How do real estate agents work

[PricklyPete]

Unfortunately I think Real Estate agents are still a necessary evil.

With regard to the commission...listing it at 7% with 4% going to the buyer's agent may actually drum up more interest in the house than you would get otherwise. Those agents will be selling your property...not just showing it as they will want that extra commission. Just a thought.

 

[OCGuy]

This is apparently a common misconception.

Umm....no. If you do not have a buyer's agent, the selling agent will keep the whole commission.

There is no reason not to have a (good) buying agent, there is a lot more with buying a house than just agreeing on the price.

 

[waffleironhead]

Wow, talk about ass-raping. In the UK the selling agent is who you register with as a buyer. It costs you nothing and they suggest houses and take you around them. The seller will pay the agent a fee, usually between 1.5-3% of the sale price, upon completion of the deal. As a seller it's up to you to negotiate the percentage.

It doesnt cost you anything here as a buyer. The seller pays the agent fee.

Others are spewing nonsense, the seller is under contract to their agent for whatever listing fee they agreed to. The sellers agent then can offer up a percentage of that fee to a buyers agent(typically 1/2), but they do not have to. There is an agent in my are who only offers 1%/sell price as incentive for the sellers agent.

 

[yllus]

I read this blog post ages ago and always thought it was interesting...

Improving Incentives for Real Estate Agents

Let’s say that Rick, the real estate agent, gets to keep 2% of the $375,000 sale price of the house for himself. This works out to $7500 for Rick. If the sale price is different by $25,000, it only makes a difference of $500 to Rick. He cares more about a fast sale than an extra $500 on a $7500 commission.

Now suppose that Rick were to get 10% of the portion of the sale price above $300,000 instead of 2% of the whole price. Now a $25,000 difference in the sale price makes a $2500 difference in Rick’s commission. This more closely aligns Rick’s interests with the homeowner's interests.

The big problem with this idea is that it supposes that all parties have a good idea of a fair sale price. With this type of commission structure, Rick is strongly incented to convince Hanna that her house is worth less, say $350,000, and that way the deal will give him 10% of the sale price above $280,000. If Rick then sells the house for $375,000, he gets a $9500 commission instead of $7500.

 

[IndyColtsFan]

This is confusing me. My first home I bought from a builder and no real estate agent was involved. Now we have my home, plus hers to sell and purchase a new one. Sell two properties, purchase one.

I started doing the math. 7% of each homes selling price is a significant amount of money for what would amount to probably no more than 80 hours of work. How negotiable are these selling fees? One of the homes will sell very easily.

Some realtors charge lower rates -- some as low as 3%. If you think one of the houses will sell easily (you might be surprised in this market though), I'd shop around and find the guy with the lowest rates.

Then we go to our new home, where 7% is a crap load of money when all we're doing is picking out a home we like and buying it. I just don't see the need to use an agent to "find" a home. Can I knock off 3-5% on the price of the new home just because I'm not represented by an agent and just pay the listing agents commission? From what I understand the 7% commission fee is already built into the price of the home and the selling and buying agents split that.

Thanks in advance.

You can negotiate the purchase price of the house down as much as you want, but the seller will still have to pay whatever fees he agreed upon with the real estate agent he/she used. If you don't use an agent, then their agent gets the full 7%.

If your area is anything like mine, you've probably noticed that many people are selling their own properties rather than using agents. It might be worth a shot, as paying an attorney for a few hours to review paper work would probably be cheaper than paying an agent.

 

[IndyColtsFan]

I don't know why anyone uses buying agents - what an incredible waste of money.

As a buyer, it makes sense since you don't usually pay the person (the seller does).

 

[IndyColtsFan]

7%? Where are you that real estate commissions are 7%? 6% is traditional but even 5% split 50/50 between the buyer's agent and the seller's agent is very common.

7% is very common here in the Indy area.

 

[IndyColtsFan]

Wife kept going on and on about how much better they are at picking out homes for you and taking you to them.

We know exactly what area we want to be in, have all our must haves and can't stands worked out and have this thing called the intarweb. I really don't see the need but she really wants to use one.

Definitely have an agent work for you as a buyer. You don't pay them anything, as they split the fee with the selling agent. Essentially, you're getting someone to work with you for free.

 

[spidey07]

Definitely have an agent work for you as a buyer. You don't pay them anything, as they split the fee with the selling agent. Essentially, you're getting someone to work with you for free.

I see. So the commission on the sale of the home, even if it's brand new is already decided upon by contract and cannot change. If I don't have a buyers agent, the seller agent keeps the whole thing, otherwise they split it if I have one.

But that commission percentage cannot change, by contract, right? So I can't use that as a means to knock off 2-3% just from not having an agent.

I just don't want to get locked into a buying agent as many of the nicer home builders around here don't want them because it drives their home prices up. So if I buy from a custom builder, without signing with a buyers agent I get more home for the money as his home prices don't have that built in 6-7% commission.

 

[Gibson486]

In this market I wouldn't even consider selling without a Real Estate agent. Now mind you, the market here is in the toilet, but I will go on.

Having the home in a multi-list is the best thing you could do. Every agent in the area at all the firms will see your home for sale. Having a hundred agents with the potential to sell your home far outweighs you trying to sell it yourself. These people, if they are pros, will weed out the lookers and those that can't afford to buy your home. They will be available to show your home when you are at work. They will handle advertising your home, will make sure your buyer is qualified in a timely manner and will handle the paperwork, inspections, etc., etc. Agents ignore FSOB homes. It's a fact and I know.

I sold RE many moons ago. There are tons and tons of lookers out there. It's a form of entertainment for them. Most of the folks that walked in the office could only afford a home priced at about 60% of what they wanted. As a FSBO, you will have to decide who is qualified and who isn't. You will be responsible for making sure they are keeping on top of the process of acquiring financing. You will also be responsible for finding out if they have sold the home they are in, or have even put it on the market. About 50% of my customers that walked into my office looking to purchase lied to me about something. Usually about how much they made. Often about the status of the home they were selling.

Your phone will be ringing at all hours and you will miss work to be there to show the home when a potential buyer wants to see it. Regardless of whether they qualify or not.

The thing about commissions is that when the market it bad, a RE agent is reluctant to cut their commission. It's not necessarily because they need the dough, it's because their costs have not been reduced. The time when you can for sure negotiate the commission is when the market is hot. Little advertising needs to be done and the home will sell quickly. By all means see if you can get it reduced. But let me tell you a little trick. Offering a commission of 1% above the going rate will attract the attention of agents in your area. Your home will become the top priority in the office which you list with and with agents at other offices too. .5% might get the job done. Your agent can tell you.

Paying a buyers agent is a personal choice. Your selling agent should be able to show you what's available with no problem. Let the seller pay him or her. As long as you're buying in the same area, go with your listing agent for your purchase.

answer me this....those realtors who work for firms like Coldwell....how much do they give them after the sale?

 

[IndyColtsFan]

I see. So the commission on the sale of the home, even if it's brand new is already decided upon by contract and cannot change. If I don't have a buyers agent, the seller agent keeps the whole thing, otherwise they split it if I have one.

Correct.

But that commission percentage cannot change, by contract, right? So I can't use that as a means to knock off 2-3% just from not having an agent.

More than likely, correct.

I just don't want to get locked into a buying agent as many of the nicer home builders around here don't want them because it drives their home prices up. So if I buy from a custom builder, without signing with a buyers agent I get more home for the money as his home prices don't have that built in 6-7% commission.

Are you buying or building? I am focusing more on buying an existing property but if you're building, you may not want/need an agent. Someone else can probably answer that better than I can.

 

[tk149]

Umm....no. If you do not have a buyer's agent, the selling agent will keep the whole commission.

There is no reason not to have a (good) buying agent, there is a lot more with buying a house than just agreeing on the price.

I already addressed the second half of your post. Here's my view on the first half of your post.

If you have real-life experience, feel free to contradict the following.

Scenario:
House lists for $100,000. Commission is 6% (in my area, typically half for Seller's agent, half for Buyer's agent). Seller demands that he at least gets $94,000.

Buyer 1:
Buyer has a buyer's agent.
Buyer offers $100,000 to get house. Seller gets $94,000, Buyer's Agent gets $3,000 and Seller's Agent gets $3,000.

Buyer 2:
Buyer does not have an agent.
Buyer offers $97,000.
Seller's Agent can choose to lower his fee to a flat $3000 and the Seller still gets $94,000. Or he can hold out for the full 6% and not make the sale. In a lean market, I think most Agents would just take the $3000 and call it a good day.

Rationally, for both the Seller and the Seller's Agent, Buyer 1 and Buyer 2 are exactly the same. This, of course, does not take into account any externalities.

As I stated previously, I have seen some people write on the internet that they believe they saved money by not using a buyer's agent. Whether or not this is true, I don't know.

I have also seen others (mostly real estate agents) claim that buyer's agents actually save their clients money, by pointing out things wrong with potential homes, or pointing out certain things that affect a home's future price (e.g. three years worth of construction work across the street will start next month or a new school is being built a few blocks away).

 

[tk149]

I see. So the commission on the sale of the home, even if it's brand new is already decided upon by contract and cannot change. If I don't have a buyers agent, the seller agent keeps the whole thing, otherwise they split it if I have one.

But that commission percentage cannot change, by contract, right? So I can't use that as a means to knock off 2-3% just from not having an agent.

I just don't want to get locked into a buying agent as many of the nicer home builders around here don't want them because it drives their home prices up. So if I buy from a custom builder, without signing with a buyers agent I get more home for the money as his home prices don't have that built in 6-7% commission.

This is for condos, but maybe is applicable to home builders.

Buyers agents help you with the following:
1. No Cost Representation
One of the biggest myths’s associated with buyers agents is that the buyer could get a better price without an agent. This is rarely ever the case. The price you pay for a unit at the sales center will be the same if you are buying the unit with or without representation. Most sellers/developers need and encourage the work of a buyers agents to drive traffic through the site and to eliminate the liability of representing both parties during the transaction.

http://www.urbancondospaces.com/should-i-use-a-buyers-agent

 

[Mermaidman]

When we bought our house, our agent gave us a 1% rebate (of the purchase price). So essentially, he earned 2% commission.

 

[DivideBYZero]

It doesnt cost you anything here as a buyer. The seller pays the agent fee.

Others are spewing nonsense, the seller is under contract to their agent for whatever listing fee they agreed to. The sellers agent then can offer up a percentage of that fee to a buyers agent(typically 1/2), but they do not have to. There is an agent in my are who only offers 1%/sell price as incentive for the sellers agent.

Ahh, OK, but it still appears that some are being raped. In the ass.

 

[boomerang]

answer me this....those realtors who work for firms like Coldwell....how much do they give them after the sale?

I haven't been in the business for over 30 years, so my answer may not be relevant. I can tell you how it worked when I was selling.

The typical commission for our office as the listing Broker was 7% for homes and 10% for vacant land. The owner of the office (the Broker) got 46% of every commission. The listing agent got 27% and the selling agent got 27%. If one part of the sale involved another agency, the broker took the hit on the split with the other office. That was a negotiation between those two brokers. If I listed or sold, on a co-op deal like this, I still got my 27%.

Sometimes to get a listing we lowered that commission to 6% or even 5%. It was up to the Broker to make that decision. I still got my 27% for one part of the sale. I sometimes had to lower my percentage too.

This was as a new salesperson. An experienced producer could negotiate with the Broker for a higher percentage. It was in the best interest of the Broker to keep a producer. Letting him or her go was not in their best interest. All an agent that can produce needs is a phone and a desk. Any office can provide that.

What any agent most desired was to both list and sell a piece of real estate. That would have translated to 54% for me.

 

[JulesMaximus]

Thanks. You managed to actually point out one thing having a buying agent would be good for.

And thanks for all the other help. So 6% is normal and I have significant leverage to push for 5 on the sale of both houses. Will there be anything contractually that binds the sale of two, purchase of one all together or are they all treated as separate contracts/agreements?

I don't want to be locked into a buying agent if it turns out I didn't like them during the sale of our homes.

Your listing agent will have you sign a contract. I would ask the one you end up going with to stipulate that they will have the listing for 3 months maximum, that way if the house doesn't sell, you have the option of getting another agent quickly. You should have a separate contract for each property as they will be different transactions. Get everything in writing.

Realtors have a fair number of expenses and of course they have to pay income taxes and self employment tax on their income, they have no healthcare benefits and the broker they work for takes a pretty good chunk of their commission as well. It's not an easy job and you have to be available constantly especially on nights and weekends.

 

[OCGuy]

When we bought our house, our agent gave us a 1% rebate (of the purchase price). So essentially, he earned 2% commission.

Which is completely illegal if not disclosed on the HUD-1.

 

[TehMac]

The unsuccessful real estate agents are complete assholes. I know from personal experience.

 

[Veramocor]

Luckily the buyer doesnt pay the agent a dime. So they are wasting $0.

Bullshit. Buyer pays, seller remits. You're paying the agent when you pay for a house price that has an additional cost associated with it.

 

[Veramocor]

I already addressed the second half of your post. Here's my view on the first half of your post.

If you have real-life experience, feel free to contradict the following.

Scenario:
House lists for $100,000. Commission is 6% (in my area, typically half for Seller's agent, half for Buyer's agent). Seller demands that he at least gets $94,000.

Buyer 1:
Buyer has a buyer's agent.
Buyer offers $100,000 to get house. Seller gets $94,000, Buyer's Agent gets $3,000 and Seller's Agent gets $3,000.

Buyer 2:
Buyer does not have an agent.
Buyer offers $97,000.
Seller's Agent can choose to lower his fee to a flat $3000 and the Seller still gets $94,000. Or he can hold out for the full 6% and not make the sale. In a lean market, I think most Agents would just take the $3000 and call it a good day.

Rationally, for both the Seller and the Seller's Agent, Buyer 1 and Buyer 2 are exactly the same. This, of course, does not take into account any externalities.

As I stated previously, I have seen some people write on the internet that they believe they saved money by not using a buyer's agent. Whether or not this is true, I don't know.

I have also seen others (mostly real estate agents) claim that buyer's agents actually save their clients money, by pointing out things wrong with potential homes, or pointing out certain things that affect a home's future price (e.g. three years worth of construction work across the street will start next month or a new school is being built a few blocks away).

Buyer 3, uses a site like redfin.com or similar and gets a buyers agent and 1.5-2% cash back at closing.