Question: What am I *really* paying for when I hire a real estate agent?
Answer: Buying or selling a home can be a stressful experience at the best of times. So when you hire an agent to represent you, you want to know that your money is well spent, whether you’re paying the commission as a seller or negotiating for the best price possible as a buyer.
Let’s take a closer look at what those real estate commissions are paying for:
- Strategic action: Home ownership is a gigantic financial commitment and an even bigger emotional one. Understandably, you NEED to know you’re taking the right actions at the right time. Your real estate agent offers calm objectivity. He or she also offers proactive guidance and advice at every step of your real estate journey. This doesn’t just “make your life easier” but helps to ensure you make decisions that are in YOUR best interests over the long run. Indeed, this is a tough benefit to quantify, but it puts the commission question in perspective, given what’s at stake.
- Cost of doing business: Real estate agents are independent contractors of the brokerages they license with. That means the agent pays the lion’s share of his/her business expenses, in addition to local board fees, provincial council fees, and brokerage fees. (Brokerage fees are often paid as a percentage of commission.) Agents also spend time and money marketing your home (if you’re a seller) and helping you find a home (if you’re a buyer). When a deal closes, final commissions are then shared between the buyer agent and the seller agent. All of the above costs come out of that final commission check.
- Financial risk: It might appear that an agent’s job begins with signing a client and ends with closing a “deal.” In fact, a lot of things happen before, during and after a transaction that real estate agents are not directly compensated for. For example, in Lethbridge, more than 50% of MLS® System listings don’t make it to the closing table (ref: Lethbridge & District Association of REALTORS®). When a real estate agent markets your listing, s/he is shouldering an upfront risk because your listing may not sell and in turn, the agent will not see a commission.
- Liability: We’re all human and things can go wrong in a real estate transaction. Once in a long while, this results in legal action by the affected party. In Alberta, real estate agents must carry Errors and Omissions insurance for this purpose. Moreover, any professional who is held to a relatively high standard of care and diligence bears personal and professional risk that is tough to put a price on.
- Access to the MLS® System (sort of): It’s an old but sticky belief that access to the MLS® System is why people hire real estate agents. While this may be the case in some instances, your real estate agent should do more than load you up with market data they’ve copied and pasted from a real estate database! Our job is to provide meaningful analysis of that information to support effective decision making about buying or selling a home .
Did you know? … Real estate agents, by way of association fees, pay for the maintenance and development of the Multiple Listing Service®. Despite this, many believe MLS® System data should be “opened up” to the public. While this may seem like a fair idea in theory, such disclosure of sensitive transaction data would be tenuous in practice. For example, if specifics like sold prices and other seller information were posted publicly, it would be very difficult to protect clients from the misuse of their confidential information.
Question: How do real estate agents get paid?
Answer: The vast majority of real estate agents are independent contractors, in business for themselves. That means each agent is responsible for creating his/her own income based on performance. Income is based solely on commissions earned through selling homes.
Because real estate agents are independent contractors, they pay all of their own expenses and overhead (e.g. marketing, brokerage fees or splits, office rent, mileage, insurance, etc.). Agents also have to pay various annual or monthly fees to the organizations they are members of (Real Estate Council of Alberta, local MLS®, Canadian Real Estate Association, etc.).
Most of the time in Alberta, the homeowner (i.e. “seller”) pays the real estate commissions from the proceeds of the sale. In other words, commissions are often “built in to” the agreed-to purchase price. The listing agent will generally offer a portion of the commission to the buyer agent on the other side of the deal. Commissions are negotiable and vary widely.
Question: What about selling my house privately?
Answer: The decision to go it alone comes down to three things: time, desire and money. If you have “extra” supply of ALL three, you can absolutely sidestep real estate agents like me and do your own bidding. This means you’re willing and able to take on tasks like marketing, pricing, and contract negotiations, to name just a few.
Now, if you pass the time/desire/money test, you still have to ask yourself: do I have the patience, objectivity and focus to create the very best result for me and my family?
If you still answered “Yes,” then great! You may be one of those DIY types who is capable of managing (and marketing) your own real estate transaction.
A note on mere postings: Some brokerages offer “mere posting” services whereby private sellers can hire the brokerage to post their home for sale on the MLS® System. In this case, the seller forgoes conventional agency representation and avoids paying full commission. For a fee, a real estate agent ensures accuracy of information regarding the property and posts the listing. The scope of services provided to the client generally stops there. The Real Estate Council of Alberta explains mere postings in more detail.
Question: Is staging worth the hassle and money? I think my house is fine the way it is!
Answer: I hate to trot out the clichés, but this one should probably be tattooed to the inside of every seller’s right arm:
You never get a second chance to make a first impression.
Think of selling your house like interviewing for a job. If your clothes are rumpled, if your handshake is weak, if you look like you walked off the set of That Seventies Show … well, you aren’t going to get hired. No matter how qualified you are.
Fortunately, your house probably doesn’t need an extreme makeover. Assuming your home is structurally sound and has no other major issues (think environmental hazards, etc.), good staging can take a property from blah to rah-rah! The key is to focus on two things:
- Function: each space in your home must demonstrate an obvious and universal purpose. For example, a spare bedroom should look like a spare bedroom (or maybe a home office). It should not look like a neglected storage room. Nor should it look like the place where Uncle John likes to take apart and rebuild old TVs.
- Form: this comes down to appearances. People WILL judge your home based on things like paint color, curb appeal or yes, an icky carpet. Homebuyers have all kinds of preconceived ideas about what they like and don’t like in a home. They also have a tough time imagining how a house might look withOUT visual obstacles such as vivid paint colors or a messy living room. Ultimately, homebuyers’ imaginations take a back seat to gut reaction during a tour of your home. Your fresh and perky lime green walls may send a more conservative buyer straight for the door. Don’t take it personally. After all, you’re not going to be living here after the home sells. The buyer is.
Question: Do I have to sign a contract with my Buyer Agent?
Answer: REALTORS® in the province of Alberta are required to have written representation agreements with their buyer clients. This is a regulatory mandate put in place by the Real Estate Council of Alberta (RECA). The agreement establishes the agency relationship between you and the REALTOR®. Each real estate agent will approach these agreements differently, depending on his/her business model and fee structure. It’s important that your agent present the service agreement in a professional manner, ensuring you have opportunity to ask questions and understand the terms set out. Click here for more information on written service agreements!
Question: How can I be sure my home is listed for the right price?
Answer: A cold and hard truth is that, in today’s economy, homeowners tend to feel their real estate is worth more than the market will bear. A good real estate agent, however, will resist the urge to price high or “build in” negotiating room. Why? Because a home that is priced too high risks becoming a stale listing that buyers (and sometimes other agents) will avoid.
A Comparative Market Analysis (CMA) is critical for pricing a home to sell. Your real estate agent should create a CMA that presents the most relevant market comparables and then help you interpret that information.
Unfortunately, some homeowners have more money “into” their property than it’s worth, yet homebuyers certainly aren’t willing to pay a premium because the seller needs to recoup his costs. Buyers will simply look for a better deal elsewhere. Consider this when deciding on a list price as it may impact your decision to sell at all. Your real estate agent can help you with that decision, even if it means ultimately losing the listing!
Question: How do I choose a real estate agent I can trust and who will treat us right?
Answer: Choosing a real estate agent is both art and science. You want to work with someone you feel comfortable with but who also demonstrates professional competence. Some questions to ask yourself after that first meeting (and there had better be a first meeting!):
- Do I feel natural and at ease with this person?
- Am I willing to share very personal information with him/her?
- Did the agent talk mostly about him/herself? Or did s/he spend time getting to know us?
- What is the agent’s professional background, experience and/or reputation like?
- Is s/he forthcoming about his/her methods and strategic approach?
- Is s/he easy to understand and converse with? Or does s/he talk “above” us?
- What is the agent’s knowledge level and does s/he share ideas willingly?
When in doubt, trust your instincts. And if you’re still unsure, interview another real estate agent!
Question: What if I just want some real estate advice before I decide to buy or sell?
Answer: Every agent handles this differently, but most (including myself) will happily sit down with you to discuss your options prior to signing a service agreement.
Still interested in hiring a real estate agent? Or you have more questions? Great! Call, text or email me. I’d love to hear from you!