What Does a Real Estate Agent Do For You?
With the proliferation of technology these days available to home buyers and sellers, it’s easy to question the value of using a real estate agent. Often times, a lack of understanding what agents are doing behind the scenes leads to misunderstanding and misjudging the importance and advantages of using an agent to buy or sell your home. What exactly are they doing when you’re not looking? How do they make money? How much does it cost you?
Defining the Terms: Agents vs Brokers
Roles can be confusing in this space, especially if you’re in an area like Chicago that uses the term ‘agent’ and ‘broker’ interchangeably. For our purposes, we’ll separate these roles into two: the agent and the broker.
The agent is the one who buyers and sellers will interact with throughout the process. As a side note, a “Realtor” is someone who has chosen to join the National Association of Realtors but there is no functional difference between the two.
The broker, on the other hand, is often referred to as the managing broker, and is the one who manages the agents and runs the ‘office’ or brokerage. Agents, in exchange for access to the MLS through the brokerage, tools, training, and more split the commission earned when they buy or sell their home with the broker. These splits are different for agents and brokers.
Here are some more definitions from Realtor.com:
Real estate agent: Anyone who earns a real estate license can be called a real estate agent, whether that license is as a sales professional or an associate broker. They look at listings on the multiple listing service and help you buy or sell your house. State requirements vary, but in all states you must take a minimum number of classes and pass a test to earn your license.
Realtor®: A real estate agent who is a member of the National Association of Realtors®, which means that he or she must uphold the standards of the association and its code of ethics.
Real estate broker: A person who has taken education beyond the agent level as required by state laws and has passed a broker’s license exam. Brokers can work alone or can hire agents to work for them.
Real estate salesperson: Another name for a real estate agent.
Real estate associate broker: Someone who has taken additional education classes and earned a broker’s license but chooses to work under the management of a broker.
The Cost of Using an Agent
Agents are not paid for out of pocket by either the buyer or the seller. The commission paid to the agent comes out of the final sale price of the home and is split between both the buyer’s agent and the seller’s agent (usually 50/50).
While it’s good news that neither side pays out-of-pocket, there is a cost - the 4-6% commission is ‘baked-into’ the list price of the home so the consumers do pay indirectly. For example, if using a 5% commission on a $200,000 home, knowing the seller will have to remit $10,000 to the agents (5% of $200,000), if the seller were selling the home without an agent, they may be willing to list the home for $190,000 since the net proceeds (all other costs ignored) would be the same. So for buyers, it indirectly and artificially raises the cost of purchase and for sellers the opposite: it lowers the net proceeds of the sale.
This is why it is important to note that buyers and sellers should never pay their agent - if you run into that case, run...fast! Also importantly, there are difference cost structures and commissions are negotiable. “Discount” brokers will often work for a reduced cost (as low as 1%, for example) or even forego the commission structure in exchange for a flat fee paid by the seller. These compensation models offer different pros and cons and should be considered carefully when choosing an agent.
So to recap, the commission is taken out of the seller’s proceeds from the home sale and is paid to the agents, who usually split it down the middle. Each agent then remits a portion of their own take to their broker as the cost of doing business and being able to hang their license at that brokerage.
The Big Question: What Do Real Estate Agents Actually Do?
A good agent can make all the difference. Agents who are proactive can find listings sooner than others, especially in scenarios when listings are not yet available on the MLS (meaning they’re not on sites like Zillow, Trulia, or Realtor.com!). Beyond that, agents:
Understand the market: Agents are in the market every day and well run brokerages are leveraging local market data and trends to help their clients make better offers, understand market dynamics, and ultimately find the best home or seller for you.
Have networks to leverage: Many agents, especially those in metropolitan areas, know other agents and therefore can leverage their network to find buyers for their listings, get word of new listings, work exclusively with builders for newly constructed homes, or work behind the scenes magic for your offer.
Coordinate Tours and Showings: Whether you’re buying or selling, an agent will both coordinate with the other side to set up a tour for buyers or scheduling open houses and showings for sellers. Agents can always assist buyers in visiting properties to provide insights, ask questions, and organize feedback.
Creating and Submitting Your Offer: When buyers are ready to submit an offer, your agent will help you determine an appropriate offer price and negotiating strategy. Just as valuable are agents who understand when not to make offers (in the event the home is either not an appropriate fit or potentially over-priced). There are lots to consider when crafting an offer and relying on your agent is a great way to ensure you’re making the right and appropriate offer.
Negotiating and Closing: Your agent can help you negotiate counter-offers based on their experience and knowledge of the local markets. Your agent is also your advocate with the lender and attorney and can play quarterback between all parties to help keep the deal on track and act as a middle-man for any questions.
Finding a Great Agent
We recommend interviewing 3-5 agents. Even if you do not think you need an agent, there’s no harm in reaching out and engaging with a few to learn their process, the market, the value of your home or ideas on finding homes in your budget.
Here’s a few things to think about when you’re considering an agent:
Experience: This is possibly the most important factor when consider an agent due to the cyclical nature of real estate. Agents who have been through market cycles and sold different types of homes across different price points can offer expertise and guidance that agents who have not simply cannot. Don’t confuse large marketing budgets with experience, and don’t confuse the dollar value someone has sold with quality, but inquiring into how long they’ve been an agent is always a good first step.
Local Knowledge: Many agents are experienced but work across such a broad spectrum that they’re not experts in any one area. Agents who tend to carve out niches in certain neighborhoods, for example, or fixer-uppers, condos, etc. may have an advantage when it comes to value and timing. This is something you can ask about or pick up from their marketing materials.
Technology: Does the agent invest in and use the best technology? Are the tools they use beneficial to only themselves or do they use tools that benefit their clients as well? Are they fine with you just sending links from Zillow or do they have the tools to work with you that better enable them to collaborate and respond?
Of course, these are just guidelines, and every agent was once a new agent. If you’re interested or been referred to an agent who is on the newer side, inquire about the brokerage or team he or she works for - are they a high performing team or do they appear to be mediocre? Good brokers mentor their agents and provide resources for them to be successful, so do not simply write of an agent because they look young! At the end of the day, it’s about fit, so find an agent you feel comfortable asking questions, who responds to you, and has a personality you like to be around.
To assess the fit, consider the following:
Communication Skills: Are they good communicators? What tools and methods do they use to communicate with you? What beyond questions do they share with you (market data, trends, analytics?). Does their preferred method of communicating agree with yours?
Patience: Is the agent not only responsive, but do they provide thorough answers to your questions? Are they just a ‘yes-man’ or do they provide their opinion to relevant matters? Are they willing to tell you why some listings or offers seem like bad ones? Are they pressuring you to decide?
You or Paycheck: Due to the fact that agents get paid when you decide, there is always a natural incentive for agents to simply get a deal done quickly (and ideally at a higher price). Good agents, however, understand that providing a good experience, finding the right home, and putting your needs first may help them be more successful in the end through referrals and their reputation.
Ultimately, the best way to get answers to the types of due diligence you need as a consumer to do on agents is to meet and interview them, ask for referrals, read their websites, and start to work with them. Many agents may ask you to sign an exclusive agreement, which you can choose to or not. If you are seriously interested in working with that agent, you should sign it. If not, let them know and be honest - they’re trying to make a living as well.
Agreements with Real Estate Agents
Each of the below represents a different type of contract between agents and buyers.
This agreement between buyer and agent makes nearly no commitment between the two parties, allow buyers to continue to shop around and talk to other agents.
The difference here is that if you buy a property that the agent found for you, you agree to compensate the agent via the commission. This is similar to a finder’s fee agreement.
This is the typical and most common form of contract that creates an agreement between the buyer and the agent to work exclusively together, meaning the buyer is committing to paying the agent commission (again - not out of pocket) on any property, regardless of how the property was found, purchased.
These contracts, unlike nonexclusives that can be as short as weeks, can last longer, even extending into years. Importantly, it’s not required to sign any sort of agreement - and in fact, many agents pass on even attempting to get buyers to sign these agreements, especially in the Zillow era, where more work finding homes is being done by buyers. So with that being said, don’t let agents pressure you into signing anything.