Question: What am I *really* paying for when I hire a REALTOR®?
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 massive 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. Protecting your best interests over the long run is the priority.
- 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. 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 an agent’s commission.
- Financial risk: A lot of things happen before, during and after a transaction that real estate agents are not directly compensated for. For example, in Lethbridge on average, about 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 investing time and money upfront, without a guarantee the house will sell.
- 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. 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. 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.
Question: How do real estate agents get paid?
Answer: The 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: 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: 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. 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 can be recaptured in a sale. If a home is overpriced, 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.
Question: How do I choose a real estate agent I can trust to do a good job?
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:
- Do I feel at ease with this person?
- Am I willing to share 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 reputation?
- Is s/he forthcoming about his/her methods and 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 our team) 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? Contact us today. We would love to hear from you!