Why do home buyers use real estate agents?

syracusa · #1 (**permalink**) 04-10-2008, 01:20 PM

First, disclaimer: Although I have been in the US for a while, I still cannot process and cannot accept some of the mindsets, mentalities, habits and practices of mainstream America.
So please explain this practice to me, maybe I am missing something:
that of using a real estate agent for buying a house.

First, I am trying to understand ...why do we have to pay for half of our potential buyer's real estate commission when we choose NOT TO use a full real estate agent ourselves, as sellers? We use a discount broker, that did the most important thing, which is to list our house on main sites, for a small, flat fee.
Why would I have to pay for someone else's choice to use a certain service? Why isn't anybody questioning this practice?

Why do home buyers even USE real estate agents? I could see some usefulness in having a real estate agent for sellers ...but for buyers? Why? I honestly believe they contribute NOTHING of value to helping someone find the right house for them; or so little that it is intangible...let alone worth the gargantuan commissions they charge.

If someone is looking for a house, it is hard to believe they don't know what they want and where they want the house to be located.
Do they need an agent to take them by the hand, kindergarden style, and show them a house they would want...when everything is out in the open, on the Internet, and the buyer could simply contact the seller directly for a viewing when the owner is at home?

I am just puzzled by this because I think that if all potential buyers began to contact the sellers directly, with no intermediary involved, an awful lot of money would be saved in the process for both parties and some people might actually be forced to go out and get a REAL job, as opposed to pretending "they helped me find the house I wanted" for an enormous amount of money.

momof1in150 · #2 (**permalink**) 04-10-2008, 01:39 PM

Real Estate Agents know the current market. They have an unbiased opinion of the house. Home owners are too emotional when it comes to pricing/showing.

Real Estate Agents have access to Multiple Listing Services that helps market the property.

RE Agents know about local zoning, state laws and the procedures that you have to go through to sell a home (transfer taxes, fire codes, time lines to get inspections & appraisals, etc).

Most homeowners don't have the time to commit to selling their home. They have jobs and families. A RE Agent's job is to bring a seller and buyer together to complete a transaction.

As for a buyer many people don't have the experience to go out and find the houses themselves and it is a process that can end with a lot of red tape. You need to deal with lawyers, inspectors, appraisers and others. RE agents have access to many listing sites that homeowners don't have access to. They can also find out information about the house that a buyer would have a harder time finding out.

Many think that RE agents make a lot of money off of a sale but it isn't really the case. In the current market we are getting 5% off the sale of a property. The properties are on the market for 6+ months. If you have a buyer's agent and a listing agent then you split the commission 50/50. After that 50% split you split your commission with your broker. In the end you will get 25% of the commission. You are also responsible for paying both sides of your social security and all of your business expenses.

If you have a $200,000 house you would make $2500 and if the house took 4-6 months to sell it isn't that much.

sweeps · #3 (**permalink**) 04-10-2008, 01:42 PM

People use an agent to buy a house, because it is free to them. The seller pays the fees for the seller's agent, who splits the commission (typically 5% nowadays) with the buyer's agent. In general the buyer gains nothing by going without an agent.

There are some buyers' agents that charge a fee. The theory behind it is this type of agent will work for you and not for the seller (since there is an inherent conflict of interest for the buyer's agent; the more you pay for the house the more he or she earns in commission).

Why do these strange practices exist? Because of a very powerful realtor lobby.

momof1in150 · #4 (**permalink**) 04-10-2008, 01:51 PM

Quote:

Originally Posted by sweeps

People use an agent to buy a house, because it is free to them. The seller pays the fees for the seller's agent, who splits the commission (typically 5% nowadays) with the buyer's agent. In general the buyer gains nothing by going without an agent.

Technically, the buyer is paying the commission because they are paying for the house. It just looks as though the seller is paying for it because it is part of the sales prices and shows as a debit to the seller on the closing statement.

Most sellers who are working with an agent prefer that the buyer is also working with an agent. In the simplest terms the reason to use an agent either way is CYA (cover you a$$).

Snave · #5 (**permalink**) 04-10-2008, 01:58 PM

syracusa,

And you wonder why some people get a little miffed at some of the things you write? Wow.

Anyway, we moved to Tennessee 5 years ago for work. We had no idea where we were going, what we were doing and had a weekend to find a home. We used an agent so that we could see multiple houses in one day. We did use the internet to locate some homes we wanted to see and she also used her knowledge toshow us other neighborhoods we didn't know about. Because we were with her, she was able to take us from home to home and set everything up. Had we not been with her, we would have had to call every agent and set up times, etc... That would have limited the number of homes we could possibly had seen. We ended up choosing a home that SHE found and we did not find on the internet. I am sure the seller was very happy that she brought a prospective buyer to their home who would not have originally looked at it.

Previous to this move, I owned a home in Ohio that the realtor knew was going to go on the market in a few weeks. Had I not used a realtor, how would I have known this. He called the people, I walked through it and we had a deal and the home never even hit the market.

sweeps · #6 (**permalink**) 04-10-2008, 02:06 PM

Quote:

Originally Posted by momof1in150

Technically, the buyer is paying the commission because they are paying for the house. It just looks as though the seller is paying for it because it is part of the sales prices and shows as a debit to the seller on the closing statement.

No, technically the seller is paying the commission, hence the debit to the seller.

The buyer is paying $X to the seller to buy the house regardless of whether the seller had an agent or not. It's up to the seller to settle up with his agent. If the seller had no agent, then he gets to pocket more of the sale.

ThriftoRama · #7 (**permalink**) 04-10-2008, 02:22 PM

I'm guessing we use realtors to help us navigate housing contracts and law.

Brokemofo · #8 (**permalink**) 04-10-2008, 02:23 PM

Quote:

Originally Posted by sweeps

No, technically the seller is paying the commission, hence the debit to the seller.

The buyer is paying $X to the seller to buy the house regardless of whether the seller had an agent or not. It's up to the seller to settle up with his agent. If the seller had no agent, then he gets to pocket more of the sale.

This is correct. The seller pays the brokers fees, not the buyer. Of course, I suppose a seller could ask a buyer to pay them, but who knows.

One of the biggest reasons one needs a agent to buy real estate is you pretty much want to go look at the home before offering on it don't you? Well, try to get into a home for sale without a real estate agent and see what happens especially if it has a lock box on the door.

disneysteve · #9 (**permalink**) 04-10-2008, 02:45 PM

Quote:

Originally Posted by syracusa

If someone is looking for a house, it is hard to believe they don't know what they want and where they want the house to be located.
Do they need an agent to take them by the hand, kindergarden style, and show them a house they would want...when everything is out in the open, on the Internet, and the buyer could simply contact the seller directly for a viewing when the owner is at home?

I disagree completely.

When we were house hunting, we had a vague idea of what we wanted and where we wanted to be, but the agent we worked with was a tremendous help in helping us evaluate different neighborhoods, driving us around to all of the houses we saw (much easier since he knew his way around and we didn't), showing the homes (as Brokemofo pointed out, they generally have a lock box - you can't just walk in) and guiding us through the whole buying process.

As for contacting the seller directly, that's a bad idea. You don't want to see a home when the owner is present. You want to see a home when it is empty and you can be comfortable going through all the rooms, checking closets and basements and crawl spaces and opening and closing windows and doors and flushing toilets and running showers and doing all the other things that could be a little awkward with the owner looking over your shoulder. And you want to be able to speak freely with your spouse about what you are seeing without being concerned that you might be offending the owner. Also, not all homes for sale are occupied. Some are vacant because the owner has already moved. You need an agent to get you in to those homes.

Others have already stated lots of other benefits to working with a good agent when buying a home. It is a complicated process and having a trained professional with you every step of the way can make it go much more smoothly.

humandraydel · #10 (**permalink**) 04-10-2008, 02:47 PM

Quote:

Originally Posted by sweeps

No, technically the seller is paying the commission, hence the debit to the seller.

And you don't think people "price in" the commission when selling their home? Of course they do, that's why FSBO exists. And, if they KNEW that a person would buy the house WITHOUT an agent, they might be willing to lower their asking price.

simpleyme · #11 (**permalink**) 04-10-2008, 02:49 PM

how is house buying done in your country?

if you are hoping to save money by doing away with all agents do for sale by owner, but many of those people just plan on pocketing the commission they would have paid and have no intention of selling cheaper

I have never paid a commission to an agent but I buy distressed properties and agents do not seem to care for those and the owners just want to be rid of them

sweeps · #12 (**permalink**) 04-10-2008, 03:15 PM

Quote:

Originally Posted by humandraydel

And you don't think people "price in" the commission when selling their home? Of course they do, that's why FSBO exists. And, if they KNEW that a person would buy the house WITHOUT an agent, they might be willing to lower their asking price.

To some extent, yes. But that is an indirect effect. The word "technically" was used -- technically the seller pays the commission.

zetta · #13 (**permalink**) 04-10-2008, 03:40 PM

When we sold our townhome and bought our current house, our agent saved our butts twice. On the buying side, there was a house we looked at and were going to make an offer on, and she suggested we sleep on it. (This was during the big boom where houses were coming on and off the market within days and you had to make a quick decision.) She had seen enough houses with us to know our preferences pretty well, and she was right about the house -- on reflection the kitchen was too small and the ground floor layout was somewhat awkward. On the selling side, we were originally going to sell it ourselves, and I would've priced it about $30k less than we ended up getting. When you throw in all the paperwork that she covered for us, I think it was well worth the commissions she earned.

moneybags · #14 (**permalink**) 04-10-2008, 05:37 PM

Quote:

Originally Posted by momof1in150

They have an unbiased opinion of the house.

I agree with all your points except this one. A realtor may encourage you to buy a house they are the listing agent on. I also think they may talk up a house just to make a sale.

maat55 · #15 (**permalink**) 04-10-2008, 06:04 PM

I sold my last two homes FSBO and bought the one i'm in FSBO. I don't care if the seller is using an agent, I still intend to get a good deal through my own due dilligence. I will always try to sell my homes FSBO first.

To me, in most cases, you should make your house sell itself. If it cannot, good luck using an agent.

simpleyme · #16 (**permalink**) 04-10-2008, 09:18 PM

that my problem with agents, the more you spend the more they make

markusk · #17 (**permalink**) 04-10-2008, 10:09 PM

I have to disagree with most of the folks here and have to agree with syracusa. I don't know how this present system evolved, but it is boardering on a scam. Realtors are necessary because they have access to the MLS -- a very valuable tool (can you say "monopoly?") to buy and sell. The internet is leveling the field somewhat but there is a long way to go.

The key is to find a reputable Realtor, with alot of experience. With the recent house boom that just passed, a lot of "realtors" were jumping on the band wagon with little experience and training, only interested in a sale, any sale. Here in CA where the typical home cost 1M+, 6% is alot of money.

There years ago, I realized that the housing market was in trouble when every other SAHM at my church was studying to be a part-time agent.

Anyone read Frekonomics? When realtors are selling a home, what they want is the "most reasonable price" for a relatively quick sale. When realtors sell their own homes, they want the "best price." An analysis of the Chicago area revealed that during the housing boom realtors had their personal homes on the market 20+ days longer and got a higher price. In other words, your interest and a realtors interest often times do NOT match.

Even in this down turn market, some realtors are out to lunch. A friend of mine just bought a home but had to go thru six months of painful search and 3 realtors before he found the house of his dreams.

The first agent basically said: "I have 10 homes for you to see on Saturday. On Sunday you can go back to 3-4 of the homes that you liked on Saturday, and on Monday, you can give an offer to one of them." This agent did not last too long.

When my friend found a good house, he wanted to offer 10% less than the asking (it had been on the market for over 1 year for 1.25M). The second agent tried to talk him out of it, "he won't go for it. Why don't you offer 20K less?" Are you kidding me! This is a BUYERS market! This second agent refused to take the offer to the seller because it was "too insulting." It turned out later that the seller was a realtor himself. In the state of CA, an agent can not refuse to communicate an offer. My friend fired the agent on the spot because she was acting more like the seller's agent (even thru they had a contract) than the buyers'

Don't get me wrong, every profession has it's bad apples -- and the above example is an extreme case. I have personally use two who are excellent and have my complete trust - but you have to do your homework and the agent must have excellent references. The problem is you don't have to have a college degree to get a realtor's license and the recent boom has swelled their ranks with part-time inexperienced agents. One reference I recently used was "Diamond Certified." Google it and click the link for your local area county, then click "real estate broker".

In this down market, an agent is a must for sellers. Not so critical for buyers, but I am using one now myself.

Brokemofo · #18 (**permalink**) 04-10-2008, 10:33 PM

Quote:

Originally Posted by markusk

The problem is you don't have to have a college degree to get a realtor's license and the recent boom has swelled their ranks with part-time inexperienced agents. .

What the hell does college educated have to do with anything? I know plenty of college educated Realtors and plenty of high school drop out Realtors. Both are either good or bad at what they do, but it has nothing to do with college.

safari · #19 (**permalink**) 04-10-2008, 11:00 PM

I used a real estate agent when I bought my house, and he provided a valuable service to me. He showed me tons of houses during the 9 month period; most of the time the owners were not present, so the lock box was used. He also helped with documentation and worked with the escrow company to close the purchase. I do think, however, that the broker fees are too high. Perhaps, instead of a percentage of the sale price, the fee should be flat, since the work they do is the same whether I buy a a $300K house or a $1,000,000 house.

markusk · #20 (**permalink**) 04-10-2008, 11:01 PM

Quote:

Originally Posted by Brokemofo

What the hell does college educated have to do with anything? I know plenty of college educated Realtors and plenty of high school drop out Realtors. Both are either good or bad at what they do, but it has nothing to do with college.

No insult intended.

Whether a realtor went to college or not does not make him/her a good/bad agent. I'm sure there are college educated agents who are incompetent and unethical and non-college educated agents who are excellent realtors with the best intentions for their clients. It's just an observation that there are no college requirements to get a realtor's license.