Most prospective house hunters or sellers think they have a “good” agent. Either it’s someone who they previously worked with or perhaps a referral from a friend for co-worker. One of the big reasons for having confidence in their agent is a belief that the agent is “on their side” and “honest” etc etc. I would suggest however that by a certain point in the process, your agent is your enemy and you are negotiating against them more than the other party. This post deals with the buy side of the house buying game. The next post will deal with the sell side.
In the beginning: happy friends
When a house buyer first signs up with an agent then things are usually pretty rosy, the agent assures the person that they can find an appropriate house for a price you can afford and everything will be great. The agent has “lots” of experience and knows the area inside out. At this stage of the game, you and your agent are mostly on the same page. You want to buy a house and they want you to buy a house. Your agent will most certainly want to get the process over with sooner rather than later but that’s usually the case with the buyer as well.
During the search: uneasy allies
Agents know that they need to spend a fair bit of time with a buyer especially ones who want to look at a lot of houses. After a while however it’s not worth it for an agent to continue a long search especially if their contract is running out. This is the time when the agent will start trying to convince the buyer to lower their standards and raise their prices. Sometimes this is educational if the buyer has unrealistic expectation but mainly this is to speed up the process so the agent can get paid. I should point out however that real agents are normally quite useful during the search since they often know more than you do about the general real estate and can get you access to private showings. The other big benefit is their access to sale price information for similar houses.
Thinking about putting in an offer – Trust no one!
The point when the buyer submits a offer on a house is a time when a lot of house buyers – particularly first timers feel out of their element and defer to their agent for advice. This is the worst thing you can do. Your agent gets paid when the deal gets done and only when it gets done.
This is a time when knowledge of the real estate market should be a big help in determining how much negotiation should be done. As well, if the buyer is not in a hurry to buy then that sets up a great negotiation opportunity. However if there is one thing that real estate agents don’t like it’s clients who negotiate hard – why? Because the only way to negotiate properly in a deal is to be able to walk away if the price you want isn’t met. The way an agent sees this type of situation is that if a deal falls through then they have to spend a lot more time looking at houses before they get paid.
Things that your agent might say (and you should ignore) when you are about to put in a bid are:
- “Don’t bid too low or you will offend the sellers”. This is garbage – if the sellers can’t handle a low ball bid then they are unrealistic. And what exactly is a bid that is “too low”? I’m not saying put in an unrealistic bid but don’t be afraid to start lower and work your way up. As I mentioned before it’s important to know the market so that you don’t have to rely on the asking price or your agent to tell you the proper market value of the house.
- “Don’t bid too low or you might offend the selling agent and might I have to work with them in the future”. This stunning example of gall and self-interest was actually told to Mr. Cheap. I don’t think this one needs any further comments.
- “You should get a bid in quickly before someone else puts a bid in”. This is a favourite of my agent – create a sense of false urgency, get the deal in motion and get it done ASAP. Sometimes this is good advice but other times – such as when the house has been sitting on the market for a month or longer then it’s just not appropriate.
- “Someone else is looking at the house later today and they are really interested”. This lie usually originates with the selling agent but smart buying agents are usually more than willing to play along because it will increase the chances of their buyer putting in an offer in that day.
Negotiation – don’t listen to a word your agent has to say.
At this point you are potentially pretty close to buying a house. You want to buy the house but at the lowest price, the seller wants to sell the house to you but at the highest price and your agent wants you to buy the house and doesn’t care at all what price you buy it for because they just want the deal done right now. Since paying a higher price will get the deal done quicker a lot of agents will encourage you to bid higher which basically means that you are negotiating against them as well as the seller.
Things that your agent might say (and you should ignore) when you are negotiating are:
- “Meet them halfway or in the middle”. This sounds quite reasonable at first- if the asking price of a house is $500k and you bid $460k and they come back with $490k then isn’t splitting the difference at $475k quite reasonable? Not if you can get the house for $470k or $465k. The fact is that the asking price of the house and your first bid are very arbitrary numbers and splitting the difference between the two might end up in a price that is not market value.
- “Are you willing to lose this house for $2,000?” (or $5k, $8k) This is a tough one – on the one hand it seems silly to not buy a house and be only a half of a percent away from a deal but on the other hand shouldn’t your agent be asking this question to the seller? Ie – “we are going to walk, do you really want to lose this deal for $2k?”
- “Are you willing to lose this house for $12 a month?” This is part two of the previous point which is applied if you don’t bite on the first attempt. It’s also a more useful gambit if the “separation” is a bit greater. If you and the seller are $12,000 apart then that sounds pretty significant but what if you are only $75 a month apart (for 25 years) or even better what if you are only $63/month apart (over 40 years).
Conclusion
The more you educate yourself about the real estate market you are looking in and how real estate agents operate then the better off you will be when buying a house. Real estate agents are quite useful because they can get you access to houses for sale and will often drive you around to look at them plus they have access to the sale price of other houses. Whatever you do, never forget that they get paid when the deal gets done and only then. They don’t get paid for showing you more houses or walking away from close deals.
Tune in tomorrow when we take a look at the trustworthiness of real estate agents when selling a house.
Take a look at another perspective on real estate agents that Mr. Cheap wrote.
Do you have any good “lines” that you were told when buying a house?
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I know real estate agents work very hard and most are good and care for what they do.Well the one I had with the biggest real estate agency Newyork state sucked and was not doing his job.He was our buyers agent and worked for us(thats what he said)Well the house was listed 400sq feet bigger and taxes were alot higher.The taxes listed was what the old lady was paying.She got a huge discount from nys enhance star program and her husband got discount for being a vetrean.Our buyers agent said the taxes were 2300 and that before the basic star program were entiled to.He point blanked lied to us and taxes are 1000 more.Hes not listing agent and blamed him,Well then what the hell is he good for?He should make sure its right.
Hes a realestate agent should of known by the taxes something was wrong.Well my wife is in tears casue wants the house and I dont.I will not overpay for a house from a lying scum bag.
All i know is for opening a door and saying here is the kitchen etc does not warrant 4000 commision.
Like I said I know real estate most anyways,work long hours and are good people but like any other profession there are scums out there.Wehn buying a house,make sure get comparables,you the buyer check the county and town records make taxeas and sq footage are correct.Would think thats what buyers agent is for but Cant trust anyone.
Tom V,
I am sorry for what is happening to you. I think you for still saying we agents work hard even though you have an agent that is dropping the ball. I agree with you that your agent should of checked on the taxes. You should ask your agent to show you everything. I know me being a buyer agent. I open my door to my buyer’s. I show them everything. It takes alot of guesswork out of the process. Things like a market analysis can be read totally different ways with different people. You can have the same house and 10 agents and 10 appraisals can be done and you will have 20 different prices. I think it is important for us agents to be a source of the source, but not the source. This means we need to provide the information, provide our opinion (that is what it is agents an opinion), and then let the buyer make the decision. Tom we as agents do and should expect to trust that the other agents give correct information. Sometimes that hits us in the face at the expense of you the buyer.
Tom if you found out the home is 400 sq ft less and taxes are 1000 more after your offer was accepted, I would go to the 2 agents and ask them to speak to the seller and tell them that you wish to cancel the contract and go back into negotiating. The seller defintly is not propably going to want that. If the agents can not get you a result with this, than call the broker in charge at the 2 companies. If that does not get you anywhere, than go to the local realtors association. Hopefully these steps will get you somewhere. If your agent made the mistake and than told you before you signed the accepted contract, than there is not much that can be done.
The worst thing I heard was around 2006 when things were really booming here in Edmonton. Realtors were advising their clients that there were some number of other families bidding on the house and that the client should make a bid equal to the asking price plus 2% for each of these other families. For example, house shoppers being told “there are 5 other families bidding on this house so your bid should be 10% above the asking price.” Of course, there was no way to confirm the number of other supposed bids. In addition, the higher the sale price, the greater the realtors commission.
I’m a realtor and ive read part of this post and a lot of it makes me laugh. One thing everyone has been forgetting is what about all of those transactions that dont tranform into a transaction. It happens at least 2 third of the time. You have to factor that in.
I understand my clients when they say its expensive and hell yeah it is no mather how you slice it. But in taking the cheaper realtor or the one that tells you what you want to hear dont come crying about cheap realtors missing out on the next buyer in your neighborhood due to incomplete listing and those kind of things.
Dont forget that some people ask for a good realtor once they have burn there house from the market. A good realtor comes in and tries to undo or salvage the info thats out there now…
The thing that i find the hardest about this jod i chose for my passion of real estate is when people associate the quality of a realtor with the fact that the house is sold or not. Sometimes everything is done right the price is right and for no reason it just wont sell. In the current market an average realtor will sell a house every 8 to 10 listing, 5 years ago it was every 6 to 8 and 10 years ago it was every 28 to 30 listings. If you look a the current market curve where heading in the 10 to 12 or more.
So do i start counting the total hours on every 10 listings, no is the answer. It is very hard to quantify the wage per hour of a realtor cause if your professional at all this amounts to being available at all times and having a heavy schedule.
But i can promise you one thing, the day we start charging an hourly rate this will come to a higher bill to the consumer in the end. I think a lawyer is very expensive but would be more accessible and cheaper in the end if they would be paid once they reached the desired result…
Right now the general public have access to a professional realtor if thats what they want. They can get full scale publicity of there property to get the best price possible for there home at 0$ if nothing materialises.
A god realtor to sell 12 listings and have 12 sucessfull buyers has to list at least 50 properties a year. These are big numbers to crunch and i challenge anyone to do this and tell me that they actually overcharge there clients and didnt really earn there 60 000$ to 80 000$ a year. This seems like big numbers but the cost of a professional working days, nights and weekends amounts to that salary.
This job is not so easy when done very professionally and one of the proof to back up my claim is that half of the new realtors quit within the first 5 years. I think only card dealers at the casino have worst numbers… I hear some people saying that card dealers at the casino are overpaid, i respond you try doing there job for 5 years and then think the same thing…
At the end of the day the grass of a realtor is not as green as some would want to beleive. Our grass could be greener if we would not be professionals whit all those license and fees to protect the public… The public is currently well served and i would not want it any other way. They can chose from any range and types of realtors. Of course as in any other profession there are better professionals than others. I think people dont spend enough time shopping for realtors or are not looking for the right things in a realtor to satisfy there demands.
I love my job passionately and my clients are satisfied with what i bring them… I tell it like it is…
Ken,
What you said may not be junk. Maybe that is what agents were seeing in the boom of the market and they are only telling you. If you think it is a commission thing, forget it. An extra 2% in price is pennys in our pocket. If you had read my earlier blogs here you would of seen I figures it up. I only make or loose about $14.10 for every$1000. Do you really think most realtors are out here counting every little $14.10 they can make. If they are than they are agents who are going under and are trying to watch there pennies. Than in that case they will be out of business in a short time and another bad realtor is out. The good ones watch there money close, but not to the extreme of that. There time is worth more than going back and trying to get you to negotiate another $1000 higher. Ken maybe some of what the agents were saying was junk, but maybe it was not. That is why they should show you a CMA (Comparative Market Analysis) and if you choose to pay 10% higher to get the house. Than it was due to supply and demand that you paid more. If you choose to not pay 10% higher and loose the house than don’t cry to your realtor. I know I for one had clients looking in the bubble and were bidding against others. They ask me what should I do. I said it is up to you. I tell them, one thing is for sure though. When there is a bidding war, the price always goes up.
I have seen alot of you on here saying we agents said this and that. Well maybe at that time that was what was going on. Now it is different, things have changed. We just tell the story, we do not make the story. If we did do you think we would of planned this recession? No we would of made everyone’s property shoot through the roof and than we would of made millions of buyer’s just fall on the door step and say I have to have this house. I do not care what it cost. Than a year later we would do this all over again. That would be our story. But we are the spokesman for the market. We do not control it. You as buyer’s and seller’s control the market. When you go get a loan and they say we can give you this loan but it will be an interest only loan and for 40 years with a 2% interest and a monthly payment of 2000 a month and you only make 30,000 a year. You have to be the one to say wait something is not right. It seems that I can not afford this home.
Is it really snarky to say that it truly frightens me that the above posters are in charge of filling out legal paperwork where every t must be crossed and every i dotted?
Rachelle: I’m right there with you!
Rachelle
Please explain to me why it is truely frightening. I eat, sleep and breath real estate. I read about a book a month about real estate. I work 5 to 7 days a week at it and around 12 to 16 hours a day. I have seen all sorts of cases, disasters, simple closings, husband and wife seperate at the closing table, homes that were built wrong that are new, and on and on and on. You tell me how this frightens you that I call my self a professional. Please tell me. You to Mr. Cheap. I’m listening.
Please allow me…
Derek, your spelling is horrible and your grammar is even worse. Rightly or wrongly that’s enough for me to think that you are not detail oriented / smart / or educated enough to do a real estate transaction.
Derek,
If you want to look professional you’d better learn to spell and use proper grammar. I’m totally serious. You are posting on a public forum and people are judging you on how you write.
One of the supposed benefits of hiring a real estate agent is because of their great skills in dealing with legal contracts. As a property manager I have had to fill out over a hundred N-4′s in one day. These forms cannot be amended and everything including the names of every person must be perfect or be thrown out of the Landlord & Tenant Board. If you can’t manage to spell properly with spell check and grammar check I wouldn’t hire you to fill out a contest entry at the grocery store never mind my real estate contract.
I count about six spelling errors in your post above. So learn to use spell check on public forums if you want to be regarded as a professional. That little red line underneath your words means the word is spelled wrong. Your bad spelling and grammar make you look like an uneducated moron and even though you may work very hard it will turn off a lot of people. Sometimes working smart is worth more than working hard.
Oh and by the way, English is not my first language, French is, so don’t even go there.
Rachelle,
Your right. Ok you got me on that one. I type fast and on things like this I do not worry about it being correct all the time. On documents and paperwork I do worry about it being correct. I understand though about this is a public site and it adds to looking professional. Rachelle, good job. I think you are the first one on this blog that has pointed out something that I have to admit that I am wrong on. All these big thinkers and guys who think they know everything. And along comes a woman (who’s first language is not Englist, French is) , who puts me in my place. I still am a professional in real estate, but Rachelle you make a good point.
See I can admit when I am wrong. Can anyone else do that?
Derek,
You misused the very first word of your response. You’re is the contraction for you are not your.
No one else is going to admit to being wrong because you did not directly address any of the points in the article and make your case. In fact in several cases you actually agree with the substantive points that Mike brings up in his post.
For example, Mike says don’t trust your agent when it comes to setting the price. You respond by saying the agent doesn’t set the price, they are merely a spokesman for the marketplace. So in effect your argument actually is in conjunction with the article.
Your fellow realtor bemoans the fact that houses don’t sell in many cases and he doesn’t know why. I rent apartments on commission for a living and it’s my job to figure out why. There is always a reason.
I work with a lot of investors and look at a lot of property out in the market and I have to tell you that real estate agents are not professional, and very unethical in many cases. I have never seen an industry in which there are so many dishonest, manipulative people. My last boss was a former broker and he still owes me $4200. Realtors will tell whatever lie or fabrication they have to just to get a sale. They will withhold comparables, they will create urgency by telling you there are other offers, they will buy houses from old ladies who don’t have a faintest clue about market value and rip them off and if you’re an invester they will lie about how much rent you can get. They get kickbacks from the lawyer, mortgage broker and home inspector they refer you to.
In realtors’ defense, however, I feel sorry for you guys and the way you get robbed by your trade associations, brokers, other agents. From a $20,000 commission your agent gets about $5000. With this he has tons of crap to pay for, the entire system is designed to bleed the guys who do the work dry. The entire system is structured like multi-level marketing.
Rachelle,
I agree with you some. The part about agents getting a small fraction of what everyone thinks we really make is true.
The part about the other agent saying that homes sometimes do not sele and noone knows why I agree with you. We are the experts, if a house is not selling we should have an answer as to why.
The market being saturated by dishonest people, I do not agree one hundred percent. Every market has it’s bad apple’s. My market has them as well. I find that most agents in my area are very caring, honest agents. The agents that are bad apple’s in my market tend to get a name for themselves and it does not take long for them to become lonely sheep where noone wants to work with them. As in any business, 10% do 90% of the business. The same holds true I think as for public view. The public most of the time sees the 90% that are scrambling for business. They assume this is how all agents are. This is simply not true. I for one will not do anything unethical. I do not care if it lines my pockets. I have had builders that I could of made a fortune from. They were the cheapest around for the best quality. I cut them loose because I did not want my name to be associated with them. I just think you can not say agents are snakes. Alot of them are great people.
I do not agree with the name of this article. The saying goes “we are a source of the source but not the source”. I believe this to be true. We tell people what is going on in the market. It is constantly changing. We do not control the market. We do not make the market. We only give our opinions of what is going on. Now different agents can have different view points as to what is going on. Maybe this is where the public thinks we tell stories all the time. The truth of the matter is that everyone makes up the market and no single person can tell you exactly what is going on. We all take in the information, digest it and than tell what we make of it. Some agents specialize. So an agent who handles alot of REO’s may not be able to tell you what is going on with resales or new construction like an agent that is in the resale or new construction market. This is why as a seller or buyer you should do your homework. Do not call an agent that deals with alot of banks and foreclosures to do your resale. An agent that is heavy in property management is going to have a different opinion on your resale home than an agent who really deals with only resales. So I do not agree with the title of this blog. I do agree that the public should do research on the agent they choose to listen to and believe.
You are smart Rachelle. You have been the toughest yet to say and prove where you are just wrong. I am not saying you are wrong. I think neither of us are wrong. Just a difference of opinion.
I am just getting started in the Real Estate industry and I am very excited about my new career path. I was just looking to see what other agents did in the beginning of their careers. I have obtained a ridiculous amount of knowledge during my Real Estate class and don’t see how I can really remember every detail without actually getting out there and doing it “hands on”. Also, I know I can’t ask how much commission is an average amount but how do agents get paid when they bring in somebody to rent a condo or apartment, or a house?
Micheal
The requirements for becoming a real estate agent are three correspondence courses and one week in class. This is a ridiculously small amount of knowledge for a “profession” Doctors spend 7 years in medical school. Lawyers also spend lots of time in school.
I spent a full two years in school to become a property manager.
You will get to charge one month’s rent when the property rents. You may also get to split that with your broker and the other listing agent.
You will also get to fill out the ridiculously complicated OREA application and lease which does not even include the Information For New Tenants as required by law in Ontario. You will have no money to pay for advertising the rental property. It will be listed on the MLS not any of the much more effective websites, such as viewit.ca or even craigslist.
I’m glad you’re enthused, you’ll need it
For god’s sake negotiate the heck out of your broker deal so you end up with a little money in your pocket after all the licenses, desk fees, phone fees, sign fees and all the other fees your broker will dream up to drain you dry.
Good Luck
Thank you for the insight
I am not quite sure how everything is going to turn out but I am definetly very ambitious and looking forward to something more challenging than bartending. I loved my real estate class and know I can do well as long as things move in a forward direction. The housing market here in Florida is slow to change with property values still going down slightly. I had a comment on a quote from an earlier writing I had seen on this blog. This comment stated that “real estate agents will tell you whatever they can to make a sale”. Although this might be true for some things I was under the assumption that real estate agents were held liable for everythig they said. To say something is definite without knowing for sure is grounds for fraud and culpable negligence. Also, real estate agents obtain a lot of business from word of mouth advertising and referrals from past clients. I dont know who a lot of these people were dealing with but I think they just were unable to find the right agent who actually will work for them.
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