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Using A Real Estate Broker?

This is a Money Mavens Network post, the first of many to come. This time, a number of the Mavens will be writing on the topic of using a Real Estate broker to sell your house. (We’ve not seen each others’ posts before publishing, so any similarities are purely from the category of “great minds thinking alike.”)

A few years ago, pre-crash, a neighbor put his house on the market. When it sold within two days of being listed, I found it odd that he seemed so happy with himself. I told him,”sorry, but I think you got Freaked.” I told him that I had read the book Freakonomics, and was recalling a chapter that discussed the conflicting motivation that a real estate broker had. The author cites a study that showed, all things being equal, an agent will sell his or her own home for an average 3% more than the same home sold for a client.  It turns out that when selling your home, an additional $20,000 may be quite a bit of money to you (as it is to me) but on a 6% commission, that’s $1200. Once it’s split between the listing agent and yours, and your agent splits half with her office, it’s a $300 difference. I went on to explain to my not-happy-as-before neighbor that the very fact that it sold so quick should make it obvious the price was set too low. In his case, the Zillow estimate was nearly $30,000 higher than his sale price and I thought he’d have at least split that difference had he set the listing price higher. Of course the agent’s economic interest was best served by a fast sale. I won’t even try to calculate the hourly return the commission brought her. In the end, the impact to my neighbor was far greater than the 6% listing fee. On a lighter note, this was a neighbor I wasn’t sorry to see move, a bit of schadenfreude, I suppose.

Recently when a friend told me she was putting her house up for sale, I walked her through the story above, explaining the math, the 1.5% of the increase/decrease in price being all the agent gets and leaving her with the warning that the agent is not her friend. To be fair, real estate agents are in a better position to move a house than most of us might be. Buyers are coming to them, and through MLS and their own networks have access to more information than you or I might. On the other hand, the internet along with market pressure is fast eroding that advantage.

Check out my fellow Mavens posts as well:
Len Penzo –  Real Estate Agents: Why You Rarely Get What You Pay For
The Financial Blogger at Green Panda Treehouse – Would You Take A Realtor To Sell Your House?
Tom at Canadian Fiance Blog – Should You Use A Real Estate Agent To Sell Your House?
Paul at Fiscal Geek – Should I Use a Realtor to Sell My House?

Joe

  • Len Penzo April 19, 2010, 11:04 am

    Interesting story, Joe.

    Regarding Zillow: I know they have been pilloried for being highly unreliable in the past.

    I think when trying to find the right asking price for your home – especially on their own – folks would be better served to pay a few hundred bucks up front for an appraisal from an independent appraiser.

    Just my $0.02.

    Best,

    Len
    Len Penzo dot Com

  • Mike @ Green Panda April 19, 2010, 7:29 pm

    Hey Joe!

    I’m with you on this one. The agent will always push for a quick (and obviously lower price!) sale.

    I also notice that most realtor will suggest that they can sell your house at a much higher price (and the comission will be paid by the sale of your house). They simply crank the price up, wait 3-4 months (with a contract of 6 monthts) and convine the sellers to drop their price since there are no buyers at this price.

    Then, you end up selling at the very same price you would… with a 5% comission paid to a realtor!

  • Cathy August 17, 2010, 12:14 pm

    Realtors do not set the house price – the sellers do. The real estate representative will do a CMA (Compartive Market Anaylsis) and show you the price similar homes have sold for, which homes have expired and which homes are on the market.

    In Canada – commission rates are not set and are negotiable. You need to ask your representative what is included in that rate. Understand how often your home will be advertised and where. Ensure you get a copy of their marketing plan. Interview more than one agent. Ensure you will be updated weekly.

    Regards,
    Cathy

  • Tim October 18, 2011, 10:04 am

    I’ve always used a Realtor and they always know I’m the boss so if they try to sell me down in price then they better have the data available to show me why. I can’t stress enough how important the interview process is to find a pro that has your best interests in mind. Just read a blog plugging a company called Sundaybell. Anyone used this service? Seems they have found a way to interview any agents online so you can filter through the ones that best match you. They call themselves the Match.com of real estate…

    Tim

  • Sissy Lappin December 26, 2014, 1:04 pm

    People also need to realize that technology is changing how you can sell your home. It’s easier to sell yourself than ever, thanks to the internet. And a lot of home sellers don’t realize how important the For Sale sign in front of your house is. Buyers often call on a good looking sign, especially if the property is located in a popular neighborhood. There’s even mounting evidence that the Millennial generation is increasingly moving away from agents, and toward direct purchase from sellers. And they represent the prime buying group now.

    The point is, don’t under-estimate your ability to sell your house on your own.

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