Next time you’re at a party and want to have some fun, just say the following:
“Do you know who I think are underpaid? Realtors.”
Most people don’t know the first thing about real estate. They have no idea whether they got a good deal on their home or not, since they can’t accurately compare their property to others. They always assume the market will go up since they probably have the vast majority of their net worth tied up in their house. They blindly buy real estate with the assumption that it’s an asset, without realizing that something that costs you money to own is actually a liability. They will gladly leverage their money at a 20:1 ratio to buy property, being blissfully unaware that just a 5% drop in the property’s value will wipe out all their equity.
I guess what I’m saying is that you should ignore all your neighbour’s advice on the real estate market.
A particular beef of these people is the amount that real estate agents get paid. At first glance, they’re onto something. A commission of 5% is commonplace in the industry. If the market is good, a property can sell at close to asking in just a few days. All an agent really has to do is input the listing in MLS, arrange a few showings, handle the offer and deal with the paperwork after. This isn’t really much work for the amount they get paid.
The homeowner looks at the amount of work done by their agent and say “I paid 20 grand for this?” They usually follow that with some sort of cuss word. And I agree with them. I’ve seen agents make a $20,000 commission in just a few hours work. I’ve seen agents whine about houses that take more than a couple weeks to sell. I’ve seen agents push a seller to take a substandard first offer so the Realtor gets paid quicker. Public opinion of real estate agents is a little unfair, but like every stereotype, there’s an element of truth involved.
This post isn’t to bash real estate agents. In fact, I’m going to take it one step further. You should just stop whining and pay your Realtor. Here’s why.
They Get The Place Sold
There’s a reason why I believe the fixed price brokerages will never catch on. There’s no incentive for anybody to sell the place.
Real estate agents always tout this as an advantage to their service, and unlike some of the other BS they spout, this is bang on. By creating an incentive to sell the house, you’ve given an agent the motivation he needs to make it happen. How are the guys who take a $99 listing fee motivated to sell your property?
This extends to other areas of the sale as well. A veteran agent will recommend a listing price with one goal in mind- a timely sale. They don’t want to screw around with the listing any longer then they absolutely have to, so they price it to sell. Sometimes they’ll price it too low (in an attempt to get a quick sale) and other times too high (if they’re trying to impress you). Whatever the value the agent comes up with, ask them to verify it with comparable sales. Which brings us to point #2.
You Suck At Valuing Your Property
In the industry they call this subjective value versus objective value. What it means is that you value something higher than you should because you own it.
Whether it’s your principle residence or rental, you have a special emotional attachment to something you own. It might be the pride of ownership. It might be because little Timmy took his first steps RIGHT OVER THERE AWWWWW! Whatever the reason, the fact remains that most people are really bad at valuing their own property.
So they try and sell it anyway, listing it at 10-20% above where it should be. We all know what happens if you do that. Let the Realtor price it for you, even if you leave a couple thousand bucks on the table. What’s better- paying a Realtor or not selling the place?
They Have The Tools
Finally, we’re onto the most important reason why you should just hire a Realtor. They have the tools that make selling that much easier.
Unfortunately for all the FSBO folks out there (FSBO means For Sale By Owner BTW. BTW stands for… forget it) they’ll always be at a disadvantage to the licensed agents, thanks to the tools the Realtors have. MLS is the granddaddy of them all. They also have the contacts, the buyers coming to them and access to good mortgage brokers and inspectors, both of whom are invaluable to buyers.
Besides, when you bought your house, did you do it through an agent? Of course you did! Most buyers won’t even look at properties that are sold by the owner directly. The prospect of negotiating scares the crap out of them. There’s a constant mistrust, the buyer assumes the owner is withholding important information. The buyer is uncomfortable walking through the house with the owner still present. And, like I mentioned earlier, since most buyers don’t know squat about real estate, they’ll stick close to their Realtor throughout the whole process.
Like all of you, I hate paying real estate commissions. I think agents are overpaid, and if I hired one to sell my house, I’d be harassing them on an almost daily basis just so I could feel like I was getting my money’s worth. Rather than complaining about it though, I’d rather just pound them on their commission. Paying high commissions suck, but it’s a whole lot better than not selling the place.