Josh Sanders, Founder of Shiloh Street
They may not appreciate some things I say, thinking I’m ‘letting the cat out of the bag’. But that’s the difference Shiloh Street is making in the real estate industry, that’s what we founded this company on and we’re not stopping. It’s for you, the consumer. Not the real estate agent.
So I just felt like going on a little rant about real estate agent and Realtor fees today and clearing up a few things about how and what they’re really paid.
I’ve come across some cynical folks out there who feel real estate agents/Realtors are on par with used car salesmen in terms of perceived sleaziness. Everyone is entitled to their opinion and I would probably agree with them in some cases.
From time to time I’ll encounter situations and vent to my real estate appraising wife that “I hate real estate agents!” Probably a little hypocritical since I am one myself. But yes, I’m a consumer too and I can relate with some of the folks out there.
Having a father-in-law who made a living as a car salesman, I can say first-hand that not all car salesmen are scumbags (he’s one of the most stand-up men I’ve ever had met in my life). The same is true for real estate agents; they’re not all are sleazy salesmen trying to take advantage of people.
When you get down to it, the real problem is that a few rotten apples can ruin the whole bunch, right?
The most common complaint I hear about Realtors is that they make too much money. People think that because someone drives around in a Benz or BMW (not that I do myself, I personally couldn’t bring myself to spend that kind of money on a car, I’m too cheap ), that it means they’re loaded.
Not exactly the case though.
The last Realtor fees statistic I heard about the average Realtor’s annual earnings was around $35,000 per year. That was nationwide so of course it varies city to city. But it’s like any other self-employed profession; 80% earn barely anything and the other 20% make the majority of the income. That 80/20 rule is threaded throughout almost every self-employed profession.
It really comes down to perception. For example, what did you think of the person you saw yesterday driving that sleek black Jaguar with his polo shirt and $500 sunglasses? You probably thought he was pretty well off, right?
Maybe that was the case but maybe he was one of the millions of Americans swimming in their own financial debt about to drown. I know, it sounds a little nasty but it’s true.
Perception can be very deceiving.
I think the main issue causing this negative perception is when people hear about homeowners paying 6% Realtor fees on a $500,000 home to get it sold. The agent lists the home, shows it a couple times, negotiates the real estate transaction and rakes in about $30,000 for what looks like 10-20 hours of work.
Seems outrageous, right?
Honestly, that can be the case sometimes but the majority of the time it’s all about perception.
Let me break down how Realtor fees work and what’s really going on…..
First off, the typical Realtor fees charged to list and sell a home is about 6% in most real estate markets. That’s just the common commission rate, although you’ll find some Realtors charging less and some charging more.
Now with that 6% commission, the real estate agent/Realtor taking the listing is referred to as the ‘Listing Agent’. What they commonly do is split the 6% Realtor fees in half and give 3% to a ‘Buyer’s Agent’ who brings a buyer that ends up buying the home.
So let’s dig into the Buyer’s Agent a little more. What do they do? They help homebuyers search and find homes for sale within the cities and specifications they want. They show homes, consult with homebuyers, make and negotiate offers for their clients, facilitate home inspections, closings, financing, etc.
Story time: I used to work for a local Seattle real estate start-up that was classified as a ‘discount brokerage’. We would work with homebuyers and give them ½ of our 3% commission back when they bought a home with us.
Sounds pretty good for the home buyer, right? Well, it depends how savvy you are. The homebuyer would actually receive very limited service for their 50% rebate of our 3% commission.
The home buyer had to find their own home in Seattle (or wherever they were looking), in some cases find a way to get inside themselves, figure out what to offer on the home, find answers to their real estate questions on their own and essentially guide themselves through the home buying process.
Essentially, we just submitted their offer and handled the paperwork. That was it.
So unless you were a real estate home buying pro, this was actually a disservice for you with the alluring enticement of that 50% commission back, which is one of the reasons I left the company; it just wasn’t serving the client properly.
The home buyer wouldn’t just work with 1 dedicated Realtor or real estate agent though. They’d get passed off among an assembly line of real estate agents and never got that full service relationship and dedication that they deserved. It’s just wasn’t right for most homebuyers.
Discounted price equals discounted service, right? I mean, it’s that way in any industry; you get what you pay for.
Now let’s jump back to the Listing Agent side….
The Listing Agent is still getting ½ of the 6% Realtor fees, right? So if they get that home sold, they’ll earn 3% of the sales price. But what do they do for it?
Well, in my personal opinion, you’re really paying for service, marketing expertise and negotiating skills. Don’t hire a real estate agent because you think he or she has some magical ability to get your home sold quicker than someone else just because of whom they are and/or their reputation.
Let me explain…..
I really feel there are 5 main factors that sell a home…..
1) the price of the home for sale
2) the pictures you post online (everywhere) for the interior and exterior
3) the overall condition of the property
4) the negotiating of offers
5) getting the home listed in the local Multiple Listing Service (MLS)
I don’t think the Realtor themselves is the main cause for a home selling. But in a sense, they can be. Confused?
While I don’t think a single Realtor or real estate agent has the power to sell a home just because of who they are alone, I do think they can posses more or less expertise and information to get your home sold faster or slower than another agent.
You see, if your agent knows how to price your home correctly, how to get appealing property pictures all over the web, how to ‘spiff up’ the condition of your property and get it in the MLS, you have a great shot at getting your home sold.
And what’s the final piece of the pie they need? Negotiating skills! Expert negotiating skills to get you the highest price possible. It’s essential.
Johnny Cochran style negotiating skills but with a side order of integrity please
That little bundle of services is what you’re paying those Realtor fees for. You’re paying for expertise, information and service. Like I said, don’t go thinking that one real estate agent can sell your home better than another just because of their name. Very rarely is that the reason a home sells.
Those 5 factors I listed are what sell a home and having a real estate agent that understands that and capitalizes on them is what will get you results. That’s what you’re paying them a 6% commission for (knowing that 3% needs to go to a Buyer’s Agent or else nobody will show your house ).
As a seller, you’re paying those Realtor fees for expertise, service and information.
As a home buyer; you’re actually not paying anything at all in Realtor fees. The seller is paying your Realtor (real estate agent)! But you should still be receiving the same dedication, service and expertise that a seller demands.
As for comparing real estate agents to scummy, used car salesmen. Well, like I said earlier……
It only takes 1 rotten apple to ruin the whole bunch. Unfortunately, that’s just life. It’s like that in any industry and profession and you simply need to choose wisely!
