How-to Monday: Choosing an agent, part I
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There's no law that says you must get a real estate agent if you're buying or selling a house, but many do. Like any profession (particularly one that's not hard to get into), you can find great Realtors, middling ones and some who are worse than none at all, so you'll want to choose well.
I'll address agent-shopping for buyers next week in Part II. Here's what the Consumer Federation of America thinks sellers should keep in mind before making a choice:
Interview several, asking about their experience, representation policy, commission rate and marketing plan, says Stephen Brobeck, executive director of the Consumer Federation of America.
--Experience: How many homes have they sold in the past year? In their career? Ask for the names of a few past customers and call them, Brobeck suggests. "There's no perfect indicator of quality here, but experience and the experience their customers have had are important," he said.
--Representation: Do they plan to represent potential buyers of your house? "The goal of most agents is to work with a buyer and a seller, thereby being able to retain the entire commission," Brobeck said. "It's called in the trade 'the double dip.' It's not pernicious, but people ought to understand that it does affect representation."
You can go with a double-dipper, though the commission rate ought to be lowered, Brobeck said. (If 6 percent is typical, he says "you should be able to negotiate it down easily to 3 1/2 to 4, depending on the price of your home.") Or you can ask the agent you choose to represent your "fiduciary interests" and yours alone -- and get it in writing.
--Commission: As the example above shows, it's negotiable. And there are a wide range of commission rates out there now, what with discount brokerages competing with the traditional set. But Brobeck says you should be sure to ask about the typical commission split in the area -- that is, how much usually goes to the buyer's agent.
Why? Because you might not want your house showing up in the multiple-listing service with less than the going rate. Especially now that buyers have tons of choices, there's nothing keeping their agents from deftly avoiding showings on your cheap-commission house.
If 3 percent is typical, you can probably get the commission down to 5 percent, Brobeck said, but make sure that's laid out as 3 percent for the buyer's agent and 2 percent for yours.
John F. Sullivan, an exclusive buyer's agent with Buyer's Edge in Bethesda, looked up a bunch of listings for me to see what buyer's agents are being offered. He says there was an almost equal number of 2 1/2 percents and 3 percents.
--Marketing plan: What do your potential agents plan to do to sell your house? Don't assume they'll pull out all the stops. Ask. Also ask for help preparing your house so it looks saleable and pricing it right so it will attract interest, Brobeck says. He cautions against putting much weight on open houses: "Open houses are mainly for the benefit of the brokers to get other clients," he says.
Interested in what others are saying? Click HERE to check out "The Real Estate Consumer's Bill of Rights" written last year by agents at Redfin, an online real estate brokerage. Click HERE to see what the Maryland Real Estate Commission suggests you keep in mind. Or click HERE to see criticism by Brobeck of traditional real estate brokers.
Have anything else to add? Chime in.
EDIT at 2:30: Thanks for all the feedback, guys. Here's the lowdown on the representation question:
Commission double-dipping may be common in America, but Maryland law prohibits an agent from representing both the buyer and the seller in the same transaction, says Katherine Connelly, executive director of the Maryland Real Estate Commission. If a buyer comes to an open house and asks the seller's agent to represent him or her, that agent's broker has to designate another person in the firm to work with the buyer.
I checked with Brobeck, the Consumer Federation of America official, and he suggests a Maryland seller ask potential agents how their firms would handle such a situation to ensure that the seller's best interests are upheld.
Sullivan, the exclusive buyer's agent, notes that a seller's agent will get the entire commission if the buyer is unrepresented.
As always, keep those comments coming. The How-to posts are frequently used for the Wonk column in Friday's paper, so it's a real benefit to everyone when you point out something I should have included.
Comments
This doesn't make sense at all.
1. It is not terribly hard to become a real estate agent but it is very hard to remain a real estate agent.
2. When it comes to representation the goal of the agent is NOT to represent both buyer and seller. Some agents do this, but most prefer that both sides have representation. At least I do. Many agents I know are uncomforatable trying represent both sides, because of the obvious conflict in interest.
3. It seems odd that a person would want to low-ball the listing agent. If they are the ones in charge of promoting, marketing and all the expenses associated with that, why would anyone want to low-ball the person working the hardest to get the house sold.
Real Sales is not easy, it is one of very few professions that is entirely commission based. We spend thousands each year for continuing ed, association dues, technology dues, insurance, and often $10's of thousands to our brokers. No benefits come with the job, no base salary - nothing. Most people could not handle this.
It is also important to note the real estate agent are usually very active in their communities, support a wide variety of local businesses, and often very giving with their time and money.
Also, if you are working with a specialized agent they are your best chance at selling you house quickly for the highest dollar. If you are working with a buyers agent, especially if you are new to the area, they invaluable. Since RE agents have been through the process hundreds of times and have seen it all they are often the glue that keeps a transaction together. Also, people to come to us for information, tire kicking, listings on an on. About 1 in 8 people we meet who use our services actually buy or sell. It is not uncommon to have 50-60 hour work weeks where Realtors run around silly, not just sitting at a desk, while not being able to remember the last time they saw a pay check.
No other purchase or sale is wrapped up in emotions, hopes and dreams like home sales. People do some outrageous things. Real estate agents often have to deal with some of the not so pretty side humanity, and often have to temper and resolve. It is not a job that you can leave at the office, especially when a client is calling you in a panic at 11:30 at night.
RE sales like any other profession has a few great workers, some that are good, and many that are so-so or have no business doing what they do. A lot of agents have dropped out of the business in the recent slow down. Chances are if they are still around at this point they are pretty good.
Posted by: Dunn | February 25, 2008 9:07 AM
You're absolutely right, there's a lot of crummy agents out there, and as an agent myself, it's a big relief to see so many of them disappearing. For a full time agent, this is the kind of market that really "separates the men from the boys", so to speak. I know quite a few excellent full timers who are being forced out, and even more so-so agents that can't afford to operate in this market.
I do NOT like Mr. Brobeck's explanation of how people are represented, however. In Maryland, I CANNOT legally represent both parties. It's a conflict of interests, and at least here in MD, it can't be done. As an agent, I can represent one side of the transaction, and facilitate the other, but make no mistake that I must very clearly outline WHO I am working for to all involved parties.
Posted by: Jonathan Benya | February 25, 2008 9:43 AM
The excerpt below is one of the reasons why most people now hate realtors more than lawyers. Let's say it together now - ANTITRUST violation.
"But Brobeck says you should be sure to ask about the typical commission split in the area -- that is, how much usually goes to the buyer's agent.
Why? Because you might not want your house showing up in the multiple-listing service with less than the going rate. Especially now that buyers have tons of choices, there's nothing keeping their agents from deftly avoiding showings on your cheap-commission house."
Posted by: Ed | February 25, 2008 10:53 AM
Great article. Transparency sums up the the major problems in the real estate industry for consumers. While it's only a few disreputable agents who won't disclose working both sides of the transaction, the real estate agent commission structure is widely misunderstood and invites abuse. Having complete clarity on what your agent gets paid and what their incentives are is a basic consumer protection and makes for a more efficient marketplace.
Posted by: Ellie Wilkinson | February 25, 2008 12:15 PM
There are a number of inherent problems with real estate brokerage in the State of Maryland. The Real Estate Board of Maryland was formed to set standards within the profession and to protect consumers, particularly home buyers. It does perform this function to an extent. However, it is also designed to keep people out of the business. For instance, the laws governing the licensure are outdated and create a barrier to entry based on a 3 year apprenticeship and not education, knowledge, or the ability to pass examinations.
If you hire a real estate agent, the agent might be a broker or a salesperson working for a broker. But the broker is the person who holds the real estate license - the salesperson is licensed by the State to work under that broker. There are many states, such as New York, that do not require this period of apprenticeship if the applicant has an advanced degree in Real Estate or an MBA. Afterall, why should an MBA who focused on studying Real Estate have to work as an apprentice for 3 years for a licensed broker who might not have even finished high school. In today’s world this is an unnecessary and unfair barrier to entry. A person should be able to apply for and receive a broker’s license if they can pass the mandatory testing of the State of Maryland. The educational standards in this state clearly need reform. The benefits would create a larger pool of highly educated licensed brokers, and this in turn would be good for consumer.
Posted by: Nigel Smith | February 25, 2008 1:03 PM
Thanks for the feedback, everyone. Jonathan, I've put in a call to Mr. Brobeck to have him clarify his points about double-dipping.
Posted by: Jamie Smith Hopkins | February 25, 2008 1:20 PM
"Commission double-dipping may be common in America, but Maryland law prohibits an agent from representing both the buyer and the seller in the same transaction, says Katherine Connelly, executive director of the Maryland Real Estate Commission. If a buyer comes to an open house and asks the seller's agent to represent him or her, that agent's broker has to designate another person in the firm to work with the buyer. "
If it is another agent in the same firm the firm STILL receives the entire commission and gives a portion to each of their agents according to the contract the agents are working under.
Do you really think an agent is going to advise a buyer after a home inspection in such a way that the buyer kills the deal if the seller is being represented by one of his co workers?
Posted by: Paul Howard | February 26, 2008 8:43 AM
Paul, this general issue will be among those discussed in next week's How-to, which focuses on the sorts of things buyers might want to keep in mind when choosing an agent.
Posted by: Jamie Smith Hopkins | February 26, 2008 9:28 AM