Are Realtors Worth The Commission Anymore?

96 Replies

Given that there is such a liquid market of buyers online I was wondering what people's thoughts are on the commission paid to Realtors. A 6% commission has always seemed scandalously high to me given the typical amount of service one receives on a listing.

I would love to hear the opinion of others on the matter...including the Realtor's take.

I'm a Realtor. In the heyday, I heard this statement all the time and yes, there were some sales that were very easy. Boy, have things changed! Yes, people can find listings on the internet but in my market at least half are short sales, another 35% are foreclosures with listing agents who are less than helpful and 15% are with regular owners that normally are fairly standard sales. Almost every deal has complications and most non-investor buyers would not be able to solve them without professional assistance. Finding a house you like is easy--getting it into escrow and closing are really difficult in our area. I really wish the old days would come back!
(FYI--Most of my buyers also hire me to list their homes when they sell, so they must have seen value in the service.)

There are a couple reasons I can see using realtors:

1. An investor's biggest asset is his time; if you can farm out all the purchase work, marketing and sales work to someone for 6% and they'll do a great job, it may be worth it;

2. Selling a house is not rocket science, but few investors have all the skills necessary to do as good a job as a good agent. If you don't have all the skills, is it worth the risk;

3. Good agents have a big network. The first investment property I ever sold was with another agent. She got the property under contract 4 hours after I gave her the listing because she immediately called her network and was able to find a buyer who was looking in that area that day for that kind of house.

Now, in my experience, most agents are horrible, and are not worth the 6% (or even 5%). So, if you can't find a great agent, it's probably better to just do it yourself.

Btw, regardless of whether you use a listing agent, I think it's absolutely essential in today's market that you at least put the property on the MLS (via a flat-fee listing, if necessary) and be willing to pay the buyer's agent their 3%. Regardless of how many buyers are looking on the Internet, the fact remains that most houses that are sold retail are found through the MLS.

Again, just my experience...

I'm a Realtor, too. Although Jason may be a "bit hard" on agents, a good share of them are not someone that I would want to work with for various reasons and competency is a big part of it. That is the biggest reason that since I have been a broker for over 25 years, I don't do conventional list/sell residential real estate brokerage. It's bad enough dealing with them on my own personal listings!

Jason is right about the retail buyer. They depend on their agent to look out for their best interest. It needs to be on the MLS and the buyer’s agent needs to know that they are getting paid.

Is it worth the price? Yes, for the reasons that Jason and Shari posted. Yes, sometimes it comes easy, but you can do a lot of work and have a deal fall apart for no fault of yours. It has to be made up for somewhere. Kind of like an investment portfolio....some winners, some marginal and some losers, but in the long run, you should make out ok. Same with real estate brokerage and working with buyers and sellers.

This is not to say that if a buyer comes to my condo development, that I don’t sell on my own! This is a bit different since we have all of the tools that the Realtor would have and are set up for it. I’m sure that any investor will have times that an agent is not needed because a buyer is already in mind or the market is hot enough. In general, though…use an agent!
Bill

When I used to do a lot of rehabs I would always flat fee list my property and deal with the buyers realtors on my own. There were lots of issues that came about and if another realtor was involved I know some of my sales would have fallen through. Since I had a vested interest in selling, I was able to work out the kinks and get the properties sold. I was very successful at this. I found that many realtors don't understand that their goal at the end of the day is to get paid and that only happens if everyone gets to settlement. Most realtors actually work against this process and is why I would never list my rehab using a selling agent. Now when it comes to buying, I have several realtors that I can go to to get lockbox codes and to submit offers. I always communicate with the title companies and never let realtors do anything more than write up my offers to purchase properties.That is their only value imo.

Being a real estate broker, I always recommend hiring a real estate agent to assist in the transaction, and paying a commission that is appropriate for the amount of time and effort and money that is reciprocated by the agent. Some agents spend thousands of dollars and months of time making sure that every available buyer that is looking for a home in your area has the ability to see your home online, or via open houses and print advertising. That is basically what every seller wants, the best ability to have a buyer see their home and make an offer...

The next part of the equation is the ability to Close the transaction, and this is the part of the sale that sellers never seem to understand or appreciate. Every real estate transaction is different, and the myriad of issues that arise during the transaction, from inspections, repairs, appraisals, lending/underwriting problems, escrow, and legalities - this is where the real estate professional earns their commission. From the day that a contract is executed, until the day that is closes, there are no easy escrows, with the lone exception being an undervalued property being sold to a cash buyer...

The way that a real estate professional earns their commission, is that they sell your property for the highest possible price, and get the property to close escrow. If you don't believe that your agent is worth their pay, then interview others. In order to test this theory, hire a flat-fee broker, put the property in the mls, and offer a typical 3% commission. You will spend time wondering who is seeing the property, why there are no offers, and what other agents/buyers are thinking. If you have the right agent, then all of those questions are answered, and your property sells for the highest possible price that a buyer will pay.

My commission to my listing agent is not the full 3% because I do a large volume and pay a negotiated commission.

But I still have to pay the buyer's agent the standard 3%. I really hate doing that but I would rather do it than go without a buyer, so I guess it is worth it. It is a bit like OPEC pricing - unpleasant but we have to deal with it.

BTW, I disagree with the agent posters above that agents help with the closing, etc. I actually think most buyer's agents are an impediment to a sale and merely screw things up based on an opinion of themselves that is unwarranted by reality. I am sure I would have closed several deals quicker if the buyer's agent had got out of the way and let my team deal directly with the buyers.

I'm with J Scott, we list ourselves but always put it in the MLS.

In multiple offer situations my opinion on the agents ability to get things done really is a factor in dictating what offer I pick.

I also blast new listings to a network of agent that I have done deals with and would work with again 1-2 days before we list it.

Originally posted by Vikram C.:
My commission to my listing agent is not the full 3% because I do a large volume and pay a negotiated commission.

But I still have to pay the buyer's agent the standard 3%. I really hate doing that but I would rather do it than go without a buyer, so I guess it is worth it. It is a bit like OPEC pricing - unpleasant but we have to deal with it.

BTW, I disagree with the agent posters above that agents help with the closing, etc. I actually think most buyer's agents are an impediment to a sale and merely screw things up based on an opinion of themselves that is unwarranted by reality. I am sure I would have closed several deals quicker if the buyer's agent had got out of the way and let my team deal directly with the buyers.


I agree that many buyers’ agents in an effort to "prove their worth" can be over zealous! They forget about win-win! We also drive the closings ourselves.
Bill

I agree with Jason that it must be on the MLS. I have a couple of realators that bring me listings. My own code of ethics is I will list with those after the rehab. When I consider open houses, dealing direct with inspectors and appraisers, etc, I just don't have time to do all of that and hold a full time job too. Once I go full time into REI there is lots of stuff I will do my self.
My experience with a flat fee service involved the buyer's agent too. It was my first deal and she really helped me and worked hard to make the deal happen.
So, I like realtors for now.
Don

The short answer in my opinion is no. In So Cal realtors advertise 1.5% and it's easy (Now that I'm looking around) to find realtors that will take a lower commision.

3% to buyers agent, until they want you to discount your property. You can always counter with a property price reduction along with a buyers agent commision reduction up to 1.5% to help offset what they're asking for.

1.5% to sellers agent. It's very common in So Cal. Most realtors simply list property on the MLS and wait for a buyers agent to come along with an offer. My title company does all the work asside from the counter offer so I'm not feeling bad about the 1.5% at all.

I'm listing my next property with a broker and paying a very small flat fee. Most realtors in my area don't have investors to work with. I'm a very small investor and will only flip 12 to 15 properties this year, but tha'ts a lot of repeat business to one realtor that will propbably never sell one of my properties even if I was paying them 15%. What I mean buy that is they wont find the buyer on their own.

I'm confident there are some realtors out there that really have their head in the game. They have buyers lists, they do open houses, they network, they work their area, etc...

I'm not trying to be harsh on realtors. It's just been my experiance as an investor. The more you can do for yourself the better off you'e going to be.

I think the proper use of an agent is determined by how you have your business set up. A good agent who understands what the investor is trying to accomplish & can truly help the process is obviously an asset to any business because they will free up time & energy for the investor to focus on other parts of the business.

The problem is most agents don't understand and do not help. If you are knowledgeable enough to see a deal through to the end & you have a sales system in place to generate buyers you may not need an agent. However, if you don't fully know how to work a deal through or have a large operation then a good agent may be just what you need. I think it best to have someone who is part of your organization whom you can train yourself.

It's like hiring any other employee...they need to provide value or there is no need to have them. Some people are better than others so find a great one and keep them happy working with you.

Originally posted by Kristian Peter:
The next part of the equation is the ability to Close the transaction, and this is the part of the sale that sellers never seem to understand or appreciate.


This is actually the part of the equation where most agents I've encountered are really bad (not all, but most)...

Here are things we do with every one of our sales (my wife got her license just for this purpose btw) that very few other agents do, in my experience:

- I make sure I'm in touch with the broker/lender within 24 hours of a contract. When I've used other agents or left it up to the buyer's agent, the appraisal(s) generally took 1-2 weeks to get ordered, and if they were to come in low, there's 1-2 weeks wasted. I make sure an appraisal is ordered within 48 of the contract being signed...if it takes longer than that, I know that the broker or the buyers is lying about how qualified they are to buy (and need more time before they want to pay for that appraisal).

- Same as above with the buyer/buyer's agent and their inspection.

- I'm present for the appraisal. In fact, we take the agent lockbox off the door so that if the appraiser shows up without anyone telling us, he needs to call us to get in. We tell him we have the key and we'll run right over. Luckily, we're generally informed beforehand so we can be there with comps in hand, renovation lists, etc. We've never had an appraisal come in low when we've been there during the walk-through.

- I'm present for the inspection (assuming the buyer is okay with it). This way, I know beforehand what the buyer is likely to come back with when requesting repairs. More importantly, if the inspector brings up something that I think may be confusing to the buyer (and that I think might freak the buyer out unnecessarily), I can ask leading questions right then and there to get the inspector to clarify and make the buyer feel more comfortable.

- Here's a BIG ONE: Within 48 hours of the contract, we call the closing attorney and get the closing put on the calendar. While this date may change, when you have something actually scheduled, it makes people focusing on hitting that date. Trust me, you'll get much more cooperation from the lender when you say, "Are we still on-schedule for August 18 at 3:30pm?" then if you say, "Are we still going hit mid-August for this closing?"

- We make sure that the lender keeps us apprised of the situation every step of the way, including sending us the stip sheets for the loan. That way we know where the loan is every step of the way. If we see that the buyer needs to turn in his last paystub to move the process along, we can call the buyer's agent and say, "Hey, lender is still waiting on that paystub...and we need that if we're going to close next Wednesday at 3:30pm."

These are the types of things we do that most agents don't do. Not necessarily because they're not good at their jobs, but more because they don't care as much about the sale of our property as we do.

The agents that do do these sorts of things are easily worth their 6%...and more.

By the way, the other big part of the process where agents don't do as much as I'd like is with showings.

We keep our houses on a portable alarm system. One reason is to protect our investment. But the bigger reason is that we want to ensure that buyer's agents call us and let us know BEFORE they show the property (our listing asks for 30 minutes notice so we can turn off the alarm).

This gives us time to send one of our employees over to the property to turn on the lights, open the blinds, verify the temperature, refill the scented air-fresheners, make sure there are flyers and blank contracts on the counter, make sure there is no trash in the yard, etc.

I would virtually guarantee you that we get many more offers (and higher offers) because of this than any other single thing we do. After buyers have been looking at dark, hot, smelly houses all day (because the listing agent hasn't set foot in there in 2 weeks), when they walk into a nice, bright, cool and fresh house, they are going to notice the difference.

So again, don't settle for an average agent. And if you can't find a great agent, do it yourself (flat-fee listing, get your license, whatever)...

Jason,
If I could, I'd vote for you 5 times on that last post! You are correct...no agent will take the care that you do in keeping the deal on track and on time. Your showing system is great. I can see why you are a very successful investor. Hats off to you!
Bill

There are certainly times a listing or selling agent is worth every dime of what they earn, but many times not.

One key issue for a listing agent is their marketing plan, how will they market your property? Avertising in the Sunday paper or on a local real estate show is not cheap and the listing agent gets stuck with that ad bill.

OTH, many agents (especially new ones) can mess up a deal and in many ways.

One way for some loan application to go to the bottom of the pile is having an agent calling an bugging the processors about when to order appraisals or well inspctions...whatever. Lenders are usually not a liberty to discuss in depth issues, like credit, of an applicant with a the Realtor, regardless of what some disclosure form might imply if there is one. Lenders should not be spending appraisal money until other issues are cleared first. An opinion might be sought from underwriting concerning time on a job being in a somewhat different line of work for example, or a couple of late pays on the CR, clearly beyond the pay grad of a Realtor. The call can go in for an opinion with all of the processing documents being ready to go, but ordering a $250/300 appraisal could be blown for the applicant and I have seen situations where that was the only appraisal money the applicant had. That means if it is ordered and the opinion is that they applicant needs to apply with a more liberal or portfolio lender, they are sunk and they lose the deal. All because an agent wanted to take command of the situation and "act in the client's best interests"!

Closings are the responsibility of the listing agent/broker to an extent, until those aspects beyoung the expertise of a Realtor is encountered, like title requirements, appraisals and financing.
Now, with the new RESPA and appraisal requirements in place, it can be very dangerous to appear to be telling an appraiser what comps to use, that can be touchy. While some appraisers might welcome the work done, there are those that will not and they may just show you they won't use those comps ith some good ones of their own. IMO, unless you know an appraiser or find out such work would be welcome, I would not go there. Those other comps are an issue to bring up with the lender, not the apraiser.

IMO, an agent is more valuable to me by bringing me the buyer than listing my property in the MLS. There are no problems than will arise on my side of the deal that I can't take care of. A flat fee and an advertising bill discussed before hand is best for me.

Great reply by J Scott!!!

We follow almost exactly the same procedures for our properties. We would never let an appraiser in without being present, and we hand him not only comps, but for the condos we build, we supply information on the construction of the home, our green build certification and energy star ratings, as well as community information. It's a tough market, and you have to have every advantage you can get. We also stay on top of getting inspections and appraisals scheduled and setting the closing date. It may be the agent's responsibility, but they don't have the same motivation that we do to get it done.

LOL, spoken like a true agent. I didn't say that for the benefit of the agents, it was for the investors who might be in those positions. You need to allow other professionals to do their job without being overbearing, pushy and intimidating, like alot of starving Realtors can be like when they smell a commission to pay their past due bills. IMO, LOL

Updated over 11 years ago

J.Scott, Great points, call first is the way to stay on top! air freshner, etc.

Hi all! I started as an investor, and ended up being a full time real estate agent as well so I have definately been on both sides!

My take on the commission, would you go to your doctor's office and ask him for a discount before performing heart surgery, or better yet ask him for advice so that your best friend can do it for you in order to save a few thousand dollars? Didn't think so...

A good real estate agent is tough to spot, they are to be searched for and then paid well for who they know, and what they know.

I have worked with several other investors and protected their butts when they thought they knew it all.

Now a days we are at the mercy to lenders and appraisers, and when someone needs to point the finger it is always the agent's fault! A good agent can anticipate a problem before it occurs, fix it immediately and not even let the investor/seller know there was an issue.

Often times I consider myself a firefighter, putting out fires left and right but never stressing out my seller or buyer.

When hired, my job is to facilitate a real estate transaction and to leverage my relationships with title companies, appraisers and escrow. There have been too many times when the title company has insured around clouds and liens so many times just to get the deal close. A good agent knows the importance of a great working relationship with the behind the scenes people.

If an investor wants to save his 6% (by the way, a listing agent gets 3% and the selling agent gets 3%) and put out fires and try to discuss title issues and give comps to the appraisers I suggest they try it and let me know how much time and money they really saved, that is if the deal ever does close.

To add to this thread, most do not know that our real estate broker takes approximately 30% of our commission, then take out taxes, gas and marketing expenses and we really aren't making a great living unless we sell a lot of houses. Also think about the sellers or buyers we work with that never sell or never buy!

I appreciate the opportunity to voice my opinion and believe me, I use to think agents made way to much money as well... that is until I took a walk in someone elses shoes and experienced it first hand

Good points Jennifer, many forget that 25 to 40% and even more goes to the broker and office. Take out costs for cont. education, transportation expenses, personal office type expenses, and the show and tell expenses to dine a client, take home after taxes is very slim for most Realtors.

It is or can be an extremely stressful life and I understand the sence of urgency Realtors have in wanting to ram a deal through the maze of requirements. Doing so can lead to problems.

You can tell the newbies from the seasoned agents in many of the forums as you can with the rest of us, like the race of the rabbit and the hare in getting deals done. Nicely done Jennifer!

Originally posted by Financexaminer:
One way for some loan application to go to the bottom of the pile is having an agent calling an bugging the processors about when to order appraisals or well inspctions...whatever.


I've never, ever had a broker or a processor slow down a loan because an agent stayed on top of it (and if they did, I didn't know about it, and they still got it done by the closing date). In addition, both my father and brother ran large mortgage brokerages, and according to them, over-zealous but well-meaning agents never once slowed them down. If anything, it gives a broker an incentive to stay on top of the loan and get it done as quickly as possible.

That said, my mortgage broker often complains about rude agents, buyers and sellers who are unreasonable, overly demanding and think they know more than the broker or the processor does. This type of behavior certainly turns off brokers and their staff, and I could see why treating a broker badly could get your loan to the bottom of the pile.

So, perhaps the negative experiences you've had are more related to communication and negotiation style being used by the agent as opposed to what is being asked of the broker. Perhaps you should recommend to any agents that have had this issue in the past that they take a course on communication and negotiation techniques...it may help.


Lenders should not be spending appraisal money until other issues are cleared first. An opinion might be sought from underwriting concerning time on a job being in a somewhat different line of work for example, or a couple of late pays on the CR, clearly beyond the pay grad of a Realtor.


I can't speak for other investors, but from my standpoint, if there are still issues regarding credit report, time on job, etc, I want them to get resolved BEFORE I accept a contract from a buyer.

By the time I accept a contract, the lender should have the application in hand and any buyer-related concerns (anything not related specifically to the property) already resolved.

75% of the time, I've found that brokers are willing to order the appraisal within a couple days of the contract being signed. The other 25% tend to the buyers who never make it to closing.

Perhaps I'm in the minority here, but perhaps I'm also in the minority of investors who typically gets his deals closed on-schedule.


That means if it is ordered and the opinion is that they applicant needs to apply with a more liberal or portfolio lender, they are sunk and they lose the deal. All because an agent wanted to take command of the situation and "act in the client's best interests"!


In my opinion, it was all because the broker was lazy and allowed a buyer who had not been properly screened to put a contract on a property.

Sorry, but I'm not the one that's going to lose out because a broker was lazy and didn't want to do his job before issuing a pre-qualification letter.


While some appraisers might welcome the work done, there are those that will not and they may just show you they won't use those comps ith some good ones of their own. IMO, unless you know an appraiser or find out such work would be welcome, I would not go there.


Again, this is a perfect example of knowing how to communicate and negotiate. I've never missed an appraisal on a property where I met with the appraiser and gave him comps.

If you know of someone who is consistently having appraisers pissed off or ignoring their comps, I would again suggest having that person take a course on communication.

In summary, I'm not saying being intimately involved in the process is right for every agent. As you've pointed out, there are plenty of people who have poor communication skills, are overly demanding, act like they know more than everyone else, and just generally put people off.

For those types of people, it's probably better to stay out of the process altogether (and perhaps find another profession). The funny thing is, most of the people who have these poor communication skills have no idea that they're the ones screwing things up, and think that the problem is with the other side.

RE brokers are great for the first-time or very-busy homebuyer/homeseller who doesn't know the ropes. But most experienced investors know the ropes and know how to put out the fires.

My prediction is that personal home-ownership will take a pendulum swing to the negative side as loans become harder to get, as the pool of qualified home buyers decrease, and as rents decrease.

Home prices will also decrease, but investors will make up a larger percentage of the buyers.

I see RE brokers offering more a la carte services, and the MLS losing its monopoly.

Your impications won't be addressed. You have some good points as well and my persistency ration was over 97%, top 5% in the nation. I didn't have those problems. Others do. If I had a pushy Realtor, I communicated with them on the spot and it was taken care of. Yes, credit issues should be addressed at the prequalification. Maybe your dad or brother did enough loans to find that some borrowers get pre qualified, put a contract on a house and then buy that second car over the weekend. I always told applicants about such issues when they made application so such credit issues don't happen, but things still happen. I'm sure your dad and brother have similar examples. Just saying, stay out of their hair, due dilligence is a good thing, too much is harassment and distracting, some will do that.

I not only agree with J Scott, but have also followed his advice with great success. Based on his posts and advice, my agent started meeting the appraiser with our "appraiser packet". To my surprise, every single appraisal after that has come in at contract price, including the double-appraisals for FHA sales. This even happened when we thought the buyer had paid us at the higher end of the ARV range.

Well good for you Vikram, stay with that plan if it works for you!

I think I said "some", but that's only from experience and in my area, hope everytime you hand comps to an appraiser they thank you and use only the ones you give them. Good Luck!

Originally posted by Jennifer Beadles:
My take on the commission, would you go to your doctor's office and ask him for a discount before performing heart surgery, or better yet ask him for advice so that your best friend can do it for you in order to save a few thousand dollars? Didn't think so...

Jennifer - did you really just compare a real estate agent to a doctor? A doctor needs almost 10 years of post high school education while a real estate agent needs to take 3 courses...

Don't get me wrong, I think top producing RE agents are valuable. But in this market we have had no problem selling properties by putting a listing in the computer and waiting for offers. After that, a phone call to the lender and other agent about once a week is all that we have had to do.