Love em or hate em, real estate agents are a major part of the process of buying and selling homes. We’ve written up a short guide that describes the various types of agents, what they do, and how much they cost.
Real Estate Agents: What do they do?
Real estate agents are usually local professionals that are dedicated to help people buy and sell homes. They act as their client’s representative during the process of buying and selling a home.
Real Estate agents are often expected to wear many hats. They usually act as an advisor, a coordinator, a negotiator, and a trusted gate keeper during the home buying & selling process. If you are unfamiliar with the process of buying and selling houses, they can be an invaluable souce of information during the entire process.
Now let’s first discuss the main two types of agents that you will encounter. Real estate agents are referred by their role in that particular transacation. The buyer and seller will usually have their own agents, and each agent is referred to as the “buyer’s agent” and the “seller’s agent”, depending on who they represent.
The Buyer’s Agent:
This is the agent that represents the buyer in the real estate transaction. Buyer’s agents will spend the time to take prospective buyers to view homes that they are interested in. If the buyer decides to put in an offer on a house, the buyer’s agent will draw up the offer and act as their liason during the transaction. They will be the middle man during negotiations, help coordinate the different moving pieces of the closing process, and accompany you to inspections and closing.
The Seller’s Agent (also called Listing Agent)
The seller’s agent is the person that will list your property on the local real estate listing pages and websites for you. A good seller’s agent will help you maximize the value of your house by providing you with tips on how to best prepare your house for sale. And as the buyer’s agent, they’ll represent you throughout the entire home selling process. They will act as a liason between you and the buyer, hep with negotiations, and help coordinate the closing process.
They’ll often hire professional photographers or other professionals to help you market your house (usually at their own expense). A good listing agent can sometimes provide avice that ‘unlocks’ thousands of extra dollars of value for your house.
Dual Agent/Dual Agency:
Sometimes you will see agents that represent both the buyer and the seller in a transaction. In this circumstance the agents are acting as Dual Agents.
It is not recommended that you enter into any agreement with any agent that is representing both parties. Agents are supposed to advocate on your behalf. That becomes difficult when they have to advocate on behalf of both parties.
Agents will often enter into these agreements because they can collect commissions on both sides of the transaction and make more money. But this is definitely not advisale unless you are very knowledgeable with the process already and feel comfortable advocating for yourself.
How much do they cost?
The typical cost of real estate agents is 6% of the sale price of the home, which is paid at closing from the proceeds that the seller receives from the sale. The 6% is usually split half and half between the buyer’s agent and seller’s agent. These typical rates can vary depending on your area.
This commission can add up to a considerable dollar amount. The sale of a $300,000 house will result in $18,000 in commissions to real estate agents at a rate of 6%. That’s a lot! On the other hand, the sale of a $100,000 house at 6% works out to $6,000 and doesn’t seem all that unreasonable once split two ways.
Note: Now I want to point out something that is probably overlooked by many buyers. Just because the commissions are paid out of the seller’s proceeds from the house, does NOT mean that the buyer is not paying for it. You could argue that the buyer always technically pays the commissions as it is naturally reflected in the sale price of the home. If those commissions did not exist the sale price of the home would have most likely been less.
The rates that are paid out to these agents are dictated by the seller when they first list their house. This information is included in the listing of the house. Often times agents will not work with sellers for less than the full 3%, and often times many buyer’s agents will not show houses that don’t offer the full 3%. So a seller that reduces his commission to the buyer’s agent will often risk not having his or her house shown. This is why often times you will see sellers work out discounted rates with their listing agent yet still offer the full 3% commission to the buyer’s agent.
Do I need one?
This is a difficult question and depends mostly on circumstance, knowledge, and ability. You could certainly attempt to buy or sell your house without a real estate agent, but they are so heavily ingrained in the market and the process that it will be hard to avoid them all together.
You could list your house as “For Sale By Owner” to avoid paying the 3% listing agent fee, but you risk the chance that buying agents will not show your home as they don’t want to work with anyone trying to cut them out of the process.
And if you are buying a house, you will most likely need one to open the door to the house for you. You may be able to work directly with a homeowner that is selling their house as “For Sale By Owner”, but for the majority of the houses on the market, you will need someone to open the door for you.
More recently some discounted services have come onto the market that have reduced the cost of buying and selling homes significantly.
Flat Fee Listing Services:
Some agents have begun to offer flat fee services to list your home. This means that you will pay a set fee instead of a percentage to have your home sold. This is advantageous to both parties because the real estate agent is guaranteed payment for work that they do since they will often collect the flat fee up front, and sellers benefit from lower overall commissions.
Services like this do not always come with the same level of service that a full-service real estate agent will usually provide. If you decide to explore this route, please thoroughly do your research, and learn what services that specific flat fee agent will include for that price.
In my own case, I’ve hired flat fee agents for $300 up front and paid them another $1,500 at closing. This worked out to less than half a percent commission to sell my house. This agent did everything except professional photographs, which I supplied myself.
Discounted or Low Commission Agents:
Some new services have come on the market, such as Redfin.com, which offer lower listing fees and rebates when buying a house. These are full service agents that charge less. There are also some real estate agents that independently offer reduced commission rates. A quick google search for your area should turn up a few.