, will have information on schools and medical centers which if you come from out of town won’t be easy to come by, will know what kind of rates you can get on mortgages from different local banks, will be familiar with local regulations, HOAs and so forth…
My moving costs were paid by my employer twice: the first time, the agent was proposing flats that were ridiculously expensive and a long distance from my office, but hey, they would have paid her a higher commision than the one I found on the internet (the agent still had to get involved and have her cut, company policies) and which was about 600 yards from the office. Agents/realtors have their advantages but, like in any other profession, you get good ones and rotten shits.
I recently used a Realtor to sell my deceased mom’s home. The commission was 5% and her expertise was useful in guiding me through the process. In selling the home, there were certain disclosures I was obligated to make such as stating the distance of the property from a nearby aircraft landing/takeoff flight path. I knew nothing of this rule but after some investigation, it was determined the property was about 200 yds from the path and we did not have to amend the contract to include a flight path warning which could affect the sales price of the property. Had I proceeded on my own and if the property had been within this zone, a buyer would have an argument after the sale to claim misrepresentation or possible fraud and once you sell the property, you want to be done with it.
Using a Realtor can also benefit the negotiation process between the seller and perspective buyers. Imagine a buyer and seller going solo, head to head over the sales price. It can work but often emotion on either side may tend to obscure an agreement which may be why many Realtors believe they should never allow the buyer and seller to be in the same room because the process can stall or even crash due to either emotions or clashing personalities.
On the other hand, once you go through the process, the necessity of hiring a Realtor on subsequent sales becomes far less of an issue.
There are some good answers above which I won’t amplify. But I will say that if your impression of a real estate agent is that all they do is search for features you want, then you have never seen a good agent.
(I still use a travel agent for some trips too, for the same reasons.)
I kind of like the idea that if a stranger is coming to wander through my house that I am trying to sell, that they have someone trustworthy with them and that they have been vetted as legitimately interested in buying it, rather than just wanting a look-see because it’s for sale.
I suspect that the current owners of the houses I am now looking at with the hope of finding one I like feel the same.
When I sold my house a few years ago, my agent was awesome and handled the negotiation of the sale really, really well. Brought multiple competing offers and I ended up getting more than asking. If only I could be so lucky with the house I currently live in that I would love to sell.
Most people only engage in real estate transactions a few times in their lifetimes, so there is no real opportunity for the average person to “get good” at them. Add to that that the market is complex and legally encumbered, and mistakes are ridiculously costly, and I can see why people want agents.
Contrast with travel agents, who deal events that happen relatively frequently and are much cheaper, so they’re dying out as the information they deal in becomes available for free on the internet.
There are so many laws and regulations surrounding home sales, loan limitations for property types, and disclosures of everything that the average homeowner is not going to keep up unless they themselves are real estate agents and are forced to work with all this every day. For buyers there are so many ways even an honest homeowner selling their own home can screw you over through their own negligence that for everyone’s protection it’s best to have your own real estate agent when selling or buying a home.
If everything goes perfectly you can get along with no agent and do OK but it’s very rarely that everything goes perfectly. Also, at least in this area, for sale by owner homes sell for at least the usual commission amount less than listed houses because the buyers know they’re not paying a commission so they adjust their bids downward.
An agent can be worth every penny if they can save a deal that a regular homeowner or buyer thought was unsalvagable or catch a mistake in the paperwork that could cost either side thousands in repair bills.
This is probably the best answer - I uppose it depends on how valuable it is to you to do the work yourself, and how confident you are that you can complete the deal satisfactorily. Unlike travel or car sales, there’s enough money at stake, and the deal is sufficiently important to people’s lives, that it’s worthwhile to go to court if they think they have been cheated or misled.
It’s also possible that really picky “extras” have been added to the transaction rules (like the flight path requirement mentioned) that you may not know them all.
The other issue is the amount - if commission works out to 7% of $300,000 that’s $21,000 which makes it worthwhile to consider spending a lot of your own time doing the work instead of paying someone. That’s my big beef with RE agents - not the concept but the amount. maybe when houses were in the $100,000 range it made sense, but when houses started pushing $500,000 and basically sold themselves, all the RE agent did was hop aboard the bandwagon for free cash. Plus, until about 10 years ago, I never heard of the concept of a buyer’s and a seller’s agent, both involved and splitting the commission. I suppose that came up with the advent of MLS and the “sharing” of for-sale properties.
I know in Canada there are companies like comfree.com which offer the paperwork forms and other amenities (lawn signs, website) to allow for-sale-by-owner process to be simplified and explained to new sellers - straight $695 price. I’m sure there are many similar services in the USA. They are making enough inroads that the raltors’ associations run ads about “why you need a real estate agent” which make it sound like the roof will cave in and the world will end if you don’t use their services.
Meanwhile, courts in Canada (and I assume, in some places in the USA) continue to eat away at the agencies’ right to the monopolistic practice of restricting access to list on MLS services. IIRC, in some places anyone can list their house on MLS for a flat fee. This removes one more barrier to FSBO.
The writer of Freakonomics referenced a study of agents where the market information was public (Seattle?), to show that agents’ own houses sold for more (and were on the market longer, presumably waiting for the better offer). The real incentive for the agent is to sell you house at close to market value for as little time and effort as possible, not to get you the highest price. $325,000 vs. $300,000 may be a big deal to you, but the agent is not going to bust their bottom for an extra $1750 commission, split 2 ways and divided with his agency, when he could instead be out selling another house for a lot more.
My real estate agent came over and helped me paint my walls, gave me her Home Depot card to buy some stuff for my house to help increase it’s curb appeal. I was a new Mom and had a dog, so showings potentially a huge PITA.
That alone was worth the cost.
I’ve read the book, the study, and don’t dispute the raw data. But the interpretation is open to serious question. Not included in the statistics are transactions that didn’t happen because buyer & seller couldn’t get together on a price or terms. More than anything else, that’s the job of an agent; to bring buyer and seller together. Yes, making the transaction work is more important than selling at a higher price if the transaction won’t happen at all for that higher price.
I just sold a home for less than I thought we might get if we waited for a while, but the gamble to the seller is the wait might bring nothing or a lower offer. I was able to get both parties to agree and the transaction closed. Is that a bad thing? I don’t think so.
Agents (Realtors[sup]TM[/sup] if they belong to the National Association of Realtors) work with real estate matters every day. They are professionals and experts in the field. Rarely does a buyer or seller have that kind of expertise. Wouldn’t you rather have a professional on your side than gamble that you might miss something?
I will dispute your terminology. No private party or company can tax something; only a government body can. The fee you are describing is a “success fee,” and may include a transaction fee, but it’s for services rendered and only charged to clients or customers who have agreed to pay it in advance. It’s optional. A tax is not.
When you go to the dentist, do you call his fee a tax? Do you say he doesn’t provide much value, because you could do it yourself?
Agents work for the sellers, and so you probably don’t need one as a buyer if you know the neighborhood and know what you’re looking for. If you’re coming from another state, on the other hand, their knowledge of the area can be extremely helpful.
For folks selling a house, they provide value in a number of ways. They help screen potential buyers, serve as an intermediary in the negotiation process, offer advice on staging, etc. Can you sell your house without one if you’re willing to do all that? Sure. You can also cut your own hair. Maybe it’ll work out great.
I can’t speak to residential, but as a commercial real estate agent the main answer is market knowledge and expertise with respect to the pricing, marketing and presentation of property. We are also held to professional and legal standards with respect to the representation of facts about the property.
I’m sure this won’t come as a news flash but sellers often omit or misrepresent critical facts about properties, as agents we are legally held (to the limits of our knowledge) to accurately represent all physical facts about a property that we are aware of. Also, some people are simply difficult personalities to deal with regarding their properties, and would be hard pressed to sell properties without alienating people making aggressive offers.
There have been hundreds of different “do it yourself” discounted real estate programs over the years where buyers can pay a few hundred dollars to get advice about selling their property themselves. These programs are rarely successful and usually fade away because people usually want experienced full service agents handing their property and being their own real estate agent in selling their property is not as fun or renumerative as most people think it is.
There is also the aspect that a good agent will have an extensive network of contacts with other agents in their office and elsewhere and will know about opportunities re price, availability etc that are not in the MLS. A number of the deals we do as commercial agents never even hit the MLS.
With respect to pricing re commissions people need to understand that the actual commission an agent receives is usually around 25% of the total as most deals involve two agents and commissions are split between two brokers and then split with the agents.
If there’s a referral agency involved for the buyer or seller which is often the case with corporations moving people around, they will get 25% to 50% of the listing or selling fees off the top before the aforementioned spits, so in some cases we are dealing with fees it he range of 15% of the total commission when all is said and done. The bottom line is that there are often a lot of dogs at the commission bowl.
Beyond this there is a HUGE amount of uncompensated work and marketing costs that agents and brokers eat when properties do not sell or sellers (for whatever reason) take their listings off the market. For agents dealing with buyers, buyers change their minds all he time and decide to rent or discover they cannot buy what they want. That agents time and effort is eaten as well. These are huge amounts of money, time and effort down the rathole.
There is no question if you have a desirable property in an active market that is priced right, and has no issues, and you have a flexible schedule, and are smart enough to avoid legal tripwires in representing your property you may well be able to sell it on your own to the buyers driving by your house or happening across your ads wherever you have placed them. The reality is, however, that most buyers (obviously not all) choose to use agents because they (with some justification) do not trust you to accurately represent your property, and do not want to have to deal with you on an emotional basis in judging or rejecting your property.
Most people choose to use agents because we add value, if we don’t we are out of business. To those who thinks 6 to 7% commissions are way too pricey start your own real estate agent agency then get back to me.
I can’t find a study, but remember seeing something that showed how homes sold by real estate agents got about 10% high sales prices than comparable owner-sold homes. If true, then the 6% due to the agents would still net the owner a 4% increase in sale price.
I know that the home I bought we found only because of a real estate agent. It was listed by the owner, who listed it on MLS in the wrong county, with the wrong number of rooms. It would never have come up in my searches.
Furthermore, the quality of the agent does matter. The agent who found us our house did so on our very first drive to look at houses. We’d worked for three months with another agent who just couldn’t get it through his head what we wanted. (It was a little awkward to explain to the former agent that we’d jumped ship and used someone else, but I was not going to stick with him just to be polite.)
Agents work for BOTH the buyer and the seller and usually the buyer and seller each have their own agent. In some states, it’s not even legal for one agent to represent both parties.
A good agent will provide advice and knowledge, maybe save you from making a mistake. They will have contacts to contrators you may need, can help with financing. And if you are selling will have a list of customers.
Several years ago I had some undeveloped land that had been in the family for over 100 years. The day I met withtheagent to look at the property she asked what I thought the land was worth. I told her I hoped I could get $250,000, but would accept $200,000. She looked at me and sorry I was wrong on the value. We would list at $350,000, but would probably sell it for $325,000. And we would have do some work to close the sale, like survey the land. She knew some delevopers who would be interested indeveloping the land. We went to her office and signed the papers. The next Monday inher office she over heard one of the other agents with a customer talking. He had made an offer on a piece of land near my property and the deal fell through and they were starting over looking for anorther plot. She told him about my property and the asking price. She was able to hold to the asking price because of the back up of knowing other buyers that would be interested. She also knew that I was interested in doing a 1031 exchange so any seller financing was out of the question. I got the full price with out any of the extra expences and had an offer in 2 days that I accepted. For a few days work the agent made good money. But to me she waas cheap.
Then when I went to reinvest the money I had a time line to close a deal on a new property or pay a lot in taxes. My agent (different area different agent) was able to bring me several properties to look at.
And several years later I went to purchase a house in San Jose. My agent knew me and knew what I would accept and what I would not. When every house that we looked at we got out bid on, we descided on a new stragidy. He reminded us of a house that we looked at earlier. The house had no heater, been removed to up grade to forced air system, but the owner lost the house before he completed the work. When we first looked at the house it was over priced for no heat. We went back and relooked at the house. All the work that the previous owner had done was good work, and I knew putting in heat was only about $5000. My agents advice make an offer for $50,000 less than the asking. We did and they accepted. And during the inspection of the property the lack of any heating system was noted. My agent said ask the seller (a bank) to put inheating before close. Long story but the bank put in the heating.
So what have agents done for me. Got me $100,000 to $150,000 more on a sale. Spent a lot of time finding me property I wanted to buy. Saved me thousands in taxes and other expences.
I don’t dispute that agents could provide a valuable service, if competent and capable. (And that varies as much as in any other occupation…) I just feel that the 7% overall fee is far too expensive once houses reach a certain value. In what way is any service like that worth $20,000 to $30,000? Plus, the effort and time and work is not much different between a $120,000 house and a $420,000 house. Plus, the restrictive nature of MLS was simply a barrier to competition to keep the gravy train paying out.
(I also think that thanks to the gravy train during the RE bubble, a lot of marginally effective agents got in on the action and made far more than they should have, far more easily, if it had been a competitive market.)
That would be logically contradictory, right? An agent can’t work for both and only one at the same time, in the same transaction?
It varies according to state. In my state, an agent can be a seller’s or buyer’s agent, or both. The choice is made by each party, and must be made prior to negotiation, which is typically defined as “writing an offer,” or discussing the terms of one.