Even More Reasons Not To Trust Your Real Estate Agent

by Mike Holman

That’s right – after completing two posts on why you should not trust your real estate agent when you are buying a house and when you are selling a house, several more reasons have surfaced from various sources and I felt it was worth another post on the topic.

Underestimate potential costs for renovations and repairs

This is pretty common – a buyer looks at a house but is concerned with the potential costs of renovations and maintenance items like a new furnace. Most real estate agents are only too happy to give the buyer an idea of what the items will cost. The problem is that it’s in the best interest of the agent to downplay the costs since that will encourage the buyer to make the purchase and the commission will be paid. This happened to both Mr. Cheap and myself on previous real estate deals so we’ve learned this lesson the hard way.

The fact is that estimating renovation costs (not an simple skill) doesn’t necessarily have anything to do with buying and selling real estate. Your real estate agent might be a former contractor or might have a lot of experience with renovations…or they might have absolutely zero experience with renovations and are just taking numbers from something they might have read in the past.

Push for maximum purchase

In the case where someone is looking to buy a house but isn’t using anywhere near their maximum available credit, it’s possible for the agent to push the buyer to raise their price level which will increase the potential commission for the agent. For a price difference of $10k or $20k it’s not going to make a big difference to the agent but if they can get the buyer to increase their limit by $100,000 or more then it will significantly increase their payday.

Pinyo from Moolanomy left a comment indicating how his agent told him that he could afford $4,000 per month in payments when in actual fact he finds that a $1400 mortgage payment is more than enough.

The lesson here if you are a buyer is to know your own budget and don’t let anyone else tell you what you can or can’t afford.

Agent is probably getting paid for referrals

Most agents make extra money by referring their clients to various people who will give them referral fees. Mortgage brokers, contractors, tradesmen, home stagers, lawyers – you name it and your agent can probably give you a name.

This isn’t to say that a person referred to you buy your real estate agent isn’t going to be competent – it’s just important to know that they might be getting a fee for doing the referral.

Round number – odd number trick

As mentioned in the comments of the previous post, agents will often try to get you to lower your selling price or raise your bid by telling you to “make it a round number” or “make it an odd” number depending on the situation. If your bid is an odd number ie $250,500 they might suggest that $251,000 is a better bid because it’s an even number. As the Financial Blogger suggested – in this case $250,000 is also a round number which might work better for the buyer.

Over estimating the value of your house

Typically if you are selling a house then an agent wants to you to list with them. They are often very tempted to exaggerate the value of your house so that you will hire them as your agent. Once you sign with them and the house doesn’t sell, then they will start working on you to lower the house.

The inflated value doesn’t always originate from the agent, most sellers have an inflated estimation of their house worth so an agent might ‘go along’ to get the listing.

“Free” real estate evaluation

Most home owners have received material in their mail box offering a “free” house evaluation by a real estate agent. These are just marketing, plain and simple. If the home owner has no idea what the house is worth then it might not hurt to find out what the rough estimated value is but keep in mind the previous point about agents giving exaggerated house estimations.

Take a look at another perspective on real estate agents that Mr. Cheap wrote.

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{ 32 comments… read them below or add one }

1 Sell My House

That is why I think it is very important to get a referal from a family or friend of a great real estate agent.

2 Nobleea

…or just sell it yourself.

After listing on Comfree here in Edmonton, I get about 1 call/day from greasy RE agents trying to get my listing. Typical conversation goes like this:
Agent:”Is there a point at which you would consider listing with an agent?”
Me:”When they’re free”
Agent:”I don’t think you’ll find any agents that would do that”
Me:”Then I guess you have your answer”

They’re nothing more than glorified taxi drivers. Take away MLS and they’ll be no more skilled at selling your house than you are.

3 Four Pillars

SMH – yah, that’ll help a lot.

Nobleea – I agree that the only thing keeping the real estate companies in business is the MLS system – that’s the only item of value they add.

Mike

4 Nolan Matthias

I agree whole heartedly that there are many real estate agents who give their profession a bad name. However, anyone who neglects to acknowledge the risk and expertise needed to sell a home is pleading ignorance. Its a realtors job to write enforceable contracts, foresee potential problems, and protect their client, and any FSBO who claims to have the expertise to do that as well as a good realtor is full of it. They had better make sure they have the best lawyer in town.

5 Nobleea

Careful, realtors are not lawyers and aren’t allowed to extol legal advice. That’s the reason why lawyers are required for both sides, regardless of whether agents are present or not.

Anyone who assumes that realtors can give out legal advice is pleading ignorance. They can help put necessary clauses and dates in the blank contracts.

Paying a lawyer to write up a contract to purchase, or reviewing one, costs a hell of a lot less than the commissions charged by RE agents. In fact, some no-commission FSBO include free writeups of offer to purchase through a real estate lawyer.

6 ThickenMyWallet

At the end of the day, a real estate doesn’t have a fiduciary relationship to you and he/she has no obligation to look after your best interests (same with investment advisors who are not, surprisingly, fiduciaries). Is it fair? No. But its life in the age of the quick buck.

http://www.zillow.com may be the best challenge to MLS yet. Let’s hope it revolutionizes the business.

7 Nolan Matthias

Nobleea, you are correct that realtors are not lawyers, however they are responsible for providing to their client an enforceable contract, not to give advice.

Most real estate lawyers hate dealing with for sale by owners to begin with because of the enormous amount of issues that can arise, as do appraisers, mortgage brokers, and banks. They are simply more hassle than they are worth because a large portion of people who choose to sell their own houses have no idea what they are doing.

Realtors in Canada do in fact have fiduciary duty to their clients, and there are very few exceptions to this rule. If they do not, they have to disclose this to you. They also have to disclose any latent defects in the homes they sell and any major issues which may arise, as well as any referral fees they are recieving. A private seller may choose to ignore all of these things (although illegally), at which point it would be up to you to pursue legal action .

There will be far less complications if a good realtor is used as they will guide you through the process. The thought of soliciting a sale to the public without the use of a realtor reminds me of the commercial where the doctor trys to tell the patient how to do his own surgery over the phone. Its delving into an area where expertise is required and if you don’t have it you shouldn’t proceed blindly.

8 The Financial Blogger

Is there any reasons why we should trust them anyway? I mean, seriously?

9 Four Pillars

FB – I think you already know the answer to your question… :)

Mike

10 telly

We used a broker to buy our house and are currently listing with the same broker to sell our rental house.

Now, I’m talking small home values relative to the average price of a home in Canada so it’s a smaller chunk of change and a number that my husband and I feel is worth spending by letting someone else take care of the advertisement, phone calls, showings, etc. while we look after other opportunities / responisibilities / fun time.

11 Nobleea

Nolan, there are likely to be less complications when dealing with a broker. But for the extra 10K in savings, some would still take that.

“The thought of soliciting a sale to the public without the use of a realtor reminds me of the commercial where the doctor trys to tell the patient how to do his own surgery over the phone. Its delving into an area where expertise is required and if you dont have it you shouldnt proceed blindly.”

I see more parallels with investing. The norm used to be mutual funds and investment ‘advisors’ who got a cut of everything you bought. Now fee-for-planning advisors are available and ETFs without the ridiculous MERs are common. It still requires some knowledge and commitment.

12 Four Pillars

Nobleea – I disagree with that analogy because I think RE agents have a big advantage over FSBO because of their access to MLS. With diy investing you can buy the exact same investments as a non-diyer but with lower costs. When you buy or sell without an agent you have less info and a lot of buyers may not be comfortable with dealing with a FSBO.

Nobleea + Telly

My stance has always been that RE agents perform a really good service and my only real issue is the fact that they charge a percentage of the house price instead of a fixed cost which makes their fees a ripoff. Their fees have gone up WAY more than inflation and it’s ridiculous that an agent can make twice as much money selling a $700k house as they do with a $350k house when it is probably the same amount of work (or less) to sell the more expensive house. That’s like paying a bank teller based on how much cash they count during the day – is it more work/skill to count $100 bills vs $5 bills??

That said I wouldn’t really recommend most people to buy/sell without an agent – just to be aware of the conflicts.

13 Sensible Developments

It is actually hard to trust anyone that gets paid solely on commissions. The only way they eat is to move a product or service. Initially I came across some real estate agents that were similar to the ones described in the blog. I decided that if I were going to continue to invest that I get my real estate license and close my own deals. From there we formed a construction /development for similar reasons. Check us out at http://www.SensibleDevelopments.com

14 Marcus Stillman

The skill and expertise when it comes to the legalities of buying or selling a home lie solely with the lawyers. Point in fact is that in Canada
ALL MLS agents and brokerage require you to convieniently sign and initial the agreement that idemnifies them of any legal responsibility or liability.

As far as the “expertise” goes, it does vary from province to province and state to state with sme areas lcencing entitling only a 3 day course …

Do you home work, but I can tell you in my experience of buying and selling homes (over 2 dozen now) I have worked with a lot of great people that happen to be real estate agents. I can safely say that while they were nice, NONE of them ever earned the huge commissions that their system mandates.

From now on, I’ll leave it to me as a private home seller as no one knows my home(s) better than me, so I will keep the commission and know the job was done right.

Step out of the time-machine folks. We no longer live in an era where real estate agents are required for the normal day-to-day transaction.

15 Marcus Stillman

This quote kills me:

The thought of soliciting a sale to the public without the use of a realtor reminds me of the commercial where the doctor trys to tell the patient how to do his own surgery over the phone. Its delving into an area where expertise is required and if you dont have it you shouldnt proceed blindly.

This commerical was devised, paid for and produced by the MLS system…..you didn’t think they were going to recommend you NOT use an agent now did you.

I have sold several homes privately now, three for a higher asking price than the agent suggested on their CMA….plus I kept the commission.

Selling a home does take a bit of work, but IMHO it is no more difficult than selling a car.

Is it a new idea to most people? Yes.

Is selling your home privately hard? Not in the least bit, and the money I have saved put three kids through college (my kids, not a realtor’s)

The commercials are another care tactic from the brokerages. Not too long ago it was the ones that nicely told people they aren’t smart enough to sell their own home.

If you were in a multi-billion dollar industry, wouldn’t you pound a few dollars into it to try and save the dinosaur?

Nuff said.

16 UtahLuxury.com

I think you should be wise and use a Realtor. Do you have any idea how many ways you can screw up a transaction. Realtors are fined and go to jail everyday for little things. What would happen should you make the same mistake without a Realtor? Thats right Jail-time for you.

17 Nobleea

Yup, theft is a felony in the US. It’s called Theft over $5000 in Canada. Or Grand Theft Realtor. I hear there’s a new video game coming out.

18 UtahLuxury.com

Or some really expensive fines.

By the way, there are options you know. You DONT HAVE to use a Realtor. You DONT HAVE to use a full service broker if you do.

I think people complain way too much about Realtors. I agree that some of them are not the best in real estate, but it was your choice to use them ;)

19 UtahLuxury.com

If you are so worried about costs associated with realtors and are interested in options, google discount real estate brokers and you should find several willing to sell your home for way less.

20 Nolan Matthias

Marcus Stillman

Actually, that commercial is an American commercial that is either related to an insurance company or a finance company, can’t remember which. But it has none the less, nothing to do with the MLS system. Your comment alone is yet another reason a private individual shouldn’t try to sell their home privately. Because they think they know but really have no clue!

“That said I wouldnt really recommend most people to buy/sell without an agent – just to be aware of the conflicts.”

Mike – good for you for saying this. I completely agree that a sophisticated real estate investor may have the expertise to sell their home on their own. As for the average Joe, perhaps negotiating commission is a better means of saving money when selling your house than FSBO, but be careful, usually the realtors that will sell houses for cut commissions are exactly the ones that are the cause of this whole issue to begin with.

21 West Toronto realtor

I am in West Toronto realtor team, so I am not neutral, but I have just one thing in mind. Why do you think realtors emerged in society? I think it’s natural for people to search for most convenient ways. So I believe realtors are here because they are wanted, not because somebody ordered “and now, let be realtors all over the world!”

22 Mr. Cheap

WTR: Hi Jill, sorry for the tardy reply (just say your comment). As Mike said (and Nolan quoted) “That said I wouldnt really recommend most people to buy/sell without an agent – just to be aware of the conflicts.”

We’re not necessarily anti-agent. If I was buying another place, I’d definitely use a buyers agent (especially since I just moved to a new town). When I sell, I’ll try to do it on my own (and if I have problems, I can always turn it over to an agent at a later date).

Our objection is to the compensation structure (and the conflict it creates), not the existence of agents.

23 Kimberly

In 2009, I just do not comprehend why an educated individual would hire an agent to buy or sell. With such easy access to the internet, the amount of free classified sites (ie. kijiji.ca), inexpensive signage available (ie. vistaprint.ca), free maps, etc., anyone using an agent to buy or sell a house is puzzling. I’m pretty sure most people know how to get around their house so unless the agent is going to clean and stage your house for you every time they bring buyers through for a viewing, you’ve got to be crazy to be paying them $20000+ to give house tours and fill in a few blanks on standard real estate forms (http://privaterealestate.ca/Agree_PAS.pdf).

The only time an agent makes sense to me is for POS homes or if I were trying to sell while overseas. Even if I was overseas, I would probably give my house key to my neighbour to show the place for me and reward someone I know and trust if a sale results.

We just sold our house via kijiji.ca and the process was simple! So much easier than the usual stress and tension we’ve experience with agents we’ve hired in the past.

Steps to selling:
1. Watch HGTV. Declutter and make your house spotless as per stager suggestions.
2. Post pictures, details, and A REALISTIC price given the current market conditions on a known free classified site in your community. Kijiji and craigslist are very popular in my community.
3. Order lawn signs via vistaprint.ca and post.
4. Get all of your utility bills and property tax info in order in case the buyer asks for this info. Create a flyer about your property features if you wish.
5. Complete the following form http://privaterealestate.ca/Memorandum.pdf with buyer to be accompanied by a cheque (minimum 1% of purchase price, to be held in trust by your lawyer).
6. Have your lawyer prepare the Agreement and have the purchasers lawyer review the Agreement.
7. Both parties sign off on Agreement.
8. Have house inspection condition waived upon satisfactory inspection by certified house inspector.
Voila! You have happy buyers and a firm sale.

Our lawyer charged us $1000 for this. An agent would have charged us $20000 and we still would have had to pay our lawyer $1000 anyway.

Your home will sell itself. The bottom line is you have got to price your home fairly. We priced our home 5-10% lower than other similar overinflated properties listed on MLS. We got full asking price without having to negotiate at all. The very happy buyers knew the price was fair and it was the best deal in the area. We got the sale while other similar homes in the area continue to sit on the market. There is only one trick in real estate – pricing your house for it’s REAL value. You can have your property value assessed for free via mpac.com.

Still in this recession, too many sellers/agents are overinflating the price of their homes. These homes are just sitting on the market for days. The value of a home can be easily assessed by confirming the property taxes and recent sales in the neighbourhood. For 20$, your lawyer can tell you how much the owners paid for the property when they bought the house, any mortgages in their possession, and what the municipality assesses the value of the property at.

Our most recent favourite agent remarks, amongst all the others in this fabulous series is after asking an agent about a particular feature/defect, their response is almost always: “I’ll have to ask the owner about that”. As if they hadn’t already noticed the defect/feature when they took pictures of the property. Drives us crazy. Wouldn’t it be easier to just deal with the owners directly???

Great series! I’d be interested in seeing a series on builders.

24 Derek

Kimberly
I am an agent and I have to tell you. You are different than most people. I started reading your article and thought you were crazy for not wanting to use an agent. As I kept reading I realized your motivated. You probably do not have to worry about an agent. There might be somethings an agent would be good on helping you negotiate. Most sellers will not declutter. Most of them say I want x amount out of my property and than say people are going to come in and talk me down so I will add 5% to my asking price. Than they are 5% or more over priced.Most people will not go and have nice signs made up. They stick the ones from lowes with sharpie for the phone number. The number is in a unique way of writing (sellers creativity) and you can not read it. As far as the web sites. The truely best ones are still owned by real estate agents. Craigs list is doing some amazing things. Most will avertise on a 20 a month website and think they are doing it. Infotube.com is a good example of this. Very bad web site to be on in my opinion. Most people are just not like you Kimberly. You are different. This is why I have a job and am very busy.

25 Mike

A very high percentage of real estate brokers/agents are pretty honest. I would say about 80%. I’m an attorney that does real estate transactional work as part of my practice. One might think this number is elevated. But bear in mind that people who have been treated badly howl much louder than people who have had a good or acceptable experience. If a broker is a sleazeball, it is going to become known in the professional community, and the market will tend to weed that person out, or at least diminish their presence in the market. That being said, sellers and buyers have a responsibility to educate themselves. And with the internet available to almost everyone, there is no good excuse to go into the biggest deal of one’s life without being familiar with the main facets of the deal. There will always be bad apples. Buyer Beware!

26 Derek

Mike hit it right on the head. He said the famous words. Buyer Beware. There are good agents and there are bad agents. You never hear the stories of the good agents. You will always hear the stories of the bad agents. I hope this puts an end to this. Thanks Mike,

27 Dan B

Wow, what a gross generalization. But don’t stop at Realtors.

Don’t trust cops, all they do is eat donuts and give people tickets for doing nothing wrong. They don’t actually provide safety and security to the community, do they?
Don’t trust lawyers – they’re all liars. Besides, everyone who is arrested is always guilty, right? They are not entitled to a defense.
Don’t trust auto mechanics – all they do is find things to add to your repair costs. They don’t actually just fix what needs to be fixed and provide maintenance.
Don’t trust bankers, they just take your money to line their pockets. They don’t provide financial advice and help you plan for your retirement, kids’ education and future goals.
Don’t trust your doctor. She is just there to sell pharmaceuticals. She won’t actually help you raise the quality of your life.
Don’t trust our elected officials. All they do is sit in an office and collect our tax dollars. They don’t create policy based on the needs of their constituents.
Hmm. This is a bit too specific. Maybe we should break it down to genders and ethnicities too.

Mr. Holman, your grossly weak generalization of the men and women in the real estate profession is unsubstantiated, irresponsible and offensive. The business is based on referrals by past clients who feel Realtors did excellent work REPRESENTING them, not by making a quick buck.

Next time you feel like trashing someone or the manner in which they feed their children, perhaps take a minute to really examine whether or not you have enough evidence to trash the group as a whole, or if you’re just upset by a few people who could have done a better job for you.

28 Tiffany

Well written post above. It seems anyone could chose any profession to bash and point out the negatives. Although this is insulting for those of us who work very long and hard hours, weekends and holidays away from our families to accommodate clients needs. Do the very best jobs to provide client sat. etc…I’m aware bad apples exist, that goes without saying in any line of service. It is awful and very negative to assume the worse of all agents because of the way we get paid. Also, It seems to be a misconception that is prevalent about how much we get paid, trust me it is certainly earned and not as much as your assuming after splits, ads.expensive association fees, MLS fees ect…Also, it is illegal to get kick backs from lenders. Agents typically know the good lenders from the not so good or inexperienced in the area they service, it is a much easier and more pleasent experience for all involved to use a good lender, hence the ref. Any other fees have to be disclosed.
I’m sure this type of half-truth and half-personal opinion blog has some place to keep company with others who have had bad experience or to act as a fearmonger to those who are just not sure how Realtors work…thay would generate readers, which of course is the desired outcome here, right?

29 Dan Wagner

Obviously this writer doesn’t know much about what they are writing. They obviously never heard of RESPA and Realtors. It is a violation of RESPA for Realtors to take a referral fee from a lender. If they don’t have basics like that right, how can they profess to be experts?

30 Swallow123

Real estate agents are great – if they do their jobs. Unfortunately, it seems that when listing a property nobody really knows exactly what they’re supposed to do – and I’m not referring to price.

About 4 years ago, we purchased a home that required minor renovations and cosmetic updates – or so we thought. What we didn’t know is that the 10’x17′ sunroom attached to the home and advertised as being included in the square footage – wasn’t. Worse yet, it had NO FOUNDATION and the previous owners (the builders) didn’t take out any permits for the construction.

Oh, and I nearly forgot to mention that the listing realtor didn’t even check the title search, or she would have found that she was speaking to a wife and her dead husband, who planned to leave the country – him in a can and her in 1st Class.

A quick trial ensues and the listing realtor ADMITS she sold a “deck” then a “covered deck” then an unattached “solarium” and finally a Sunroom with NO FOUNDATION. So, because some real estate boards adhere to a 3 yr record retention policy, even the sellers agreement was gone and the .

So guess what – the realtor walks away unscathed (she had insurance anyway) and we’re left to pay the costs!

In some Canadian jurisdictions, listing realtors don’t review their own title searches and they simply trust EVERYTHING the seller has to disclose. They certainly don’t have to ask any uncomfortable questions that might suggest they may not believe their clients or embarrass them in any way.

Now, before we can relist our dream home and leave this poxy city and it’s hypocritical administration – WE have to put a foundation on the sunroom and fix the damages associated with it pulling away from the house (i.e. shingles, etc).

And what happens to that listing realtor? She get’s to ride off into the retirement sunset knowing that another “list em and leave em” deal beat the law of averages.

31 Ahra

For sale by owners should have to declare a deemed portion as income and add it to their income and pay tax on the money – plus be deemed anticompetitive if they refuse to allow buyers with Realtors to show a home or pay the Realtor half the money – a deemed amount of commission. If tradespersons have to declare underground money as income, so should for sale by owners acting in the stead of Realtors who have to declare commission as income and pay tax on the money – plus expenses. Perhaps the Competition Bureau should issue all citizens of Canada honorary Realtor’s licences since they don’t seem to think courses are necessary. They don’t value the services of a Realtor and seem to want buyers to be pay just as much to private sellers without assistance from Realtors. Why are Com-frees on MLS by Realtors in others cities from homes they list – so they don’t even have to see the homes. MLS is a junky free for all now where for sale by owners can do whatever they want when Realtors can’t. There should be a stated commission portion up front for Realtors if a property is on MLS. What madness now. For sale by owners aren’t less because commission isn’t payable. They want the commission portion Realtors earn and for sale by owners denigrate while trying to keep it and more. For sale by owners should have to declare the/a portion as commission and income. Government – take note. Private sellers can sell their own property for what they want, but a commission portion should be stated and tax should be paid on that money.

32 skooby

I’m alway afraid to sell my home privatly, because i dont know what kind of people will be visiting my house? what if they steal somthing or damage my house if i give key to my neighbours to show the house? as per Kimberly said. who will be responsible? as i had very bad experience with comfree, I would preffer a realtor over selling it privatly, they get paid when they sell your home, comfree chrged me $1100 upfront and nothing happened, I did hire a realtor who charged me $6000 which i think was reasonable to sell my half duplex, compare to standard commission, she was with the small company but did a very good job. I guss the bigger the company the more they charge, and I heard they dont negotiate because they pay higer fee. I wish I would have saved that 5k but its more painful when you just throw ur money in trash.

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