Industry Tips
Selecting a Real Estate Agent or Broker
Selling and buying a home involves making major decisions about where and how you will live for many years, and often has very important implications for your financial future.
For these reasons, many sellers and buyers enlist the services of real estate professionals to help them with complex real estate transactions. In fact, nearly 80 percent of all home sales, nationwide, are made with the assistance of a real estate agent or broker.
Thus, consumers need to know how to choose a qualified real estate agent/broker, what services the agent/broker should provide, and what recourse is available if an agent/broker fails to perform.
A real estate agent is a person licensed by a state to handle real estate sales. A broker, also licensed by the state, is the person who may own a real estate company, or who has overall responsibility for the agent's actions.
If you are selling, the right agent/broker can help you realize the best possible price and conditions for the sale of your home, and also can help you find the best deal on your purchase of a new home.
If you are buying a home, a real estate agent/broker can show you what is on the market, and help you find suitable property at an affordable price.
Real estate services are not inexpensive. Home sellers may pay a 5 to 7 percent commission to the real estate broker, who, in turn compensates the agent on the sale of the home. However, fees are negotiable and can vary widely, depending upon the level of service and expertise being offered.
Thinking About Selling?
A good real estate agent/broker can help you determine how much your home is worth, devise a strategy to market the property, help judge whether prospective buyers are financially qualified to purchase your home, and coordinate many of the financial details involved in closing the deal.
While there are a number of things to look for in a real estate agent, ultimately, the decision is a personal one. Be sure that you find a licensed agent and a reputable real estate broker who can provide the range of services that are important to you, and with whom you feel comfortable.
Finding successful agents/brokers: Talk to friends, neighbors, and co-workers who have recently bought or sold homes and ask them for referrals. Ask them about the real estate company and agent they used, and whether they were satisfied with the service they received. Perhaps the best question to ask is: Would you use the same agent or real estate company again?
One way to determine which real estate company has a good track record in your area is to observe the "FOR SALE" signs in your neighborhood, and notice which homes have sold quickly.
Also, go to a number of "Open Houses" for properties already on the market. Not only will you get an idea of what types of properties are available at various prices, but you can also observe a number of real estate agents on the job.
If you are impressed with an agent's professionalism, knowledge, and selling style, ask for a business card and contact him, or her, when you get ready to put your property on the market.
Restrict your search to residential real estate agents and companies that work in your area. The most effective agent is one who knows about the neighborhood and can answer questions, important to potential buyers of your home, about schools, places of worship, medical facilities and other services available in the community.
Interviewing prospective agents/brokers: Once you have found four or five prospective agents or real estate companies, start contacting them to arrange interviews. If a company has been recommended and you do not have a specific agent's name, talk to the agent on phone duty. If you are selling your home, each agent will ask you some basic questions and may request to see your property before giving a formal listing presentation.
Each agent will make a listing presentation to try to convince you to list the house with his, or her, company. During the listing presentation, the agent should show you a competitive or comparative market analysis, including data about comparable houses in your area that are on the market, have been sold recently, or are expired or canceled listings.
Use the listing presentations as an opportunity to rate the agent's preparation, competence, and professionalism, as well as the company's services.
Be ready to ask each agent several questions. For example, make sure that he, or she, is a licensed broker or agent, and ask how long he or she has been working in your area or neighborhood. You will also want to know about the agent's track record. Ask for references and ask how many home sales he, or she, has closed.
Also, you will want to know if real estate is the agent's full-time or part-time job. Ask each agent how he or she will actively work to find buyers for your house. A good agent will have a well-thought-out marketing plan for your property.
Remember to "interview" the real estate company, as well. While you probably will be working directly with a single agent, remember the agent brings with him or her the resources, or limitations, of the real estate company (broker), for which he, or she, works. This means it is important for you to ask each agent about the real estate company with which he, or she, is affiliated.
You will want to know how long the company has been in business, how many agents it employs, and how long agents tend to work for the company. You will, also, want to know about the marketing tools the company makes available to the agent, such as television programs or specialized advertising campaigns. Also, make sure that someone will be available at all reasonable hours to show your home to prospective buyers.
Be sure to ask if the prospective company participates in a Multiple Listing Service (MLS). MLS is a computerized central registry of properties on the market and virtually every area of the country has such a service. It makes information about your property available to all participating real estate companies, and creates a much larger market for your property by allowing other agents to bring in prospective clients.
Choosing a licensed agent/broker: Make sure that the agent and broker you select is licensed to practice in your state. While licensing requirements vary from state to state, all require individuals to take real estate courses and pass a real estate licensing exam before practicing as real estate agents.
Brokers, generally, have to fulfill additional requirements, including passing a separate exam, and in many states, must have prior experience as an agent before qualifying to become a real estate broker.
Ask prospective agents/brokers if they belong to the local Board of Realtors. The National Association of Realtors (NAR) estimates that nearly 2 million people hold real estate licenses, while about 1.2 million actively practice. Of these, nearly 800,000 are members of their local Board of Realtors, which automatically makes them members of the NAR.
While board membership is not required for licensing, membership gives agents/brokers access to the local board's Multiple Listing Service (MLS), which is a very important marketing tool for selling your home.
Hiring an agent/broker who suits your needs: Look for an agent with enthusiasm and a positive attitude--not the fastest talker. Do not automatically hire the agent who promises he, or she, can sell your house at the highest price. Look instead, for the agent that provides the most realistic and optimistic assessment of the marketability of your home, based on current data.
Be wary of the agent who presses you to sign a listing agreement because he, or she, has a prospective buyer who will most certainly be interested in buying your home.
It will be your decision whether to use an experienced agent with a proven track record, or a new agent. A new agent, often, can bring added enthusiasm, drive, and time to the job; while a veteran agent provides the benefit of years of experience. If you decide to work with a new agent, make sure that he, or she, is working with the guidance of an experienced agent.
The Listing Agreement
There are no hard and fast rules about listing your home with a small, local real estate broker or with one of the larger, nationwide real estate companies. Each type of company has its own pros and cons.
Some larger companies, for example, have a special relocation division that works with out-of-towners in one area who are relocating to your area. This can be a distinct advantage if you live in an area where company transfers are frequent and out-of-towners are a significant, potential market for your home. Some larger companies, also, have their own mortgage financing divisions.
On the other hand, a small, local company may have special expertise in selling homes in your price range, or in your area.
Make sure you listen to at least three listing presentations before you sign an agreement with the agent you choose. Most provisions of a listing agreement are negotiable, and you should carefully consider each clause before you sign.
You will be signing a contract and you are bound to its terms, unless the agent fails to perform. Be sure you understand the type of listing you are agreeing to; length of the contract; and the commission rate.
In most cases, your agreement will include listing your property in the MLS, which means that any agent from any company is free to bring in prospective buyers, and the listing agent/broker agrees to split the commission with a cooperating agent, if the cooperating agent's buyer purchases your home.
As an alternative, your agent may suggest an "exclusive" on your property, which means that only an agent that works for the same broker can bring in a buyer.
On one hand, an agent/broker may give more energy and individual attention to his "exclusive" listings. On the other hand, inclusion in the Multiple Listing Service multiplies, by many times, the number of prospects who have access to information about the sale of your home.
In evaluating what type of listing arrangement to enter into, you should keep in mind that the agent who is assured of receiving some commission when the property sells is much more likely to work harder and expend more time, than if the agreement allows the property to be sold with no commission owed to the agent.
Types Of Listing Agreements:
Exclusive Right To Sell:
The listing agent/broker receives a sales commission regardless of who sells the property. The commission is sometimes split between the listing broker and the cooperating broker, if another agent finds the buyer. The agent/broker is due a commission, even if the homeowner finds the buyer.
Sometimes, if a homeowner has one potential buyer--usually, a relative or close friend who has expressed interest in purchasing the property, but not yet committed to do so--the seller can negotiate a special clause that would exempt that one buyer, by name, from the commission agreement. If that person buys the property, the homeowner does not pay a commission. But, if the homeowner finds any other buyer, the agent/broker is still paid a commission.
Exclusive Agency:
This type of agreement gives the listing agent/broker the right to sell the property, but the homeowner reserves the right to sell the property directly. A commission is not paid to the listing agent/broker, if the homeowner finds a buyer.
Open Listings:
Every agent/broker who comes to the seller gets a listing for the property, and the one that brings in the buyer receives the commission.
Net Listings:
This type of agreement is often illegal, and usually, occurs when the homeowner is interested in the quickest possible sale. An agent/broker guarantees to the homeowner that he, or she, will sell the property at a predetermined price, which is, usually, somewhat under the prevailing market rate. The agent/broker pays the homeowner the guaranteed price, and keeps any difference between the guaranteed and the actual sales price.
Length of Contract:
The length of the listing contract is negotiable. The National Association of Realtors indicates that most listings contracts remain in effect for 60-90 days, with 90 days as the most common period. However, this may vary, depending on the average time it takes for homes to sell in a particular area.
Commission Rates:
The agent/broker is paid for his or her services through a commission based on a specified percentage of the selling price of your property. Brokers may also work for a flat fee--a stated dollar amount--rather than a percentage of the sale price.
Technically, the commission percentage is negotiable, although many agents/brokers do not, generally, agree to accept commissions at less than the area's prevailing rate.
The rate, however, is not fixed since brokers establish their compensation rate based upon their overhead expenses, and other market variables. Real estate commissions vary from area to area, but most are around 5 to 7 percent of the selling price.
You must pay the commission if you sell your house to anyone who expresses an interest in your property during the period that a listing contract is in effect, regardless of how the prospective buyer learned of the house. This means that even if you find a buyer yourself, you are still obligated to pay the real estate agent/broker the agreed upon commission.
Note however, this is not the case with an exclusive agency listing where the seller is not obligated to pay the listing agent/broker, if the seller finds a buyer for the property.
It is important to realize that the agent/broker only receives payment if your property sells. This assures you, the seller, that the agent has a vested interest in selling your home for the highest price he or she believes is possible, in the shortest period of time.
Many real estate agents rely exclusively on commissions for their income, but your agent does not receive the full commission. Usually, the agent and the broker he or she works for split the commission. If another agent sells the property, your agent and broker will split part of the commission; while the selling agent/broker (cooperating agent/broker) will split the remainder of the total commission.
What A Real Estate Agent Does For the Seller
Markets Your Property:
Your agent will market your home in a combination of ways. He or she may put a "FOR SALE" sign on your property, and will include your home in the MLS listing. Expect your agent to advertise your home with an ad in the paper, and to hold at least one "Open House."
Some companies offer additional marketing services, which may include publication of free magazines or newspapers showing their listings, TV shows advertising selected listings, direct mail marketing and relocation "tie-ins."
Your agent will also look at your property objectively and help you to emphasize pluses and play down minuses, telling you what problems need to be corrected. He or she will show your home to prospective buyers and can prequalify prospects to determine whether they are able to afford your home.
Be honest with your agent about the condition of your home, and about what you will accept for a final price on your home. Remember that your agent represents you, the seller, and not the buyer of your house, and is obligated to keep confidential any information you give him, or her, as long as the information would not deceive the buyer.
The agent's job is to get you the best possible price for your property in the shortest possible time. A cooperating agent working with the potential buyer of your home has the same responsibility to you, the seller.
Evaluates Offers, Negotiates With Buyers:
When there is an offer on your property, the real estate agent immediately sets up an appointment to present a written offer and answer your questions. Your agent will explain any contingencies on the offer contract, and tell you how these conditions might affect you and what is in your best interest.
He or she will offer advice on strategy and counter offers, and communicate your counter offer to the buyer. If you decide to accept an offer, you should have an attorney review the purchase offer before signing it. Once an offer has been signed by both the buyer and the seller, it is considered ratified and binding.
Monitors Progress Leading To Closing:
You will usually have to wait a few weeks to close the deal, while the buyer secures mortgage financing. Your real estate agent will continue to monitor the loan application process for the buyer and coordinate appointments with home inspectors and appraisers, too.
Your agent, also, will be present with you at closing along with the settlement attorney, when you sign the papers for the sales transaction.
Selling A Home Yourself?
About one in five homeowners chooses to handle the sale of their home themselves, without the aid of a real estate agent. You may save yourself some of the real estate commission, if you decide to sell your own home.
However, you must be willing to put in the time and effort involved in marketing, presenting and handling the details of your own sale.
You will have to give careful consideration to setting a fair price for your home, and marketing your property aggressively. You will also have to be available to show your property to prospective buyers.
You will not have the visibility provided by including your home in the Multiple Listing Service, so you will have to rely on newspaper ads and other marketing devices, such as a "FOR SALE BY OWNER" sign on your property.
Real estate agents may not be motivated to show your property to their prospects, unless they are compensated; so you might consider offering a small "cooperating" commission to agents/brokers who find a buyer for your home. This "cooperating" commission, generally, is three percent of the selling price.
If you decide to take the "do-it-yourself" approach to selling your home, be sure to enlist the services of a good real estate attorney to help you draw up a sales contract and handle the details of the transaction.
Remember, it will then be up to you to market and present your home to prospects, and to determine for yourself whether a prospective buyer is really financially qualified to make the purchase.
Thinking About Buying?
You do not have to work with a real estate agent to help you buy a house, but many people do so. The process of finding a real estate agent to help you find and buy a new home is very similar to finding an agent to sell your home.
Ask friends and co-workers for referrals; visit "Open Houses"; and notice which agents/brokers are most active and successful in selling homes in the area where you want to move.
Remember, when you are buying a house, all realtors have access to the same information about properties on the market through the Multiple Listing Service. However, one agent may have other important contacts and expertise that can be very helpful to you, such as knowledge about market trends, or working relationships with settlement attorneys and mortgage bankers.
A good agent will ask you specific questions about your wants and needs. The more the agent knows about your financial situation, lifestyle, and what you are looking for, the more he or she can do for you. So, be honest, and provide as much information as possible to the agent.
The agent will conduct a financial assessment, and based on this assessment, he or she can help you to realistically balance what you need, or want, with what you can reasonably afford.
The agent may also be able to recommend lenders who can help secure a mortgage for your new home; and will accompany you when you view a property.
The agent should have first hand knowledge about the neighborhood you are interested in and know about the things that matter to you, including schools, churches, shopping locations, utilities, transportation, medical facilities, and the community in general.
Buyer: "Your" Agent is Really Working For The Seller
Buyer, it is important to remember that no matter how closely you work with a real estate agent, or how helpful he or she is to you in finding and buying a new home, the agent helping you to buy a home is, technically, working for the seller of the property, unless you have entered into a separate agreement with the agent.
A buyer may retain an agent to represent him, or her, but unless the buyer does so, the agent with whom he, or she, is working represents and has a fiduciary responsibility to the seller of the property.
Several states, approximately 30, have laws that require agents/brokers to disclose, usually at the first meetings between the agent and a potential client, exactly who they are working for. Other states are considering similar disclosure legislation.
What A Real Estate Agent Does For The Buyer
The real estate agent can help you in negotiating a price for a home, but only up to a point. Again, unless you have entered into a separate agreement in which the agent agrees to represent you, the agent you are working with is working for the seller. It does not matter if he or she is the listing agent or not.
The agent can offer his knowledge of the market, and can run a computer listing of comparable properties sold in the area to help you decide what a fair price is for the property you wish to buy. The agent cannot, however, tell you what the seller's bottom line really is, even if he or she has that information.
The real estate agent will write up a contract that presents your buying offer and any conditions or contingencies on the sale that you may require, such as the sale of your home, or a home inspection. The agent then transmits the offer to the seller's agent, as well as counter offers between you and the seller. However, the agent cannot advise you on what offers to make and what counter offers to accept.
Tips To Remember If You Have A Complaint:
- If your agent/broker fails to fulfill the terms of your listing agreement, misrepresents himself, or herself to you, or acts unethically, you should immediately file a complaint with your local Board of Realtors.
- The Board of Realtors is a local body composed of practicing agents/brokers who oversee the activities of their peers, and is responsible for enforcing a national code of ethics and standards of conduct.
- The Board only handles problems involving its members. Every licensed real estate agent is not necessarily a member.
- Additionally, the Board only deals with complaints about ethics, and in some circumstances, provides arbitration of disputes.
- You may, also, wish to file a complaint with your state's real estate licensing board, real estate bureau or commission, or with your local Better Business Bureau.
