Realtors

Realtors, like other occupations, are a bit of a mixed bag. I have had a skeptical relationship with the industry for my life so that is where my bias will lie in writing this. In short, realtors are incentivized on number of houses sold not on the financial goals of the buyer or seller OR on the final sale price of the house. This alone generally makes realtors into “yes men” who will agree along whatever train of thought you are thinking.

I purchased a home in summer 2013 and at that time, people were stilling coming off the hangover of the 2007-2009 Great Recession. As signs of the housing market began to thaw, buyers and sellers were beginning to see the light again in real estate and it was an exciting time to get in on the ground floor of some real estate transactions. When I encountered reators at open houses, however, my fun generally stopped. Each would relentlessly push their card in your hand, ask for your e-mail address and nod agreeingly with whatever direction you were considering. Pretend that you own a house and they say it’s a great time to sell. Pretend that you are renting and only looking to buy and it is an amazing time to buy. I suppose it is always an amazing time to buy and sell.

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I am also aware that this may be a subset of realtors that give the rest a bad name, but the majority of their work in selling and buying real estate is sales. They are not incented to provide the best deal for their agent. Allow me to explain. The general commission structure for realtors is to charge 6% of the final sales price of the house. This 6% is then split two ways into the buyer’s agent and the seller’s agent (3% each). If there is no buyer’s agent, the seller’s agent usually gets the entire 6%! If the buyer’s agent and seller’s agent are the same person, you have a situation called “dual agency” where they collect the entire 6% (and you should run from this deal).

Given that most of the negotiation is around the margins of sales price, agents are incentivized to finish deals. If they can get $6,000 for closing a $200,000 sale of your house, they are not going to spend tons and tons of time, sweat, blood and hours to get a $210,000 sale of your house. It’s only an extra $300 for them, although it amounts to a $9,400 bigger check for you!

I can unequivocally recommend RedFin, a service that provides MLS listings and a discounted realtor fee. They give the discounted realtor fee because they hand the tools over to the consumer: you need to schedule the tours, make the offers and plan your search for a purchase. In return, you get a discount. On the selling side, I decided to do a “for sale by owner” where I contact a real estate lawyer directly and have them write up a contract. After selling my house in summer 2015, I only had a total fee of $1,000 for the sale. Compare that to the traditional 6% you would get and you can see why avoiding realtors altogether may be the smartest, safest way to earn money in real estate.