Home-buying season is in full swing, and one of the most important considerations when it comes to either buying or selling your home is deciding on which real estate agent to work with and how you want to engage them.
We generally recommend working with a realtor when selling your house — despite real estate selling commission fees averaging 5%-6%, having a good real estate agent can be the difference between getting top dollar or getting “stalefished.” If you’re buying a home, a top Realtor will likely have the inside scoop and give you first dibs before others so you can prevent a bidding war.
I’m an amateur personal finance geek.
Your tools have helped me become a smarter investor.
Personal Capital Dashboard User, February 2021
So here are a few tips for choosing the right realtor, and how to recognize early on if the agent you’re working with isn’t the best fit for you.
What to Avoid When Choosing a Real Estate Agent
First, here’s a list of things that might raise red flags when it comes to your real estate agent. If you notice any of these things, it might be time to question whether or not you are working with someone who will represent you and/or your house in the best possible way.
Your realtor doesn’t listen to your concerns. Buying and selling a house is a highly personal thing, and often is a huge financial decision. So if your realtor is pushing you to do something you are not comfortable with, that’s a big red flag. For example, if you tell your realtor that you don’t want to do an open house because of privacy, security, or any other reason, they should respect your wishes. If you feel they are being resistant to your request (open houses are great for the listing agent to find prospective clients), that’s not a good sign.
False assumptions. If your real estate agent starts to promise things that are “too good to be true,” then that should send up a red flag as well. Some big promises will result in surprise fees, so it’s always better for your agent to be honest up front about any fees and costs associated with buying and selling.
Not in your corner. Your real estate agent is ultimately representing YOU. So if you feel like they are making decisions that are not in your best interest, that’s something that should give you pause.
What to Look For in a Real Estate Agent
Here’s our advice for those looking to choose the right Realtor to sell (or buy) a home:
Go with a Top Producer. Seniority counts a great deal in the real estate game. It’s important to go with a “top producer” because the top 20% of Realtors move at least 80% of all the homes in any given area. Top producers are way more connected than your average Realtor. They will often know of listings before they hit the market and know of final sales prices before the official close of escrow to allow for better bidding and arbitrage. For sellers, they have a huge network to send out feelers for your property as well.
Ask when they last sold a home. If your Realtor hasn’t sold a home within the past six months, alarm bells should be going off. The Realtor should have a consistent flow of homes for sale, ideally in your price range or higher.
Does s/he have a web presence? If your Realtor doesn’t have a his/hername.com website in this day and age where 80% of properties are found online, then you should be leery. The website should have basic info such as their bio, their previous transactions, thoughts on the market, some pretty graphs, and so forth. The website should also serve as their resume for the list of properties they’d sold or acted as the buyer’s representative.
Interview your Realtor to ascertain professionalism. If you don’t find your prospective Realtor charming and pleasant to work with, neither will anybody else. It’s also important to gauge their knowledge of the current housing market in your area. Ask them about pockets of strengths and weaknesses in local housing market, as well as the risks. Ask about various real estate tax strategies or housing credits. Your Realtor should also present to you a comprehensive game plan for marketing and selling your home.
Does your Realtor have integrity? Your realtor should be totally upfront with you about what goes into the buying or selling process. This goes a long way because it minimizes the risk of negative surprises.
What About Real Estate Commission Rates?
Typically, real estate agents charge around a 6% commission fee. This can be expensive, especially if you are selling in cities such as San Francisco and New York. For example, if you are selling a $2 million home in San Francisco, you’ll be paying around $100,000 in commissions.
The reason for such a high commission structure despite internet companies such as Zillow, Trulia, and Redfin making it extremely easy for any buyer or seller to find or market a property is just down to how the system works. Half of the 6% commission is used to pay the buyer’s agent for bringing the client. Meanwhile, the other half of the commission is generally split in half again between the selling agent and the brokerage house e.g. Coldwell Banker, Zephyr, Remax, etc.
It’s important to be aware of how real estate commission works when buying or selling a house and evaluating if the realtor you are working with is a good fit. For example, some agents will not show their clients a particular house that fits their needs if the commission is too low, so being aware of how the system works will keep you alert to any potential conflicts of interest like this.
Both sides are usually willing to negotiate down their commissions if the choice is between walking away, and making a transaction happen.
How Can Personal Capital Help?
When going through a big financial life change like buying or selling a home, it’s important to keep your financial advisor as involved as possible. For example, if you are gearing up to buy a home, your Personal Capital advisor can help you determine the best way to come up with a down payment, and where to keep the money in the short-term. If you’re not already a client, read more about the wealth management services we offer here.
Terms to Know
To close, we’ll leave you with a little glossary of terms when it comes to the people involved in helping you buy or sell your home. These terms can often be confused.
Real Estate vs. Realtor vs. Broker
- Real estate agent: Anyone who earns a real estate license can be called a real estate agent, whether that license is as a sales professional, an associate broker or a broker. State requirements vary, but in all states you must take a minimum number of classes and pass a test to earn your license.
- REALTOR®: A real estate agent who is a member of the National Association of REALTORS®, which means that he or she must uphold the standards of the association and its code of ethics.
- Real estate broker: A person who has taken education beyond the agent level as required by state laws and has passed a broker’s license exam. Brokers can work alone or they can hire agents to work for them.