In this article, I will define the role of a real estate agent, explain what you should look for when selecting one and advise you on useful questions to ask when interviewing an agent. Lastly, I will explain how to find a real estate agent that is going to help you save you money if you are buying a house, or get you the most amount of money if you are selling your home.
Let’s take a step back. Did you know that the National Association of Realtors is the largest trade group in the country, with over 1.2 million members? I am sure you know a few in your life, and you probably pass by them every day on the highway, in the supermarket, or walking through the neighborhood. Many real estate agents focus on different aspects of the real estate field, such as commercial, residential, development and rentals. And to make things more complicated, not every real estate agent is a REALTOR®. We will get to that later.
A Quick note on the Importance of Real Estate Agents
Before we move on, you should know that I am a licensed real estate agent in the state of Massachusetts, and a member of the National Association of Realtors. Every state has different procedures, requirements and ethical expectations of real estate agents. I chose to write this article because so many sites have copywriters, marketing specialists and interns talking about this very subject. It is unwise to listen to copywriters for advice because buying or selling real estate will more than likely be the biggest financial deal you make in your life. You want someone licensed, qualified and experienced assisting you throughout the entire process. Additionally, you should never solely rely on the internet for advice. This article, at best, should serve as a guide for understanding how the process works, so that you can ultimately make an informed decision when finding an agent for a residential sale.
If you are looking for a rental, the process will be different: In which case, while you still have a right to a real estate agent, it may not be expected or necessary. Additionally, in the cases of commercial real estate, new construction, new developments and more complicated deals, you will likely still want an agent, but like a lease, the process will be different.
What Does a Real Estate Agent Do?
A real estate agent helps you buy or sell a home. That’s pretty simple, right? Well, not quite. An agent can assist you in many of the important steps of your real estate transaction. Here are some of the main ways they can help you.
- Determine the value of your home – A reputable real estate agent has access to their local MLS, meaning they can use specific data and various equations to determine the value of your home. For residential real estate, the most common way to determine value is to do a comparative market analysis (CMA). Essentially, if home X is bigger than your home and sold for $1,000,000, home Y is smaller than your home and sold for $900,000, and your home is Z; your home is worth $950,000. Among other ways to determine value include discounted cash flow (DCF) and calculating a cap rate. These latter formulas are mostly used when determining the value of a commercial property. However, your home may appeal to both investors (looking to rent out, expand or develop your home) and end-users. A knowledgeable real estate agent will know which class of buyers (investors vs end-users, or both) to market your home towards. For buyers, an agent should do this process when you are considering making an offer, to make sure you are not overpaying.
- Market your home – Photos, drone video, floor plan, posting online, brochure, host open houses… the list goes on. A good agent will get your listing on hundreds of online real estate websites. However, exposure is not enough. An agent should get your home in-front of decision makers, including heavy hitting agents (those who sell a lot) who are working with buyers in your area. When buying a home, the inverse is true: A good agent may be able to find you off-market properties, or at a minimum will set you up with MLS updates, so you know the very instant when a new property hits the market.
- Negotiate and advise you on any offer you receive – You might think you are a good negotiator, but like I will discuss below, you really do not have much of a chance when going up against another agent, especially one who has been in real estate for many years. Another question to ask yourself: How will you determine if an offer is legitimate, or simply a tire-kicker looking to get your home under contract (and then walk away at the last minute)? In Massachusetts, after accepting an initial contract to purchase real estate, there may be various contingencies (home inspection, pest, mortgage, etc.) that can kill a deal, allowing the buyer to get their deposit check back. For buyers, the opposite is true. You want an agent who will make sure the seller is legally able to sign, and confirm that your contingencies cover your deposits in the case of any major problem (examples being inspectional issues and zoning violations) that might appear down the line in the purchasing process.
- Guide you through every part of the transaction – A real estate agent is with you through the entire transaction, from initial consultation to closing and beyond. While a real estate appraiser will be able to help you determine the value of your home and an attorney will be able to help you in negotiation and contracts, an agent will be able to advise you in every part of the transaction not covered by a specific profession. A good agent will also know who to recommend for problems outside of their expertise, such as reliable tradespeople (plumbers, electricians, home inspectors, etc.) and needed professionals during the transaction (attorneys, loan officers, surveyors, etc.).
Do I Need to Hire a Real Estate Agent?
Most definitely not. In fact, if you are smart enough to read this article, you are probably capable of selling a home or buying one on your own. Congratulations! The ironic news is that the money you were trying to save bypassing the agent will probably be a fraction of the total amount you overpaid on (for buyers) or undersold (for sellers) your home.
For example, if somebody asked me to play a game of tennis against Novak Djokovic I would probably lose. Actually, I definitely would. Even if you gave me the best racket, best tennis shoes and tilted the tennis court so that I was looking down on his side at a 45-degree angle, I would probably still lose. That’s sort-of what it is like going up against an experienced agent on your own.
Some people think they can bypass a real estate agent by simply hiring a competent real estate attorney. That is sort of like having a great tennis coach. Even if you gave me the best coach in the world, that would not make much of a difference versus an experienced tennis player. A real estate attorney helps you with the legal aspects of a transaction (contract law), while an agent advises on some of the other parts (marketing, negotiation). While there is some overlap, the jobs are not the same and neither are the expectations of each professional.
One more thing to ponder. If you truly think agents and brokers are not useful and that you can do better, why do you think the real estate industry, one of the largest business professions in the United States, has yet to collapse? Why hasn’t the real estate industry gone like taxi businesses? Some of the smartest people in America have been working day in and day out for decades trying to change and reform the industry, yet fail to do so.
Might I also add that many of us insiders think the industry does need substantial change, but in my opinion, change will more than likely come from within, not from someone trying to game the system. Nonetheless, if you want to learn how to buy or sell your home without an agent and increase the odds of every part of the transaction working out in your favor, I’ve written an article on that. I will be posting it soon.
Buyer’s Agent vs. Seller’s Agent vs. Facilitator
Read the full MASSACHUSETTS MANDATORY REAL ESTATE LICENSEE–CONSUMER RELATIONSHIP DISCLOSURE form by clicking here.
In simple English, a buyer’s agent helps a buyer. A seller’s agent helps a seller. A facilitator does not represent either party, but must be truthful and transparent. Remember, all agents, no matter their affiliation, want the deal to get done! Designated agency occurs when both agents work under the same broker. Dual agency occurs when one agent works as both the buyer’s and seller’s agent. I’ll explain how each of these relationships might work in a typical transaction below (How a Typical Transaction Proceeds). Don’t forget, every real estate deal is different and every sale can go off-course very quickly!
Why Are There So Many Real Estate Agents?
The barriers to become an agent are low. In many states, like Massachusetts, one can become a real estate salesperson after only completing a 40-hour course and passing a test. That’s pretty easy. In fact, I took the class over two weekends, and then passed the test a few weeks later. In some states, like California, the requirements are somewhat stricter, but still doable for many people in a short amount of time.
It is imperative that you learn how to find a real estate agent that is ultimately going to help you meet your goals. Simply put, becoming a real estate agent is doable for the vast majority of people. Therefore, you should use careful consideration when choosing which real estate agent to hire (more on that later).
Other People Involved in a Real Estate Deal
Loan officers, attorneys, surveyors, paralegals, appraisers, financial advisors, contractors, engineers, inspectors, and others, all may factor into a real estate transaction; but the responsibilities of these jobs are different than those of a real estate agent. As noted above, part of an agent’s job is to guide their clients through a transaction, but it is not to act in a role other than an agent him/herself. A reliable real estate agent will be able to refer their clients to the appropriate professional in their purchase or sale of a home. For example, a client may need a surveyor to confirm that a home’s driveway, located near the suspected lot line, is actually on the home’s lot. If not, removal of the driveway could be a costly fix down the road.
How a Typical Transaction Proceeds
After determining that they want to buy in a specific geographic market, most buyers will start to look for properties on any of the easily-accessible real estate websites, such as Zillow, Redfin, Trulia (which was bought by Zillow Group Inc.), and Realtor.com. They will then make a list of prospects and visit these properties during open houses, usually occurring on a Friday, Saturday or Sunday.
When visiting these properties, they will meet the listing agent. A listing agent is someone who a seller has contracted (there are many different types of listing contracts) to market and sell their home. They represent the seller and the seller ONLY. In the case that you like a home you viewed and trust the listing agent, they may offer to write up an offer for you to sign. In such a case, your offer may be presented to the seller without representation (with your permission), or the listing agent may practice dual agency, where they represent you as a buyer and the seller. The theory is that they are supposed to have both parties’ interests at heart. I find dual agency to be highly unethical. An example:
During negotiation of a $700,000 home, a buyer makes an offer of $685,000. The seller counter’s as $690,000, but an agent practicing dual agency knows from when they listed the home that the seller would take $680,000. The agent calls the buyer back with the counter-offer. How is the agent supposed to advise the buyer (with their best interest at heart) to make a counter-offer when the agent knows exactly what the seller will take?
Sellers have the right not to consent to dual agency when listing a property. I recommend they do not consent to it. Sometimes, a listing agent may ask an agent from their firm to represent a buyer if they come directly but want representation. In return, the listing agent may receive a referral fee from the agent in their office. This is called designated agency.
Additionally, designated agency may occur by chance. For example, if sellers listed their home with an agent from Coldwell Banker and buyers are working with a Coldwell Banker agent from the same office, both parties are practicing designated agency. This is because all real estate agents work underneath a real estate broker. Therefore, the same broker may be handling the transaction for both sides. In my opinion, designated agency is ethical and reasonable, especially in the latter case.
The terms real estate broker and salesperson are often used interchangeably, but this is not the case. In Massachusetts, as noted above, to become a salesperson, you must take a 40-hour pre-licensing class and then a test. A broker requires three years as a salesperson, along with a number of other qualifications (Attorneys can skip many of the necessary requirements). However, think twice before you peg brokers as superior to their salespeople counterparts: Some of the biggest agents in the United States, and world, are only salespersons, not brokers. Some salespersons have decades of experience and have sold thousands of homes, while brokers may have only been working for a few years and have sold just a few homes, or none at all!
As I touched on in the opening paragraph, a REALTOR® is a member of the National Association of Realtors, the largest trade organization in the United States. Not all agents are REALTORs®. The organization provides ethical standards for their members to follow, as well as educational classes and information, among other services. They also lobby for legislation favorable for their members. One fun fact about the real estate industry is that 66% of REALTORs® are women, a great achievement.
What Is the Cost of a Real Estate Agent?
Not all agents work on commission, but many do. This means they are only paid when a deal is completed. The commission is usually a percentage of the gross, or net, purchase price of a property. Think of Julia Roberts in Pretty Woman. And just for the record, I only know of that example as it was referenced on the television show The Office.
Because of anti-trust law, among other rules, commission is always negotiable and firms cannot conspire to charge the same rate. In other words, there is no going rate between firms. Use this to your advantage if you interview multiple agents at different brokerages.
How to Find a Real Estate Agent?
There are many ways to find a real estate agent. I will touch on some of the more common ones below and offer my thoughts on how to get the best out of them. Regardless of where you get more information about various agents, make sure to carefully examine the motives of those giving advice, whether online or in-person.
Financial advisors, attorneys, and other white-color professionals – Professionals we trust are often the first people we look to when making important decisions, which of course makes logical sense. For example, an estate attorney will likely make many referrals to real estate agents every year. Therefore, they should know who the heavy hitters are and more importantly, who is reliable. One thing to think about; just because someone is a trusted authority in one subject, does not mean they are in another.
Friends, neighbors, coworkers, and acquaintances – Those we associate with often are great sources of information. Remember though, we tend to befriend those who are similar to ourselves, and those people may be different than those looking to buy your home. In other words, make sure to get opinions from a broad range of sources.
Tradespeople (Painters, plumbers, etc.) – Those working in homes often have direct experience with agents. In many cases, they can act like a fly on the wall, often overhearing conversations between agents, buyers, and owners. Their experiences with various agents should be taken very seriously, as they will have a different perspective that friends and other professionals will more than likely not.
Agents from another area – If you are buying in town A, and getting ready to sell in town B, it might make logical sense to ask your agent in town A if they know any agents in town B. As an added benefit, if these towns are in the same MLS area, the agent from town A might have access to additional information on various agents in town B, such as how many homes they have sold in the last 12 months, what percentage their listings sold for compared to the listing price, etc.
One word of caution; the agent from town A may ask the agent they refer you to in town B for a referral fee, generally around 25% of agent B’s commission, but I have heard of arrangements as high as 50%; all for crunching a few numbers and making a phone call that connects you with the agent from town B. As you can see, it can pay to be a connector!
It is up to you whether you think an agent making a referral deserves what could be thousands of dollars in a referral fee. You should also think carefully about how the obligation of paying a referral fee may impact the agent from Town B’s work ethic. One thing to note, most agents, even the successful ones, take on referrals, perhaps passing off the more undesirable clients (price range, unlikeliness to buy/sell, etc.) to someone on their team. Because prospecting for clients is so expensive and time-consuming, most agents are more than happy to pay a fee to work with a client: In other words, something is almost always better than nothing.
Zillow – While Zillow, and other real estate websites, can be a great resource for finding listings, understand that their main source of income is not people looking at listings on their site (I’m sure they wish it was). They make money from real estate agents paying to show up next to other agent’s listings, called Premier Agents. The idea is that a consumer will then call one of these Premier Agents. With the success of their site, many agents pay thousands, even tens of thousands of dollars, a month to be listed in a specific geographic area as a Premier Agent.
One interesting thing to think about: While you look for an agent to help you buy or sell a home, you may use website reviews, like those found on Zillow, to help you decide which agent to hire. Will there one day be other sites with reviews devoted to helping consumers determine the legitimacy of sites like Zillow, Redfin and Trulia? And then perhaps there will be sites that review those sites! The list goes on. Don’t overthink it too much.
Redfin – Redfin has a different business model than a traditional brokerage. Generally, they give money back in the form of a rebate. That’s pretty cool! On the flip side, most Redfin agents I have worked with do not live in the areas they work. You may also have an associate agent show up to important events in the home buying process, like a home inspection. It is up to you to determine whether the cost savings on the frontend will ultimately help you in your quest to buy or sell, and not cost you more money on the backend.
HomeLight – HomeLight has an interesting business practice. Unlike Zillow, which charges agents an upfront fee, HomeLight gets paid only when an agent closes on a deal (They charge a referral fee). In other words, they take a piece of the commission. Just like I touch on in the above section (Agents from another area), it is up to you to determine whether making a phone call, or being a connector and bringing your future agent and yourself together, is worth a large percentage of the commission.
No matter where you find an agent, start process by simply giving one a call or sending them an email. Even if you are not sure you will be selling or buying, most are more than willing to talk you through your options, free of charge.
Boutique vs. National Brokerages
National brokerages include Coldwell Banker and Compass. A boutique brokerage is a smaller operation, like Sky Louis (Florida) or William Raveis (New England). Some brokerages only work with buyers, or sellers, and some focus on only one type of real estate like CBRE (Commercial). However, some of the largest firms use a franchise model, so there may not be much of a connection between the local office and national chain. To make things a little more complicated, many brokerages are subsidiaries of larger corporations. For example, Coldwell Banker, Century 21, and Sotheby’s, are all owned by Realogy Holdings Corporation.
Each brokerage offers agents different benefits of working (affiliating) with them. Some offer cash back, low fees or full-service assistants. As a consumer, I would simply make sure the agent I choose to work with is happy with their company and trusts their support staff. If they openly vent through a long list of complains, I would look elsewhere.
I have found that national chains tend to have more resources for agents than boutique brokerages, but a smaller operation may have more local expertise. Here are some additional important questions to ponder if you evaluate an agent from a smaller operation:
- If this is a one man/woman operation, how good is his/her relationship with agents at other brokerages?
- Does the smaller firm have access to online systems (e-signing software, MLS, etc.)?
Regardless of which firm your agent is affiliated with, use careful judgement and verify their license status before signing any contracts.
What Questions to Ask (and Not to Ask) a Real Estate Agent
Below are some of the end-goals I think every consumer should hope to learn after interviewing an agent.
Goal #1 – To find out how experienced they are
Poor Question: How long have you been an agent? This commonly-asked question is mostly meaningless, because I have known agents who have 30+ years of experience, but who only sell a home every few years. In fact, my dad has been licensed for 27 years, but has only ever sold one home (He works as an engineer). Theoretically, he could do 12 hours of continuing education, get his license reinstated, and say he has 25+ years of experience as a licensed real estate agent! Experience is much more closely related to number of transactions (think volume), not length of service. Plus, the process of selling a home 10, 15, 20+ years ago is vastly different than today (Rise of the internet, buyer’s agents, etc.).
Better Question: How many homes have you sold in the last 12 months? This is a much more meaningful question because it determines how active the agent is, which is what you really want to find out. Ask for specific examples of their recent sales. The data is on their MLS, so it should be easy for them to pull.
Goal #2 – To find out how reliable they are
Poor Question: Do you work as an agent full-time or part-time? Purpose of this question: Generally, to figure out if the agent is available. This question does not make much sense because there are many agents who work two jobs who are far better than those who solely work as an agent. I say this as a full-time agent myself. Plus, we are in the 21st century and everyone is juggling multiple responsibilities at once. Whether someone has one, two or five sources of income shouldn’t matter to a consumer. What is important is knowing that they will be there for you when the going gets rough.
Better Questions: Are you available 7-days a week? Do you have a cover agent if you are busy? If so, who will be your cover agent? These questions are better because you learn a lot more about how an agent will conduct themselves throughout the transaction, and who they will rely on for assistance, if necessary.
Goal #3 – To find out their reputation
Poor Question: Do you have any references? Asking for references is not all that useful, because an agent who has done many deals will likely have numerous happy clients. What you are after is those deals that became complicated, the ones where the client may not have been completely satisfied.
Better Questions: Are you ok if I call some of the buyers and sellers that worked with you over the last year? What was the most complicated deal you worked on over the past year? These questions put real estate agents on the spot (in a reasonable way), which is exactly what you want to do when choosing an agent to work with. Depending on how they react, you should have an idea of how well they work with others. Remember, at the end of the day, almost any real estate deal, even one that is simple on paper, can get complicated. According to the Wall Street Journal, roughly one third of deals experience delays in closings, among many of the ways a deal can go south.
Bonus question: If you were in my (buyer/seller) shoes, how would you find a real estate agent to work with? I have had anyone ask me this question, but it would be a great way give the prospective agent an opportunity to stand out from their competition.
A Closing Note on Respect and Empathy
I am ending this article by touching on the socially conscious attitude that I expect all buyers, sellers, agents, loan officers, attorneys, appraisers, and everyone else involved in the real estate process, from introductory meeting to closing and beyond, to follow.
Business disputes are seldom clear cut. Those buying and selling property are often inexperienced, hence why agents exist. Emotions run high. People can get upset. Deals can fall apart. As E.O. Wilson said, “We exist in a bizarre combination of Stone Age emotions, medieval beliefs, and god-like technology.” After working as an agent for a number of years, this quote pretty accurately describes real estate, and perhaps life, in the 21st century.
For buyers, I always ask that they treat other’s homes as if they were their own. That means asking to take off their shoes when they walk in, refraining from moving the belongings of a seller and treating the seller’s agent just as they would the seller themselves.
At the end of the day, a real estate sale should be a positive experience; one where every party can sleep soundly at night (In the case of the buyers, literally). It is my job as an agent to do everything in my power to make sure that this is the case, and it is an agent’s commitment to you.
Congratulations, you made it through the entire article! You have learned a lot. However, the above should serve only as a basic understanding of the role of an agent and how to find a real estate agent. If you have any questions, most agents are more than willing to talk over the phone with you. Simply give one of them a call.
Learn more about a buying or selling a home by visiting our real estate buyer and seller education center.