Realtors, why?
April 10, 2010 4:39 PM   Subscribe

Realtors, why?

Help convince me that realtors serve a useful purpose as middle-people in the purchasing/selling of a home. Is their work really worth the commissions they receive and does their percentage payment structure make sense (instead of a flat rate for their service), or are they increasingly a parasitic vestige of an old economy that just won't die?
posted by drpynchon to Work & Money (34 answers total) 12 users marked this as a favorite
I've been wondering the same myself. It doesn't answer your question, but this may give you hope: Recently I met a realtor that offers a menu of services set up in a tier system. For certain amounts (3%, 5% and 7%, I think) they will do incrementally more services for the seller. Or for a flat price, he'll just list your home on MLS.
posted by JuiceBoxHero at 4:43 PM on April 10, 2010

Best answer: Well, speaking as the wife of one....they navigate buyers/sellers thru a crapload of treacherous paperwork and real estate laws, protecting their clients interest. They are the ones that make sure you don't get screwed over by the "other side." Realtors have a legal/fiduciary duty to look out for their client's best interest. (Not to mention they know there are a billion ways to be sued if they don't.)

And trust me, there are a billion and a half ways to be screwed over in a real estate deal. Not to mention that if you have a good agent who is halfdecent in negotiating you will save money-enough to make a percentage deal more than worth it.

Not to mention that my husband works his tail off for his clients, with virtual and sometimes even actual handholding when trying to keep a closing together (appraisers and mortgage people are notorious for needing realtors to stay on their butts to turn in paperwork on time, etc.)

And if you are buying new construction direct from a builder, you WILL get screwed. Unless you have a realtor to look out for you. I guarantee. (My husband as a realtor cannot legally tell you that. But I as his wife, and a former employee of a builder CAN.)
posted by St. Alia of the Bunnies at 4:50 PM on April 10, 2010 [1 favorite]

Best answer: It's hard to argue that a closed multiple listing service (MLS) is economically efficient. Realtors jealously guard access to this information which is where a lot of their value comes from. I think an open MLS would allow for free exchange of information and realtor fees would subsequently drop to something more reasonable.
posted by Durin's Bane at 4:52 PM on April 10, 2010

Best answer: The pricing and complexity of the product (real estate) and transaction almost demand that a middle-person be present to "birth" the sale into existence. That said, other third-parties (lawyers, home inspectors, escrow officers and the like) have become necessary parts of the process. Conceivably, this team of agents could be coordinated into a group to help complete the sale without using the traditional realtor approach. And free access to the MLS would be a boon, at least in the searching stage.

Inefficiencies in the market have created, in some respects, a "too many cooks in the kitchen situation" in which the realtor is the odd person out.
posted by Gordion Knott at 5:02 PM on April 10, 2010

Best answer: Are you confident you can enter a contract involving hundreds of thousands of dollars without a guide? As a seller, do you know all your legal responsibilities in your state? Can you research prices, evaluate what to do about problems in the house, find buyers, arrange and lead tours of the house? As a buyer, do you know all the issues you should look into and how much leverage you have when problems are found? Can you find all the houses you might like and arrange tours by yourself? For that matter, on either end, are you good at haggling?

Whether they're worth what they're paid, who can say? I wouldn't go through the process on either end without professional help, but a lot depends on who you get.
posted by zompist at 5:02 PM on April 10, 2010 [2 favorites]

And if you are buying new construction direct from a builder, you WILL get screwed. Unless you have a realtor to look out for you. I guarantee.

I don't disagree, but would be genuinely interested to know what all to be on the look out for. I mean that the realtor will catch where the layman would not.
posted by IndigoJones at 5:08 PM on April 10, 2010 [1 favorite]

Usually when I make the biggest financial transaction in my life, I want an expert who will be on my side to protect my interests.
posted by inturnaround at 5:08 PM on April 10, 2010 [4 favorites]

See also this previous thread.
posted by inturnaround at 5:09 PM on April 10, 2010

I was so glad I had a realtor helping me buy my house. Besides the psychological boost of knowing I had a pro looking out for me, I got lots of information that would not otherwise have been available, like all the back stories about everything on the market. "This was just relisted after failing to sell two years ago" ... "it's an estate, they want to move it fast" ... "this one is being flipped" ... "this one is overpriced because its neighborhood is going downhill." When I made an offer she helped keep negotiations calm and productive, she came to the inspection and added her questions to mine, she was efficient about relaying documents to everyone that needed them, etc. etc. Especially since I was new to the area, it was really helpful to have her insight, and when I did finally buy, I was confident I was making the right choice. Having a good agent made a complicated process much less stressful: she earned every bit of her commission.

OK, so this sounds like I'm shilling for realtors, but cross my heart, I'm not! I was just very, very happy with the service I got.
posted by philokalia at 5:11 PM on April 10, 2010 [2 favorites]

I look at this profession the way that most people look at politicians; we tend to hold our representatives in low regard as a group, but we love our local representatives (gross generalization, but that's why so many incumbents get re-elected).

When we sold our home in 2005 and bought a new one, we went with a married couple of Realtors who were personal friends. We apprehensively followed their strong suggestion that we put our old home on the market for $35,000 more than any other home in our community had sold for up to that point, and our house was by no means the nicest property on the market there at the time.

It sold in 6 days at full asking price with a home inspection waiver offered by the buyers and closing terms at our convenience. Our Realtors made the process as painless as humanly possible and were worth every penny of their commission, which they sliced by 2% for us.

...which is why we had them to dinner and served them up a ton of lobsters and a large quantify of micro-brewed beer several weeks after the deal was done.

If I didn't have friends like ours, I'd want to get a load of references prior to signing any kind of agreement with a Realtor, because I am generally distrustful of them as a group.

Locally, more than a few of the most high profile Realtors seem to be the most ethically challenged when it comes down to the way they actually operate.
posted by imjustsaying at 5:27 PM on April 10, 2010

You can snake your own toilet if you want, but most people pay a plumber. You can fix your own car if you want, but most people pay a mechanic. You can paint your house if you want, but most people pay a painter. You can remodel your kitchen if you want, but most people pay a contractor. You can file your taxes yourself but some people prefer to pay an accountant. Like most every service-related field it comes down to convenience and expertise: most people value their time and would rather pay someone with experience to be the expert rather than learning it themselves.
posted by Rhomboid at 5:40 PM on April 10, 2010 [1 favorite]

My realtor did a ton of work for me. E.g., the night before the financing contingency expired (ie, a big deadline), the mortgage broker called and said "hey, we actually can't approve this because the payments will be too high. One suggestion: maybe you could find cheaper insurance?" I start thinking "oh god, I have meetings from 9 am - 3:30 pm tomorrow, when am I going to deal with finding cheaper insurance? Do I have to cancel this big meeting??" Five seconds later the phone rings. My realtor says, "did you hear from Joe? Don't worry about it, I just called all the insurance companies for another client, so I know who's best in this area. I'll have you a cheaper quote by 10 am tomorrow." Sure enough, I got one by 10 and another (much cheaper) around 1 pm. In a five minute bathroom break, I click on my handheld and approved the quote, and voila, had a loan approval.

That type of situation happened about six times. Things moved forward swiftly. "You're going to need a pest inspection and a home inspection. I'll order them, just sign this piece of paper." Obscure paperwork got completed. "Sign this request for an extension." Situations got evaluated for me. "This looks like a big decision, but it's not, because you get another chance to back out two weeks from now." "This is the deadline by when you really need to make sure you feel comfortable with the deal." "That guy is being really unprofessional; we need to get him off and get someone who can complete the report." "This is really frustrating, and I've called them numerous times, but there's really nothing we can do here but wait." Without her, I would've bumbled, missed things, freaked out unnecessarily, and asked a million people stupid questions that they couldn't legally answer. With her, I had someone with a hundred times the experience I had to guide me quickly through the situation. The trickiest thing was trusting her. Over time, I learned a few places where our inclinations differed, but once we flagged that category of issues as a place where I'd prefer her to err on the side of caution instead of optimism, I could trust her and just relax (as much as humanly possible with that much money involved).
posted by slidell at 5:43 PM on April 10, 2010 [7 favorites]

They probably made a lot more sense in the pre-internet era.
posted by delmoi at 5:44 PM on April 10, 2010 [1 favorite]

Read this:
posted by JayRwv at 5:45 PM on April 10, 2010

I find this very interesting, how so many people are talking about the hand-holding and legal/contractual help they got from realtors.

In Australia they definitely don't do any of that - you have to hire a separate solicitor (specifically a conveyancing solicitor) for all of that stuff. Here, they only have one interest, selling properties to get the commission on them. That is all they are interested in, and you only get help with something that will advance that goal. Thus, they are more like salespeople of many other stripes - car, etc.

They don't really care about the inside information (avg price of neighbourhood etc) except insofar as it will help them sell the property. They don't get commission from buyers, only sellers, and they small differences in selling price are not worth the delay of negotiating with a potential buyer; they want to flip properties as fast as possible to maximise their gains. That information about previous prices of property etc is available from semi-public orgs here for about $30 a month - infinitely cheaper, I would suggest - than what you would end up paying a realtor in commission.

So I can't speak for US. But in Australia, the only thing a realtor will give you that you can't get easily yourself is exposure and clients. And you will be paying - on the average sydney house, somewhere between $20-$50k for the privilege.
posted by smoke at 5:52 PM on April 10, 2010 [1 favorite]

Please please please talk to your lawyer before talking to a realtor. Everything said above about your realtor protecting you is completely wrong, at least in 90 percent of the cases where there’s no contract between you (the buyer) and “your” realtor.

Here’s the secret that realtors don’t tell you: Unless you hire a realtor to specifically represent you, and you sign an agreement that binds you to that realtor, your realtor has a fiduciary responsibility to THE SELLER, not to you, the buyer. It’s not just that they can tell the seller “confidential” information, but they MUST, otherwise they can be sued by the seller for breach of duty.

You can hire a realtor to represent you, but most don’t, even if they think they’re doing so. Here’s a quick test: Were you obligated to pay “your” realtor if you purchased a house without that realtor? If not, they weren't "your" realtor. (For the wannabe lawyers out there, look up the difference between a buyer’s broker and a subagent.)

Here’s a different test. Who paid “your” agent? Did you write them a check, or did the seller write them a check as a commission based on a percentage of sale? If it was the latter, “your” agent worked for the seller.

To answer your question, it’s not actually any more expensive to use an agent (except when you tell “your” agent what your maximum limit is, but make an offer below that, and the counter-offer from the seller magically matches your original max) because the seller pays a straight aggregate percentage to all agents, usually managed by the seller's agent (or, technically, the seller’s broker) and their agent splits the commission with all agents. So if the seller pays a 6% commission, their agent may get 3% and your agent might get 3%. If you don’t have an agent, the seller’s agent get’s all 6%. So there's no greater commission cost. (But, as said above, if the seller knows what your maximum limit is, you're likely to pay a higher price anyway.)

Agents are useful, because they have access to MLS, and they have industry contacts that usually have knowledge of homes before they go on the market. But to make the most of their skill, either bind your agent to you (by contractually retaining a buyer’s broker) or just know that what you tell “your” agent will get back to the seller and you can try to game the system that way.

One last note. Even if you retain your own agent, if you’re paying them based on a commission, they still have an incentive to raise the price as much as they can. They’re not supposed to “self-deal,” but they might. Pay either a flat-fee, or my personal favorite, a percentage where the lower the sale price, the higher the payout. Most realtors won’t know what to do with that arrangement, because they’re not used to it. But it’s the only one that actually aligns everyone’s interest.

(By the way, I'm not a lawyer, nor am I a realtor. I'm just someone who was shocked to learn about this, and thinks everyone should know what they're getting into.)
posted by ericc at 6:14 PM on April 10, 2010 [14 favorites]

It depends on the local market. When I bought this house there were 4 realtors involved and it was like a jackass competition. They clearly were not acting in anyone's best interest except their own, they were openly colluding and sharing information they had no right to share with my (first and quickly fired) mortgage brokers, and they most assuredly did NOT know how to write a decent contract or much of anything about real estate law at all as far as I could see. I wrote my own contract and when the realtors screwed up the transaction royally I hired a lawyer to fix it. They nearly blew the sale numerous times between them. If anyone thinks the realtor is on the hook for any of the "legal" advice they provide they are incorrect so get a lawyer and double check.

So why did I have a realtor? Around here the selling agencies won't even return your call if you are not working with another realtor and will return calls in order of preference for who you are working with. So to even view 85% of the houses on the market I had to have an agent. There may be places where the standard is much higher and the realtors are great but around here they are a pack of thieves, basically.
posted by fshgrl at 6:20 PM on April 10, 2010 [1 favorite]

All the realtors I've ever dealt with were paid out of the sellers end for the seller.

If I want someone representing me as a buyer (and sometimes as a seller) I go with a real estate lawyer. Even at that, when legal problems came up with one transaction, who was sitting around at lawyer offices getting things fixed up and getting packets of documents overnighted hither and thon? Not any of the realtors involved in the deal, it was all me.

Maybe I have sour luck but I've never met a realtor that was more than a decorative key holder. Not agents, but Realtors. Was a great big eyed look into the reality of real estate transactions and made us reverse our decision to try to play the bubble (this was back in 2002) we thought was forming.

And the screw up? Someone else's set of "professional" Realtors got a mortgage taken out on our house. Good deal for them, no note to pay off, but we had an extra full-price lien.

I will use a Realtor to sell (perhaps) next time, but not to buy.
posted by tilde at 6:40 PM on April 10, 2010 [1 favorite]

Pay a lawyer an hourly rate and fork over a couple hundred dollars to the local FSBO website to get some exposure.

The rates charged by real estate agents are completely disproportionate to the value they bring these days, never mind that their financial incentives don't even line up with the parties they represent. Any legal or ethical guidelines are just that, guidelines. If they cost you a deal or money, too bad.

In a few years, we'll be looking at realtors the way we look at music labels today: Primarily relics with and a few niche providers doing valuable work. Most will be moving on to insurance or used cars.
posted by the christopher hundreds at 7:04 PM on April 10, 2010 [1 favorite]

Who is paying the city taxes, by the way? The seller or the buyer? Oh, the city taxes are several thousand dollars. did you know that? That right there has paid for my commission. --real estate agent
posted by water bear at 7:16 PM on April 10, 2010 [1 favorite]

Ericc is wrong about the real estate agents duty to you as a buyer, at least in California. We did sign a contract with a special attachment about how they handle it if the other agent works in the same office.
(By the Realtor is a trademarked term for real estate agents who join a specific professional society - otherwise they are either agents or brokers)

I found our current house via the MLS (ziprealty gives you access for free in many markets). The seller had a real estate license and offered to do the deal without agents. I suppose I could have hired a lawyer but instead I brought in an agent I had worked with before. He took a reduced commission and made sure that everything was done properly. He also helped keep things civil when we needed to negotiate out a few details.

More importantly when we sold our house, he brought in a stager and the two of them gave us very extensive advice on how fix up the house from paint colors to updated fixtures for two of the bathrooms. After we moved out, he and his assistant coordinated all of the work and the inspections that needed to be done. He also gave us good advice on timing and pricing. In market that was barely beginning to recover, we priced near the top of our local market and yet the first weekend we got five offers. Our realtor arranged to present all of the offers at the same time and helped us with the negotiations. We ended up selecting an offer that 30k more than our asking price, no contingencies, a large downpayment and a fast close - we felt he earned his commission.
posted by metahawk at 7:33 PM on April 10, 2010

Best answer: I am a real estate broker, and I am actually the last person to oversell the value of an agent. What it boils down to:

1. Real estate agents provide the conduit for bringing buyers and sellers together. In the past, this "Multiple Listing Service" was the best (if not only) way to find a comprehensive list of homes for sale in a given area.

2. Good agents can help guide the buyer or seller through the basic contractual steps of buying or selling a home.

The reality for today and the future:

1. Real estate agents no longer have a stranglehold on the information of houses for sale. For the time being, they still control it, but I feel this will change sooner rather than later.

2. Agents should never (legally or ethically) represent themselves as any sort of counsel on contractual issues. In my area, hardly anyone uses real estate lawyers, but I completely agree they are often more valuable than an agent.

Just to clarify:

Here’s a different test. Who paid “your” agent? Did you write them a check, or did the seller write them a check as a commission based on a percentage of sale? If it was the latter, “your” agent worked for the seller.

This is not an accurate representation of the fiduciary responsibility. If you sign a "buyer's agreement" with your agent, then he or she is legally and ethically bound to represent your best interests - including negotiating the lowest price.

As a separate issue, the "buyer's agent" is generally paid out of the seller's commission. This is an agreement in the seller's listing, that an agent who procures a willing and able buyer is entitled to X% of the sale price.

Now in reality, a "buyer's agent" could absolutely try to keep the price high to get a higher commission. I haven't seen this happen in reality, but I admit it is a potential flaw in the system.
posted by shinynewnick at 7:57 PM on April 10, 2010

"Ericc is wrong about the real estate agents duty to you as a buyer, at least in California. We did sign a contract ... "

Reread what I said. I said specifically in the absence of a contract, the agent of the buyer has a duty to the seller, not the buyer. You had a contract. Therefore your situation fits in the exception. Ninty percent of the public doesn’t have your contract, but they think they do. That was my point.
posted by ericc at 8:00 PM on April 10, 2010 [1 favorite]

"This is not an accurate representation of the fiduciary responsibility. If you sign a 'buyer's agreement' with your agent, then he or she is legally and ethically bound to represent your best interests - including negotiating the lowest price."

Again, this was my exact point. That guy or gal that picked you up on a Sunday afternoon and drove you around town showing you houses is working in your best interest only if you signed a buyers agreement. Ninety percent of the time, that agreement doesn’t exist. And unfortunately the majority of people reading this thread think that when they bought their last house, they must have signed something, right? But they didn’t. If you could buy a house with a different agent, or on your own, you didn’t have a buyers agreement.
posted by ericc at 8:07 PM on April 10, 2010

Ericc, can you provide some sort of link or other citing for your knowledge? I'm highly skeptical of your "90 percent of the time" statistics. I agree with your basic premise, that in the absence of a contractual agreement, the standard duties of a Realtor vs. the duties of a lawyer are VASTLY different. I'm just curious as to how you came by your information, being neither a Realtor or lawyer.
posted by Happydaz at 8:16 PM on April 10, 2010

A lot of this stuff depends on what state you live in. IIRC in North Carolina an agent HAS to show buyers a pamphlet explaining what it means to have a buyer's agent, and people are heavily encouraged to sign a paper agreeing to same-because no agent wants to do all the work of hauling people around, finding them homes to look at, etc etc and then having their "people" switch horses midstream, so to speak.
posted by St. Alia of the Bunnies at 8:25 PM on April 10, 2010

To give my perspective on the 'realtors probably unnecessary' side:

I sold my house in 2007 with no realtor, and no lawyer. It was not terribly challenging as other people are painting it to be.

I posted my house ad on Craigslist and in the local newspaper. Wish I hadn't posted the expensive newspaper ad, as my buyer found me through the free Craigslist ad.

I held 2 open houses. I toured people around my nice clean house after reading a bit, like 1 hour on the internet about how to make your house appealing (I bought a pretty orchid plant to put just inside the door and cooked some cloves and cinnamon on the stove). At the 2nd open house, I had an offer. I made a counter offer and he accepted. We signed a contract of sale that I made off the internet.

I prepared the new deed for the house. Apparently lawyers are supposed to do this, but it was so easy, it took me all of an hour and didn't cost me anything. Then the seller's lawyer took care of the rest of the paperwork, and the title company took care of the title part. I sold my house myself with hardly any work, and saved $18,000. I suppose I could have used a lawyer if I was more of an anxious person about doing my own legal paperwork, but it seemed awfully straightforward to bother paying someone a lot of money for. The realtor, totally unnecessary.

Since then, I bought a new house, and used a realtor, because as a buyer, why not? You don't pay them, and they drive you around and show you all the nice places, then they do all the faxing of offers for you. By the way, in the book Freakonomics, there is an analysis of why realtors don't have the seller's best interest in mind. Check it out!
posted by treehorn+bunny at 8:29 PM on April 10, 2010 [2 favorites]

As a buyer, we used a realtor because it was obvious here in the bay area market, the entire industry revolved around the realtors' professional networks. If you want a house in a neighborhood saturated by [listing brokerage], you're better off finding an agent with [listing brokerage]. You know how houses have offers before the first open house? That's why.
posted by Señor Pantalones at 10:02 PM on April 10, 2010

I've always been amused at the Realtor® or Fail attitudes, but look at it like this: they are salespeople. If you are up for being your own salesperson, go for it. If you aren't, pay them to do it. Same thing for talent agents.

There are also a lot of laws regarding disclosure that they (should) know, that you might not. For a buyer, they know the questions to ask, and for a seller, they know what not to lie about or omit.
posted by gjc at 7:33 AM on April 11, 2010

@inturnaround makes an excellent point. You're unlikely to be engaging in real estate transactions (or any for such large a financial amount) on anywhere a regular enough basis to known enough. Hire experts. Otherwise the costs of screwing up are huge.
posted by wkearney99 at 11:50 AM on April 11, 2010

Ericc - Just to clarify, it may be something that varies wildly based on location, but the percentage of Buyers Agents is by far the majority here. Unless a buyer is calling the listing agent directly (which does happen), the agent they deal with immediately tries to sign them to a buyers agreement. We even have a couple of shops here that are exclusively buyers agents - no listings in house.
posted by shinynewnick at 1:02 PM on April 11, 2010

As a buyer, I honestly don't think I would engage a realtor again. I can do the looking and the market research myself.

Selling, though, is a different story. We had originally listed our condo FSBO, but soon became overwhelmed by the day-to-day work that this involved. I ended up being the one who was responding to oodles of e-mails and phone calls and rearranging work (and life!) to show the place; this soon became very disruptive. Eventually, we did end up going with a realtor just to take some of this pressure off our backs. [We did, however, negotiate and successively lower the realtor's fee.]
posted by onepot at 4:51 PM on April 11, 2010

We used a realtor (signed a buyer's agent agreement with him) to buy our first house.

He uses his in-house MLS software, which gives a bit more information all in one place than the internet sites (eg, brings up some of the transaction history of the property - which is available free online but requires a bit more legwork), but we found all the places we ended up seeing, by ourselves just being vigilant about checking the local listings online.

We had very specific requirements, and looked for about a year before buying. Over this year, he kept an eye on the listings for us (though we were also keeping an eye on them). He took us to the houses we were interested in and walked through with us, pointing out things to look for, potential problems, potential up-sides, etc. We had never owned before and didn't know a lot of the stuff he told us about eg basements, different types of historic construction materials, typical signs of old termite damage, etc. Other stuff we knew but wouldn't have noticed, or wouldn't have realized how costly a repair it would be, etc.

When we were serious about a place he prepared comps - a list of comparable properties with a very detailed item-by-item plus-or-minus scheme to discern what their price should mean for the price on our target house. (For example, house x sold for $Z, but it's in a more sought after neighborhood - so subtract a certain amount from Z to make it more truly comparable to our house, and it needed a major repair when it sold, so Z probably reflects that, etc).

When we made offers he dealt with all the psychodrama of offer, counteroffer, problems with the inspection, etc in a diplomatic and calm way. (In a way that probably saved the deal on our current house, which we're very happy with.)

Basically, he was an unflappable and knowledgable person to have go along with us. Now, I do think we lucked out in having a good agent, and maybe a flat or hourly fee would be better. But I'm glad we used him. I think we learned more from him about the process, and I think we are in our current place because of him -- even though it's a place whose listing we found on our own.
posted by LobsterMitten at 4:55 PM on April 11, 2010

If you're buying, you may as well retain one, as the real estate agent's commission is paid out of the seller's proceeds.
posted by Pomo at 9:41 PM on April 11, 2010

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