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 or a 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, 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.
Related – How to win a house bidding war
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, they have to spend a lot more time looking at houses with you 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 low and work your way up. 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 at the lowest price, the seller wants to sell the house to you at the highest price and your agent wants you to buy the house and doesn’t care at all what price you pay 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 $500,000 and you bid $460,000 and they come back with $490,000 then isn’t splitting the difference at $475,000 quite reasonable? Not if you can get the house for $470,000 or $465k,000 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 $5,000, $8,000) 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 $2,000?”
- “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, 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). That doesn’t sound like much (even if it is).
Conclusion
The more you educate yourself about the real estate market you are looking in and how real estate agents operate, 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?
588 replies on “Why You Can’t Trust Real Estate Agents When Buying A House”
Great Post!
When we received an offer for our house, they were offering 182K. My agent used the “meet them half way” (we were asking 189K). So he wrote 185.5K on a piece of paper and said “to make it a round number, we will put 185K”. I stupidly listen to him and I lost another $500 for “making it round” !
At least, I could have put 186 K 😉
Good post! It seems realtors use more “lines” on buyers when real estate is hot. It doens’t quite work as well in a soft market so we didn’t get to hear many of these. Our real estate agent was pretty suprised though when we didn’t bother to get pre-approval and were looking for houses well below what we could afford. But then again…he knows my dad quite well. 😉
I think the sell side of this post should be even more interesting.
This article made me laugh. Thank you. I haven’t had the pleasure of dealing with an agent since I still rent…but I’ll bookmark this article if I ever decide to buy. 🙂
Good Post
PB: It went the other waqy around for our offer. Quote: “Don’t put round numbers, put 185.5K, it make the offer look better”.
I alos agree with Telly that the next post should be even more interesting.
Keep it up
Nicolas
I’ve always thought there was a big conflict of interest in the real estate game. It is in the best interest of the agent to get the deal done if they want to get paid, not necessarily get you the absolute best price. That being said, I guess it would be a bit of a balancing act for them as well, as they are going to want your business next time you buy and sell. Not to mention the fact that any negative word-of-mouth they would face in the event of a poor negotiated deal would be damaging to their long-term business prospects. Either way, I think it is imperative both a seller and buyer extensively educate themselves on the local real estate market to help ‘keep their agent honest’.
FB & Nicolas – my agent does something similar – she likes odd numbers so when we put in an offer on our current house she suggested upping it by $600 which we did. An optimist might say that since we got the house, it was a good move but I would agree with FB and suggest that we wasted $600.
When I sold my old house, the winning bid had the house number as part of the price ie $202,163 where 163 was the house number. I can tell you that they threw away that $163! lol
Telly – I think you’re right that agents will use the lines more in a hot market but they will work on inexperienced house buyers in any market – especially if they fall in love with the house.
SF – thanks.
CC – there is definitely a conflict of interest for real estate agents – however I don’t know if they tend to worry too much about repeat business (although I’m sure some of them do).
Don’t get me started on real estate agents.
To my way of thinking, they ONLY work for the seller since usually the seller is paying them and they receive a percentage of the sales price. OF COURSE they want that price to be high.
My last agent never even saw the house we bought. I found it and negotiated with the builder. All the agent did was show up at closing and collect her check. Attorneys filled out the paperwork, I did the negotiating, and all she did was sit there and make $12,000+
Ron – that’s true that RE agents have some incentive (commission) for a higher price which puts them in the seller’s camp – but I still think that “getting the deal done now” is their primary motivation.
Why did you have to use an agent if you bought from a builder?
Mike
Great article.
This would have been a great help to have 3 months ago. I wasn’t afraid to low-ball the sellers with an offer but was recommended that we start in the low 10’s of thousands of asking so as not to offend. We were the only offer in 21 days on the market, they would have been stupid to refuse.
Thanks Courtney – I wrote it as fast as I could 🙂
Mike
DUH !!!!!!!!!!!!!!!!!!!!!
They work for the seller … not the buyer. Theives !!!!!
Bob ; they don’t work for the seller they work for their own pocket!
If they are selling a property for 300K at a 5% commission rate, they make 15K. If they make you drop your asking price down to 280K for a quicker sale, they still make 14K and they would probably sell your property 2 months faster.
While his trade off is $1,000 to gain 1 to 2 months, yours is 20K! Who do you think he works for?
The most recent agent I worked with suggested that I could afford a $4,000 mortgage — my current mortgage is $1,400 and it’s already a handful.
Just coming off of buying a house these lines were priceless and very true. Especially “low bids will insult the seller”.
It really does pay to know the market and “the game”.
FSBO through PropertyGuys is becoming increasingly more viable…and I’m sure a threat to some RE agents.
FB – you got that right.
Pinyo – that’s a good one.
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“stunning example of gaul…”
Mike, you must have offended a lot of French people! Funny post and I just lost it after reading that line :))
Glad you enjoyed it CC.
The “gaul” line was actually Mr. Cheap’s…. 🙂
Mike
I actually kept looking at Gaul when I wrote it, knew that it was wrong, and couldn’t for the life of me figure out what the correct spelling should be.
Of course, its gall.
Those damn Gauls! Especially Asterix
i pity the fool who tries to buy or sell a home on their own. that’s like going through a divorce without the benefit of having an attorney to advise you. or being a small business owner and doing your taxes with a cpa. sure, it’s possible. but it’s like playing russian roulette. you may get away with it 5 times, but that 1 time the firing pin actually hits a round of ammunition, you’re majorly screwed.
I changed ‘gaul’ to ‘gall’. I should have caught that but oh well.
I totally had no idea what CC was talking about.
Ed – I’m not sure that it’s that dramatic when buying/selling your own house but point noted!
Mike
well imagine you are on either side of the transaction and you get to the closing table and are missing paperwork that is required by law. you’ve just lost money because you can’t close on time. and that’s about the best case scenario that i can think of. then think about all the things that can happen AFTER the closing that can easily result in a lawsuit….. just seems like a nightmare to me. and a buyer….. i think anyone buying a house would have to be retarded to not use a real estate agent…. you’re not paying them a dime and they provide a ton of protection.
but i guess that’s just me.
Ed – if you have a lawyer who is familiar with real estate transactions then paperwork shouldn’t be a problem.
I know a number of people who have done house deals without an agent and none of them had any problems.
Ed – you wouldn’t just happen to be a real estate agent by any chance would you???
that is true. if you have a lawyer who is familiar with real estate law, i don’t think there’s really a need for a real estate agent. i guess it’s a matter of who you want to pay money to – a lawyer or a real estate agent. but then again, as a buyer, you don’t have to pay an agent.
and yeah, i am a licensed real estate agent, but i don’t practice. i have a full time job doing property management and i have my own business doing web design and internet marketing – mostly targeting real estate agents.
the only transactions i’ve been involved with are ones with family or close friends.
Ed – good point about buyers not paying agents although they are the ones who are writing the cheque.
What kind of property management do you do? That sounds interesting.
Mike
i work for a company that owns and manages apartment complexes. i’m a property manager.
and you are correct that the buyer writes the check, but the seller’s agent AND the buyer’s agent’s commissions both come out of the seller’s profit.
and i can understand a lot of the negative sterotypes about real estate agents. i know there are a ton of theives and cheats out there. and as a real estate agent, i can tell you it’s hard to make a living as a real estate agent if you aren’t a theif, a cheat, or a liar. which is why i don’t really practice much. i chose to keep a full time job because i am not willing to do “whatever it takes” to make a living if it compromises my integrity. but it’s just like anything else you buy… you are buying the person selling the product as much as you are buying the product. the key is to spend some time and do your “due dilligence” before buying. there are some agents out there that really do love helping people out and the money is really secondary.
Firstly, I think that the title of this post is a little bold. You have made some pretty harsh generalizations about ALL Realtors that frankly are not true. What you have done is grouped everyone of us together into a hot, steamy, pile of worthlessness. I resent it. I bust my rear end everyday to take care of my clients the best that I know how. I know how to negotiate and I know how to read and filter through buyer’ emotions. After all, buying IS an emotional action. I will not stand here and say that there aren’t those agents that do exactly what you have described because I know they exist and have worked with many. I just personally think that it is unfair for you to group us all into the same catergory like you did. Sorry so long….
Hi Annie, thanks a lot for the comment.
I disagree with your use of the word “worthlessness” – I don’t advocate anyone not using an agent when buying or selling a house.
The fact is that as I indicated in the posts, agents provide a lot of value to a buyer or seller – my issue is the fact that they get have a conflict of interest and get paid too much to do it.
Mike
Real estate agents have a well-deserved poor reputation…everyone hates you guys. Why?….because you take a HUGE chunk of equity and you don’t do anything other than post the listing up on the the Listiner Service and wait for a buyer to come along. Most people can do all of the homework themselves, and the paperwork is NOT as difficult as you convey to people. Besides, an attorney will do the same hand-holding for $500 vs your $25,000. Real estate agents are a dying breed. In the US most people are turning to Craigslist or ChoiceA anyway. In ten years you’ll be dinasaurs.
Mike – i think in most states, you can choose how you wish to pay your agent. i know in my state, you don’t have to pay an agent a percentage, you can pay them a flat fee. but i guess you still wouldn’t like that because it is still a commission. how would you prefer to pay them? a flat fee whether or not they help you buy or sell a home? what would be their motivation to help see the transaction to its end?
ofnote – i completely disagree with your analogy. yes, most people do the homework themselves online. but i’d love to check back with you in 10 years to see if real estate agents are “dinasaurs”. and if you think that what you conveyed is ALL that real estate agents, i’d love to see you spend 1 day with someone who practices full time. i’d say the average transactions takes at least 100 hours. that’s just for 1 client.
Mike – OK, maybe “worthlessness” was a little severe. In terms of how much we get paid, well, you could say that about many professions. There are also 2 sides to that coin. I will agree that there have been times where a listing will get put into the MLS and shorlty after it sells. Required little work, paid handsomely. Then there are the ones that are hard sells. They are not expensive homes by any means and require some aggressive marketing. Marketing is expensive. Just in SEO alone it costs a fortune to make sure your site ranks in the SERPs so that your listings have yet one other medium of exposure besides the MLS. What attorney is going to market a home globally through his well placed website. Don’t oversimplify the process.
The commission rate is the rate. I didn’t set it. Nobody here did. There are more and more creative structures in terms of commission rates popping up everyday. Many are very reasonable. Depending on what the homeowner is looking for. Everyone here knows that.
offnote – Again, your opinion of what a listing agent’s responsibilities are is slightly warped. Are there good agents and bad agents, sure. Not all of them handle listings as you have described. Agents in my office that work the way you all have described have their license moved for them (they get fired basically). At the end of the day, people want that personal touch and relationship when it comes to the home buying process. Craigslist, realtor.com, trulia, blah, blah, blah. They will come and they will go but the Realtor will always be around!
F.Y.I – It is 2 am and I am still up taking care of some loose ends from different deals I have going on. If I were like what has been described above I would have been in bed 4 hours ago…..Goodnight :>)
Ed – I have no problem with a flat fee structure, in fact that’s exactly what I suggest.
Annie – point well taken about different market conditions. The one I’m in however has been a rising market for at least 10 years and most homes (if priced correctly) will sell pretty fast.
Mike
Mike – If it makes you feel any better, I spotted Gaul only because like Mr. Cheap, I was a big Asterix fan growing up. You should have left it in… it was charming…
Four Pillars – I am sorry you have such a narrow minded idea of ALL real estate agents as your article seems to imply. Good gracious if they were all like you suggest the industry would have never survived. Surely there are some dishonest realtors, and some dishonest auto repair people, some dishonest roofers and so on. You might want to take a look at how you screen the people you hire, possibly you are not a very good judge of character. Or, possibly you are of this character and thus the reason why you can’t trust others. I am not a realtor but I work in the support capacity for my husband and his team and none of my guys are anything like you suggest. We all work very hard for our customers, buyers and sellers alike, and it’s not about money, it’s about helping people. My husband is one of the most honest people I have ever met. We have tons of testimonials from real people who would beg to differ with you. I have never seen him lose sleep from any job or career in the past but in the 10 years he has been in real estate, I have watched him toss and turn at night or stress out – why? Because of the commission? NO! Because of the people – their lives – their hopes and dreams – are all on the line when they are in the middle of a stressful real estate transaction. Each one has it’s own set of problems and you develop such a relationship with them that they become like family. He sincerely cares about them and does whatever it takes to help them thru it – even if it means kicking in some of the commission to make the deal go. I don’t even want to read your other post on selling as I may take that even more to heart. I have freely scrubed toilets, painted walls, pulled weeds, and cleaned houses for our sellers in an effort to help them out. I could go on and on, but I would rather get back to work.
Hi Donna, thanks for the great comment.
I don’t think most real estate agents are dishonest – the purpose of the post was to illustrate the bias that real estate agents have because of their compensation.
There’s nothing wrong with trying to close a sale but it’s good for a buyer/seller to know what’s going on.
Mike
hey ED.
I think your retarded if you think agents are there to protect the client, there ONLY interest is selling and putting money in there wallet.
Anyone can buy or sell without agents, just need a good lawyer, which you should have anyway.
Don’t be such a retard
ALL realestate agents are licenced con artists.
including ED…
I love it how they drive in flashy cars, to show off their supposed ‘skillz’? I never really understood this.. What’s up with that. We haven’t sold a house through an agent yet, and we’ve bought directly from the builder and I have no intention of using an agent when we do sell.. my wife has a different take on this however.
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I have read with interest and amusement about the comments lumping all Realtors in the same vein as mostly dishonest and corrupt, much as lumping all politicians into the same group.
I am a Reltor in Savannah, GA and we have the most stringent code of ethics of any of the other states. While there are some agents who fail properly represent their client, most agents work hard to make sure the clients interest is the first priority. I have personally helped a seller who wanted to sell the house to avoid foreclosure, but instead I was instrumental in seeing that the seller was able to work things out with the Mortgage company and the Veterans Administration. I made nothing on the deal, but it made me feel good in that they could keep the home. Yes there are bad Realtors, bad Car Salesmen, Bad Politicians.
Bo
Most sales people use the same tactics (that puts them in the same realm as car salesman).
I agree there are bad people in the real estate world, but bad people exist in every occupation. I am a realtor in Alabama. I do see & hear about realtors taking advantage of buyers and sellers. As a matter of fact, I have had other realtors get over on me. I do not do business that way. I will keep showing homes until people choose the home they want & they can make any offer they want to start with. I would rather my customers/clients be happy than be able to say I encouraged them to make a bad decision.
I believe most people should be able to tell a bad agent from a good agent. If you are not comfortable, then tell that person and move on.
I do not want to do business with anyone that I think is taking advantage of me or anyone else for that matter.
What a bunch of bull! Like any profession there are good agents and bad agents. A good agent will save your behind. A good lawyer will make sure the contracts are properly done but the will not help with anything else. Market conditions, inspections, marketing, and many other areas are pitfalls for buyers and sellers.
In Cal. RE good agents represent the client regardless of the commission. In many cases I have saved buyers $25,000 or more buy understanding the market. I represent sellers that cost themselves a small fortune buy not following advice and listening to professional advice. As an agent if a house sells in a week you are lucky. When I invest thousands of dollars of my money to market a house and it takes a year to sell it, I do not get a penny more. If it doesn’t sell or the seller changes his mind I’m out of luck
Ultimately if you are spending $100,000 or $2,000,000on a house you are entering into a business deal and PROPER representation is essential. If you were buying a business would you do it with no representation? Yes some agents are bad and some agents get an easy deal from time to time, but reality is that like any profession it takes years to build up a profitable practice and the reason you work an agent is that they can save you time, money, and occasionally your sanity.
You can find bad doctors, CPAs, lawyers, etc. Does that mean you should not go to any of these people either?
If you think you everyone out there is a liar or lazy … then you need to grow up and understand any topic you are going to go off on. Try selling real estate for a year then come back and tell me how easy it is. Till then grow up and stop bitching because someone invested years of time in a profession and they make more money than you.
Thanks for all the comments from realtors, Mike and I have greatly enjoyed them. We now realize that real estate agents are more interested in making a friend then a profit.
Thanks for setting us straight.
As a real estate appraiser I get to meet many realtors. There are a lot of good realtors. There are also a lot who are only self-interested. I’ve learned that if you ‘shop’ for your realtor before shopping for a home- you’ll usually come out way ahead.
Ask your realtor how many repeat purchasers he’s had over the past 3 years. Repeat purchasers are usually a good indicator of how his or her past purchasers felt he performed.
I must say that the negative comments made here about brokers saddens me. I?ve been working as an agent in the New York City Market for years and I?ve done everything in my power to combat these negative stereotypes. I was enjoying reading the post and it contains great advice about knowing the market, but it did seem to imply we are all the same and that we?re not on your side. It?s just not true. I would say that purposely not listening to your Realtor who you’ve contacted to help make the most important purchase of your life seems silly to me. I will join the chorus of other Realtors here to say that there are some bad apples, but they?re not hard to spot. Avoid them and I promise you will be grateful you have a competent broker by your side throughout the process and at closing.
I?ve built my business by viewing this as a service industry, not a sales industry. I?m not trying to force something on you; you came to me looking for my expertise on buying because I do this everyday. It would be foolish of me to put that reputation in jeopardy to try to close NOW. I am concerned with repeat business, but more than that I would like your referral. This is very important on the buyer’s side. I want you to think of me when a friend or family member starts talking about buying a new home. If I think about it this way, my reputation is much more important than pushing one deal. In my time I’ve met countless other brokers who feel and act the same way.
But all that doesn?t matter. People will still assume you?re a shady broker trying to swindle them out of their money. Is there no way to change your mind?
The internet has come a long way and you can find a lot of information, but it will never replace what Realtors have. Experience. We know how that information applies to your situation and what do with it. By the time you?ve educated yourself to the level you need, you might as well be doing this for a living too because that is what?s required. Doing it for a living. I?ve secured countless great deals for my buyers by knowing the market and knowing how to act quickly, which is incredibly important when you find something good here in NY.
Perhaps the detractors can cut us hard working and honest brokers some slack by not grouping us all together. I think you might view it differently from the other side.
Thanks for the comment Mark.
Regardless of the good intentions of some or most brokers, the compensation structure of real estate creates an automatic conflict of interest which is something that all buyers and sellers should be aware of.
Mike