Real Estate AgentsWow. We sure pay a high price for their expertise. Typically 6%* of the total sale.
*3% goes to the seller's agent and 3% goes to the buyer's agent, though both of those amounts are paid by the seller.
|Image courtesy of Marcia Todd via Flickr|
Not that a client is privy to such information, but my experience is that an agent spends between 10 and 20 hours per sale. Wait up, that's for me, and I may not be the standard client.
When selling, I do my own staging, photography, open house and advertising. My agent posts my information to the MLS, handles negotiations, and draws up the paperwork. When buying, I find the house on my own and rely on the agent to get my choice shown, handle negotiations and paperwork.
So that's likely not true for most clients. An agent friend of ours says that 80 hours is not really what you could call typical (because the number of hours is drastically different for each client), but it is close to the average of time spent for him.
An ExampleIf the majority of houses in our neighborhood range from about $250K to $500K, let's see what that looks like:
That's $94 PER HOUR for each real estate agent (@3% each) if they each spend 80 hours on the sale of a $250,000 home. That's a pretty high hourly rate, and it goes up, of course, with the value of the sale.
Questions When Hiring a Specialist or professional:
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- How qualified are the people you've hired? (this determines a reasonable hourly rate)
- How hard are they working for you? (a total of 10 hours seems unacceptable, while 80 hours starts to look more reasonable for a professional hourly rate in this price range)
ALL professionals have OVERHEAD:
- taxes, memberships, offices, benefits, marketing, licensure
- unbillable hours to keep the business running, and
- work that goes unpaid (in hopes of landing the sale/project/case)
This means that when looking at hourly rates across fields, we are comparing apples to apples.
However, when asserting "apples to apples," it is important to note the difference between a business's hourly rate that is charged to a client vs. the hourly rate that an individual (employee or self-employed person) receives as their gross income. For example, a $42/hr rate charged to a client--after the business overhead items listed above--may be only $26/hr income for the individual before taxes.
A Side Question:Why do real estate agents get a percentage vs. an hourly rate?
Charging a percentage makes it incredibly difficult for agents to make a living wage on lower-priced homes, and probably steers them away from that market.
Contracts could even be written as an hourly-not-to-exceed, so that the client can budget for the expense and will be informed if the hours are getting close to the agreed-upon limit.
My Point of ReferenceI honestly believe these fees are fairly over the top and this is why: architects (my point of reference) often do not get paid as much as 6% of the construction costs (which do not include the value of the land as in real estate transactions).
Architects have typically five years of college-level education, seven licensing exams, and several years of internship before getting a license. They sweat over creating a building out of their imagination and have a large team of specialized consultants and draftsmen to turn that into a set of drawings. They then administer the construction all the way until completion. Compare that to the section below. (You're wrong: I don't feel strongly about this at all.)
The Difference Between Real Estate Agents & BrokersThough requirements vary by state, there are some common themes for Real Estate Agents
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- Education: a few college-level courses (not a degree) or a certain number of hours.
- Testing: pass a state and national test
- Internship: be mentored by a Real Estate Broker (and start off by sharing part of your commission with him/her)
And for Brokers:
- Education: a few more college-level courses
- Testing: pass another state and national test
- Experience: have at least two years of experience as an agent
But Aren't Real Estate Agents Obsolete?
Seems like FSBO signs used to be posted only by people who were anarchists, disassociated with most social and regulatory conventions. These days, I can post my house on Zillow in about fifteen minutes and it costs me nothing. What's to stop me?
Nothing, really. And I may even get a few hits. I won't get top dollar, and I may have to wait awhile, but I may be saving 3% (or even 6% if the buyer agrees) in fees. What does this look like?
As long as I get within 3%-6% of the price I would have gotten with an agent, I'm in the clear.
Of course, to know what price I-would-have-gotten-with-an-agent, I'd have had to go through the listing process and have some offers to even know what that number is, so that math is not terribly helpful.
Part of what an agent can do is help you decide what price is a good price to list your home at.
SellersThe truth is, as a seller, if you really want exposure to the real estate network of anxious buyers, you've got to go the trodden path and pay the percentage fees.
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OutsidersOf course, you still have to break into the real estate world. I've used Zillow to email a "knock on the door" of several sellers' agents who couldn't be bothered to get back to me.
I'm only assuming that it's because I'm on Zillow and not a agent-only site. Maybe I'm just being sensitive?
In fact, I have been told that real estate agents pay "exorbitant" advertising costs to both Zillow and Trulia. That's a terrible reason for agents to ignore interested parties: must've been a fluke!
Greed & NegotiationsAnd there's the aspect of one's home being the largest asset most of us have. Which makes the buying & selling process the biggest business deal we've ever been a part of. That brings out fear and stress and worry... As a homeowner, it's not something you want to screw up or be screwed on. My agent friend says,
"A self represented buyer frequently is absolutely out of their element in any but the most polite and friendly negotiations. Most negotiations are just what you would expect in a 6 figure business deal."
It's Not a ContestIf I can disassociate myself from the question,
- "Do real estate agents make more than the architectural teams who design a building?"
(and just accept that most architects are underpaid) I can focus on the real issue of this post,
- "Do real estate agents earn their standard 3% fee?"
My Favorite Real Estate Agency
|Image courtesy of MarkMoz12 via Flickr|
They are vibrant, young-but-old-enough-to-know-their-stuff folks. Their collaborative team delivers full sales services, including staging, professional photography, excellent text and graphic design, and a regular online magazine-style blog. All of this for homes just at the upper end of the price range mentioned above. It's not that I haven't seen this kind of service before; it's just that I've only seen it on really high-end properties.
My other favorite thing about Cityhome Collective? They organize their listings by neighborhood (not zipcode), and even have information about the businesses & culture of each neighborhood. Supercool and intuitive to navigate.
It Comes Down to Services
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As someone passionately interested in affordability, I simply want to get value for what I'm paying.
What services is an agent providing for me?
Are they earning their 3%*
- by negotiating for more than I could have on my own (essentially paying their own fees),
- with specialized expertise that I do not have,
- in a shorter time span, and
- with minimal stress on my part?
That would be a great deal, at any price!
*This last part also comes from My Point of Reference. I often tell people that most people building a home can "afford" an architect, because he will "earn his wage" within the budget by saving you money through efficient design and materials use, overseeing a contractor on your behalf to make sure you get what you pay for, and being your representative with all parties.