In today’s real estate market high tech discount real estate agencies are mudding the waters which are confusing buyers and sellers on Realtor commissions and other myths when buying and selling a home. A black hole surrounds the misconception of who earns commissions, what the amount of commissions is, how we Realtors work, and the process of what the agent/broker relationship is. In this article, we pull back the curtain and review the true facts of working with a Realtor.
Agents or Realtors commissions are 6% across the board, right?
The Truth: The commission fee for listing your home for sale is 100% negotiable. You could decide to hire a discount agent or flat fee brokerage. But be warned. If you decide to work with a discount agent most likely you’ll get what you pay for. A bad stressful experience and less money in your pocket at the close of escrow.
Before you decide to work with the least expensive agent on the block, it’s important you understand the whole picture of why a quality Realtor manages their business to a higher standard and how your listing commission fee breaks down.
More than likely the listing agent will share the fee with the selling agent (the buyer’s agent). And I’m sure you are thinking your agent keeps the rest of the money, right. Nope! They have a split with their employing brokerage. Realtors are not legally authorized to represent you without the association of a managing brokerage. The managing broker pays an E & O policy (errors and omissions) which protects your agent and you in the event a dispute is filed. Your agent also pays other fees besides the broker commission split. These fees include TC (transaction coordination fees) desk fees, personal assistant fees, and marketing fees.
It’s important you remember your Realtor is a “point person”. They are running a small business and have multiple people to pay out from the listing commission behind the scenes.
Can I buy a (FSBO) for sale by owner house if I have my own agent?
The Truth: You certainly can buy a FSBO home through your agent. But most agents won’t want to represent you. I know you’re scratching your head right now. Let me explain. There is an incredible amount of liability and stress for an agent or Realtor representing you in this type of scenario with little upside.
Most likely the seller is unreasonable or delusional. Either the asking price is beyond market value or the amount of work necessary to bring the property back up to code is an exorbitant amount and the seller wants no part of it. “The property is as is,” they’ll say. But what about the roof, plumbing, electrical, foundation, sewer line?
The seller undoubtedly feels selling a house is easy and quick. Besides that, they simply cannot wrap their head around how complicated or time consuming a real estate transaction is. So naturally, they assume a 6% sales fee is ridiculous. Your agent will have the uphill battle of asking the seller to pay them a fee or ask you to pay them a fee – how uncomfortable does that sound?
But here’s the worst part…
Now here comes the really fun part for your Realtor. They will work for the seller for free and assume all of the liability. Let me explain. The seller will eventually realize they don’t know what they’re doing and call your agent for help. The seller is required to complete the seller disclosures including the TDS, SPQ, choosing an escrow and title company, and negotiating any closing credits or a price reduction after the physical inspections. They’re also required to work with your mortgage lender and schedule an inspection with the appraisal including supporting COMPS for value. Your agent will be working for free and assume all of the liability of the seller’s side of the transaction. If anything goes wrong or if you discover anything after the close of escrow wrong with the house which the seller didn’t disclose your agent will be responsible.
Is it okay for me to use the listing agent as my agent too?
The Truth: You sure can. There’s no law that states you can’t, but why would you is the correct question. The listing agent is representing the seller and has a fiduciary duty to the seller, not you. It’s like going to court asking the other guys attorney for advice before standing before the judge. Does that make sense? It’s the stuff you don’t know that you don’t know is the number one reason a first time homebuyer or anyone buying a home should hire their own representation, and why wouldn’t they? Hiring your own agent or Realtor doesn’t cost you a dime. The seller pays the listing agent a fee and that fee is shared with the buyer’s agent.
Can I work with multiple agents at the same time?
The Truth: If you’re selling your property most likely the agent will require an exclusive right to sell listing agreement for a specific amount of time including a set fee for procuring a willing and able buyer.
It’s a bit of a different story if you’re working with an agent as a “buyers agent”. If you haven’t signed an exclusive buyers brokerage agreement you’re free to work with as many agents or Realtors as you want. But why would you?
Good agents are hard to find, and the best agents that will go to the ends of the earth for you including working weekends and after hours is even harder to find. If you’re lucky enough to get a referral to one of these rock star agents or you did your homework online either Google or Yelp it’s in your best interest to be loyal to one agent.
Imagine the workload involved behind the scenes understanding your needs vs wants, exploring neighborhoods with you, researching school districts or other interests of yours, property tours, identifying the right property, negotiating a deal including price and terms, over inspecting the property, working through the inspections with you, drafting a materials facts list of deferred maintenance, asking for credits or a price reduction… and the list goes on and on. Ask yourself, if you were a top real estate agent would you invest your time in a client who isn’t loyal to you?
One agent or Realtor is as good as the next one, right?
The Truth: Absolutely note. In practical terms, how on earth could a new agent with zero deals completed or an average agent closing 5 transactions a year be compared to a top agent or neighborhood expert Realtor regularly working on both sides of the fence as a listing agent and a buyers specialist?
Working with a seasoned agent and neighborhood expert can make a world of difference both in your buying or selling experience especially in your wallet. A seasoned Realtor with five or more years of active real estate practice under their belt has troubleshot plenty of difficult transactions, as opposed to a green agent who will learn his/her business on your dime.
Here’s a good example…
Let’s say you’re interested in buying a home in the up and coming neighborhood Highland Park in Los Angeles California. Doesn’t it make sense to hire a local agent who has been in the community for years and also owns property in Highland Park?
Compare that to an out of area agent from Santa Monica or Long Beach who has to look on a map to figure out where Highland Park is located. Don’t get stuck in the trap of working with an out of area agent because it’s your friend’s mom or your aunt who has a full-time day job but has a real estate license to help out her friends and family. It will always come back to bite you in the butt.
The same goes for working with the discount brokerages like Redfin or Open listing – falling for their tricks. Rule of thumb, if it looks to good to be true it most likely is. And you always get what you pay for.
More helpful real estate advice links:
Pros and cons of selling a home for sale by owner | Bill Gassett
Seven reasons why a seller overprices their home | Sharon Paxson
What you wish you had known before buying a home | Lynn Pineda
13 first time home buyer mistakes to avoid | Luke Skar
The Shelhamer Real Estate Group | Realpro Eastside is a real estate brokerage working with home buyers and sellers on the Eastside of Los Angeles including, Highland Park, El Sereno, Mount Washington, South Pasadena, Glassell Park, Eagle Rock, Echo Park, Silverlake, Los Feliz, and the Hollywood Hills East.