Agents just sit back and watch the money roll in, right? I wish.
Offices cost money. Ads cost money. MLS costs membership dues and monthly fees. Licenses cost money. Printing, mailing and copying costs money. Web sites cost money. Computers cost money. Office personnel costs. Phones, faxes, emails, cars, tours and open houses cost. There are referrals to pay. Some transactions never close, and the entire time and money spent is a dead loss. For co-brokes, fees are shared, which reduces the amount any one agent or company gets. Some listings never sell, and the seller pays nothing; the expense is borne by the agent. Legal expenses are not free. Should I go on or do you get the picture?
And my company charges a lower commission rate for higher-valued properties, and never more than 6% for a residential property.
Maybe I worded it in a way that wasn’t clear, but if there is a buyer and a seller, each with their own agent, it seems fair to say that “Agents are working for both the buyer and the seller.”
We sold our house in December and because it was to a developer who approached us directly we did not use an agent. Closing is next week and I’m really missing the agent
In previous deals they arranged everything and now I have a list of tasks that I need to take care of (and research to make sure I’m doing correctly). I’d probably pay a couple of points just for the work I’m doing now and I didn’t have to set up the house for sale, market and deal with prospective buyers.
For sale by owner sounds like a great deal but for me at least the agent is well worth their fees.
People above have given good responses and reasons for having an agent.
I guess it also depends on what part of the country you are in. In areas where homes are ~$200K, then $12,000 in fees isn’t too bad for the amount of work the agent does.
But, in the SF Bay Area where homes are easily $1.5 million, the fee gets to around $100,000. That’s a huge chunk of money. It makes it much more worthwhile to do the legwork yourself than to outsource it to the agent for $100,000
I like this comparison with travel agents. It brings out the differences and explains well why real estate agents are still around and travel agents are (mostly) not.
To repeat… I don’t dispute that RE agents provide a service. I don’t think anyone does. I just don’t see the value for money. Where in that list is something that costs three times as much for a bigger home than a smaller home? Where is something that costs half a year’s salary for an average working man? How many man-hours (person-hours) does a RE agent put in to help buy/sell the average house, and how much more shold be counted as overhead?
You can argue costs, you can argue specialized training, but I suspect the architect fee or engineering fee for designing a house is less than the sale commission, even though the level of training is far higher. Or to get to the “Joe the Plumber” perspective, I suspect the amount of plumbing wages (not hardware) paid to pipe the house is less than the RE fee, and a plumber needs to learn a heck of a lot more than a RE agent to get licensed.
We sell three times as many small (cheap) homes as large (expensive), and at that ratio, small homes are more profitable. An expensive home tends to stay on the market longer, which increases advertising and carrying costs. A luxury homeowner thinks they know how to market and often tell us to spend on things that don’t work, but which we often do to keep them happy. We make fancier brochures for fancier homes. It’s much harder to find buyers for luxury homes, now more than ever. Average time on the market? 2+ years.
Average time on the market for a modest home in a working-class neighborhood: 6 months. You do the math.
True, the commission amount in dollars doesn’t always reflect the amount of work, but that’s just the way the system is. I wish I got paid by the hour, because most of my hourly work brings in zero income (negative, even, cause I have to buy my own coffee and cokes). I accept the gamble of earning nothing for a while, then getting a windfall check. It doesn’t always even out.
It’s a common misconception that agents are filthy rich. It’s not true of 95% of them. In my county, we have about 170 agents in the local Board of Realtors, down from 200 a few years ago. My estimate is only 10 of them make more than $50K in personal take-home pay per year, although 3 make close to $150K or more. Another 20 make a living, but rely upon a spouse (sometimes also an agent) or a second job to supplement their income. The rest – only part time or in it for a hobby or supplemental income. Obviously, YMMV.
You really seem to be looking at this as if there is somehow a guaranteed commission at the end of the listing process if the agent does “X” amount of work. There is not. It’s a HUGE gamble on the part of the agent, especially with higher end properties.
Marketing costs also vary by property. Owners of higher end properties are often quite demanding and usually expect very extensive marketing campaigns. and often (even though it’s not all that effective in many cases) advertising in some exclusive publications, and direct mailing campaigns. These campaigns and ads can cost hundreds to thousands of dollars each. These are often entirely at the agents out of pocket expense. Beyond this, if the house does not sell in 6 months or so many owners of higher end properties will switch agents. If that happens there are thousands of dollars and many man hours down the rat hole. As an agent if I’m going to roll the dice like that there had better be a decent sized carrot at the end of the stick.
Also, on a practical basis, think about what *kind *of person is going to be presenting higher end stuff. In communities where are a number of higher end properties the agents are usually going to be socially connected, well spoken and well educated, and move in the same social circles as the property owners and buyers. They have to if they want to be successful.
That sort of person is not going to be the pushups, stroking, handholding and making the huge sunk dollar investments (and having the financial capacity to do so) necessary to move higher end stuff for $50,000 a year. Lots of real estate agents go broke selling high end properties. The successful ones usually earn their fees.
My mother-in-law is a realtor and was in fact our agent for the purchase of our home ($322,000 in case that matters). We made the process as easy as we could, and the deal we worked out with her was that she would get the full commission but buy all our appliances as a “housewarming gift”. I remember thinking (at first) that her job was easy and how unnecessary it was to have a realtor. But then reality set in. The first thing is that we wanted to see lots of houses, which she drove us to see and arranged for all the appointments so we could go inside, because the outside isn’t enough. I used to think it was via looking in the windows, but having seen the inside, I’ve been horrified at some of the crap I saw that sure wasn’t visible from the windows, particularly in the kitchens. She helped with the negotiations, the loan, and with all the b.s. involved in the purchase process. That last part was most important in my mind. Aside from all the legalese with the paperwork itself, there are tons of hidden costs that would not be obvious to someone, especially when it is their first home purchase. You have closing costs, various inspections, and you get hit up by numerous people wanting to sell you ‘extras’, some of which you may need, and some of which you don’t based on your particular situation (e.g. title investigations and insurance). She was also aware of hidden costs with mello roos and association fees that affected some neighborhoods but not others, and where it was worth it. Here in San Diego, we also have codes, covenants, and restrictions (CC&Rs), some of which are Hitler-esque in their writings that prevent any reasonable modification to a home, or which ultimately result in lots of extra fees down the road because things get replaced or repainted on a regular basis whether they need it or not. Others are so lax that the neighborhoods look like crap after only a few years because no one fixes anything and have cars parked on their lawns. There are also all kinds of weird fire issues in some areas that affect insurance, reputations of schools in the area, and other factors you could never know except through experience. Ultimately, yes, I really felt I needed a realtor, and the fact it was my mother-in-law made me feel like there was no hidden agenda of her own I wasn’t seeing. I have no doubt she earned every bit of her commission.
My Mom is a Realtor down in FL (since she’s retired, it’s more of a hobby, but since she takes her hobbies seriously, it’s a more-than-a-full-time hobby). I can tell you she is doing a LOT of work for the money she makes. Especially when she is a buyer’s agent - all those snowbirds that fly in, want to be met at the airport, driven around in a whirlwind of condo shopping for three-four days, decide to put a bid of $500K on a condo listed at $800K, get their offer rejected, then leave without buying anything. Rinse, repeat.
And the enormous headaches connected with closings… I swear, not one of her closings has gone without some kind of adventure and last minute snags that need to be unsnarled by running around and trying to get the right kind of documentation or get something approved/stamped etc.
One thing I learned from her is that I don’t want to be a RE agent.
When we left Alaska, our realtor was a powerhouse who took everything in hand, handled open houses, agent tours, etc. What would have taken us months to do as a FSBO sale, got a full-price offer within two weeks.
When we moved to Portland, we had little notion of the neighborhoods. If it hadn’t been for our realtor, we would have been floundering around for months. She focused our search and brokered the deal and we were in within six weeks.
Some companies have commercial real estate advisors/agents on staff that work exclusively on leasing and selling their properties. These people are usually paid $60,000 to $250,000 a year (or more in some cases) depending on the scope of their jobs. Also re hourly work setups, commercial agents can do this occasionally for clients and charge (normally) around $1,500 - $3500 a month per listing + advertising expenses and they still get a commission or selling fee.
The difference in this pay for play scenario is that the client gets a fairly tight focus by the agent on their property, and the agent must report (like an employee) exactly what they have done in the way of marketing, advertising, hours spent on the task etc. In this set up the individual agent cannot handle nearly as many properties as the marketing demands of each property are quite intensive.
The reality for residential real estate is that most sellers simply do not have the ready cash or the ability to stroke a check for 500 - 1,000+ per month for an agent to market their house depending on the level of services they expect. The solution is that the agents work at their own risk on spec with payment coming (if the property is sold) from the sale proceeds of the real estate. Many agents (trust me) would LOVE to work on an hourly or monthly basis for a steady income, the central problem is that no one has any money until the house sells.
From my point of view, the issue was simple: Did I need the services of a real estate agent or not? If I did, then I would have to pay the going rate. And I most assuredly did when I was buying my first home. There’s no way I would have gotten through the process and the mountains of paperwork involved without him. I mean, it makes a tax return look like a child’s homework assignment.
The statistic about agents getting more for their own homes when selling is always treated like some sort of trick the agents are doing to sell their own homes when in reality it’s probably because they’ll take their own advice. If I’m selling my own home I’m not going to argue that I don’t have to do certain repairs or stop smoking in the house or clean up my crap before showings. I’ve seen the difference it makes many times. A lot of sellers think we’re just being picky when we ask then to do even the smallest thing to make their house look better.
And nothing takes more hours than getting a $70,000 short sale with first time home buyers with borderline credit to close. There’s a depressing commission check.
We’re closing on a house in 3 weeks, and my realtor earned every bit of her money. It’s been over a decade since I owned a house, and I had a metric fuckton of questions (some of which I’m sure were stupid). She patiently answered every one of them, giving me resources to check out and asking me questions to clarify my own thought process about what I wanted, how much I could afford to spend vs. how much the banks were willing to lend, etc. We must have seen 30 houses during our search, and she set up every one of those visits - we didn’t have to call 30 owners/seller’s agents, she did all that. She kept us on track with everything that needed to be handled re: inspection, objections, resolutions, bank documents, everything.
I don’t have time to become an expert in house-buying, nor do I have time to track down from outside sources everything I need to know about the ins and outs of all the steps involved. She does it for a living. Seems like an obvious reason to have an agent to me.
Oh yes, one other thing: when I was house hunting, I looked at some houses that were “for sale by owner”. They looked like crap on the inside. No effort had been made to clean them up for sale. On the other hand the houses the agent took me to looked nice, for the most part. The agent could get the sellers to make their house look presentable.
I don’t think the law prevents it. Astro pretty much covered the situation, though. And I’m not sure if you are suggesting a wage paid by the buyer/seller or the brokerage company overseeing the agent. Either way, it doesn’t look highly workable, and the commission structure has the inertia right now.
The seller does not pay both agents in all cases. Again, this varies by state, but in mine, it is possible for either agent in a transaction to be paid by either buyer, seller or a combination.
Granted, the seller is the usual party to pay. But I have an agreement with a buyer right now that says he will pay my commission under some circumstances, like if I find a property for him that is not already on the market or FSBO and doesn’t already have an MLS offer of compensation.
The same agreement says that if the MLS compensation is very low, the buyer will make up the difference between that and an agreed-upon value. In this case, both buyer and seller would be contributing to one agent’s commission, but not the other.
