The Real Cost of Using a Real Estate Agent

Conventional wisdom dictates that consumers should hire a real estate agent when they are looking to buy or sell a home. But is that really sound advice? Do real estate agents really help sale a home, or do they just drive up the asking price? And whose interests are they really looking out for, anyway?

Many consumers don’t understand what they are getting themselves into when they go to buy or sell a house, and they also don’t know just how much they will end up paying their realtor.

Real estate agents make their living through commissions that come from the sale and purchase of real estate. Every time home for sale signan agent sales a house, he or she cuts a cut of the purchase price. Overall, roughly 6% of the purchase price goes to the agents involved in the transaction. This number varies slightly from one part of the country to another. Half of this money goes to the buyer’s agent and half to the seller’s agent. Each agent may then have to split their purchase with the real estate company that employs them.

As an example, a home that is sold for $200,000 will generate a commission of $12,000 to be split between the two agents. Each agents gets one-quarter of this, or $3,000. That’s a lot of money.

This means the agent has a fundamental conflict of interest with the person he or she represents. The seller wants to get the highest asking price possible for the property, while the buyer wants to pay as little as possible. The seller’s agent wants to sell the house as quickly as possible and move on to the next deal and could end up convincing the seller to take a lower offer so the house gets sold. The buyer’s agent wants to make as much money as possible off the transaction and might convince the buyer to pay more.

Think this is unlikely? Real estate agents are human beings too, and they all have their best interests at heart. When these interests collide with the consumer there is bound to be some friction and some shifting of ethical boundaries.

Then there is the price issue. That 6% gets factored into the price of every home that goes on the market. A Stanford study recently claimed that real estate agents do not drive up the price of homes, but many people who have sold their homes on their own have found otherwise.

Consumers who sell their own homes are often able to reduce the asking price and still walk away with more money, according to William Supple, owner of the Picket Fence Preview, a real estate magazine for sale-by-owner consumers.

The trade-off is in the marketing and the waiting period. Houses that are sold by the owners rather than agents usually take longer to sell. This was also confirmed by the Stanford study. Owners who want to sell their own properties also have to market them effectively, both online and in print publications.

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