July 4, 2007, 3:33 am

Are Real Estate Agents Still Useful?

by: The Financial Blogger    Category: Properties
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I must say that when I sold my first house, the very first feeling I had was anger, then it was relief and finally it was joy. Selling your property should be an interesting experience where you can hope making money out of it. In my case, it was a total nightmare. There are many reasons why I still wake up in the middle of the night thinking I’m still living there (not really!), but one of them was an obvious mistake; hiring a real estate agent.

 

First of all, I must admit that the choice of hiring a real estate agent was definitely my mistake and no one else is accountable for it. However, I though that a realtors could sell my property faster to a better price. I was not quite right. Instead of talking about my personal situation, I decided to post my personal conclusion.

 

Who are they working for?

Canadian studies shows that Real Estate Agents are leaving their own property on the market 10 days more on average than when they are selling yours. Why? Because they are trying to get the best price on the market. On the other hand, the commission they earn by selling your house is not affected by the sale price. As an example, if they sell a property for $265,000 at a commission rate of 5%, they will earn a gross income of $13,250. If they make you accept the first offer that come at $250,000, they will make $12,500 so only $750 less. Chances are that they can sell your property much faster at 250K. Why would they bother sticking to 265K? That is a good question you should ask him.

 

Putting your property on the market

Most individuals find their property they want to buy through the internet. This proportion is around 85% according to the most recent data on the subject. People are now looking at hundreds of houses on their desktop while listening to their favourite music and enjoying a nice coffee. When they find a property they would like to visit, they give a call to the agent and schedule an appointment. Is this difficult to be a secretary that they could earn 10K + on your house?

 

Have you ever try to put something for sale on the web? This is so easy that a five years old kid can do it. Not only that, but you now benefit from online assistance, a call centre and sometimes, the website will send a professional photographer to take pictures of your house. All you need is a bit of cleaning and write a 10 lines description. I’m sure everybody can do that for 10K! Depending on the websites you are using, you may end up paying $50 to $600 for six months add. Forget about newspaper and other Medias. Internet will just do fine.

 

Legal aspects of your transaction

Another “service” Real Estate Agents provides is to make sure that you protected when you are signing legal documents. The purchase or the sale of a property has nothing complex. To my opinion, the complexity of the transaction is due to the addition of a third party (the agents) and nothing else. If you are not sure about the correct wording to be used, you can download purchase and sale agreements on the government’s website. Those are pretty easy to use and they are legal.

 

So I’m asking the question again, with all the new resources available and the upcoming of Internet, are Real Estate Agents still Useful?

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Comments

Unfortunately they are because it’s difficult to sell without one.

I don’t have a problem with using agents per se but the fact that they charge a commission and not a flat rate is ridiculous. I don’t care what the value of the house is, I don’t think either agent should make more than say $3k on the deal.

My opinion is that when you first hire an agent, you are on the same team as them. By the time you get into the negotiation phase of a house, then you are negotiating against your agent even more than against the other party because the agent wants the deal done now and they don’t care if you gain/lose a few thousand $$.

If you are trying to negotiate hard has your agent ever said “are you willing to lose the house/buyer over $2k?” or better – “are you willing to lose the house/buyer over $20 per month?”

It’s psychological warfare!

Mike

by: The Financial Blogger | July 4th, 2007 (9:05 am)

Mike, I’m not sure that it is that difficult. It took 5 months to sell my house with an agent that I paid 10K (5% commission + taxes over 184K). Meanwhile, my parent put their house for sale through several interest website (total expenses about $800) and sold their house for 290K within 2 months.
As you mentioned, negotiations are getting much harder with agents than with the actual buyers. So I really wonder why are they getting so much for doing so less! One thing is for sure, I will not deal with an agent in the future!

It goes both ways

In Toronto MLS, no need for agent to buy or sell. It sells itself

In KW, I think agent is still good to have. My agent is actually quite good, she finds houses that fit our taste, price range, and she’s against unreasonable sellers too, who ask too much. She also sold our condo, without MLS, in

I would check out http://www.zillow.com. It is causing a lot of issues in the U.S. because it may do away with many of the functions of a real estate agent. The state of Arizona has banned the site. Looks like they touched a nerve!

by: The Financial Blogger | July 6th, 2007 (2:31 pm)

Hi TMW,
thank you for the reference about Zillow. In Canada, I think that http://bytheowner.com/ is doing a great job as well. I can see agents disappearing… at the very least the way they are defined for now…

I’ve always wondered about those studies showing real estate agents have little incentive to hold out for a higher price. It seems to me that prices are so dependent on comps that a real estate agent WILL have an incentive to get the higher price. If they push for a sale $15,000 under market, that brings down the value of the other houses in that neighborhood. The $750 difference in commission per property adds up over several properties.

Helen: Remember they aren’t restricted to selling in one area. A slight drop in the “average sale price” of homes in a specific area would be totally insignicant to individual agents (at best it would be a “tragedy of the commons” situation, but I don’t think it would even have enough impact for that to happen.

by: The Financial Blogger | July 9th, 2007 (3:57 pm)

Hi Helen,
I tend to agree with Mr. Cheap, real estate agent a more likely to think about the impact on their pocket right away. They will not necessarily put the price down by 15K but they will surely push the sellers to accept the first offer. It incurs less income, but much less work and a faster paycheck. If they can sell 10 properties more per year, they will gladly lose 1K per property as they will probably make 10K per houses anyway.
Cheers,
FB.

Hey, your article in the Carnival of Personal Finance caught my eye. I had some pretty good discussion on a similar article a while back, http://moneysmartlife.com/are-real-estate-agents-worth-the-money.

I won’t rehash the different arguments but there are some good cases made for both sides.

by: The Financial Blogger | July 10th, 2007 (1:26 am)

Hi Ben,
I read your post and went through all the comments. Pretty interesting! And I just discovered a nice blog at the same time!
So far, I had bought 2 properties and a land and sold 1 property and the land as well. I realized that with a bit of research on my own, you can compensate several advantages provided by Realtors.
In fact, I find them more useful when you are looking to buy a house than when you sell it. First, when you buy a property, you are not paying for the Realtor’s commission!
I will definitely continue writing about Realtors in a near future.
Cheers,
FB.

FourPillars reminds me of my first experience with a real estate agent who questioned my willingness to let a offer potentially fail and my goodness, the b*$t*rd pushed hard. In the end by sticking to my price we got about an extra 3-4%, but it was still 1-2% less net of fees compared to my neighbour who sold without a realtor.

Unfortunately I have a husband who pushes very hard about wanting a Realtor.

I actually have no problem paying a finders fee or the selling agents commission, but the listing agent truly does very little.

And, here’s a tip in a tight need-to-sell-market, put a small ad in a local paper. 100 Realtors will call. Set up an appointment with all of them at the same time and have good printed material on your home available. Some of these Realtors are simply going to walk. The rest you offer the regular selling commission plus a bonus. The tighter the market, the bigger the bonus.

Seriously, when you need to sell, and the market is tough, your number one priority needs to be to exit, not worry about the fees. I’ve known people who have refused a first offer in a tight market for not meeting their expectations and had their home sit fallow for the next 18 months and ultimately sell it for less than the original offer…

Put emotions and personal attachments aside and assess the market you are dealing with, and your personal needs.

by: The Financial Blogger | July 16th, 2007 (2:44 am)

Deborah,
This quite an interesting tip. Do you know anybody that actually tried it? I thought Realtors always ask for a exclusivity agreement first. Let me know!
Cheers,
FB.

I got this tip from someone who sold their home this way. He said he had about 20-30 Realtors show up and 5-6 just left right away. He got his home sold fairly quickly at the price he wanted in a tighter market. Realtors will also work on bidding up if they know they will make more money by doing so. It is simply human nature.

The other big helper in Canada (western Canada at least) is Comfree. Due to the giant labour vacuum that is Alberta, everything is one the rise, even in Saskatchewan and Manitoba.

Comfree is huge out here and with houses “selling themselves”, not having an agent is like trading 50 hours of work for saving 10k. Of course, as always, there are two things going on here.

1. Agents are having a rough time b/c private sales are easier
2. Companies like Comfree and Zillow are removing layers of complexity (thanks to the wonders of the information age), which makes it easier for the DIY crowd to participate.

So what’s an agent worth? I think the big deal is “what does an agent bring to the table”? It used to be that the agent had all of the specialized knowledge on “navigating the sales of a home”, but now we have this knowledge too (thanks Comfree and Zillow). The agent used to have exclusive legal and financial connections for completing sales, but now these are readily available as well.

So the agent has two roles:
1. When Buying: the agent must narrow down your search or make it easier. If you’re paying a buyer’s fee, they should be combing the listings and giving you notes on the properties they’ve visited on your behalf. They should basically be short-listing homes that you’ll want to look at it.

2. When Selling: the agent is responsible for getting you the best price possible and reducing the overhead on your time for the sale. This means coordination with your mortgage lender of choice (or with a mortgage broker if you trust them) and any legal bodies involved. If somebody wants to bring in an engineer to check the foundation or asses the place, they can coordinate this with your realtor. If you’re paying the realtor 15 – 20k for something as simple as selling your home you’re effectively giving them like 2-4 months of your own gross income (for most people). If they put in 160 hours (4 full weeks) selling your house, that’s still like billing $100/hour. That’s like the price for a consulting professional engineer! So they should be able and willing to put in that much time or they’re just charging you too much.

😎

by: The Financial Blogger | July 18th, 2007 (1:42 pm)

Gate VP, I think you said it all!
I find Realtors are good “secretaries” as they are coordinating all the appointments for you. They are much useful when you are looking to buy a property then when you are trying to sell it!
Cheers,
FB.

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