Real Estate Agents: Why They’re Not Worth It

I’ve sold one house in my life and I did that on my own without a realtor. Yep. For sale by owner (or FSBO).

Oh, I started out with a realtor because I was young and rather naive at the time; I thought it would be crazy to not go with a professional.

The first realtor I took on signed me up to a 90-day contract and then sat on it, doing little marketing and zero open houses.

When I asked him what he was doing marketing-wise to push my home, he showed me some fliers he had printed up at the local copy store. Other than that, all he could say was he was very busy and that he had my house entered in the Multiple Listing Service (MLS). Obviously he was juggling a lot of clients, and my low-priced starter home was probably not worth enough to justify more of his attention.

Needless to say, I fired him when our contract expired and found another realtor.

Unfortunately for me, the second real estate agent was no better – although her fliers looked a bit more professional.

Let’s Talk About Value

You know, I did a provocative hit piece last summer on the 10 most overpaid jobs and one of the professions on that list was the real estate agent.

I’m sorry, but I have a hard time trying to justify paying a realtor a commission of three percent (give or take a point) when I stop to consider exactly what I’m getting for my money. After all, three percent of a big number is still a big number.

For example, the current market price of my house is about $450,000. A six percent commission on that is $13,500. Do I really think a realtor will provide me with $13,500 worth of value? Not as far as I am concerned.

By the way, the numbers get even more absurd when I think about folks who are selling a million-dollar home. Does the amount of work the realtor provides magically increase just because the price of the home roughly doubled? No. But the commission earned suddenly becomes $30,000 for the same amount of work.

When I sold my first home I used a lawyer for a flat fee of a few hundred dollars to help out with the negotiations and the title company ended up doing most of the paperwork. I was responsible for finding my own buyer, which I did. Keep in mind this was back in 1997, well before the Internet really started to hit its stride.

So tell me again why I should pay $13,500 to a real estate agent when a real estate attorney and the title company can do most of the technical stuff for pennies on the dollar?

Heck, for that much I could replace my trusty old car (a 1997 Honda Civic) with a brand new one, pay the real estate attorney and still have thousands of dollars left over to market my house if need be.

Real Estate Agents Are Expensive Middle Men

Still, while a new car would be nice perhaps the most important thing I could do with those savings is to use it as leverage in negotiations to help sell the home quicker instead.

Let’s face it, if I’ve done my homework and priced my house correctly, any haggling between me and a serious buyer should be in the vicinity of between five and ten percent of the asking price – and not having to pay the realtor three percent is going to make coming to an equitable agreement for both parties a lot easier.

Maybe the neurosurgeon who pulls in over $500,000 annually, or your typical millionaire, can make a case that his time is valuable enough to justify paying a real estate agent. However, the further you fall down the salary scale, the more it actually makes sense to NOT use a realtor.

If I pulled in the modest sum of $50,000 per year and my agent stood to receive $13,500 for selling my home, why wouldn’t I choose to cut out the middle man and make that money for myself?

Think about it. If you could take a six-month leave of absence from your real job and devote that time to selling your own home, knowing that you would still come out ahead financially, would you? I suspect most people would.

Best of all, the odds are if you were devoting 40 hours per week to selling your home you’d have that home sold in far less than six months — assuming it was reasonably priced, of course.

How many hours do you think your real estate agent is going to spend each week actively trying to sell your home? I guarantee you, unless you’re their only client, it isn’t anywhere close to 40 hours.

And you thought the hourly rate for plumbers was high.

Even if you couldn’t take a leave of absence, wouldn’t it be worth it to try and sell your own house knowing that you could make more than half what you would normally earn in an entire year? You’d be crazy not to.

Hey, It’s Your Money

Now I realize that just because people have access to the Internet, it doesn’t make them a real estate agent. But you can also say that just because somebody is a real estate agent, it doesn’t mean that they are necessarily competent.

Thankfully, for those who are willing to get their hands dirty in order to save a significant sum of money, the resources are out there that make selling a house on your own easier than it has ever been before.

Yes, I realize some people don’t want to be hassled with the task of selling their own home. I also know there are others out there who are just plain uncomfortable with the thought of even trying. Fair enough. If that is the case then by all means go ahead and get yourself a real estate agent.

I just hope you end up getting what you pay for.

*****

For Additional Perspectives from the Money Mavens, See…

Using A Real Estate Broker? at JoeTaxpayer

Would You Take a Realtor to Sell Your House? at Green Panda Treehouse

Should You Use a Real Estate Agent to Sell Your House? at Canadian Finance Blog

Should I Use a Realtor to Sell My House? at Fiscal Geek

And Here Are Some Handy Resources…

Here are a few sites to help you sell your house without a traditional real estate agent:

Ten Easy Steps for Selling Your Home By Yourself: A very helpful checklist for those looking to sell their own home without an agent.

For Sale By Owner: A no-commission web site that provides Internet marketing services, MLS listings, real estate guidance and information, legal forms, and live customer support to help customers independently sell their own homes for a monthly fee.

Homes By Owner: Another no-commission site that enables you to find homes for sale by owner or advertise your real estate in over 900 metro areas in the U.S. and Canada. They claim to be the largest network of FSBO experts in North America.

Redfin: Here is an option for those who are looking for a little help, but still want to save money.   Currently covering 11 major metropolitan areas, Redfin is a discount on-line real estate agent. Rather than charging you 3% of the home price to sell your home, Redfin charges only 1.5%, with a minimum fee of $5,500.



Comments

  1. 1

    Vanessa says

    I loved my real estate agent. As a full time employed single person buying her first home, the agent was invaluable.
    Also, I don’t know anyone with the job security to take a 6 month sabbatical. And with the current economic climate, houses are not exactly selling quickly. If you are an expert in staging, have moved most of your stuff out and have the documents to show that everything is up to code, then you might go it alone. But with houses sitting on the market for well over 6 months find yourself someone qualified to help you. And then stay on them about what they’re doing.

    • 2

      says

      You make some good points, Vanessa. Thanks for your perspective!

      There is a fairly large niche of folks out there who depend on agents – and that is fine. My main point was to emphasize that, for those willing to put in the time and do some research, it is very possible to sell your own house – and save significant money in the process! :-)

      You’re right, nobody takes a sabbatical to sell their own home – at least I don;t think they do. LOL My leave-of-absence example was not meant to be taken literally – only to make a point. :-)

      One comment: If you have to continually prod your agent to make sure they are doing their job, then I would be asking for a reduced commission. (Or get a new agent.)

  2. 3

    says

    First, I think it’s important to explain that the real estate agent doesn’t get the whole 6%. The listing agent gets 3% and the buyer’s agent gets the other 3%. Sometimes, they “double-end” or do both parts of the deal, but it’s rare. In most cases, they have to split their commission with a broker. So, although you have to pay 6%, the agent may get as little as 1.5%.

    I have never sold a house, but I did buy one. And, I bought it FSBO. Like Len, I had some issues with real estate agents who seemed to be representing themselves, instead of me and the seller. So, I was thrilled when I found our FSBO house, with an honest seller. We talked it over and we hammered out a deal together in an afternoon. There is no question I got a better price on the house, because the seller didn’t have to pay any agents. He simply paid someone to handle the forms and put it into escrow. We still keep in touch and we visited them last year, when we were on vacation.

    I will caution people about doing it yourself. The real estate forms in California are pretty simple, but it’ not something you want to screw up. People like to sue when deals go bad, especially in California. And, there is a lot of money at stake. So, if you don’t know what you are doing, get some help. I took the CA Real Estate in college and I learned a lot. I don’t intend to get licensed, but the information is invaluable when negotiating a deal.

    Having said all of this, I think real estate agents are a likely candidate for disintermediation. Like travel agents, it is hard to justify the expense, unless they are specialized or really outstanding. And, it seems like the buyer-seller connection could easily be automated. The monopolistic advantage of the MLS system could be duplicated on a public marketplace that includes downloadable forms and basic instructions. I am already starting to see a lot more properties on Craigslist. It’s only a matter of time until we see the real estate equivalent of Legal Zoom.

    • 4

      says

      Thanks for clarifying the commission breakdown, Bret. But no matter how it’s split, that six percent is overhead on the final selling price of the house.

      You bring up some good points, especially when it comes to the legal aspects. That is why I highly recommend people going FSBO spend the money on a real estate attorney to help ensure all the necessary paperwork is filled out. He’s also there to protect your best interests during negotiations. It is the best money you will ever spend.

      • 5

        Jack Fiefer says

        Len, the attorney is present in transactions to protect the bank, not seller nor buyer. They make sure all t’s are crossed and i’s dotted because the mortgage bank (investors) want their funding as secure as possible.
        Just a heads up about Craigslist, there are more and more reported cases of false sales and info. by the individuals placing advert’s.

        • 6

          Len Penzo says

          There are real estate attorneys who will represent sellers (and buyers) at closing, review paperwork, and/or draw up contacts too, Jack.

  3. 7

    Mike @ Green Panda says

    I am 100% with you on this one!

    my first house was sold with a realtor. I thought it would be faster with a “professional”… It took 6 months!

    In addition to that, the fact that I was buying with the same realtor complicated our moving to our next house; there were 2 middle men (realtors) talking to each other to determine the moving dates… not a good idea!

    I sold my current house within 2 weeks on my own… much smoother transaction and it’s fun to deal directly with the buyers!

  4. 8

    says

    My wife and I are looking into buying our first house, and we don’t really know what to look for or how the process goes. So I think in our case a real estate agent is helpful. But I can see your point too that if someone can sell their house by them self they should go for it.

  5. 9

    Julie says

    Len, not using a real estate agent is well and good in principle. We sold our house in 2008 using a realtor. It was on the market for 2 weeks. Well worth the 7% commission. We didn’t end up paying the commission because our work paid for it for relocating, too. (Double bonus!)

  6. 10

    says

    You make a great point. it is hard to justify paying someone $27k really for anything unless they are doing an amazing job, or you are trying to sell very fast and they can make it happen.

    most of the time people work with a Realtor for piece of mind or help with negotiation besides that its like giving money away.

  7. 11

    says

    Your story sounds very familiar. I have sold our last two homes myself… the first after firing a moron for a RE broker who had the nerve to bring an offer of half the listed price. After 4 months of nothing, I sold the home in two weeks for our full asking price. The cost of selling it was $35 for a three line ad in the paper.

    Our last home we sold without ever putting it on the market… running into an old acquaintance at the post office, a chat about current events and he bought our home the next day for full asking price.

    The cost of a three line ad has gone up all the way to about a hundred dollars in our small town. Let’s see, for our home, that would still amount to a saving of exactly $17,000. The effort is actually very minimal and we get to keep a handle on who is seriously interested and who is kicking tires. We don’t like a bunch of people stomping through our home either, including real estate sales people.

  8. 12

    says

    WR…

    I agree completely. Despite the fact that we wish to sell our home, we still cringe every time a RE agent calls. It means having to start all over again every time someone is interested. I find that it’s better to chat a bit by phone with a buyer… get to know them and see if it feels like your home will fit their needs and budget. “This is what we have. What do you need?” Personal relationships make things so much more comfortable when “entrusting” one’s own home and memories with someone else. Instead of looking at a house to buy, they come looking at a possible future home. Big difference.

    • 13

      says

      @Money&Risk: Thanks for sharing some really terrific insight! While I think a good chunk of incompetent RE agents that jumped into the business during the housing boom are now gone, I am certain there are still plenty out there. I encountered two years before the boom. The key, as you mention is to interview the heck out them before you commit to one – which is something I should have done when I was trying to sell my house. I was only focused on commission and length of commitment. Bad move on my part.
      @James: I’m with you. It is just too much money for me to give to somebody else when I know I can do the job myself.
      @Julie: Congrats on selling your house so quickly! Just curious, what was it that the RE agent did to get it to sell so quickly? Was it simply a matter of setting the correct price, or did he/she wear out the shoe leather hunting for buyers – or a little of both?
      @Gayle: Maybe we had the same realtor! LOL Regarding your comment on the effort required… I know a lot of people who are afraid of having to deal with the logistics of scheduling showings and the fear of taking an endless stream of annoying phone calls, but that is easy to manage today. For example, you can set up appointments and arrange scheduled phone calls for interested parties to discuss the home via e-mail if you wish. It doesn’t have to be a hassle – and if/when you do begin to doubt whether it is worth the effort, just remember how much money you will be earning for yourself acting as your own agent!
      @WR: Great illustration. I’ve always maintained that the biggest avocate when it comes to selling your house is you. As such, I believe if you are willing to put in the effort and do the legwork, in the end you’d be much better served selling the house yourself. Of course, that is one man’s opinion which was jaded by past experience! Thanks for sharing your perspective.

  9. 14

    says

    I actually had a RE Broker’s Licence for years while living on the east coast. I saw very clearly the anguish that sellers go through when putting their homes up for sale, which was one of the aspects that took me out of the business. Maybe it was just the time and location, but it seems like everyone (buyers and sellers alike) thought I was cheating them or out to steal something. No matter how complete our disclosures, suspicion was always there, and I often felt like I needed a bath after doing my job.

    A broker is not a tax collector, but simply an average Joe trying to make his way in this world. In the end, I found that honesty and integrity simply weren’t enough. A thick skin and readiness to compromise goes with the game, and the game often cost homeowners thousands of dollars in the process. At least for me, it just wasn’t worth the price it cost to pay.

  10. 15

    Julie says

    Len,

    Our realtor did quite a few things to sell our house within 2 weeks of putting it on the market. We wanted to sell quickly because our work paid us an incentive for selling within a set amount of time, too.

    Things we did:

    1. Staged the heck out of the house. This means not even toothbrushes on the counter in the bathroom. NOTHING on the counter in the kitchen, extremely neat and looked like no one lived there and furniture was there like a model home but not “lived in.” I must mention that my husband has OCD so our house was already pretty much spotless. I washed our vinyl blinds behind our curtains one little section at a time. My husband would get on our roof and shine our vinyl shutters. He also power-washed our driveway and swept it up on a regular basis with a push broom.

    2. Lowered our price to be competitive. We knew that we had foreclosures in our neighborhood. We priced so that we were close to their prices. We basically broke even without having to pay the realtors’ fees, but we just really wanted to be out from the house.

    3. Curb appeal. We bought some annuals that were all flowering and replaced our perennials so that the flowerbeds in front would look gorgeous.. along with our wraparound porch. (Total: $100)

    Things the realtor did:

    1. She marketed the heck out of our house. We were on the front page of those little house-hunting magazine thingies you find at the grocery store and everywhere else.

    2. Flyers targeted to nurses/doctors sent to local hospitals in area (find the people with more income!).

    3. Flyers everywhere else. She had specific ones that targeted different occupations and places to put them that worked well for her.

    4. We were on pretty much on every website known to man for house hunting.

    5. Put up pictures the same day the listing went up. This is very important because my father in law was selling his house down the street and his realtor did not do this… to the detriment of his selling prospects.

    6. Her group handled helping businesses relocate to the area so she also put our house up on their internal site for the employees of said businesses.

    Our realtor ended up finding the buyer for our house… who had seen it on the front page of the magazine that the realtor’s agency had paid for. She told us that our house was chosen for it because we had cleaned it up and done so much work on it for the pictures that it looked great.

    Total “cost” of what it was to have a front page ad and all that marketing? That extra 1% pushing the commission from 6% to 7%.

  11. 16

    says

    When homes were selling for $10K to $50K, a commission of 6% made sense enough, and a broker or sales person could actually make a livable wage on it. Today, with such high prices, a smaller commission is still a lot of money, and, if agents are willing, just might save the market. Granted, times were simpler then, and much was done on a hand shake. Most of you don’t remember those days, but I do. Today, with things more complex, it’s not so simple, but that’s what attorneys and title companies are for. The don’t work on commission, but usually by their time. Wouldn’t it be a switch if RE agents were paid by their time as well?

    For those who have read my comments above, please don’t get the idea that I think RE agents are ALL morons and have no place in this world. They do. And a good agent earns his keep. Good agents have built the markets in this country. It’s the ones riding on the coat tails of others who blazed the trail. They don’t come to build… they come only to “get rich” and get out (usually just to get out).

    I’ll ride the river with anyone who is willing to pay the dues to get the job done.

  12. 17

    Rodney Dangerfield says

    Easy to pass judgement and make assumptions without ever walking in someone else’s shoes, isn’t it? Only looking at the financials, what most people don’t realize is the RE agent’s cost of doing business, just like any other self-employed field. Out of that 1.5% net commission they may or may not receive, IF the deal closes and after doing all their work upfront for free, they have to pay Nat’l/State/Local association dues, continuing education,, license fees, signs costs, lockbox key fees, monthly MLS dues, costs to run ads, print flyers, e&o insurance premiums, exhorbitant gas costs running all over the county, administrative costs, buying client lunches/dinners, closing gifts, plus TAXES (RE agents are top targets for IRS audits) and numerous other expenses including 6% franchise fees for a majority of agents. So, saying an agent makes a whopping $27k is an uninformed and ignorant statement. Additionally, an ethical and experienced agent reduces their potential income by doing their fiduciary responsiblity for a buyer; that is to seek the LOWEST price and best terms obtainable. And, just fyi, RE agents have NO control whatsoever regarding short sales or foreclosures. The banks/lienholders call ALL the shots. If you are attempting to sell your home fsbo, please do not let non-prequalified strangers in to your home! Lastly, I’d like to mention there are a lot of things I can do myself; re-roof my house, do my taxes, start a financial blog, etc. but I choose a knowledgeable professional instead. Happy House Hunting!

    • 18

      says

      Rodney, I suspect you are a RE agent… and good for you along with all my blessings on your and your business.

      I am in the art business, now for 43 years. I understand completely what you are saying, that no one sees the huge expense of doing business. Most people don’t see how we are affected by the whims of economy or the notions of buyers. However, we have chosen our prospective businesses, and this is who we are. We sometimes spend weeks or even months working on deals that go south at the last minute. We live our lives based on RISK. Sometimes we win, sometimes we lose. But it’s OUR lives.

      I made a sale yesterday. I should have made several hundred dollars, based on the size of the sale. Instead, I made $20. But, I’ll not complain. I moved a piece of merchandise, I moved our own microeconomy just a bit, and I slept soundly last night. My wife was delighted for the $20 and spent it her own discretionary spending… she bought that spiffy loaf of bread we have been drooling over down at the grocery store. Plus, I got a kiss right on the lips for my efforts.

      My point is this: at my age (now 66 years old), I have to learn the new technology and functionality, search engine perameters and web site design and function every day. I need to spend the time and effort to make my business work in a dynamically changing world. If I don’t; if I’m not diligent, then I’ll see the grave for my business much earlier than I plan. And I plan to stay here very long.

  13. 19

    says

    BUYING a home is a bit of a horse of a different color. The truth is that the vast majority of homes are in the hands of RE agents. OF the homes we have owned, three of the four we found through agents. The fourth we found by word of mouth. The most common means for us was seeing signs in the front yards. I have never liked calling from an ad and asking a lot of questions on the phone, even though I realize that is a very efficient way to cover a lot of ground (and save gas). Yet the old “windshielding” technique is still the best for us. And a RE sign in front of a home is like a magnet.

    The flyers RE offices put out are great while sitting in a restaurant and make good fodder for dreaming. However, for us, we spend TIME riding around the neighborhoods and areas of interest to us. If we see a neighbor, we stop and ask if they know what’s available in their area. It’s amazing how people love to share information about their neighborhoods, good or bad.

  14. 20

    says

    One more thing about signs:

    If you are a FSBO, PLEASE don’t go cheap and get a 50 cent sign at Kmart. The sign you put up speaks volumes about the quality of care you put into your home.

    Find a sign or sign painter. Spend a few extra bucks. If you are trying to attract a buyer to spend $300,000 for your home, WHY would anyone go cheap on their presentation?

    You can find all kinds of signs: either in town or online. Even if it costs $100 – 200 for a sign to sell a home for a quarter million, it just makes sense. More sales are made from signs in the yard than any other way. DON’T SKIMP.

    • 21

      says

      @RodneyDangerfield: First, Mr. Dangerfield, let me say I loved you when you were alive. You always made me laugh! “Back to School” is still one of my all time favorite movies. ;-) But seriously, thank you for your perspective and I wish you nothing but the best as a RE agent. However, let me just say that when I was referring to $27,000 – I was referring to that total as “overhead” on the final price of the house. NOT the actual amount of money a particular RE puts in his pocket after the sale. Regardless of how that money is split up, the bottom line is that it is money that is added to the final sale price of the house – at the expense of the ultimate buyer and seller.
      @Gayle: Great point about the importance of using a professional-looking sign. When I sold my house I invested in one of those fancy posts that the big real estate companies use for their signs and hung my FSBO sign from it.

  15. 22

    Sheila says

    If you’re buying a home that’s not FSBO, why would having a buyer’s agent cost you? And if you are buying a FSBO, the seller still pays the 3% commission. I’ve never had a contract with a buyer’s agent so when I did end up buying a FSBO even though I had a buyer’s agent, no money went to the agent. I’ve only used a selling agent once, which was this year. We live in another state so it was expedient. She had been our buyer’s agent when we bought the house, and she was wonderful. She coordinated the repairs, dealt with our tenant, made a lot of suggestions, helped with negotiations and set a reasonable price. She said she wished she could get us more, but the market wouldn’t support it. We listed the house the second week in Feb. and sold it the next week with closing in March. Never had to lower the price. We got more for it than I had thought we could so I was pleased. With that said, however, if I had been living in the same town, I probably would have gone FSBO.

    • 23

      says

      Sheila,

      When employing a buyer’s agent, there is usually a contract involved, whereby the agent will be compensated, whether or not the home is listed with another agent, FSBO or any other.

      The buyer’s agent is hired to help with details. Incidently, these details are more than likely the same that will be tended to by the closing attorney and/or title company.

      Like you, I have never used such an agent, but have seen the contracts. They are little different from a listing contract. If you desire to buy from a FSBO, I would see no reason to use an agent, unless you feel the need for redundant security.

  16. 24

    RMoM says

    You touched on something that really hits a nerve with me. Does anyone reading this realize just how EASY it is to buy and/or sell a house in California? The books and forms are available online, in book stores and at most legal storefront outlets. (‘We The People’, for example) The paperwork involved is absolutely simple. Most of the legalese is already done for you. Of course, if you have no desire to do any sort of research before buying/selling, then by all means fork over 6% for a ‘professional’. I won’t.

    I purchased my most recent house online. The house had already been listed for almost a year on the local MLS with the same husband/wife duo with negative action, having already been in escrow once but then falling out. Why? Because they had overpriced it significantly and the buyer’s bank wouldn’t make the loan. The foreclosure bank decided to leave the house listed with this duo for local ‘exposure’ but also decided at the same time to list the house for sale with an online auction website. I found the house online quite by accident while googling the address – the best thing I did by far! ALWAYS google the address of any for-sale property you’re thinking of buying. It’s amazing what you may find.

    In my case, I found my house for sale online at tens of thousands of dollars LESS than the local multiple listing service was listing it for. I immediately called the online auction site and got a person with a pulse on the line immediately. Bingo! Between the two of us, we negotiated with the bank immediately and received an offer acceptance within 24 hours by email. It was incredible. No realtor to muck things up :) The house was in escrow before the listing realtors even knew anything about it. While we were in escrow, the house remained actively for sale on the MLS and I was mystified as to why that would be the case when the place was as good as sold. I called the realtors without telling them I’d actually bought the house and the first thing out of the guy’s mouth was an immediate roadblock: “Don’t bother putting in an offer because we have a stack of them already, over and above asking price.” Really? Dude, you never would’ve found out what I may have been wiling to offer with an attitude like that. Just another example of this ‘professional’ duo at work.

    Anyway, I closed on the house (simple) after doing a bunch of research to make sure that I scheduled the correct inspections and appraisal. I moved into the house and a month later the listing realtors showed up at my front door asking for their lock box back. I had removed the whole thing along with the front door handle when I changed the locks. As I handed the lock box still attached to the door handle to them, the guy said “Have you moved in already? We were waiting for you to call us.” I just smiled but I really wanted to say something along the lines of, “Honey, if we’d waited for you we’d never have closed on the place.”

    This non-realtor house purchase was the simplest I have ever experienced – the first good thing to happen to me since my finances melted down following my finance related job disappearance during the recession. I made an excellent deal on the house purchase, one that would never have happened had these realtors been involved. The online auction site was absolutely on the ball with fantastic customer service. I do not have a whole lot of trust when it comes to bankers, lenders or realtors. In fact, I even financed the remaining purchase balance with private money. If you can do it yourself, DO IT. Be sure to do your research and schedule the important inspections. Educate yourself.

    I will sell this house FSBO without a doubt when the time comes.

    • 25

      says

      Bravo!!! We have met many such RE agents who insist that we can’t live without them. While I still maintain that RE agents do have value and a place in this world, their place is simply overrated.

      For ANYONE who is willing to simply put the same amount of time and effort into buying a home that they do into buying a pair of shoes, your story should take its place in the annals of house shopping malls across America, as a beacon of sunshine in an otherwise shadowy world of home seekers. A bouquet of sharpened No. 2 pencils goes to you.

    • 26

      says

      @RMoM: Congratulations to you, and thanks for sharing your story. The key word in your story is “research.” I noticed you used the term at least three times in spelling out exactly what happened. It is another great example that shows a significant payday is there for those who choose to bypass the REs. The trick, of course, is that there is no free lunch – you have to put in the effort.

  17. 27

    says

    I really liked our agent, too. We were a growing family at the time and she worked hard to get our starter home sold and for a lot more than we thought we could. I felt she deserved her commission. We then tried selling our next home through her but the market had just turned. But, now we rent and our rental income covers our mortgage, taxes and insurance so I’m not that upset it didn’t sell within our time frame.

  18. 29

    Mazzy says

    My husband and I are pro FSBO…I sold my first house within 1 week by using an FSBO website – I didn’t even have time to get the sign on the front yard before I had 2 offers, and I ended up making about $45,000 profit on the deal, which I immediately and happily put into my bank account. I was required to make no changes to my house (which was built in the 50s) and the deal went through quickly and smoothly, which was fantastic since I was also planning my wedding. I used a lawyer for a whopping $500 and paid a whopping $90 for the website ad. Of course, that was 2004, when the bubble hadn’t yet burst.

    Now…things are not so simple. We tried to put our house on the market this year FSBO, and 3 months later it still lagged. This house is almost identical to the one I sold before, including age, condition, size, etc. We had a bunch of showings, but no genuine bites. I grew impatient and anxious, wondering if most buyers felt more comfortable with an agent. Most sellers would be willing to wait longer than 3 months, but we had just gone through building a new house and with all the stress and pressure we decided to bite the bullet and hire an agent. We also didn’t want the house to lag on the market too long because of our stubborness.

    By going with an agent, there were a couple hits we took in the price – we had to lower our asking price about $8K. Then the agent’s commission was 6% – so off comes another $12K.

    We agreed to hand over the pictures of the house that I had taken because I had done a pretty good job of staging everything and taking the photos. So, she never had to take pictures. A couple of days later, I saw the agency website, and not only did she use my photos, but she took all the verbiage off of the FSBO website that I had put together, without telling me. I guess I had expected her to come up with her own glowing description, but whatever – no big deal.

    She showed the house 1 weekend, and fortunately we got our offer right away! I attribute this to being placed on the MLS, not so much to any effort she made. We took another hit of $3K when they made their offer, not a problem there.

    This buyer was also going through FHA. FHA required us to do some unnecessary changes to the house that ended up costing $10K up front (with no guarantee the buyer would get his mortgage), which if we had gone with a buyer who did not have FHA would *not* have been required (believe me – this was total bureaucracy at work). The agent recommended we do it, even though I was really unhappy with the recommendation. We didn’t have to go with her suggestion, but we listened to her figuring that we might have FHA next time if this fell through.

    After all the repairs were done, the buyer required 2 extensions due to some issue with his finances, which we signed. Some other FHA questions came up, to which the agent knew no answers (it was as if she’d never done an FHA sale before).

    The 2nd extension was a signed agreement that said the buyer would have his financing completed by a particular date, but he hadn’t even submitted all the paperwork by that date! Our agreement had the closing set for a week after he got his clear to close, and we heard absolutely nothing from our agent when that date passed. I sent emails, my husband tried talking to her. She knew nothing and made no suggestions, and even insinuated that we were being paranoid/difficult. At some point along the way, she finally said that he got his clear to close “verbally.” Come to find out, she was lying to us. Later on, we found out that the bank hadn’t even supplied all the documents to FHA at that point.

    We are still waiting to close. We have the right to terminate the deal, but at this point – that would be foolish, having waited so long and being so close to the end.

    So, the moral of this story is…if you hire an agent be very careful who you pick. Once you sign on that dotted line, there is not much you can do, but sit back and pray she earns her commission.

    My issue was not with her inability to control the forces at work. I knew she wasn’t at fault for FHA or the supposedly inferior condition of our perfectly fine house. I knew she had no control over how the buyer responded or behaved. But – all I wanted was some effort for the commission we were paying her – a simple heads up, some kind of proactive research such as checking with the loan officer far earlier in the process to see what the progress was, some indication of what our options were when things didn’t go smoothly, some reassurance, and how we should proceed. She said nothing, and we had no recourse. Our hands were tied because we had signed a contract with her for 6 months. She had us and she knew it. Talk about the highest paid job for the smallest amount of effort.

    • 30

      says

      I agree with you… at first sign of incompetence, I would have bolted for the door. On the issue of breaking a contract, you always have the right to fire a RE agent, just as if he/she was a hired contractor or employee. Laziness, incompetence and pure neglect are most certainly grounds for dismissal in any business.

      In a similar experience, I called the RE agent’s boss and told him I was terminating the contract and putting the house up for sale myself. The agent had brought me an offer of less than half our asking price and couldn’t even remember our street address. I received zero argument.

      Two weeks later, with one three line ad in the paper, I sold the house for my full asking price.

    • 31

      says

      For the love of God, Mazzy – if you don’t fire that agent, please reduce her commission by at least half (if not more). Personally, I’d fire her for incompetence, among a litany of other things. But that’s just me. :-)

  19. 32

    Mazzy says

    Gee…Can I fire her if we’re still under contract with her? Especially if we’re still waiting for this deal to close? I just got word it’s going to be another 2 weeks before we close, and it wasn’t from her. It was from our lawyer. And yet, still no commitment from the bank. No extension was signed, nothing. I just don’t get it. I didn’t think we could fire her, especially since she has technically gotten us a buyer and her 6 month contract is not up yet. ?? But if we can, we will…

    • 33

      says

      Disclaimer time: I’m not a lawyer, Mazzy, so I can’t say for certain WHAT would happen if you fired your RE and she took you to court.

      All I am saying is that if I had a grossly incompetent agent I would demand reduced commission or break my contract unilaterally. Would a court agree with me, assuming I was sued? That is the big question, although I would expect so. (Again, I am not a lawyer.)

    • 34

      says

      I agree with Len. I’m not a lawyer either, but the sense of it is that if your RE agent is unhappy, she would certainly think twice about initiating a law suit and have her own incompetence exposed to the world. The very threat of that would curtail any further pursuit.

      The best defense is always the truth. If your agent did not perform according to her end of the contract (including the proper handling of closure details), then that would certainly be exposed in any reply to a suit. For anybody, that is NOT worth the risk and considerable expense to push the issue. It’s a 99 percenter that the issue would be dropped. If not, turn it over to her boss. You’ll see very fast results.

      Furthermore, I would put the procrastinating buyer on immediate ten day notice to either close or lose their “contract” and deposit. You’ll see action one way or another. If the holdup is elsewhere, I’d do the same with them (bank, title company or other). From what you’ve said, you really don’t have a contract anyway… so, you have nothing to lose.

      You have to remember… business is business. Of course, we try to work with people, but when it begins to bring harm to you and your family, it’s time to put someone’s feet to the fire, and get it done. That’s business.

  20. 35

    LeKaren Lockridge says

    Here are some reasons not to sell your house yourself.

    You don’t know the real estate laws.
    You don’t know the average price per sq ft in the area or what your house is really worth, but the Realtor that wants to make an offer will.
    You don’t know how to negotiate with other Realtors.
    You don’t know how to legally handle problems.
    You don’t know who the people are that are coming to see your house.
    You don’t know if they are really financially able to buy your house or if they’re mass murderers or robbers.
    You have to spend a great deal of money, listing on the local MLS, getting fliers made, getting your listing on the internet in as many web pages as possible, getting your fliers to local businesses, getting your fliers to local real estate offices, getting your fliers to your neighbors, getting your fliers on those little magazine papers at the supermarket, getting your sign & flier holders and getting a real estate attorney to make sure everything is done correctly and legally.
    And if time is money to you: making appointments, showing your house, doing open houses, talking to the potential buyer, calling their banks, calling their jobs, calling their referrals, finding the forms, filling out the forms, going to your attorney to make sure the forms are done properly, finding and then going to the title company. Then making sure all the time frames are met so that you don’t inadvertently make a mistake that the buyer can use to get more money out of you.
    And these are things just off the top of my head, so I’m sure there are more.
    You guys that think Realtors are paid too much just kill me, 6% doesn’t go that far you know and you realize that half that goes to the other Realtor and part goes to our offices. We are responsible for all our expenses including all the ones I have just mentioned and gas, maintenance, printers, ink, local MLS dues, local, state & national real estate dues, license fees, certificate dues, all our signage, computers, E&O insurance, key holders, lock boxes . Then we have to take time to show houses, sometimes at a drop of a hat, we can spend hours and hours and sometimes days with one client and never get a contract, you understand we don’t make a dime. We have rules that have to be followed or we can be sued, have our license revoked or both. Yes, I know there are some pretty bad agents out there and everyone has a story, but I promise you, there are some really great agents out there too, who do have your best interests at heart. I know several including myself, so if you guys decide that you don’t want the hassle or problems that go with doing your own deals then you might want to give me a call and I can always refer you to a good agent.

    • 36

      says

      LeKaren…

      All these assumptions listed in your note (“you don’t know…”) simply tell me this… that you think most people are stupid (or at least stupider than you), and that there is some kind of special mojo that goes with a real estate broker’s licence. That’s an awful lot of assumptions.

      I have a RE broker’s licence, having gone to school, passed the North Carolina RE Boards and have my own office. I have never denied that there is a place for RE agents. Many people simply don’t want to get involved with the business of selling a house. BUT, it’s not rocket science to sell a piece of real estate… any more than to sell a car to a neighbor or a collectible at the flea market. The technical details and legalese should certainly be left to title people and lawyers, even by professional agents. Also, if an agent works hard and is capable, I agree that he/she has earned their commission. The sad truth is, most don’t.

      So PLEASE… don’t tell me that a RE licence is the answer to all our problems, and that Mazzy is too stupid or inept to handle them. You don’t even know her, but if you do, you’d better duck, because I’m giving her permission to go to your office and thump your skull.

  21. 37

    LeKaren Lockridge says

    Well Gayle dear, pardon me, but I don’t know Mazzy or you, I was addressing what the Blog said about Realtors, from Len. I didn’t mean to start a grap storm. If you are indeed a Real Estate agent then why the heck are you arguing with me. You yourself know how much we have to overcome with negative comments about how overpaid we are. I was simple talking about the general public trying to sell their home. I never said that they were stupid, I thought I was implying that most people are unaware of the problems of taking on this huge ordeal.
    And NO I realize it’s not rocket science to sell property, but I disagree that it is the same as selling a car. That my dear, IS stupid. You know that it takes more than the average person knows to get houses sold and it takes a lot of their time. I was simply stating how the process goes and what the average layperson knows or might not know. Maybe instead of saying “You don’t know…” I should have said…”You might not know…”. That was a mistake and I apologize to everyone for that blunder.
    And you are wrong in saying that there IS NOT special MOJO that goes with getting and keeping a Brokers license; ongoing training and personel dedication, that’s the MOJO.

    You, like so many other people, are sending a message to the general public that we as Realtors, are all a bunch of sterotypical morons, that put up a sign and then go home and wait for it to sell, then take their money and don’t do anything pass putting in on the MLS to earn it. I don’t know where you’re coming from babe, but you better choose a side.

  22. 38

    says

    I choose the side of those with integrity and a worthy work ethic, whether a private seller or a professional agent. Period.

    I am now retired from the real estate business, but I’m not so old that I don’t remember the myriad of “stereotypical morons”, as you put it, that couldn’t spell reel estat, much less manage a deal. The RE profession is just that, a profession… and if someone can’t be professional, they should get out of the business. They ruin it for everyone else.

    That’s why I’m all for anyone who is willing to take on the task of selling their own home. Bravo! and good for them! Go for it with gusto, and reap your own reward of savings and accomplishment.

  23. 39

    LeKaren Lockridge says

    So then you agree with me them, that it is a rather daunting task and not for the faint of heart to take on selling one’s own home.

    And you agree that there are some unprofessional agents out there also, that make the rest of us look bad.

    So what exactly have you been trying to argue with me about, dear? Seems we are of the same mind.

  24. 40

    says

    No argument at all. You asked me to chose a side. I did. To me, a person’s character is far more important than the title on his door.

    If you conduct your business with integrity, then you deserve all the commissions you earn.

    PS… Apology accepted for the “stupid” blunder above (no pun intended).

  25. 41

    Kristina Hanson says

    As a dedicated real estate agent – I will tell you, in any market, I earn my keep. I just sold a home in San Diego and the unit was the ONLY attached home in the zip code to go into escrow – why? Because I worked my tail off marketing, promoting, opening and selling that home. When other homes were falling out, I was negotiating my tail off to keep things together. In “busier” markets where it’s conceptually “easier” to sell a home, I’ve been known to show couples over 100 homes until they found that perfect property. So, I do think that a GOOD real estate agent is worth every dollar they earn (which is nowhere near 6%, even on a 6% commission!) :-)

    • 42

      says

      Kristina, I hope my comments don’t suggest that a good RE agent isn’t worth his/her salt. I agree with you completely, that hard work should be compensated. There are many who really do need an agent to represent them, especially in a volatile housing market like San Diego. I most certainly wish you all best success in your field in a challenging location and economy.

  26. 43

    Jim says

    I am 76 y/o and over my lifetime I have sold 28 properties. Some were rental income properties. On 6 of the properties, early in my dealings in RE, I had originally listed with the RE Broker and in each case they NEVER sold the property. The listing either expired or I exercised my exculpatory clause to fire them prior to the expiration of the listing. In EVERY instance I sold the previously listed properties in less than one month, in most cases with an open house ad run in local newspapers, over a long weekend. All my other sales went without incident also and in each case getting within 1% to 2% [and in many cases more than their suggested listing price] of what realtors were telling me I should list the properties at.

    Today, Trulio.com can give anyone a very good idea as to what the local comp value is of most properties. FSBO, in my opinion, is the only way to go; of course with someone assisting with some of the paperwork if you are a ‘newbie’.

    Last comment: RE sales people only make money when they SELL. Their GOAL is to sell your property so they have a propensity to get the seller to lower their selling price, consistently, in order to make their sale easier. The represent THEMSELVES much more often than the seller or buyer.

    • 44

      says

      Where I live, here in the heart of the old west, the expression is “you got to fork your own broncs”… meaning, that if you have a job to do, you’d better get with it.

      No one has the vision or passion for your life and involvments that you do. And as a result, no one else can tackle the issues of your life like you can… whether it’s a doctor, lawyer or RE agent.

      I believe we should all face our passions with the same gusto that you have, Jim. So yee haw!!!… go for it, and land the deal.

  27. 45

    says

    I watched my neighbour try to sell his home on his own.
    After about two years he gave up and hired a Real Estate
    agent. It sold shortly after. I concluded that you can
    probably sell your house on your own in a good market but in a slow market you shouldn’t try unless you have lots of time.
    Also buyers are very particular and you may think that
    your home is up-to-date when it really doesn’t meet the
    expectations of current buyers.
    My advice: Always get help.

    Bill C

    • 46

      says

      William,

      I agree that everyone needs help… it’s just what kind that counts. If RE agent, then fine. But, if it’s really help to offer property for the right price, then an appraiser might be more in line. If it’s moderization, then a decorator or contractor might be good.

      I don’t know what kind of help your neighbor’s agent enlisted, but, if there was something wrong with the house to start with, I would bet the agent saw to it that it was addressed. Nor have I ever said that a RE agent was not needed. Some folks simply need help. That’s fine.

      In any case, it has been my experience that there are the good and bad (and yes, the ugly) agents that do more harm than good, expecting a ticket on the train for doing very little. Wisdom takes many forms, and a blanket policy that one should have a RE agent just isn’t it. If common folk would use their common sense, the job will get done one way or the other.

  28. 47

    says

    Well if I had a penny for every one of you guys that talk this story…., well you know the rest. The statistics of a FSBO actually being sold are very low. Usually in about 3-4 months they come looking for a real estate agent, because it’s just hard doing it yourself and scary with strangers walking around in your house. Also, most Realtors won’t show a FSBO because they end up doing all the paperwork and most buyers don’t want to run into the homeowner, because going through someones drawers or cabinets or closets, while they watch just feels weird. You also forgot
    the fact that Realtors go to classes more often than a doctor, ongoing education is the basis for a good Realtor. I’m saying the good ones, not some guy that your brother-in-law knows because it’s his drinking buddy and the guy does real estate part-time. It’s very important to get referrals from several sources. The basic fact in hiring a Realtor is getting someone who knows what he is doing and has the education and background to be competent. If everything could be handled yourself why hire anyone. I’m sure there are classes and instructions on the internet that can teach anyone to take over jobs such as a plumber, lawyer, inspector, lawn servicer, pool man, chimney sweep, carpet layer, carpet cleaner, upholsterer, carpenter, electrician, TV repair, air conditioner repair, furnace repair…oh the jobs are just endless, you could just save a fortune, of course do you have the time. Do you really think this would be a smart move too!

    `

    • 48

      says

      Time are tough… for RE agents and normal people too. Things need to get done, whether or not one has the money. Yes… I replaced my own central furnace, built additions to our home, done my own legal research and, oh yeah, sold my own home.

      Some of these things I did simply for lack of funds to accomplish them. Others I have done for the sheer fun. Still others I have done for the learning and experience. In every case, there is something to be gleaned.

      I also realize that not everyone likes to do these things, and simply pay other people to do them for them. Kudos. I am a bit older than most writers of these blogs and come from the old school, I’d say. So, I learned to saddle my own broncs a long time ago. It’s just our way, out here in the plains of Wyoming.

  29. 49

    Quest says

    For me, hiring a realtor comes down to one thing: do I really want to part with 5-6% of my proceeds to pay for a bit of paperwork pushing? No. I don’t. I bought my house without any problems whatsoever via online auction WITHOUT an agent or broker because the agent who had the house listed on the MLS wanted to sell it to one of his family members and told me to not bother submitting an offer. Unfortunately for him, I found the house listed for sale much cheaper at an online auction house and conducted all business strictly though them. The guy didn’t even know the house went into escrow to me until the bank informed him. This won’t work for everyone of course but I was not about to be told that I couldn’t buy the house I wanted to buy. I am determined not to part with thousands and thousands of dollars on some arbitrary commission set by a nationwide cartel (NAR) if I can at all help it when it comes time to sell. I will sell my house FSBO too. I’m not worried about it.

    • 50

      says

      I agree with you about the money… but for me, the most valuable thing is the ability to make do for one’s self.

      I have never denied that there is a place for good professionals, who can be worth their weight in gold, sometimes literally. But, I enjoyed replacing a central boiler in our home, and adding a greenhouse for my wife.

      One day I hope to design and build our own home. It’s a bit of a task to take on without a great deal of experience, but with a little help from friends, I don’t see why not. The real value in real estate is in the land anyway. Buildings come and go, but the land is there for the duration (unless, like California, it slips into the sea).

      • 51

        says

        You are too funny, Gayle! LOL :-)

        I suspect California will one day slip into the sea, either by tectonic subduction, or the weight of it’s monstrous debt!

  30. 52

    Jay says

    Well, your article sounds good, but it’s penny wise and pound foolish, and here’s why:

    Data from 120,000 home sales across the US have shown that homes sold by FSBO sell for much less than those sold by agents. An average of 14.7% less. So save the 6% commission and get 14% less for your house? Doesn’t make much sense.

    Facts: Over the last 10 years, the percentage of homes sold through agents has held fairly steady at about 85% of all homes sold. In the last year, of the other 15%, 6% were FSBO and 9% were sold through foreclosure by a trustee. Prior to the rise in foreclosures, the 15% was divided about 1% foreclosure and 14% FSBO, again, half of which knew their buyer previously.

    Also, the fact is that more than half of FSBO sellers (about 53%) knew their buyer before the sale (i.e. sale to family or friends). In the case where the seller didn’t know the buyer and tried to sell their own home, 52% failed and ended up listing it with an agent to get it sold.

    So FSBOs got 14% less for their home (on average) than other homes in the same neighborhood sold by agents, mostly because the agents had a much larger audience to sell to. You might say, “well, that’s because these FSBOs are selling to family, of course they get less”. Not the case. The 14% lower figure came from the FSBOs who sold to a buyer they DIDN’T know. If you include FSBOs that sold to buyers they knew, the figures are even worse.

    • 53

      says

      If you read in my blog comments, you will see over and again that I say there is definitely a place for RE agents, and many people benefit greatly by them.

      Having said that, your comments seem to presume that an agent will get full list price, making their 6% a bargain compared to the typical reduction of 14% for a FSBO.

      Not so. The survey you mention also caveats that the typical offer brought by RE agents carries with it a decrease of 12 – 13% off the seller’s asking price. Combine that with the additional 6%, and it’s actually no bargain at all. So, if the average cost of sale (discount) for a FSBO is 14%, then the average cost of sale by an agent (discount + commission) is 18 – 19%.

      I have nothing against a RE agent who actually works for a living and gets the job done. But don’t tell me that a typical agent is above over-evaluating a home just to get the contract, and then relaxes when he/she brings an offer of 80% of the asking price.

      In this economy, home sellers are suffering across the nation, and much of it is by the hand of agents who have outpriced themselves for future buyers. It happens all the time. It’s called the “self-fulfilling prophesy”: promise that a home will increase in value over the next few years, and then later publish a new price guide that corresponds to (and fulfills) the promise. After a while, it is going to catch up with you. It always doses. And when it does, we can blame the “economy”. However, the actual cause is the ever escalating fulfillment of an old promise. Things get to the place where no one can afford the homes. Guess what?… we are there right now. And with the return to reality of what goes into a house, people find themselves underwater with debt to value ratios.

      This is one of the reasons I turned in my RE license: I simply could not face home buyers any longer with the empty promises made by “the market” of an area. Empty promises mean only one thing… empty homes.

  31. 54

    says

    One of the largest factors for us that moved us to using a Realtor was the fact that I was literally gone all day commuting to work (100 miles each way). It was a huge burden on my wife who was also caring for our 6 month old little guy so it was a welcome change to have an individual with integrity and the skills to get our house sold. I absolutely agree that it’s a ridiculous amount of money but it is negotiable and in the end actually having our house sold was totally worth it.

  32. 55

    says

    I’m continuously SHOCKED by how agents can still charge 5-6%. Give me a break!

    Here in San Fran, where a simple house can EASILY cost over $1 million, I ain’t paying $50,000 to sell the darn thing.

    I think a 2% MAX commission rate is much more appropriate. Or, a flat rate!

    Best,

    Sam

    • 56

      says

      @Paul: Wow – that is brutal! If I were commuting 100 miles each way I would probably hire a realtor too. Especially if the payoff meant a shorter commute. There is only so much one man can do.
      @Mike: Congrats on selling your house on your own. Both of us are proof positive that it can be done.
      @Steve: Best of luck to you in buying your first house. It is an exciting time in anyone’s life!
      @Sam: I like the flat rate concept too. It seems much more equitable, especially for expensive homes where I think the commission fee structure really makes little sense.

  33. 57

    says

    I’m not too thrilled with paying 6% for selling a house either but here’s a bit of the lowdown on the real estate industry.

    RE agents sometimes manipulate data in order to get the highest price possible. For example, one home in my neighborhood sold 8% above the last sale price because the agents for the community were all in the same firm so they negotiated the prices to keep it high. FSBO listings are also kept off the main MLS for out of town buyers. Buying Agents will direct buyers towards agent listings versus FSBO.

    A buyer who doesn’t use an agent don’t get to see the best deal out there especially on bank owned or foreclosure because this is what the agents keep for their clients. These deals gets passed within the firm and contracted within days.

    For larger deals, you can negotiate the percentage of the selling agent. It’s still very hard to get the buying agent to present houses unless they get the full 3% up front.

    When using agents, here are some questions to start the analysis:

    How much will I have to pay? If so, what value will the agent bring? Is he going to be able to price it correctly to move? Is the agent and his firm moving a lot of homes vs. competitors? Does he know the market? Does he have strategic partners with buyers?
    What will my results be if I try to sell FSBO? Are you doing short sale?

    This is assuming you get an agent who knows what they are doing vs. someone who went into real estate in the last 5 years. Timing of when you sell your house also needs to be factored in. During the height of RE market, FSBO are easily sold in days. Now, homes are sitting for 9 months to a year. How much money are you losing by paying for an extra 12 months vs. paying the fee?

    The right answer is going to be different for everyone depending upon their exact situation.

    • 59

      Actionwriter says

      ” FSBO listings are also kept off the main MLS for out of town buyers. Buying Agents will direct buyers towards agent listings versus FSBO. “”
      REALLY?
      Buying agents will direct……..???? Actually most people using FSBO ave no contact with an agent or have had contact and know they do not need them to complete a purchase of what they have seen and want

  34. 60

    says

    I am not concerned about the commissions as much as the way realtors incentives generally work.

    they are sales people and want to sell your house quickly. a $20,000 difference to YOU in sales price only represents a small amount to the agent:

    Here is my quick Python commandline calculation:

    >>> house price = $300,000
    >>> commission = .06
    >>> house_price * commission = 18000.0
    >>> highoffer = $320,000
    >>> lowoffer = $280,000
    >>> highoffer commission = 19200.0
    >>> lowoffer commision = 16800.0

    In English:
    If you put your house on the market for 300k. An offer is made for 280k. The agent will most likeley encourage you to take it instead of holding out, why?
    They only stand to lose $1200 or rather, the 16,800 bird in the hand is so much more appealing than a specious 18,000 that they will have to work/sell harder for.

    Your incentives may be more different than theirs than you think!

    I have nothing against Real Estate Agents, in fact I know several personally and have sold several properties with their help. Remember that their rate is negotiable and you always have the last say. They, in large part, do earn their commissions but they operate on incentives like everyone else.

    -WR

  35. 61

    says

    Wow, Len, you hit this one on the head. My wife and I are busy trying to sell a house that we inherited from her folks. And as the writers of the great book Freakonomics point out, a real estate agent is really a study in the science of diminishing returns. In our case, let’s say we sell the house for $200,000. Well, if a real estate agent sells the house for a 6% of the price, they get $12,000, right? But what if they sell the house for $230,000? $13,200. That would make a big difference to us, but to them, that makes hardly enough difference to be worth their time. A realtor’s job is to flip property as fast as possible, because they are more interested in volume over getting the highest possible price. Great for the buyer, maybe not so good for the seller. Think about it.

  36. 62

    says

    You have the best ability to sell your house. You are the expert on your property. you lived there. You know the neighborhood, the schools, the shopping. You know how cold it gets in the winter and where to bang on the urnace to get it to kick on. Use your intimacy with your surroundings to convince others why you were attracted to live here in the first place. It’s only X miles from the city. It has this great walking path only x miles away. you are the expert!

    Besides that , an RE agent can help:
    publish local ads, put in yard signs, get an attorney, set the right pricing, evaluate comps, Show the property, field calls, work with a lawyer, screen buyers to make sure they are qualified, etc.

    Your job is to negotiate with them and set the right price for this service. $20,000 can be a bit steep for punching down few signs and making 20 phone calls.

    Do you have the skills and the time to do this yourself? If not, hire an agent.

    Now, there are lots of FSBO companies that will help with all of this, signs, contracts, screening etc. Determine how much you feel comfortable with and do your homework!

    -WR

  37. 63

    says

    I’ve always wondered about this, too. With increasing competitive pressures from the internet, shouldn’t commissions be coming down? Are there just so many people still willing to pay the 6% that the competitive pressure isn’t quite there? There’s sites like ByTheOwner but in terms of listings they are still lacking.

    The same goes for buying, too. If you go with a buyer’s agent, then sure you don’t “pay” for the agent, but you actually do pay in terms of the price of the home. That’s a few percent that you could use as room to negotiate the price of the house, instead!

  38. 64

    says

    Since I’m not a homeowner yet, this information is really great, but I can’t use it quite yet. I’d be interested in knowing if it’s pointless to use a real estate agent when buying a home. I’ve checked out RedFin and like that the percentage is half of what normal real estate agents charge. And I can quickly pick homes I think would work for me without driving all over town looking at hundreds of homes that I wouldn’t like. Any thoughts?

    • 65

      says

      @LittleHouse: I think it makes even LESS sense to add three percent to the overhead of your final purchase price by using an agent when you are the buyer. The Internet has plenty of resources to help you find homes. And with Google Streetview you can even get a feel for the neighborhood (at least in terms of what it looks like). As for the argument that the RE agent will help you in the negotiating department – think of the negotiating leverage you have not dealing with the additional 3% that would be going to the buyer’s agent. Again, if you are concerned about legalities and fine print – hire a real estate attorney as a consultant for a flat fee to review paperwork and work as your advocate. When I was just starting out I had an agent represent me when I bought my first home and he completely failed to point out to me the disadvantages of buying my home. My home was in a less than desirable part of town, near a busy set of railroad tracks (whenever he showed me the home it was on weekends when the trains weren’t running), and the home was completely overpriced. I was too naive to ask the right questions and all he was interested in was getting me to buy a house – any house!

      • 66

        Alexis says

        You’re missing a very big point Len. The seller has a contract with his or her listing agent for a certain fee. This fee goes to the listing agent. IF there is a buyer’s agent involved, the fee will be shared with the buyer’s agent. If there is no buyer’s agent, the full fee still goes to the listing agent, who has to do twice the work of educating the buyer and guiding them through their half of the transaction. The fee is not saved by not using a buyer’s agent, and it certainly isn’t going to go to the buyer.

  39. 67

    says

    Len-Just a quick comment-I totally get your point BUT- Commissions are negotiable. Realtors can earn their fee if they are really good at negotiating. They can save you a ton of time. They can make up their fee by negotiating a better price for you. etc. But if one has the time and acumen- it’s certainly possible to DYI!

    • 68

      says

      Barbara,

      Some people simply don’t want to haggle over issues, especially large purchases. In such cases, a good negotiator is a great asset. I have friends who have hired RE agents who did, in fact, save very substantially and the agent’s fee was a drop compared to their savings. Good jobs each and every one.

      I would never suggest that there is no place for RE agents in this world. However, I do think that many have overstepped their bounds and, for the sake of self promotion and ego, have pushed some real estate markets over the edge. I do blame RE agents for creating an artificial level of value, based mostly on blue sky and not much on structure.

      What I am saying is that negotiations can go both ways… up and down. When an egocentric gets into the negotiation process, how he/she looks suddenly becomes more important than either of the other parties involved. Such a person is usually out to prove themselves and show up looking good rather than care for the interest of either party. Is it possible that that is why so many home values are “underwater”? I wouldn’t want to push that issue either.

  40. 69

    says

    I think you are nuts if you don’t use an agent.

    I can’t imagine the amount of time I would have wasted doing it on my own and I think that anybody that plays the real estate game without an agent is just crazy.

    I value my time and as a result I want pro’s on my team. I have a top 5% agent that I use and I would never trade him in for the world.

    Why would I waste my time doing something when I could have a pro take care of it…..the right way and much quicker.

    FSBO is just a short sighted approach to real-estate. A good agent is worth every penny!

    Cheers!

    Brandon

    • 70

      says

      @Barb: Commissions are indeed negotiable, which might be acceptable for many folks. But even if I were to get both buyer and sellers agents to reduce their combined commission to 3% – which I think is unlikely – that still adds $13,500 to the price of my house. For me, that is still enough money to encourage me to go out on my own and go FSBO. I understand though that many people would find that price more than acceptable.
      @Brandon: Thanks for sharing your perspective. I agree that, for people who make a lot of money, a real estate agent makes sense. But for the guy who is making $10 or $20 per hour, it’s kind of hard to justify, in my opinion. I totally disagree that FSBO is a short-sighted strategy though; there are millions of us out there who have successfully shown that to not be the case. :-)

  41. 72

    Alex Fuller says

    It is my opionion that there are a lot of real estate agents here posting. that said, I was burned by a real estate agent not once but twice. The first ime, I had listed my condo with a agent I thought I knew. Wrong move. after being on the market a long time, I decided to put it up for rent. I found a renter that would have covered my Mortgage and taxed. When I went to cancel the contract, my so called friend (agent) said I had to give him written notice – that a verbal cancelation and he would sue me for his commission. this is an agent who did nothing, no open houses, not sure it was even in MLS. In hindsight, I should have told him to sue me – I wish I had his name as I would broadcast it so ther people don’t get burned. I realize I did not do my part by checking the terms of the contract, MY fault, but i foolishly let him sell my county club property, i lost money due to his lack of marketing and the fact I was in a hurry to get out from under the property, which, given my finances, I should never have bought, much less shown – the RE knew my situation, he just wanted the commision. the last house I bought, well, the agent did her best, but NOT telling someone there is a homeless mission (no offence to anyone, been there, done that) I should have sued or at the very least gotton ahold of her boss, I sold the house at a deep loss, in hindsight, I should have just mailed the keys to the bank, which is a shady operator anyway – starts with a C – now ownen by BOA – no better. Mazzy, do your homework, give written notice of cancelation of contract after giving the so-called buyers 5-10 days to perform or lose their money and sell it yourself. you seem computer literate, I am sure you can get a real estate attorney to handle the legal details and do what the agent should have done – like get your house spotless, have your own open house, advertise, put up flyers, etc. to the posers that are trying to pass themselves as ordinary people, who are in reality real estate agents, get a life.
    A.

  42. 73

    Ken says

    Not sure if anybody’s still paying attention to this article or not, so here goes…

    “This is one of the reasons I turned in my RE license: I simply could not face home buyers any longer with the empty promises made by “the market” of an area.” – Gayle Tate
    Funny you should say that. I am a Realtor, and mama raised me to have ethics, but I’ve noticed something when telling clients the truth about the market. Some of them appreciate it, and appreciate me for the honesty. Other clients react negatively, and think I’m trying to pull something over on them because I’m NOT telling them what other agents have told them. It really shows the sad state of society when telling the truth causes you to LOSE clients.

    Unfortunately, there are many agents out there – way TOO many – who are in the business for the wrong reason… namely, caring about their commission more than the clients they are supposed to be representing. Since I am a Realtor myself, I know firsthand some of the stuff that goes on in order “to make a deal go through”, and it’s appalling. Totally understandable why the Realtor profession gets such a bad rap.

    My personal business is built around the idea of fighting the stereo-type and trying to prove that there are competent and honest Realtors out there. Whether a person chooses to use a Realtor, or buy/sell on their own, should be a decision based on their specific situation. Many folks don’t have the time and knowledge to do it themselves, and trying to do it “blindly” is an advertisement to be taken advantage of. On the flip side, a Realtor shouldn’t be “blindly” hired. You should interview a couple of different agents, and be comfortable with the skills of the one you sign with.

    • 74

      Len Penzo says

      Oh, people still pay attention to this article, Ken. It’s one of the more popular ones here on my blog. Thanks for your take on the matter.

  43. 75

    Clare says

    Commenting on “Real Estate Agents: Why You Rarely Get What You Pay For”

    You do realize that 6% commission is not the NORM in Canada, but was in the states. You do realize that 2.5% (in 99% of cases) of the commission goes to the other agent. You do realize that both their brokerages take a good chunk of that percentage as well. i only mention this because your article reflected none of those things.

  44. 77

    Tim says

    Good post. I think using a Realtor is worth while. My friend just used the service called Sundaybell? Anyone else heard of them? They allow you to interview agents online and negotiate services and commissions that best fit your budget. He hooked up with a top agent in the area for way under 5%…said it was easy, worth a look imo.

    Tim

  45. 78

    Al Greatseller says

    Many real estate agents are good at what they do which involves more than selling. For those of you with the knowledge, savy and time on your hands selling your own property is great go for it. For those who lack knowledge, savy and time use a professional. By the way don’t forget advertising, time and other factors that go into selling a home. It’s not all gravy.

  46. 80

    Fordham Lewis says

    The concept of real estate agents are over valued is a interesting subject matter. I would agree an agents overall value has been deminshed in recent years. As the consumer is searching for homes online with specfic needs for themselves and can easily drive by a home themselves.

    Therefore the overall value of realtors has been devalued. As the work wasn’t performed. Turning a key and signing a few papers isn’t worth a 6 percent commission and I’ve been a realtor for 20 years.

    There was a day when realtors actually brought real value to the table and actually did the leg work of knowing their market. We knew the homes on the market as we walked through the homes once per week without clients. This was a must in my day to simply know what was on the market.

    Today, realtors and agents have become lazy and didn’t like the leg work anymore. Yes, the public perception of our value has changed and we can blame ourselves for that.

    Our turnover is high due to poor business and marketing plans. Too many agents are underfunded and their idea of marketing is a cheap business card. Again, we can blame ourselves for the public’s perception of our value.

  47. 81

    Philip says

    I wish someone would address the need for the real estate brokers ( as opposed to RE agents) . All agents have to work through a RE Broker…whew. What exact benefit does he/she provide to the seller- to make about 15 to 20 % of the overall commission?

  48. 82

    Search Mls Salt Lake City says

    Vanessa You discuss very good points. Agents have the due right to claim as real estate.

  49. 83

    Actionwriter says

    Joke of the week;
    Owner interviewing prospective agent;
    “Describe to me your open house presentation”
    Agent (giggling) “O–I don’t hold open houses-all you are doing is feeding your neighbors”
    Owner; And the reason you don’t place brochures on the property sign?”
    “They can read the phone number on the sign an call>”
    Owner; “Don’t call me—I’ll call you if we decide on your
    merits. thank you.

  50. 84

    Cody says

    People. You forget that most of these agent do not get paid hourly 2-3% comission really? That’s about 2,500 dollars for a 100,000 house. Not only does that get taxed to hell but most realtor fees in our area cost 600/ quarter!

  51. 85

    lorinadegbenroVA says

    I struggled with the purpose of a RE agent. But then I went to school for it because I wanted to be my own agent and felt a few hundred to go to school would be fun and worth representing myself. I also decided that 3% is way too much for one party and found a broker that takes a small percentage and that I plan to give most of the percentage back to the client. I am finding out that for new homes, the buyer agent doesnt have to do anything but be there. But there are laws that a new home builder cannot give a buyer a better price if they do not have an agent. This is to protect the buyer from being persuaded to not use an agent (who doesnt do anything-but could beneficially protect the buyer from a builder who has tons of laws on them). But interestingly, as a buyer if you do not use an agent, the new home builder doesnt want any legal issues so they will not sell the home for lower than their list price. BUT if you do have an agent some builders can negotiate down 100K. Look at KHOV that took 20% off their million dollar homes at one time. They often give themselves plenty of wiggle room so they can do deals, negotiate, etc. So, having an agent is actually better for the buyer. Plus, because the agent doesnt have to do anything they could likely negotiate the majority of the commission back and use it towards closing costs or buying down points! It doesn’t make sense, but it is beneficial to the buyer.

  52. 86

    brian says

    Alright I think I need to clarify some things here. Number 1 not all agents are the same, I have worked with tereble agents and I have worked with wonderfully ones. So judging the industry around the bad isn’t the way to go.

    Secondly, it’s not the 6% the agent gets, as an example. If you sell a 200,000 house threw an agent with a 6% commission this is how it will break down. 12,000 total commission, 6,000 to sellers ” broker ” not the agent. And 6,000 to the buyer’s broker. Then it gets split with the company normally by 50% so your agent would make 3,000 of the original 12,000. But it doesnt stop there, the agent pays an additional 6% of his 3,000 to the company for using there name. So now they make 2,820 of that 12,000.

    But it dosnt stop there. Of th 2,820 the agent has left he still has to pay his taxes an insurance and other fees like the quarterly MLS dues to stay a member. So of that 12,000 commotion an agent will walk away with 1,500 for that sale.

    Most agents only make 30,000 a year. Very few make 50,000 and almost none make 6 figures. When you actually take the time to reaserch it shows a whole side is the industry that you have no idea exists.

  53. 87

    says

    Avoiding professional services is like jumping over a dollar to pick up a penny. IF you are experienced enough to circumvent using an agency to get an offer does not mean that you are prepared to overcome the tribulations of inspection issues, buyers remorse, unspoken negligent disclosures and the thousands of other turbulent potentials between contract and closing!

    Lee Forbes – Broker/owner in Bradenton, FL

  54. 88

    Joe says

    A good agent, as hard as they are to find, can get more done than I could ever dream of. I am not showing people all weekend, missing work, letting people I do not know come into my house while my kids are there, etc. I bet you if there weren’t so many people wasting agents’ time, the price would probably come down. I know a few agents that show people around and those people don’t buy. How many people do a lot of work without the guarantee of pay- in other words, how many of you run your own business, do the work and then hope someone buys it afterwards? I bet if those with a Million dollar home paid 15k up front to list it, would get an agent there today. The fact is, most here don’t take the time to realize, an agent only gets paid on houses that sell, buyers that buy, etc, but still have to do all the work upfront. If your boss came across to you that you made too much money and beat you down on your salary 20-40%, how good of work would you do for them? Would you run in on your Saturday and Sunday when he called? You may still take the job because employers everywhere believe employees ask for too much (parody to Real estate commissions) and you have to feed your family. Once again, this is the classic case of natural human behavior- people believe they are underpaid, and others are overpaid.

  55. 89

    Ralph says

    While I have, sans brokerage, bought and sold real estate that I either lived in/on, or for other use (never as a non-participating “Investor” – that style of personal financial life has never appealed to me), there are times when a good broker/agent is valuable.

    After my wife of 53 years died, I eventually married again and my second wife came to live with me in the country. She needed to sell her little farm, about 4 hours drive from mine – too distant to adequately look after personally.

    The Crash of 2007 presented great problems, delaying the sale pending stabilization of the real estate market while inflation was squeezed out of the “bubble” The agency services needed comprised qualifying and collecting rent temporary renters, local advertising aimed at prospective buyers, looking after the maintenance of the property and monitoring local financing options for prospective buyers.

    These were all furnished in exemplary fashion by the agency which, by the way, had been repeatedly recognized as excelling by various business groups. As is generally true in all business relationships: Do your homework and pick a good partner.

  56. 90

    Brad Sotheby says

    Interesting that most feel that agents aren’t worth their $$. Only 15% of people are successful selling their home on their own. As an agent, I am selling a home listed for 345k. I have had wine and cheese events. Each of these events cost me $50 for a graphic designer to make up the advertisement plus wine plus cheese. Almost $100 for each of these I have done 2. Open houses each Sunday and 50 miles round trip, so about 10-15 dollars in gas. Hired a professional stager $100. Hired a professional photographer another $75. Paid for the sign in the yard $66. Color booklets for potential buyers at 25 cents a page 23 pages times 18 books. All of this at a cost to me plus no guarantee the home will sell for their bottom line. An agent could easily be out over $1000 dollars if he/she doesn’t do a satisfactory job. 49% of homes listed with an agent sell which is quite a bit higher than the 16% that non-agents sell on their own. Agents would sell 100% of their listings if the consumer was in agreement with their agent when they told you that your price is too high. The only thing that keeps a home from selling is price. Nothing more. I know that all agents aren’t created equal, but I strive for excellence and nothing less. Don’t blanket all of us with the incompetence of some.

  57. 91

    John says

    Here’s a reason not to hire a Buyer’s agent in a hot real estate market. If homes are on the market for 2 days and getting multiple offers, you’ll stand out to the listing agent if you don’t have an agent yourself. Either they will pocket the full 6% commission, or they’ll give a discounted commission of 4 or 5 % to the seller, thereby making the offer higher by 1-2% of the offer price! This is what happened us (as the buyer) in the rapidly heating-up northern California market in late 2012. It turned out the listing agent took the non-agent buyers and coached them on a good offer price, then discounted the commission to the sellers on those offers. When I told our own buyers agent what I saw happening, and told him we’d have a better chance getting this house in this market if we didn’t have an agent, he was silent. Because he knew I was right. By some sheer luck and a fall out of escrow, we got the house (paid too much of course, but that’s ok in late 2012).

    When I finally got a chance to discuss with the seller face-to-face, he confirmed all of my suspicions. He said his agent never showed him our letter (appreciating the home so much) and family photo, etc. He said he wished he had seen that, as it would have made a big difference in who and how they counter-offered. It left an awful taste in my mouth. I never want to use an agent again if I don’t have to.

  58. 92

    Wanda Schultz says

    The level of ignorance on this site about what a REALTOR actually does is breathtaking. A major part of an agent’s time, education and skill is devoted to consumer protection – of the seller if he/she is representing the seller – or of the buyer if he’s representing the buyer.

    Listing a home, flyers, open houses, signs and internet marketing are a no brainer and can easily be done by the amateurs on this site. If you have any interest in understanding what a qualified agent does, and how the buyer and seller benefit, I’d be glad to explain.

    • 93

      Len Penzo says

      The people here, Wanda, are speaking from first-hand experience. The bottom line is the “ignoramuses” complaining about realtors here didn’t get what they paid for — or found they could do the job themselves.

      But go ahead … enlighten us on why you think you’re service is worth 3% of a home’s selling price.

  59. 94

    James says

    Over 80% of all FSBO’s hire a Realtor, because they can’t sell it themselves. 75% of real estate related lawsuits are from FSBO transactions. It’s funny that some people think they can find a buyer on their own by putting a sign in their yard and printing some cheap flyers. A few years back, the founder of FSBO.com listed his home with a Coldwell Banker agent. That should tell you something right there. I can’t tell you how many FSBO’s have come crawling back to me because they get sick and tired of unqualified buyers, looky loo’s, and people who want to low ball them. There is a reason why most people hire agents, and it’s not because they like giving away money. It’s because we get the job done. If you had a bad knee that required surgery, would you do it yourself? Enough said.

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