Agents Are Not Your Friends

Dear Agents, let me go ahead and start your angry emails for you:

-- “At xyz, our agents are held to the highest …blah blah blah…

-- “How dare you imply that…blah blah blah…

-- “I am watching you right now…I am going to kill you…blah blah blah…

I have worked with good agents and bad agents. The good ones work their butts off, stay in touch, and really earn their commission. The bad ones all seem to be bad in exactly the same way. They take your listing and they forget you exist. They don’t lift a finger, or they do as little as possible. I have listed properties with agents from whom I heard nothing for months. I have seen listings on the internet for million dollar homes that had no pictures and almost no description. What are these fools getting paid for? They get $25,000 to do 4 hours of paperwork? If you pay attention, you will notice these terrible listings all the time.

FYI, to avoid this “Listing Agent Syndrome” (I just coined that phrase – I am on a roll!), the only strategies that I have come up with are to get a reference from someone you trust, and go for a short listing contract. Agents will always want to put you into a contract for at least 6 months. But every single item on the contract is negotiable. Only give the agent a 3 month contract, and tell the agent that as long as he keeps you updated on his efforts, and on what is happening in your local market, you will of course renew if it hasn’t sold. If the agent says that he/she can’t do that for any reason, the agent is a crook and you should find another. They’ll cry about their expenses and time, but that is what they are getting paid for.

Interesting. And now I have come across another reason to forego an agent and go FSBO (For Sale By Owner).

In their study, “The Value of Information in Real Estate Transactions,” Steven D. Levitt (University of Chicago and American Bar Foundation, author of the bestselling book Freakonomics) and Chad Syverson (University of Chicago and NBER), looked into the behavior of real estate agents to try to figure out whether they were doing the best jobs they could for the clients who were paying them. Their conclusion:

Our favored interpretation of the data is that the combination of real estate agents’ information advantage and the form of the commission received combine to create distortions from first best. Homeowners are induced by their agents to sell too quickly and at a price that is too low.

The study is 34 pages long, but in a nut shell, they compared what happened when an agent sold a home for a client against what happened when an agent sold his own home. They found that:

agents sell their own homes for 3.7 percent (roughly $7,600) more than they sell their client’s homes, and leave their (own) houses on the market roughly 10 days (10 percent) longer.

So if we do a little math, hiring an agent will cost you a 6% fee, and another 3.7% because the agent cares more about moving your house quickly than about squeezing the most out of the deal for you. That is a hair less than 10%. On a $500,000 home that means your agent costs you almost $50,000, and on a $1,000,000 home, that is $100,000. If you don’t have much equity in your home, that $50,000 might come in handy for something else.