How are Realtors paid and how do I choose the right agent?
Posted On May 10, 2022
Most home buyers and sellers will have a general idea of how real estate agents are compensated. If asked, most would likely say, “oh they get paid 6% to sell houses” or “they get paid when I buy a house.”
Many never consider the importance of how much commission is offered to a buyers agent, for example, and how that can affect the activity on their home.
Unfortunately, agent compensation is somewhat cryptic and vague and many agents do not make much of an effort to explain how commissions truly work. It is important to understand not just who you are hiring and how they get paid but how much compensation they will offer to a co-op broker to make sure others are interested in showing your property.
When are real estate agents hired
First, let’s talk about the types of ways that agents are used by the public and when compensation is established. Aside from leases, there are really only two different reasons that an agent is hired by the public and those are to list a property or to buy a property.
Generally speaking, the listing agent will always determine the total compensation that is being charged and the amount of compensation being offered to a co-operating brokerage.
It is very important if you are listing a property to pay attention to the amount of commission that your agent is offering to a cooperating agent.
Offering a low commission to a buyer’s agent will hurt activity on your property. Many listing agents will come up with great reasons why they should take the lion’s share of the commission, but over 90% of transactions involve two different agents so cutting the compensation of all the potential buyers is not going to help the demand for your property.
How to choose a real estate agent
When choosing a real estate agent, there are many factors to consider. Of course, the first thing to consider is are you looking to sell a house, buy a house, or both. Let’s look at each side of the transaction.
The listing agent
Now, let’s start with a listing agent. A listing agent is someone hired by a property owner to market that property to the public.
It is incredibly important to understand that you are not hiring this person to bring you an offer. You are hiring this person so they can market it to the masses and bring you more offers so you can hopefully make more money selling your home.
Consider it from this perspective, there are over 2 million real estate agents in the United States in 2021. If an agent shows up to your property pushing you to list your property with them because they have a buyer for it be careful.
After all, what are the odds their buyer is going to give you the best offer? The listings agent’s job is not to bring you an offer, though if dual agency is permitted they might do so.
The listing agent’s job is to make sure you get lots of activity on the home and navigate you through the right offer. Generally speaking a listing agent is valued as being a market expert and someone very good with leveraging a contract to their clients favor.
How to choose a listing agent
The listing side of the transaction is not labor intensive, it is more knowledge dependent.
Look for the agent that has the most market knowledge and sales experience in your area as they will be the best one to suit your needs. Knowing the market is essential in helping you choose the right listing price.
With so much of the marketing muscle being provided by the internet, listings agents actual labor output is not as tough as it used to be but one could argue their market knowledge is even more important.
Once again, look for the agent that does deals and knows their market don’t look for the “hardest working” agent. These agents are hired to do one thing and one thing only, specifically to get your house sold.
The buyer’s agent
Next, let’s talk about a buyer’s agent. A buyer’s agent is someone who helps buyers find properties, simple enough.
This is by far the most labor intensive side of the transaction. These agents are showing properties at random hours of the day during the week and on weekends.
These agents are scheduling showings on short notice and doing everything they can to organize sometimes a dozen or more appointments in a single day.
Being a buyers agent puts you at the mercy of the listing agent and that is especially true in a very hot sellers market like what we have seen recently in 2021.
How to choose a buyer’s agent
Strong market knowledge is important for any agent but the most important quality you want in a buyer’s agent is work ethic and communication skills. You need an agent that is willing to work long hours, help find off market properties, and do whatever it takes to find you a property that suits your needs.
This is the agent that should tout their work ethic and their unwavering dedication to success.
So if you stopped and realized the hardest working agent in the transaction (the buyer’s agent) has their compensation tied to the charity of the agent who does the least amount of work in a transaction (the listing agent) then you will see we have an interesting problem.
I highly recommend that if you are selling a house do not discount the buyer’s agent. If you have to choose between houses that are going to pay you 2.5 to 3% or a house that will pay you substantially less, which one do you want to sell? These agents are paid to sell any house that meets their clients needs.
It’s time to choose an agent
So armed with all of this information, how do you know you have the right agent?
Proper and timely communication should be a given when hiring any professional. I am not a fan of “limited listing services” that charge a small fee to put you on the MLS and then let you sort out all the hard parts.
Remember that listing agents’ biggest strength is their market and contract knowledge. The public, generally speaking, doesn’t have either of those bases covered.
So for the best listing agent, find someone who is full service, does plenty of deals, has the market knowledge to get you the best price, and the contract knowledge to get you the best overall deal.
Considering that the seller is signing up to pay both agent’s commissions this is, the side of the deal that saving money should be highly considered when asking how to choose a real estate agent.
When it comes to finding the right buyer’s agent, find someone who is willing to work and has the time and dedication to find you the property you need no matter how long it takes.
If you are selling your home, please understand that these are the sales people that you are enticing to bring you an offer and the commission you and your listing agent agree to offer to them is the bait.
If you put no bait on your hook, don’t expect to catch a fish.