Photo (cc) by Mr. Littlehand
Imagine spending $9,000 for a service, then finding out you could have had the same thing for $350? That’s exactly the kind of money you could waste if hire the wrong real estate agent to sell your house.
As you saw in the video above, the way many people find a real estate agent is through a personal relationship. That’s not the way to hire a pro.
When I sold a home in Cincinnati years ago, we listed it with an agent whose primary qualification was that she was a personal friend. She initially told us the house should be listed for $300,000. But after finding no interested buyers, several weeks later she suggested we drop the price to $275,000. While we did get some showings, still no bites.
Ultimately our house sold to a person who happened to be driving by, saw the sign in the front yard, knocked on our door, walked around the house and immediately fell in love with it – she made an offer the next day. Despite the fact that our buyer didn’t find the house through either her agent or ours, didn’t locate it through the Multiple Listing Service and didn’t even walk into it accompanied by either her agent or ours, we still had to pay 6% of the sales price – in our case a total of $16,500 – to two different real estate companies. That’s a lot to spend when the sale of our home came from a $20 sign in the front yard.
I’ve been a vocal critic of real estate agents for many years. Not because their services aren’t useful: they often are. The problem is that their services too often aren’t worth the high price.
When you hire an agent and agree to pay the traditional 6% commission, that commission is being split basically in half, with half going to the listing agent – the person who markets the home – and half going to the buyer’s agent – the person who finds the buyer.
In days past, only a full-service, full-price real estate agency would put your home in the MLS. These days, however, you can find any number of real estate companies that will put your home in the MLS for a one-time upfront fee of as little as $350. (Here’s one of many examples.)
So rather than paying the full 6%, you could simply pay $350 – $500 to list your house in the MLS, thus exposing it to buyers and their agents. When a buyer shows up through an agent, you’ll still have to pay the buyer’s agent 3%. But paying 3% rather than 6% to sell a $300,000 home means saving $9,000. That’s a nice chunk of change.
Most people, however, don’t want to handle the marketing of their house themselves. They feel that it’s important to have an experienced professional on their team to help with the paperwork and show and market the house.
If that’s you, fine. Just remember that if all your listing agent ultimately does is to put your house in the MLS, then sit back and wait for a buyer’s agent to show up with an offer, you just wasted a lot of money.
Here’s a quick tutorial to make sure that, if you pay big bucks to sell your house, you have a good shot at getting your money’s worth.
Finding and interviewing agents
Since all real estate is local, a good place to start the process of finding an agent is to look for one who either lives or specializes in your neighborhood. Call local real estate offices, or better yet, drive around your area, look at signs and if one or two names keep cropping up, write them down. Visit local open houses and meet a few agents – and while you’re at it, start getting an idea of how much your house might be worth based on others in your neighborhood.
Another source for potential agents is referrals from friends and business associates, but remember it’s better to have someone intimately familiar with your neighborhood.
Once you’ve got a few names – three to five – call them up and schedule interviews at your house. When they show up, they’ll (hopefully) come armed with a basic market value for your home that they’ve put together in advance with recent neighborhood sales statistics. More than likely, they’ll then walk around your place and sharpen that number by considering your home’s unique features and/or problems.
Be suspicious if one agent suggests a listing price much higher than the others. This is a common technique to secure a listing – telling you your $300,000 house is actually worth $340,000 is an effective way to get a listing. Unfortunately, listing your house for more than it’s worth won’t sell it. After getting no offers, a few weeks later the agent will drop by and tell you to reduce the price to one that probably closely resembles the ones you received from the other, more honest, agents you interviewed. You’ve wasted time, effort, you’ve devalued your home (buyers will know you’ve reduced the price) and the worst part: you’re stuck in a legally binding contract with someone who began your relationship with a self-serving lie.
Questions to ask when interviewing agents
When you’re interviewing agents, try to ask the same questions in the same order and take detailed notes of the responses. That makes apples-to-apples comparisons much easier.
Approach these meetings as if they’re a job interview, because that’s exactly what they are. You’re about to pay someone a great deal of money entirely for their marketing expertise, so stay focused on that. Keep in mind that these are sales people with experience in controlling the conversation. Don’t allow it. You’re the employer, they’re the hopeful applicant. Job applicants don’t control interviews.
1. How long have you been in the business?
An agent who’s been in the business for 30 minutes will charge the same 6% as one who’s been in the business for 30 years. Which would you rather hire? That being said, the young and hungry might provide better service. The ideal candidate is one with plenty of experience (10 years+), but still has lots of energy and interest in their business. Like many professions, real estate marketing is changing rapidly, thanks largely to the Internet. The person you hire should be experienced, engaged and keeping up with the times.
2. How much real estate have you personally sold in the last 2 years in my neighborhood?
This is a great way to compare agents. Obviously the one who’s sold the most must be dong something right.
3. What is your average List-Price-to-Sales-Price ratio?
As I mentioned above, you definitely want to avoid an agent that attempts to secure a listing by deliberately overstating the value of your house. The way to uncover that tactic, as well as gauge the overall effectiveness of the agent, is to ask for their average days-on-market (the lower the better) and list-to-sales-price ratio (the higher the better). To verify those numbers, simply get a list of houses they’ve sold in the last year. Look at the listing prices vs. sales prices and how long the houses were on the market.
Be aware, however, that the easiest way to sell a house immediately and for 100% of the listing price is obviously to sell it for less than it’s worth. That’s why it’s crucial for you to visit as many houses as possible currently for sale in your neighborhood so you can come to your own conclusion as to what your house is truly worth. If any agent thinks your house is worth way less than you do, ask them why.
4. What’s your plan?
Ask the agent specifically how they intend to market your house. In addition to the MLS, what else will they do to expose your house to the greatest number of potential buyers? Examples of things they should do:
- MLS listing with at least 10 professional pictures
- direct mail
- online marketing
- newspaper advertising
- open houses for both the public and other agents
- virtual tour
Before you give anyone a listing, get a written marketing plan. Ask to see samples of ads, brochures or other marketing materials they’ve used in the past. Remember: this is the single most important thing they’re bringing to the table, and the single best way to compare agents.
5. How about a few references?
Any sales person worth their salt has references. This isn’t the best method of picking a professional – after all, nobody’s likely to give you the name of clients who hate them – but it’s part of any interview process, including this one. And when you get the list of references, call them. Ask them what they liked best about the agent, as well as their weak points.
6. What am I going to be signing?
All agents will arrive at your first meeting with a packet that includes a copy of the listing agreement – they’re hoping you’re going to sign it on the spot. You’re not. But you do want a copy of it so you can read and understand it in advance.
Other documents you might ask for would be agency disclosures, and seller disclosures.
7. Can you hook me up with other pros?
An experienced agent will have a list of other professionals you might need: home inspectors, title companies, handymen and others. Ask for that list, but also ask if the agent is collecting a referral fee, which obviously makes the referral less objective and thus less valuable.
Another thing you might ask the agent is who they think is the best agent – other than themselves – at selling houses in your neighborhood. If you can’t find enough qualified agents to interview, that could help fill your list.
8. How much do you charge?
If you’ve followed all the advice I’ve listed thus far, you’re probably talking to the highest-quality and most experienced professionals in your area. That means they’re probably the least likely to discount their commission. That’s OK. Keep in mind that half of the 6% you’re paying is going to the buyer’s agent, and typically about half of the remaining 3% is going to the listing agent’s company. In other words, of the full 6% commission, only 1.5% is going to the agent you’re interviewing: not a tremendous amount of wiggle room.
I’ve negotiated commission discounts with agents before, but it’s almost always in the final negotiation of a contract: when the parties are close to a deal, but deadlocked.
Example: When I sold my fathers house, the buyer and I were $500 apart and at an impasse. I wouldn’t go any lower, she seemed reluctant to make a higher offer. So I asked both the buyer’s and listing agent to contribute $250 each from their commission so we could get a deal done. They both readily agreed.
In short, expect the agent to say that their commission is strictly non-negotiable, but remember that at some point everything’s negotiable.
9. Will you let me out early if I’m not happy?
You’re probably going to be asked to sign a six-month exclusive listing agreement. What if you’re not happy three months into the deal? A good agent will let you out of the agreement if you’re not happy. When you’re picking an agent, your job is to be as specific as possible as to exactly what you expect. Theirs is to fulfill those expectations. Ask for the right for early termination if your expectations aren’t being met.
10. What can I do to make my house as marketable as possible?
A good agent is going to have lots of tips on making your house sell for as much as possible as quickly as possible, from painting to de-cluttering to staging. Compare the suggestions you get from various agents.