If you’ve decided to hire a real estate broker, you’re most likely expecting them to have your best interests in mind, especially when it comes to selling your house for the highest price possible. After all, your real estate agent will make a percentage of your home’s final selling price—so logically, the more your property sells for, the better for everyone. Right?
Unfortunately, this is not always the case. In fact, many real estate agents are more interested in selling your home quickly, rather than waiting for the highest price.
The reasoning behind this is explained thoroughly in the popular book turned documentary, “Freakonomics”, by Steven D. Levitt and Stephen J. Dubner. The following clip offers some insight on the subject:
As Levitt and Dubner explain, that real estate agents will list their own property for approximately 10 days longer than average, and sell it for about 3% more than another home with the same market value.
These statistics suggest that by leaving your home on the market for longer, you’ll increase the likelihood of receiving higher offers, making for a better profit for you, and therefore a higher cut for your real estate agent.
That said, realtors will often try to scare their clients into accepting offers below asking price by using lines like “The market is changing everyday, and there’s a good chance your house will be worth even less by tomorrow.”
Here’s why your interests may not always be aligned:
Real estate agents usually receive a commission fee of about 6%. Therefore, by selling your house for say $200 000 as opposed to $190 000, you will receive an extra $9400, with $600 going to commission.
While these numbers look advantageous on both sides, the catch is that commission fees are usually divided three ways meaning
- $150 for your real estate agent
- $150 for your real estate agent’s firm
- $300 for the buyer’s agent
The math leads two to options for your agent:
- Sell your house as soon as possible for $190 000 with a $11 400 commission fee, and reap a personal profit of $2850
- Put in two more weeks’ worth of hard work to sell your house for $200 000 with a $12 000 commission fee, and a personal profit of $3000.
After considering these numbers, the wait is clearly not worth it from your
real estate agent’s perspective. While you, the homeowner, receive a substantial incentive, your agent receives a bonus of just $150 for wasting two weeks that could be spent working on another large commission. The numbers say it all.
Interesting concept. I am sure the writer of the theory has the backup stats. I just have a problem with the house staying on the market for a longer period of time, while obtaining a higher price. I would think that it would be the opposite.
We are on the same page …. a professional, full time agent will market the property with the “right” price and in a timely manner!! Representing their clients best interests above their own!!
I think its best to take the money and run the way the economy is now. If the agent is sitting around waiting for a miracle, your losing money and they are looking bad at there job!
You really have to get a good realtor so the commission you will be paying will be worth it.
I agree with you, williamtaylor. If the agent is merely after the money, he would go overpricing. But if he is really committed to providing value to the client, he would peg the most appropriate price.
I have to agree you have to find an agent that is not all about commission and is focused on quality.
When a house buyer first signs up with an agent, things are usually pretty rosy, the agent assures the person that they can find an appropriate house for a price you can afford and everything will be great. The agent has “lots” of experience and knows the area inside out. At this stage of the game, you and your agent are mostly on the same page. You want to buy a house and they want you to buy a house. Your agent will most certainly want to get the process over with sooner rather than later, but that’s usually the case with the buyer as well.
Be wary of agents who don’t ask you questions and probe for your motivation. You wouldn’t work with just any agent off the street, and good agents are just as selective about their clients, So that the sell of the home will be honest and genuine
You make a very good point!!
Almost all realtors I know are honest, sure there are some bad eggs in the bunch but we have to take a chance.
LOL i do not think that “almost” all the realtors that you know are honest would suggest that someone should “take a chance!!”
In my opinion, the RECO fines are too low for those agents found to be “dishonest” and many more agents should have their license revoked.
This is really good to know. Because, as you mention, it seems to make sense that a higher price benefits everyone! But really, it doesn’t. Is this something to discuss with your agent early on? Ie., talk about how you’re willing to keep it on the market longer in order to wait for the right price?
This is a complex question because there are many “moving parts!” What is the motivation of the Seller, current market conditions, inventory level, location and more.
All of these should be considered to establish the price point when placing your home on the market.
To be very clear though, the real estate agent (brokerage) has a fiduciary duty to represent their clients best interest first and foremost. They can be held accountable if they breach this legal position.
So as I have suggested many times, it is highly advisable to enlist the services of a professional, full time agent when marketing your home. In this age of technology, a few minutes on the computer should provide you with credible information.
If the REALTOR charges just a commission fee on the final sale price, this typically means the seller pays nothing if the property fails to sell before the listing agreement expires. Even if the listing doesn’t sell, the REALTOR pays marketing expenses covered in the listing contract
Sometimes realtors have a bit more knowledge when getting you the right price and deals.
This is great info for the seller to be mindful of.
The agent is taking into consideration whether or not it is worth trading his/her time for a few more dollars in commission. It is not surprising that the agent would choose to focus on volume.
From a purely business perspective it is completely logical; more clients, more sales, more commissions in a shorter amount of time.
But it is the seller who will come up short in this arrangement.