People spend more time shopping for a TV than for a real estate agent. This, sadly, can cost them thousands of dollars, and often does.
When house prices are surging and a modest home can cost $600,000, excitement can lead to indifference about what agents charge. But that’s a mistake under any circumstance. Homeowners who understand how the realty business works, which this little primer will attempt to explain, will be far better off.
1. Don’t hire a friend
The easiest mistake is hiring an agent simply because you know him or her – it’s a friend, a second cousin or just an acquaintance. You might not even want to hire that person, but it’s awkward to say no, or to haggle.
A friend of mine who wanted to sell his house hired his childhood pal because he pressed him for the listing. The agent sold the house in two days, which my friend at first thought was great work. When he discovered it sold fast because it was very underpriced, he had second thoughts. He paid $22,000 for this “service.”
Takeaway tip: Make your agent earn your business whether you know him or not.
2. A quick sale benefits the agent
You have to understand the agent’s incentives, and how they differ from yours. Agents understandably want to sell as many homes as quickly as possible. The selling price, which is your main concern, is not so important to them.
When I sold my house a few years ago I hired the agent who’d sold the home across the street in a bidding war, figuring he must be talented. Was I wrong. My house also triggered a bidding war, which was very exciting. One at a time, three agents brought their clients into the house to table an offer while the others waited in their cars. The bids rose quickly and we blew past the asking price. One bidder dropped out, and one of the remaining two came in to make his fourth bid of the evening. My genius agent – “let me do all the talking” he said before the auction started – accepted it. Stunned, I asked him for a word in the kitchen, and told him we should get a counterbid.
“It’s a good offer,” he said. “Let’s not be greedy.”
Fortunately I insisted, because the other bidder offered $10,000 more.
Why would my agent not try to get one last bid? Remember thatFreakonomics YouTube video from 2010? As Steven Levitt and Stephen Dubner pointed out, that extra $10,000 added only $300 in commission on a 6-per-cent commission, which he would get half of. He’d already made thousands: What was an extra $150, especially when it was Saturday night and he was eager to get home? It might have been almost $10,000 in my pocket, but it was nothing to him.
Takeaway tip: Don’t get rushed in the bidding war. Push back if you think you’ve got a shot.
3. Myth: You get what you pay for
Most people think commission rates are high but accept them anyway. There are full-service discount realtors who charge less and offer the same service. Why hasn’t this caught on faster?
Some homeowners are convinced by the industry that “you get what you pay for.” That’s what traditional agents always say. But it’s clearly not true. Are agents working twice as hard today as they were 10 or 15 years ago? Obviously not, yet commissions have doubled in that time along with home prices. Rates very by province but assuming a 5-per-cent commission, the cost of selling an average-priced house in Toronto is $25,000 today compared, with half that a decade or so ago.