Let me just start by saying that the below information is certainly not true for all real estate agents. These are just some things I have learned/witnessed over the years that I think it is important for buyers and sellers to know. I have seen too many buyers and sellers go into a deal or contract without all the facts and hopefully this will help.
Below you will find information that you are unlikely to hear from the mouth your real estate agent. It could be either practices that some real estate agents follow or information about the industry that is not well known and kept quiet.
For Sale By Owner Actually Attracts More Buyers
It is a well known fact in the industry that FSBO (short hand for For Sale By Owner) properties attract buyer’s attention. For example if you put two identical ads in the newspaper with the only difference between the two ads being that one says FSBO in the ad and the other is being advertised by a real estate firm, you will most likely get more buyer’s responding to the FSBO listing.
While this does make a great argument for selling your property yourself you may want to look at the reason behind this phenomenon before swearing off real estate agents altogether. I have found the main reason that FSBO listings attract more buyers than other listings online or in the paper is because the buyers coming to see the FSBO listings think they can save money over similar properties listed by real estate agents. One reason is buyers figure that they can save the 5% commission that usually goes to the real estate agent. This may be the case, but usually I find that if the seller has decided not to use a real estate agent it is either because he cannot afford to give the 5% to the real estate agent or he does not want to give the 5% to the agent. The seller would like to keep it for themselves. If this is the case you most likely will not save the 5%, but you may be able to save some of the money that would have gone towards commission to the agent. A second reason they attract more buyers is that they may think that the seller of the property may not know how much their property is actually worth. Sometimes the buyers are right. They may find a house that is being undersold, if this is the case it will not last long, but they may get lucky and that may be why they show up to see it.
MLS Does Most of the Work
First off MLS stands for Multiple Listing Service. Almost every neighborhood has one. It is a place where real estate agents can post properties that they have for sale so that other agents in the area can see them. It is a way for agents with properties for sale to meet up with agents that have buyers looking for a property.
Now that you understand the basics of MLS let me setup for you a situation that I have seen happen many times. An agent gets a new listing for sale. The first thing they typically do, after taking pictures, is enter it into the MLS system. In the next couple of days a buyer agent sees the property in MLS. The buyer agent takes their customer to the property with the listing agent’s permission. The buyers like the property and make an offer. The offer gets accepted. The buyer’s agent and the listing agent both earn their commissions.
Now in the listing agent’s defense, they did do their job. They sold the property, which is exactly what the seller wanted. The seller did however just pay the listing agent 5% of their property’s sale price for only a couple of hours work.
There is a way around this. If your realtor agrees you can setup an escalating real estate contract. The way a typical real estate listing contract works is that you sign a contract that states you will pay 5% of the sales price of your property to the listing broker when the sale is complete. The escalating contract states that if the property is sold in, for example, 10 days the listing agent only gets 3.5% commission, if it is sold in 15 days the agent gets 4% and anything after that the full 5%. That is only an example, feel free to set it up anyways you want. Some real estate offices will not take these types of listings, but if they want your business badly enough they will do whatever they can to get it.
Waiting Some Time before Entering a Property into MLS
There is really no excuse for this real estate agent technique. It is brought on by pure greed. The reason real estate agents love this technique is because it gives the listing agent a better chance to sell the property themselves so they do not have to co-broke the listing. A quick explanation of a co-broke, for those who do not know what it is, is when a listing agent splits half of their commission with a buyer’s agent because they provided the buyer. If they wait a week or so before listing their newly acquired property on MLS it gives them a chance to show the buyers they are working with their new property and advertise it on their own before letting the rest of the real estate professionals see it.
This technique may not be that harmful to you, unless you are in a rush to sell you property. If you are in a rush they you will want your property to be on MLS right away. A way to make sure your agent puts your property on MLS right away is to ask them to send you the MLS listing so you can see how it came out and also so you can pass it along to friends who may be buying.
Agents Always Try to Sell You Their Listings First
This is kind of a no brainer if you understand how a real estate agent gets paid. Let me explain the basics on how a real estate agent gets paid. For example, an agent takes a buyer to see a property and the buyer ends up buying the property. The real estate agent’s pay varies depending on how the sale happened. There are 3 types of typical situations. They are:
Agent A’s buyer and Agent A’s listing – In this case the Agent A’s office would get the full commission on the property. This would be split typically in half with the broker of Agent A’s real estate office and Agent A. Agent A would end up with 50% of the total commission.
Agent A’s buyer and Agent B’s listing – In this case the Agent A’s office would get half of commission on the property and Agent B’s office would get the other half. The half would be split typically in half again with the broker of Agent A’s real estate office and Agent A. Agent A would end up with 25% of the total commission.
Agent B’s buyer and Agent A’s listing – This ends up being the same case as above. Agent A would end up with 25% of the total commission.
Now as we can see from the three situations above it is in the interest of the agent to sell their buyer their listing. In this situation they end up with twice the amount of commission. This is also good for the seller because you want your agent to push your property. The only one who may suffer in this situation is the buyer. The reason this may be is that the buyer may not see all that is out there before making the choice to put an offer in on a property. The one way around this is to ask to see a print out of all properties in your price range. That way you know exactly what is out there. Maybe the agent showing you properties has the perfect property for you, but you really should know what you other options are first.