Check out the first part of this series “Why You Can’t Trust Real Estate Agents When Buying A House“.
Yesterday, we discussed how your agent and you will have similar goals when starting a house search but your interests will diverge the closer you get to a deal. When selling a house, the same phenomenon happens but usually a lot quicker.
In the beginning: buddies
Usually when you agree to list your house with an agent they will make you sign a contract with them which ensures that you don’t turn around and sell the house with another agent after they have done some work. In my experience, the agent will pull various comparable houses in the area and together you will figure out an asking price. Another step that normally takes place is for the agent to do a walk through and advise the client of possible improvements they can do to the house to make it sell easier.
The asking price is usually the first potential source of conflict – the seller wants a high price and is often unrealistic about what their house is worth. The agent knows that if the house is listed too high that it will sit for a while and any effort the agent makes to sell the house will be a waste of time. Agents make more money by selling more houses rather than getting a high price for each house so they want to make sure that the house is listed at a reasonable market value or lower. This is why pricing a house low for auction is so popular because it’s the best situation for the agent. Another situation is if a client wants to price the house high – then the agent has to bide their time and work on the client to lower their price so it will move.
Thinking about accepting an offer – Trust no one!
Things that your agent might say (and you should ignore) when you are selling a house:
- “Since I get paid on commission – the more you get for your house, the more I get paid so we both want the same thing”. This is one of the biggest lies in real estate. Yes, mathematically an agent will get more commission if your house is sold for a higher price but the problem is the amount of time it might take to get that higher price is not worth the extra commission. For example if your house has a market value of $400,000 then your agent’s cut might be 2.5% or $10,000. If you are patient and wait for someone to come along who will pay $410,000 then the agent will make $10,250 for an extra $250. To get this $250 they might have to do several open houses and wait quite a while. Clearly they are better off just selling the house for $400k (or even less) and taking their $10,000. The problem is that the difference in selling price to the agent is pocket change but the difference to the homeowner is huge since we are talking about a $10k difference.
Negotiation – don’t listen to a word your agent has to say.
At this point you are potentially pretty close to selling your house. You want to sell the house at the highest price, the buyer wants to buy the house at the lowest price and your agent just wants you to sell the house and doesn’t care at all what price you sell it for because they just want the deal done right now. Since selling at a lower price will get the deal done quicker a lot of agents will encourage you to counter lower which basically means that you are negotiating against them as well as the seller.
Things that your agent might say (and you should ignore) when you are negotiating are:
- “Don’t counter offer too high or the buyer might walk”. If the buyer has put in an offer then it’s up to the seller to accept the offer or reject it with a counter offer. It’s true that a high counter offer might scare off the buyer but isn’t that part of the negotiation?
- “Your first offer is often the best offer”. Another way an agent might phrase this one is “We have an offer which means if I can get you to accept it by any means possible then I get paid very soon”.
- “Dual-agency means there is no conflict of interest even though I represent both parties”. The “dual-agency” scam is where a selling party has a real estate agent and a buyer comes along who doesn’t have their own agent. The selling agent will offer to “act” as both the selling agent and buying agent and of course collect double the commission. Even though this is such an obvious scam, I actually don’t think this one is a big deal since real estate agents are basically working against you anyways at negotiation time so adding more conflicts probably doesn’t really matter.
- “Are you willing to lose this deal for $2,000?” (or $5k, $8k) This is a tough one – on the one hand it seems silly to not close the deal and be only a half of a percent away from a deal but on the other hand shouldn’t your agent be asking this question to the buyer? Ie – “we are going to walk, do you really want to lose this deal for $2k?”
- “Are you willing to lose this deal for $12 a month?” This is part two of the previous point which is applied if you don’t bite on the first attempt. It’s also a more useful gambit if the “separation” is a bit greater. If you and the buyer are $12,000 apart then that sounds pretty significant but what if you are only $75 a month apart (for 25 years) or even better what if you are only $63/month apart (over 40 years).
Conclusion (pretty much the same as yesterday)
The more you educate yourself about the real estate market you are looking in and how real estate agents operate then the better off you will be when selling a house. Real estate agents are quite useful when selling a house because most people won’t buy from a private seller and because they have access to MLS.
Whatever you do, never forget that they get paid when the deal gets done and only then. They don’t get paid for having extra open houses or walking away from close deals.
Do you have any good “lines” that you were told when selling a house?
Check out another perspective on real estate agents.
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Just another remark:
I read that in general, Real Estate Agent are taking 10 days more in order to sale their own house than when they are selling yours!
Since I saw my parents sold their house in 2 months without an agent… I will never deal with them anymore !
FB – I remember reading that as well….
Mike
The key to ANY negotiation process is to have the willingness to walk away from any deal you don’t like…and be firm.
In real estate, you’ve already broken one of negotiation’s cardinal rules by being the first to mention a price, so you have to remember that the buyer is trying to bracket you by low balling. THEY set the price range with their first offer!
Anyone selling anything should read Secrets of Power Negotiating (there’s a review on my site). I personally cannot wait to sell our house because I will be using most of the techniques he outlines in the book.
Here’s a “pocket list” synopsis of the book:
* Always seek a win-win solution. You never know when you’ll be negotiating with this person or organization again.
* Do not jump at the first offer.
* Always ask for more than you expect.
* Flinch at the other side’s proposal.
* Avoid confrontation (Don’t be a jerk).
* Play Reluctant Buyer or Seller.
* Use the Vice Gambit. “You’ll have to do better than that.”
* Use Higher Authority and Good Guy/Bad Guy.
* Never offer to split the difference.
* Set aside impasse issues.
* Never give up anything without asking for a trade off.
* Taper your concessions. Don’t compromise the same amount every time, make your concessions smaller and smaller.
* Position the other side for easy acceptance. Make it easy for them to say yes.
* Never allow the negotiation to be narrowed down to a single issue. There is always a winner and a loser in a single-issue negotiation. If things have gotten to this point, introduce more issues!
* Don’t assume that price is the only issue.
* Don’t be too greedy. It is disgusting to the other side.
* Consider giving a little more than you promised. It never hurts to go above and beyond with service. People will remember and appreciate it.
Not all of these are applicable in every negotiation, but the more prepared you are when buying OR selling anything, the better you will be when the deal is done.
Ron
MLS is in a good war with Comfree here in Edmonton. They have ads out that really make no sense.
“Listing on MLS will get you 1.5% more in sale price” or something to that effect.
Well, that’s great if you’re a seller (not really since the commissions are more than 1.5%). But why would you give that information to the public? Why would a buyer search through MLS if they knew they were going to spend 1.5% more than they had to?
The thing that gets me is people seem more inclined to trust an agent with the contracts. But really, it’s your lawyer who has the final say as to whether it’s a valid contract or not.
I just listed my condo on Comfree last week. We’ll see how it sells. I’m by far the lowest priced in my building, with several other listings on MLS.
Ron – great comment. The ability to walk away is key – but hard to do with houses.
I have a friend who was within a few thousand dollars of buying a house and then walked away. The problem is that they didn’t keep walking – came back the next day an ended up paying $5k more for the house than they could have gotten it for the previous day.
Nobleea – Let us know how the sale goes. Feel free to do a guest post if you are so inclined.
You haven’t even mentioned any of the real shady stuff realtors do (my dad’s a realtor and he’s told me some just horrible stories).
- if it’s a ‘good’ deal, realtors just buy the house for themselves (or an associate) and flip it (never trust a sale where the seller is a realtor!)
- bully bidding is common
- and the semi-illegal/un ethical stuff I won’t get into but there’s alot of it going around
Slim – you can’t just hint at juicy stuff and then walk away!!
We want to hear about the bad stuff!
Mike
“(never trust a sale where the seller is a realtor!)”
Amen to that Slim.
A few years back, in the height of the RE bubble in MI, one of my co-workers was using another co-worker’s mom as his real estate agent (they had become good friends over the years). The guy that was purchasing a house was also getting married during that time and put in an offer on ” the perfect house” just prior to the wedding. While on his honeymoon, his realtor put in a higher offer on her own in order to secure the house as the original offer had been rejected…at least that’s what she told him. She was doing him a “favour” as a wedding gift…
Turns out she bought the house herself with the original offer and then sold it to the newlywed for $30k more because he wasn’t around to sign the paperwork and the house would have been gone by the time he got back.
A few years later, this guy found out what happened when he got previous sale details of the house from the city and realized his realtor made $30k in a week for the “flip”.
Puts a whole new meaning to getting screwed on your honeymoon!!
Telly – you have some of the best stories!
Puts a whole new meaning to getting screwed on your honeymoon!!
Hilarious…
Mike;
I will let you all know how it plays out. Hopefully soon.
You won’t be able to negotiate the best price unless you know the market, and you should never leave that entirely in the agent’s hands.
Realtors are pretty low value most of the time, but there are some good ones and you should find one.
Realtors, in my experience, often don’t do much that you can’t do yourself. The one I hate the most, which I often hear, is that they won’t fight for the extra $2000 or $5000.
THIS IS MONEY IN YOUR POCKET. If you spend 30 minutes writing a counter-offer and presenting it then you just did work that pays $4,000-$10,000 per hour. For most of us, this is the best pay we’ve ever received. It will take you months to pay off this amount with your mortgage payment that you could have reduced with a small bit of effort.
I’ve bought and sold 4 houses over the last 2 years and you’ve inspired me to write about realtors again.
Another thing that doesn’t get mentioned as often as it should is the “REAL” cost of real-estate commission.
They say it’s 4%-6%.
I say it’s closer to 50% – 80%. Here’s why:
We are thinking about asking 600k for our home. At 5% commission, that will put 575k in our pocket. If we were to plant a home-made cardboard sign on our lawn, we’d get 550k by day’s end. Likely more.
With the info on the web, people know proper prices, and someone would buy it and flip it the next day for 600k. Even with an agent, they’d still net 25k. An actual agent would net 50k.
We’ve told several agents, they can get a fair flat fee if they get us 575k, and their portion graduates up to a much higher number as we approach 620k or more.
Funny how they don’t want to work for the money. They just want to sell it quickly for 590k or so.
Chaser: I’m with you 100%. I often tell people that anyone can sell a $100K house for $50K, but agents get a percentage of the ENTIRE sale, not just an incentive for getting top dollar. You’re totally right.
A compensation I’d love to see is to get an appraisal of the house, then offer them half of anything they get above that. Or something like half of anything above 95% of the appraisal.
The problem then is they’d start wanting to give low-ball appraisals. It’d still be a better system then what we currently have.
I came across this email and was somewhat surprised by the amount of negativity against realtors. As a realtor running a farily large team in Portland Maine I can assure you we do not spend our time thinking about ways to rip-off clients. Instead we are constantly working on new ideas and techniques to get homes sold – especially in a difficult market. I’m sure each and every person who wrote a comment above can think of a person in their own field of work who is not the most professional or most ethical. Does that mean their entire professional is dubious?
Michael, I don’t think people hate RE agents, just so much the scam that you have to use them. In 90% of markets, you do have to use them in order to have a reasonable chance of selling. Which means you have to pay the exorbitant fees. House prices have doubled in many parts of Canada over the past 2-3 years. That means RE commisions have also doubled, but I’m sure most will agree that our salaries haven’t doubled in that time frame, so why should theirs?
I think it should be a fee-based system:
For sellers:
list on MLS $1000
open house attendant $500
staging assistant $500
advertising in papers $300
act as negotiator $500
For buyers:
organize showings and drive around $500/day
act as negotiator $500
If you feel some of the above options are a waste of money, then don’t go for it. If you feel more comfortable with an agent, then pay for it. Either way, only the person who needs an agent pays for it.
Your idea of fee based services already exists – but in most cases, especially buyers, they is little movement or acceptance of this type of system. While fees on a given home have no doubt increased, the cost of marketing a property – if you realy want to do it right – has increased dramatically. The advent of the interent has not reduced costs, but rather dramatically increased them. Agents who are worth their salt have staffs, offices, payroll, etc, etc just like any business. To have a continuous, on-going business you need to be constantly generating leads that sustain the business – seeking both buyers and sellers. Simply putting a property in the MLS and hoping another agent will sell it is the path of the loser agent (and often disatisfied client). This is an expensive process. However, if you are working with one agent, who maybe sells a handfull of homes a year, then maybe the senario of the overpaid agent might fit. I can tell first hand that real estate is a much more demanding business than people realize and that those who complain about the fees are nornmally the ones who wouln’t last a month in the business. So, that’s my thoughts from someone who is actually in the trenches – for what its worth.
Michael-
I appreciate your perspective and I don’t think the real estate business is as crooked at most other posters present it. However, I was hoping your would explain one of your comments, “To have a continuous, on-going business you need to be constantly generating leads that sustain the business…” You go on to talk about staff, payroll, etc. It sounds like you are trying to justify your fees by saying that you must support yourself while you find more fee-paying clients. In other words, it is so hard to find customers that you must charge a lot of those customers that you do find. I assume you meant that you must be generating leads in order to serve your customers, ie keeping an active roledex of buyers for when you are ready to sell a house and vice-versa.
One more thing….it does bother me to see the extravagance with which many agents operate: driving late-model luxury cars, having expensive office furniture in the high-rent district, etc. I don’t altogether blame agents for this, because I know it is just part of treating the customer well and marketing yourself; but I recognize that any fees I pay will ultimately pay for that 2006 Lexus and leather office furniture which somewhat irks me.
I know, old post….
Lo.Price, amen brother. Add a gaudy pinkie ring and gold chains and you just described three quarters of the realtors in my area. I can see the challenges with running a realty business which is the same as any business, but please, an independent or “employee” realtor is a do nothing job. Work out of your house, Take a few pics, list the listing, sit around and eat donuts at an open house., oooh, drive around to show a client a few houses. Most clients find their own house via listings, rarely does a realtor ever pre-view anything before determining if the house is really suitable or matches the client requests. They might as well skip the whole pretense of asking a buyer what they are looking for…
Maybe the down market will make them work a little harder, hopefully they didn’t blow their whole commissions on pinkie rings and luxury Japanese cars during the salad days a few years back.
If you are a seller or a buyer, save yourself the hassle and just hire an real estate attorney, they do the heavy lifting for you anyway (and much cheaper).
So many of you think we agents do nothing. I would love for any of you to come join me and see how hard you work for so little money sometimes. I challenge any of you to do this. An attorney has no liability and you think they do the heavy lifting. You guys have it so backwards. My neighbor has a great saying. He says I have never known so many so proud to know so little.
Its a crap what has been said in the bigining lines. The owner of the website just want to project a good image of himself so that he can promote is business and website and that too by comparing with Realtors ! He has not spoken a word about how much time they spent in most of the listings !
Talk about what you want to promote and do not discuss cheap.
May be tommorrow, the owners of this website will say to consumers should fight thier case themselves and do not go to Lawyers, make your affidavits yourself. ( And may be company’s they will get thier job done theu Bank for mortgage or call anybody who can fix a bulb rather than going to a licence electrician, take your prescriptions your self do not go to a doctor and so…and so…)
By all means you can do so. But if caught somewhere for errors, simply pray to God.
” Cheap people will discuus cheap stuff”
What a ridiculous topic here! I am currently taking my real estate course, and will be very proud to enter this profession. I am going to take a shot and assume the owner of this site does not have to study law, ethics, procedures, etc.; take examinations and pass with 75% over. I am going to guess his investment is minimal and his on- going mandatory educational courses do not exist and obviously liability for his actions do not seem to be a concern. I am entering this profession because I DO WANT TO HELP people find a sell a home, make sure they are getting their money’s worth and fufilling their dream. I am not becoming a realtor to drive a Lexus and fill my fingers with bling. I truly love houses and real estate, and people. There is more to it than plunking a sign on a lawn. What happened to market analysis (not just selling prices, but expired homes), not to mention negotiation skills. Not to mention safety……
Barbara,
You are right. There is more to it. You are at the start of finding out it is alot of work. There is so much behind the scene work that noone sees. I guess this is what makes sellers and buyers think they can do what we can do, because our door is not open to let the world see what we do in the office on late nights or weekends. Barbara if you are just getting in this business the best advise I can give you is “treat this like a business, not a job”. If you treat this like a job it will run you to death. You will burn out in about a year and out of business you will go for lack of desire. Treat it like a business, create systems for everything you do. Do not go running out at the drop of a hat when your buyer or seller says jump. If you have a good system in place, work it, dont let your sellers and buyers make up there own system of what they want you to do. This is why they are not in real estate. This was some of my first biggest problems I had my first 3 years. I run this like a business now and people respect me much more. I am more productive and more professional by telling people no once and a while. My sellers and buyers trust me more now because I know what is going on more now, than looking like my head is cut off and just doing whatever everyone wants me to do. If you create a system and are scared it is not a great system. I suggest you just do it. You will find the flaws by doing it 1 or 2 times. Than you will know what you need to change and will have a better system. This is what makes you better than the average seller or buyer.
I can’t believe that some of you are trying to say how much work goes on “behind the scenes”. We sold our house a few years ago, and I would estimate it took us about 20 hours of work:
- get professional made sign for front yard
- print 100 colour brochures (which is better than what most lame-ass r/e agents do)
- have two open houses
- go to a lawyer
How hard is that? Please tell me what else needs to be done. PLEEEEASE. I’d love to hear it. There’s nothing…and you all know it. I can’t wait until this scam industry collapses.
For the record, we sold in 2001, for 199k. Three real-estate agents suggested we list for 185 to 195. We said we wanted to ask over 200k and they all said we were dreaming, even refusing to do so. If we had listened to those crooks, we would have pocketed 15-25k less.
Maybe there is stuff that happens behind the scenes. Most agents say this, but few have ever indicated what it is that happens. I’m sure they’re on the phones a lot, but usually it’s with other agents.
I’m sure there is some value in RE agents. Most people question whether they are worth what they charge. A lot of listings on MLS have photos taken with a crappy camera phone and the write up is full of typos. Very hard to call that ‘professional’.
Chaser and Nobleea,
I have described some of what goes on earlier in this post. Chaser you may have sold only 1 house. That does not make you an expert. Like a story told earlier in this post about the sandwich shop. Why do you go to a sandwich shop and buy food they make, when you could make this yourself for less money. You do this because it may cost you more money, but it cost you less time and more comfort to go out and eat. And should that sandwich shop only charge what it cost for a bun and a piece of meat. No, that sandwich shop and real estate agents are both in business to make money. So that sandwich is gonna cost you more than just what materials cost. A real estate agent is a business owner. Not a employee. We have to run everything like a business or we will be out of business. Chaser you may think it was easy selling 1 house. If you was in business you would go broke only selling 1 house. You also may have got lucky with a very generous buyer. You should feel ashamed taking advantage of that poor buyer. As far as the price and market conditions with us agents. We look at the past to try to predict the future. We are wrong at times. I will tell you most agents and builders and economist did not see this recession coming. Very few did. The only one I knew that knew it was coming was Robert T Kiyosaki, author of Rich Dad Poor Dad. Jim Cramer did not know it was coming. He knows more about economy and money than us 3 combine I am sure.
Ol, and if you would like to know 1 extra thing we did last year for you home owners and it was free of charge for all of you. Our government was wanting to impose a home owner’s tax to get more tax money. Every agent in the country that was a member of the Realtor’s Association (which is a lot of us) paid extra membership dues so we could pay to have someone in the congress fighting that tax. We also a couple times a year are calling and sending letters to our congressmen trying to get them to not add any tax fees on home ownership.
Don’t worry about thanking us though. Just keep spitting on us and telling us how we are scum on the bottom of your shoe’s. We wouldn’t know how to handle it if you were nice to us and thanked us for any help or info we could give you, even if you did sell yourself and we did not see a dime. I have been in real estate for a while and very rarely run across someone who knows more about it than me (unless there famous). I eat, sleep and breathe real estate. I also constantly read about money, business and self-help books. I think I have proved many wrong on this blog. And I will continue to do so with you Chase and Nobleea. So if you can dispute without getting your feelings hurt, than let’s go and maybe in time I will prove you wrong to.
Disclamer: This is not intended to be harsh, only intended to state the obvious.
Derek:
You are long-winded and defensive.
I make about 130k/year. I clear about 7k/month. If I were to hire an agent to sell my house for 750k, that’s about 30k (at 4%). OR FOUR MONTHS OF MY TAKE HOME PAY. Are you serious that you think this is fair?
I never even hinted that you are like the scum on my shoe, like you claim. I just think an agent is worth about 5-6k for what they do.
WIthin the last week, our neighbour just sold for 1.1 mil. The house was on the market for less than a week (underpriced perhaps?) The agent worked for both buyer and seller. She grossed about 40k and half to the house so she got about 20k herself. CRIMINAL.
Chaser
I am long winded. Real estate is a long winded subject. I have to hold my self back. I need to write a book. Defensive, I guess so at times.
You make 130K a year. There are people in china and india that are smarter and work harder than you and I put together and do not make what you make in a month in a year. Even with there economy adjustment they are still poor. Is this fair. I do not think it is. But God never said life would be fair.
The CEO that got a signing bonus of 10 million and a yearly salery of 5 million a year. Do you think he is paid to much? Most people say yes. I say you can not put a number on these kind of people. Because, if you spend 15 million on that 1 man, but he turns your company around and your company makes 50 million. That man was worth every penny. Same in real estate. That 1.1 million dollar house may not of sold so fast if that agent did not do what they did. The sellers and buyers may be happy, so to them it may have been worth it.
As far as that agent taking home 20K. If that agent did what was needed to sell a 1.1 million dollar house than she did not take home 20K.
40K commission
50/50 split with broker.=20K
On a million dollar house I usually have
professional photographer
sky lifts for photographer/ sometimes airplane overfly property
professional decorator and have staged
professional flyers
have flyers sent to CEOs in new york or some big city
Get the house its own nice web site
Newspapers
Pre open house before it hits the market with the whole wine and dine bit.
This means I usually have 5000 to 8000 in marketing before day 1 of house being on market. So out of the 20K I would already have spent 5K to 8K and now be down to 12K to 15K before day 1.
I also do my usual marketing for the house as well. So I would probably come home after my marketing about 10K. Maybe.
So if I took 2 million dollar listings today and 1 sold within the 6 months and 1 did not. For the month I make 20K and spent 10K to 16K and it was a risk for me. So I take home about 4K to 10K. You take home 7K and it was a guarantee pay with no risk. Most agents very rarely sell million dollar listings. Where I am at there about 1 to 3 % of our market. And it takes about a year at least to sell them.
I am a newer Real Estate agent and I can not believe how much junk is written about Realtors. Honestly, everyone keeps writing that Realtors make too much; if this is the case why doesn’t everyone do it. Why do about 90% drop out after the first year? Obviously there is more to it then people think. Also Realtors are handling one of the biggest investments a person has, and a good realtor takes this very seriously. Also at the end of the day a lawyer might take care of alot of the background legal work, but when something goes wrong who gets sued. Its the realtor that gets sued, and its the realtors board that protects the public. The board that a realtor has to spend thousands a year to make sure the person that hates them the most is protected. Honestly people stop complaining and put yourself in the Realtors shoes. Yes there is bad ones, but until you are willing to give up your job, and put all of your income on a total commission basis, then maybe think before you bash good people that are trying to work hard for their money and help the public why they are at it. I can’t stand bad realtors, but not all of them are like what is stated.
Chris may be a new realtor, but I think he hit the nail on the head. The facts are true. 90% of realtors do drop out of business within the first year. Attorneys are never sued when something goes wrong, it is always us realtors. If anyone here things that realtors do not deserve there pay and we make to much, than I encourage you to get in the business and do a little bit of work and hope to make a lot of money. You will be out of business in about 6 months. The saying goes “You want to know how to make a small fortune in real estate, you start with a big fortune”. Chris you nailed it on the head. Anyone care to come back at us with anything else?