Happy real estate agent about to get paid.
Expensive real estate agent about to get paid

You have to wonder why real estate agents are so expensive. Why it cost you so much money when you hire one. Why do people still hire real estate agents to sell a house when there are so many other less expensive ways. The real estate industry says it’s relationships. Many people people don’t realize there are options. Some sellers just don’t want to deal with the “hassle”.

Let’s take a look at why real estate agents are so expensive.

Listing Agent

First let’s break down what an agent does on the listing side, that is, when they sell your house for you. A listing agent.

  • A real estate agent helps you determine the right price for your house. The most important factor in selling your house. If a house doesn’t sell it’s overpriced and everything is relative to price including location, condition and features.
  • An agent will most of the time show you what can be done to your home to get it ready for market. Good agents will wait until your home is ready before they list it. Desperate agents want to get a sign in the yard ASAP because they need money. Hire a good agent. Get more money.
  • When a house is ready the listing agent puts it on the market. The agent lists the house in the multiple listing service. This is where other real estate agents can see it. That also means putting the property on the internet where everyone else can see it. Smart agents feature your property on sites like Zillow and Trulia which you can easily do yourself.
  • When you get an offer on your house the agent is there to act as the middleman. They’ll pass information back and forth between you and your buyer or what they call “negotiating”. Having an agent to help you negotiate is handy. Especially if you don’t want to meet your buyer or talk to them directly…for whatever reason.
  • Where agents are most useful is facilitating all of the transnational details such as inspections, appraisals and paperwork.
  • At closing your agent will sometimes give you a cheap gift to show their appreciation for all the money you just gave them.

The advice new agents always get is to concentrate on being a “listing agent”. Being a listing agent involves a lot less actual work than a buyers, or selling, agent. The listing agent has a 1-2 hour meeting with a client then puts the house on the market and waits for an offer.

Selling Agent

The selling agent, often referred to as the buyers agent, helps buyers find a home. Let’s go over what a buyers agent does.

  • The buyers agent helps a buyer find a home. Considering most buyers find their home themselves online buyers agents mostly just open doors. Sometimes that can be a lot of doors. The average buyer looks at 10 homes according to realtor.com. Sometimes it’s less and sometimes it’s considerably more.
  • When a buyer finds a home the agent helps formulate an offer. By looking at past sales the agent can determine fair value. An offer takes into consideration the condition of the property and any updating that’s been done to the house..
  • The buyers agent submits the offer. The sellers agent then shows the offer to their client.
  • When the offer finally gets accepted the agent then guides the client through the remainder of the process. That includes any inspections the buyer wants to do. There are transactional details and paperwork on the buyers side too.

Where Does All The Money Go?

Expense to sell a house

The money or commission in a real estate transaction all goes to the listing agents broker. The listing broker then pays the listing agent and the selling agents broker who then pays the selling agent. You are actually paying for your buyers agent. It would be like paying for your opponents lawyer in court. It’s done this way because this is the way it’s always been done. A buyer would likely not pay for an agent on their own.

But it’s not just the real estate brokerages and their agents anymore.

With the internet a crop of entrepreneurs have sprung that have figured out a way to put themselves between the broker/agent and the client. They do this by running ads on the internet offering real estate services. When a consumer responds to an ad the company puts them in touch with an agent. That agent then gets charged a referral fee of 25% – 40% of the commission.

So that’s a middle man to the middleman and yet another expense.

It’s not just the middlemen either. Competition in real estate is fierce. For instance in my area of close to 600,000 inhabitants there are about 2500 real estate agents and only 1800 homes for sale. All those agents have to hunt up business. There are a multitude of companies, some reputable but not many, that offer real estate agents easy ways to get business…for a substantial fee.

As I can attest to real estate association fees have risen dramatically over the past several years. Association fees are paid at the local level, the state level and the national level.

Real estate is a huge business with a lot of hands being held out that need to be paid.

That’s one reason why real estate agents are so expensive. While the job of selling real estate may have become easier the money involved is spread around more than ever. Many people and organizations want, and get, a piece of that action.

Selling Real Estate Got Easier

A long time ago, in an age before the internet, if you wanted to sell or buy a house you had to have a real estate agent. The real estate industry owned all the information about the housing markets. They held it close. These days all that valuable information is online, free and available to all.

Marketing a home was not so easy. Homes for sale were put in books the real estate brokerages owned. Consumers had to hire an agent in order to see those books full of listings. If you wanted to see a house you needed an agent to set up a showing for you.

Now an agent sells homes through the internet. A house is listed on sites like Zillow and home shoppers find them. many of the online real estate portals don’t charge anything to advertise a house. List it and forget it until an offer comes in.

There was a time whenever a signature was needed the agent and client had to meet together. get in a car and drive to a meeting place. it was time consuming. Companies like docusign and authentisign have put a stop to all that driving around. Now signatures can be obtained never leaving your desk. Another way agents save a lot of time.

Everything that an agent does has become easier and less time consuming.

So why are real estate agents so expensive? It seems they have less work to do with all the technology available now. Consumers are finding homes themselves online. Information is free. Listing a home is incredibly easy when compared to 30 years ago.

Real estate agents are still able to make so much money because people are willing to pay it. When people think about selling a house the first thing they think of is hiring an agent. it’s just natural. The $18,000 fee to sell a $300,000 house doesn’t, in most cases, even raise an eyebrow.

Sell Your House Yourself

When more home sellers start figuring how easy it really is to sell a house the real estate industry will have to take notice and start making some changes. Fees will have to become more realistic if brokers want to stay in business.

Until that time home sellers will continue to pay agents a good portion of their profits and agents will continue to take it.

Except the savvy home sellers who figure out how to do it on their own.

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