Are Real Estate Agents Worth the Money?

June 6, 2007

Would you pay someone $12,720 to sell your house for you? Based on the current estimated median home price of $212,300 and a 6% realtor fee, that’s what the bill would come out to.

How Much is Too Much?
We’re still living in our first home so I’ve never had to work with a real estate agent to sell a house but it makes me feel ill just thinking about giving up 6% of the highest valued piece of property we own. I know that realtors do provide valuable services to their clients but I haven’t decided whether it’s worth the money or not.

Market Research
A local realtor sends out a periodic newsletter providing a market update for our area. Since we’re in the Mid-West housing prices are a little more reasonable than on the coasts; you pay less and get more space for your money. Her latest numbers for the last 12 months of activity in our area can be helpful to prospective buyers but are they worth over $12K?

  • 21 Properties Have Sold
  • Highest Sales Price was $330,000
  • Average Sales Price was $265,281
  • Average # of Days on the Market was 67

Realtor Advantage
The way I see it realtors have three advantages over individuals with homes for sale by owner.

Connections
One of the most important things it seems is the ability to add homes into the Multiple Listing Service to advertise to a wide buyer base. They may also have relationships with appraisers, home inspectors, local officials, banks, lawyers, and other realtors that can streamline many steps in the listing and selling process.

Time
Realtors make their living selling homes so they have time to show houses and return prospect’s phone calls. Many people selling their own home have full time jobs, which makes it more difficult to be available to work with potential buyers.

Information
Due to their connections & years of experience, a real estate agent should have an information advantage over people selling their own property. They know where to look for the necessary pieces of information and can find out what they need to know more quickly. This knowledge should translate into a better selling strategy, which in turn should help you sell your home faster and for more money.

Are Realtors Worth the Money?
The advantages I just listed are definitely good arguments in favor of using a real estate agent when selling a house. However, I still find it hard to pay $12,720 to someone, even if they do add the value I just listed. That is such a large chunk of change, I can’t stand to pay that much money, it just goes against my miserly instincts. When we do sell our home, I’ll probably try and sell it myself and see how things go. Maybe I can pay a realtor for a few hours of their time to do some consulting in the areas I’m unfamiliar with. If it doesn’t work out I can always list it with an agent as a last resort. What are your thoughts, are real estate agents worth the money?

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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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33 Responses to Are Real Estate Agents Worth the Money?

  • Hammersmith

    Real Estate agents in the US mostly offer very poor value for money. I sold my last home ‘by owner’ at a much higher (+$25K) price than all 4 agents I asked to value it said I’d get for it. In the UK they charge on average 1 1/2%. Often less. There is no buyer and seller agent at the trough at closing. UK agents pay for store front office and show houses 7 days a week and have all the costs that US agents have, but somehow they make a living. The whole % fee basis is a nonsense. I assume I will get berated by agents for these comments but they have a vested interest in continuing this ‘business model’.

  • Lauren

    Even now, they are still worth the money if you’re working with a full-service buyers agent. Movoto.com and Zillow are already competitors that are in places Redfin can’t go.

  • Tman

    When I was looking to buy a home, I never called on “for sale by owner” homes because I knew they would be over priced. If your stingy about using a realtor then you’ll be stingy about the selling price and be a pain to deal with.

  • Tman

    When I was looking to buy a home, I never called on “for sale by owner” homes because I new it would be over priced. If your stingy on using a realtor then you’ll be stingy on the selling price and be a pain to deal with

  • Realtors are PARASITES!!!!

    Realtors & real estate agents are parasites.

    The amount of effort they put into selling a home cannot justify the commission they earn. Their costs are minimal, especially considering most have their own fixed cost websites on which to list homes. The cost/benefit disparity is magnified significantly in regions where home values are highest. How could a realtor possibly justify earning a 6% commission on a $1M dollar home? $60,000 to list in MLS, put it on their own website, and show a home a few times. Get real. This is more than doctors, lawyers, CPAs and other professionals make, and those professionals have graduate degrees and real professional licenses. To become a REALTOR®, in most locations you’ll need to be 18 years old and have at least a high school diploma or a General Educational Development (GED) diploma.

    They are even making more than the bank and not lending any funds. Assuming it takes 2 months to sell a property, their 6% commission would equate to an annualized 36% simple interest rate (would actually be more if compounded). This is much more than banks charge, and realtors haven’t even assumed any credit or default risk. In light of all this, I believe that realtors should only charge flat fees and that any commissions should be capped.

  • Gary Wolter

    Today we sold a home for 8% more than the FSBO had it listed for. The buyer WAITED until it was listed with a Realtor. He was an investor!! Who buys for sale by owners? People who want a deal, right? The only way you could possibly save the commission is to split it with the buyer. Their is only one commission to save. Who is saving it? The main point here is trying to figure out that perfect price that you feel you are really saving the commission. Many times we see clients “giving their house away.” One friend after bragging to us that he did it himself, said I think I made about $11.00 and hour when all was said and done. We work hard to sell houses. If its so easy become a Realtor and quit your job.

    Remember their are only 4 types of buyers: (First Time Home Buyer) they don’t trust any FSBO and need the FREE services of a Realtor. (Investor) all the smart ones use Realtors to get the listing as soon as it goes on the market. The good ones go fast!. (Local House Changer) has frozen equity and can’t buy your house until their Realtor get it done. Finally, (Relocating from out of town) these buyers need Realtors the most! We are FREE to them to help them understand the local market and the new city they are moving too.

    • Bob Jones

      Spoken like a true Realtor. An illiterate one at that…Realtors are parasites and most are idiots who add absolutely no value and certainly can’t justify a 6% commission.

  • Adams

    One of the most effective ways to market real estate on the Internet is by offering real estate and mortgage related marketing reports in exchange for the recipients’ email addresses.

  • xanderchan

    Peoples may think realtor is earning a lot of money from each deals, but they never see the hardship that they have been going thru.

    By the way,i have added your site as my Reddit’s favourite. Please check out my blog which talks about real estate’s career. If you do feel the posts are interesting, please add my blog as your favourite as well.

    Best regards

  • Crystal

    I am a Realtor and I would like to add onto what one of the comments (10)touched on. Some things I believe many people do not consider: Like he/she said the 6% is split between the 2 agents, minus any money the agent has put out (of their own pocket) for the marketing of the home, minus the fees that all of the franchises cost often called “desk or advertising fees”. Realtors take a risk listing your home knowing that it may not sell and they may loose money. Time is also money, we basically work for free until we get paid, which sometimes doesn’t happen, on both the buyers and sellers side.

    There is absolutely is competition out there, although the industry stand is 6%. But as someone else had mentioned it depends on the price of your home and what you expect from your Realtor. If you expect an aggressive marketing plan, it costs money, so the agent needs to know it will be worth it. What other profession do you work for free, spend your own money and know you may not get paid?

  • Art Dinkin

    In our area there are a couple of flat fee realtors. The charge a fixed amount regardless of the price of the house. We have never sold real estate, but when we purchased our home it was sold through Next Generation Realty and I think their current price is $4990.

    Of course there is a difference in the services they perform too. I know they represent both the seller and the buyer, so they can not provide advise to either party. They also do not show the house, it is the sellers responsibilty.

    A different deal, but perhaps worth looking into?

  • GeekMan

    I believe the answer to this question has more to do with location than has been mentioned so far. I could be wrong, but some places seem more open to FSBO than others. For example, I live in NYC where going FSBO can save you massive amounts of money, especially when most places are going for over $600,000. Plus, people in NY are used to searching for places to live on their own and it seems that over half of those searching to buy do so without a broker on their own during the Sunday open houses. There’s no MLS which means that for the most part the only thing a Realtor brings to the table is their time and contacts. Time is something you either have or don’t and contacts can be found with a simple ad on the NY Times’ Real Estate section and on Craigslist. So, with that in mind, how can a Realtor in NYC justify earning over $18,000 ($36,000 divided by 2) for at MOST 30 hours worth of work? $600/hour is a pretty steep fee to pay for placing an ad and sitting through a few open houses, don’t you think? Having bought and sold in NYC I can say that using a broker LOST me and the buyer money, but going FSBO (and buying from a FSBO) saved everyone involved money.

    However, in other places in the country, where the MLS is the end-all be-all of getting your property sold, then having a Realtor is almost a must. Seller Realtors bring in Buyer Realtors without whom a property just won’t be seen by prospective buyers.

    For myself I will always try FSBO first, but for those areas where going FSBO might be detrimental to selling the home quickly, I’d probably use a broker if I got no responses after the second open house.

    Of course, YMMV

  • Rey

    I’ve got a different perspective; I’m an appraiser who works for mortgage lenders. (As an aside, appraisers go to zillow for laughs, not for useful info. Sometimes particularly hilarious zestimates will get forwarded around to every appraiser in town the way that xkcd strips circulate around math departments.) Anyway, appraisers have to look at sales to use as comps, and adjust for differences, i.e. if it has no landscaping, it may sell for 5% less than a similar home, or if it has no garage, it may be a hard adjustment like $10,000 regardless of price.

    In my office we have developed a “fsbo adjustment” that we apply when we use fsbo sales as comps; this comes from hard data, pairing similar sales to see if there is a difference in the market between fsbo and agent sales. The adjustment runs 3-10%, depending on condition, neighborhood, and hustle on the part of the fsbo owner. That is, when we pair sales, we can clearly see that fsbo’s sell for 3-10% less than comparable realtor listed sales. In other words, there are people out there who, in an attempt to save 5-6% commission, sold their homes for 10% less than they could have got with a good agent. Plus, they did a whole lot of work themselves.

    Also, this does not take into account marketing time; it’s tough to track fsbo’s days on the market exactly, but interviews show that fsbo’s are typically on the market 50-80% longer. In a quick market, this might mean a couple weeks more. However, in a slow market, with more competition, it could mean months.

    A fsbo seller I talked to told us the tale of 5 extra mortgage payments, and the house he wanted to move into was gone and he had to pay $20 grand more for one he don’t like as much. But he saved $20k on commision, right? Yes, but he sold for $5k under market (it’s a rare deal when the principals are upset about the appraisal coming in too HIGH), and paid 3 points to buy down the buyer’s mortgage. These are relevant things to think about when going fsbo. As for me, I will ALWAYS use a Realtor when I list; they’re more than worth it.

  • Ben

    Mark, the point here wasn’t to trash realtors, it was to help myself and others decide what value a realtor offers and whether its worth paying for their services. You definitly make a good case for using a realtor.

    Thanks everyone for their comments, I think we’ve had a good mix of people chime in on the pros and cons of using a real estate agent and learned a few things in the process.

  • Lazy Man and Money

    I’m sure that some real estate agents work hard for every sale. However, there must be some sales that are easy. When I bought my condo, I made a full-price offer on seeing it, 3 hours after it was put in MLS. The offer was accepted within a day. At 6% that’s $16,000 for what was probably far less than 8 hours of actual work.

  • Joshua

    Mark is exactly right-we do pay high overhead and work for every dollar earned. I once landscaped a yard as a listing agent with my wife on my own dime for a seller who wouldn’t lift a finger on a listing that was the neighborhood eyesore. I only earned $7K on that commission, so do I think I earned it? Heck yeah!

    • Don't take my money

      In other words you did $200 worth of work and you don’t think $7,000 warrants that complementary service?

      Also, what job or profession doesn’t say they work for every dollar they earn.

      RE Agents do provide a service but my contention is that that service is not worth 2 years worth of equity especially when they amount of work related to selling a home for $100k and $300k is the same. What warrants the additonal $12,000?

  • Joshua

    Nice post. I believe that it is worth it to pay a Realtor when the market slows down. Realtors provide more exposure (via MLS), have appropriate connections AND will be able to show properties when most people are working. In a hot market, you may not need to, since buyers are crawling all over each other to get what you have. However, you may want to consider a Realtor’s expertise with local property laws as a liability reducer also (unless you have a good real estate lawyer). Also, there is one other listing agreement that may be a viable middle-ground between “exclusive right to sell” listing agreement between listing agent and seller and FSBO…this is the “exclusive agency listing” agreement which means that you only use one listing agent who tries his/her best to list, market and sell your home BUT you also have the right to sell it yourself. This means, if you bring the buyer, the sale is yours and no commission is due (buyer’s agent may require a commission, though). In my opinion as a Realtor, this is the best option for someone who is on the fence about using a Realtor.

  • Jeff

    I just sold my house FSBO, found it a fairly easy task. I bought fsbo as well. I had a decent lawyer and everything went smooth.

  • Me

    First, the rate is usually split between listing and buying agent. So your agent gets 3, and the agent who finds the buyer gets 3. Secondly, if you’re paying 6% on a high price home you’re over paying. You can get 5% easy, as 2.5 is pretty common. If the home is of low value (condo for instance) the full 6 is probably needed since it’s just not worth someone’s time trying to market a propety to get 2-3,000 (assuming it’s split). Realtors also have the advantage of being informed and licensed. So you’re paying them for their knowledge – if you want to spend the time to gain that information yourself to save money, power to you. I can go on, but there are plenty of reasons why you’d still want to work with a realtor (commercial and investment reasons for instance, buying in areas your not familiar with when moving, etc. etc), but they are not a necessity.

  • Ben

    Sounds like people have had good luck with an agent, I guess I just have to decide whether I’m willing to shell out the money for one.

    I’d rather just pay them a few hundred bucks to do some consulting for me and then try and sell it myself, I suppose it depends on how much free time I have on my hands.

    KMC, I didn’t know you could get in the MLS without an agent. How does that work?

  • Jeff

    The Internet is forcing some competition (see: Redfin.com), but the real estate industry is fighting back. In my state (Missouri) they’ve pushed through new regulations that prevent Redfin from entering our market.

  • Blaine Moore (First Time Home Owner)

    I would definately use a seller’s agent. We had such a good experience with our buyer’s agent that we would try to hire him (if we could) or somebody from his firm (if we couldn’t) when we get ready to sell our house. I have never sold a house before, so I can’t speak from that end, but from a buyer’s perspective it made a huge difference for us.

  • KMC

    I’m still waiting for the internet to force some competition. It’s obviously better than it was, since I believe you can now get your house listed on the MLS without an agent, but 6-7% is still the going rate. There’s an ample supply of agents – why is this so stubbornly high?

  • guinness416

    Some people just don’t trust the FSBO experience (or their buyers’ agent tells them not to), so in theory you’re losing potential buyers.

    You may find it interesting that in my home country there is currently something of an uproar over agents increasing their fees – from 1% to 1.5%.

  • Q at $1 Million to My Name

    My real estate agent (my aunt) had to trudge through the mud on two nasty deals for me. I really put her through her paces, including backing out on a deal due to inspection findings. Nasty stuff….. she was a lifesaver.

  • Jim

    Excellent post – I couldn’t have said it any better myself.

    While I’m still a few years away from selling my house (it’s my first home as well), I’ve kept myself up late at night trying to figure out how to approach the home selling process when the time is right. Thanks to the power of the internet and specifically sites like Zillow.com and Trulia.com, I can get my home in front of tens of thousands of eyes without spending a dime and that fact alone makes me feel that a 6% commission to a real estate agent is just too much money to part with.

    So long story short, I’m going to take your same approach and try my luck at selling myself. Fortunately I’ll be in no real rush (pending any unforeseen circumstances) to sell and can always pull an agent in if I’m unsuccessful.

    Looking forward to other opinions…

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