The National Association of Realtors (NAR) reports that in 2019, more than 6 million homes were sold across the country, with 5.34 million of them being existing homes and 682,000 new construction. In 88% of those transactions, the buyer, the seller, or both used a real estate agent. In fact, just 8% of the houses sold in 2018 were sold as for sale by owner (FSBO).
So if you're planning a move, you're probably also planning to hire a real estate agent. Before you do, there are a few key things you need to know that agents may not want to tell you. Here are nine of them.
1. You don't need to hire a real estate agent to sell your house
If you're willing to research pricing and can take great pictures, you can have great success selling your home yourself. If the housing market is hot, you may not even have to do anything other than invest in a "for sale" sign and sort through the offers that come flooding in.
For most FSBO listings, you'll need to get your house on the Multiple Listing Service (MLS), the big database buyers and agents use to find homes for sale. Flat-fee services such as FSBO.com or USRealty.com allow you to get your house listed on the MLS without a real estate agent, but you'll need to offer a commission for the buyer's agents.
If you're selling a house yourself, know what it's worth. Underpricing it means leaving money on the table, but a home priced too high may never sell. Even if you lower the price later, you won't reach as many potential buyers, since you'll miss that new-home buzz.
2. You can avoid a commission if you bring your own buyer
So you're signing your contract with a seller's agent tomorrow, and your neighbor's friend or cousin's boss has already taken a look at the place. Once you sign the contract, if the boss makes an offer, you'll have to go through your agent, right?
Not so fast. Before you sign with the agent, disclose in writing any legitimate potential buyers who've already expressed interest. If a disclosed buyer decides to complete the purchase, you don't have to go through the broker -- or pay the broker's commission.
3. Commission is almost always negotiable
Sellers pay commissions to both their own agent and the buyer's agent upon the sale of the property. The industry standard had been 6% commission, split between the two agents; however, the average commission for real estate agents dropped to 5.03% in 2018, then 4.96% in 2019.
When hiring an agent to sell your home, you may be able to negotiate an even lower fee just by asking, especially if you're willing to use the same agent both to sell your current home and to buy your next one. Negotiating is often easier on higher-priced homes. And if Redfin (NASDAQ: RDFN) is in your market, it offers an effective 4% (3% for the buyer's agent, 1% for the Redfin agent) commission and rebates part of the commission to buyers.
Sellers should have a discussion about commission before signing a contract, letting a preferred agent know if a better deal is on offer to see if the agent will match it. If a buyer is interested in a home but the buyer and seller are a few thousand dollars apart on price, agents involved in the transaction may also be willing to discount their commission to make a deal.
And remember, there should be no commissions paid if the home sale does not go through, so always read the fine print.
4. That open house -- it's not for you
You know the open house you spent all day cleaning for so your home would be pristine? It probably didn't make any difference in attracting buyers or selling your home.
NAR reports that just 6% of buyers from July 2019 to June 2020 found the homes they purchased through a for sale or open house yard sign, and this number is declining as more buyers turn to the internet to find homes.
So why do agents host open houses? Most of the time, visitors consist of neighbors or people casually looking. Real estate agents can hand out their cards and drum up new business for themselves, using your house as the backdrop for their own marketing efforts. This is why real estate agents leave their cards everywhere they go.
5. Small agencies can be just as good as big ones
Big real estate agencies have brand recognition and substantial marketing budgets, but that doesn't necessarily mean they're the best or only option.
Big agencies are typically less willing to negotiate on commission than small ones, and agents may get a smaller share of commission, giving them less incentive to work hard to sell for the highest price. Agents at big agencies may also be under a lot of pressure to meet sales goals, which means they may be stretched too thin to give your home the attention it deserves.
A smaller boutique agency sometimes provides better customer service -- and the internet has leveled the playing field so that many small agents can market your home just as effectively as big ones. The key is to not be blinded by brand names and to interview several agents to find one you feel good about -- but also to make sure any agent from a small brokerage is a qualified, full-time real estate agent if you go that route.
NAR reports that from July 2019 through June 2020, 73% of buyers and 77% of sellers only contacted one agent about their transaction, which means the majority may have missed out on finding an agent who was the perfect fit. Interview agents from brokers big and small, and compare marketing plans to find the best agent for you.
6. Your home inspector might not tell you everything
Most homebuyers rightly insist on a presale examination by a licensed home inspector of any house they're looking to buy. However, the internet is full of stories from inspectors claiming they've been pressured by agents not to be too thorough in the inspection process.
Many inspectors learn quickly that if they want to be hired, they can't afford to alarm buyers by listing every problem. Worse, some unscrupulous agents may partner with inspectors they know will overlook big problems, raising only little issues.
If you're buying a home, research independently to find a highly rated inspector whom you can count on to bring up termite problems, that speck of mold in the attic, or other serious issues that could affect your desire to buy.
7. The contract you're signing has some fine print
Real estate brokers generally provide the contracts for buyers and sellers involved in a transaction. If your contract is coming from your broker, look carefully for a disclaimer of promises. This disclaimer may state that you're going through with the sale as a buyer without any reliance on verbal statements from real estate agents or sellers. Of course, in reality, you have little else to rely on.
To make sure your contract doesn't involve a waiver of rights -- and that it contains clauses to protect you -- consider hiring a lawyer to look over the agreement. Your home is probably your biggest investment, so paying a fee to ensure a fair contract is worth it.
8. Getting the best price may not always be the top goal
Real estate agents get paid more if your house sells for more, so they'll work hard to get the best price. Right?
Maybe. But if an agent can sell your home in a month at a lower price point and move on to the next transaction, it may not be worth the effort to spend a few extra months on marketing and showings just to boost your bottom line. Agents may also prefer higher volume, even at the expense of price, because of the risk transactions could fall apart.
Agents may even behave unscrupulously by bringing you an offer from an unrepresented buyer and "forgetting" a competitive bid that came in from a buyer's agent. While an agent could lose his or her license for such a misdeed, discovering the unreported offer can be difficult, and some agents are willing to take the risk if they can double their commission.
9. Buyers and sellers can check for misconduct
Real estate agents must be licensed and should provide their license number. You should check with the state to determine if an agent has been disciplined for any misconduct.
In New York, for example, there's a searchable online database where you can input an agent's license number, or search by name, city, or county. Most states have similar search features, and you should absolutely check the record of any agent you're thinking about hiring. Choosing an agent with no record means reducing the chances of bad advice -- or of a problem like an agent who doesn't bring you all your offers.
Find the right agent -- if you plan to hire one at all
While real estate agents undoubtedly have industry secrets, that doesn't mean all agents are bad. While you might be able to sell your own home, you'll likely sell it at a lower price than if you had an agent's help.
To decide if you need an agent, consider whether you're willing to put in the extra time and effort to research prices and list or find homes yourself, as well as figure out how to close the transaction without professional help.
If you're not eager to navigate the world of FSBO real estate transactions, research your agent carefully to find someone who will look out for your interests in one of the biggest transactions of your lifetime.