Fee Only Realtors?

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Fee Only Realtors?

Postby jasc15 » Mon Jan 28, 2013 2:25 pm

I'm not exactly in the market for a house at the moment, but I am trying to learn as much about the process as I can. I came across this thread while searching "fee only realtor". There seems to be an even split on the utility/necessity of using a realtor. Having someone who knows the market, especially in an area with which you are unfamiliar, seems to be a good idea. However, this seems like the same as using a financial advisor who is knowledgeable about the market, and earns commissions on your purchases/investments. They are interested in the commission and closing quickly rather than you getting the best price.*

On this forum, fee-only advisors are almost exclusively recommended over those who work on commission. Does the real estate industry simply lack this type of realtor? If not, I'm surprised not to hear more about them.

*There was a freakonomics "study" on this that essentially showed that a seller's agent's gain in increased sale price was not offset by the time required to achieve that result.

Joe
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Re: Fee Only Realtors?

Postby soaring » Mon Jan 28, 2013 3:28 pm

There are no quick routes replacing due diligence but study-study-study.

The law of economics with realtors...turn you into a buyer fast...get money...get next customer...etc. Most commissioned sales folks must be that way or lose $$.

I would suggest you wait and rent in the general area to learn about EVERYTHING you can. Many Counties provide on line access to sold property statistics. Learn how to use their web site. Also many realtors have on line capabilities so you can enter your criteria. You can then monitor for sale and immediate access to new listings on line. You don't have to sign a contract for that access although you consider them when buying time arrives.

In my County I can view/print every sold by sub-division or other criteria for any dates. I use google maps and view the homes from the air and the street. Eliminate many just from that alone.

good luck
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Re: Fee Only Realtors?

Postby Cash » Tue Jan 29, 2013 8:41 am

Fee-only real estate agents exist, though there are probably many more reduced-fee agents. Redfin is probably the most famous reduced-fee model (they are only in select cities). We used a fixed-fee agent back in 2009, but they have since moved to a reduced-fee model. Regardless, if you are willing to visit open houses yourself and do a bit of leg work such that you really only need the agent to show you a couple of houses and do the negotiations, you can certainly save money. Many agents will work out a reduced-fee arrangement under such conditions.
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Re: Fee Only Realtors?

Postby eucalyptus » Tue Jan 29, 2013 1:29 pm

I a NOT a realtor.

However, I recently purchased a home.

Our realtor referred us to an insurance agency, several contractors (one of whom we hired for a remodel), several decorators, a local banker, a landscaping company, a pool service company (for repairs - I take care of the pool), and others. She showed us a large number of homes, carefully screened for our exact requirements. She was very helpful in negotiations.

A realtor can be well worth the fees, notwithstanding the skepticism here.
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Re: Fee Only Realtors?

Postby Mitchell777 » Tue Jan 29, 2013 1:45 pm

jasc15 wrote:I'm not exactly in the market for a house at the moment, but I am trying to learn as much about the process as I can. I came across this thread while searching "fee only realtor". There seems to be an even split on the utility/necessity of using a realtor. Having someone who knows the market, especially in an area with which you are unfamiliar, seems to be a good idea. However, this seems like the same as using a financial advisor who is knowledgeable about the market, and earns commissions on your purchases/investments. They are interested in the commission and closing quickly rather than you getting the best price.*

On this forum, fee-only advisors are almost exclusively recommended over those who work on commission. Does the real estate industry simply lack this type of realtor? If not, I'm surprised not to hear more about them.

*There was a freakonomics "study" on this that essentially showed that a seller's agent's gain in increased sale price was not offset by the time required to achieve that result.

Joe

When I was very young I was thinking of buying a first home. At that time in my state, realtors had to take 2 required classes prior to taking the exam. I took one of those classes. It was a great learning experience. Everyone there except two of us planned to be realtors. It was taught by a very experienced local broker. He spoke to us about things that he would share with a group of realtors which he may or may not share with home buyers. Very helpful in buying the first home
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Re: Fee Only Realtors?

Postby Khanmots » Tue Jan 29, 2013 1:55 pm

I bought a house a few years ago. Tried two realtor's through USAA's service where they provide a cash-back based on the purchase price (by taking it from the selling agent's commission). Those realtor's felt like they weren't listening, were trying to get me to just buy something, and wanted to turn things around ASAP. Could have been coincidence, but they were also working for a large well-known firm.

Got a referral to an independent realtor who owned her own small company and she verbally agreed to match USAA's discount. She provided good service. After a couple weekends of looking at houses she had a good idea of what I was looking for and was able to see things go on the market and *correctly* determine that I would like it and let me know. She was able to save me and her much time because she was able to put herself in my head (neither of the previous realtors bothered to really listen so couldn't do that)... and was able to point out issues that me, not having owned a house before, wouldn't have known what to look for. There were a few houses that I initially liked but she pointed out issues with and scuttled any chance of me purchasing.

That said, despite me taking a few months before I found the place I was happy with she didn't ever make me feel pressured or hurried.

I was happy enough that when it came time to close we were arguing over the discount; her wanting to give me the whole thing, me refusing to let her do that since she'd done such a good job. We compromised with me taking about half of the discount initially agreed on. :mrgreen:

So... take away? The right agent can be awesome. Agents obtained via discounting services (and maybe the big firms?) seemed to be primarily looking to move volume... I'd avoid. However, you can likely use the existence of the discount services to negotiate rates down.

And don't be afraid to "fire" an agent, at least in my area you don't sign any agreement for exclusivity (or anything) so don't be guilted into continuing with someone who isn't serving your needs.

All that said, I do wish that the payment structure was different, because as you say, it does lend itself to just getting the transaction done, not getting you a good price or the right house. I've toyed with offering different commission structures and/or hourly fees in the future if I wind up needing to buy/sell again. I do think that alternative fee structures could do a lot to align the realtor's interests with yours. As an example, say you want to sell your house, aren't in a hurry to do it, and are wanting to get a good price for it. Assume $150k would be a reasonable price to accept if you were interested in a quick sale; then offer the agent 1% + 20% of the delta from $150k. So if it sells for $150k they get $1.5k, if it sells for $160k they get $3.5k (more than the "standard" 3%). If they pull off $170k you're both golden. Their goals are now aligned with yours. Of course this requires you and the agent to be in agreement on what the quick turn around price is. But... good luck getting something like that standardized.

And one last thing since I'm rambling on. I think the reason we don't see fee-only realtors is that the current system lets the fee be hidden and rolled into the mortgage so that it's not a separate payment. Majority of buyers wouldn't like thinking that every house they're viewing is costing them $50 or whatever... that'd start feeling really expensive really fast even if it's not costing them any more than the current way the perception of such is there. Hence... what we've got.
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Re: Fee Only Realtors?

Postby rkhusky » Tue Jan 29, 2013 2:05 pm

When we bought our first house, we went with an agent from a large national firm. He was very patient with us, walked us through a number of houses, showed us potential defects that we wouldn't have recognized, didn't rush us when we made an offer on a house that seller wouldn't agree to, and we eventually ended up with a house that we really liked. We found him when we called the number on a sign of a house that we saw while initially driving around. You can find good agents anywhere.
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Re: Fee Only Realtors?

Postby jasc15 » Tue Jan 29, 2013 2:19 pm

Glad to hear that some of the cynicism may be unfounded. I can see that for a flat fee, an agent wouldnt be interested in spending much time with you, even less so than a commission-based agent. The theoretical difference, I would imagine, between fee-only financial advisors and fee-only realtors is this time element which would explain why this idea doesnt translate directly between the 2 industries.

I also like the idea of taking a real estate agent class. That sounds like an investment that would certainly pay off.
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Re: Fee Only Realtors?

Postby lawman3966 » Tue Jan 29, 2013 2:21 pm

In my experience, it can be difficult to function without a realtor in the U.S. market.

For sellers, getting your listing on the MLS is usually indispensable. Without that, many buyers will never know your property exists. Moreover, the agents will usually avoid showing any property unless they have some indication of what their commission will be and that the seller will pay it. For a while (around 2004-2006 as I recall), a discount British RE firm (the name of which escapes me) offered a service to place a seller's ad on the MLS for a flat fee in addition to a 3% commission for the buyer's agent. The logic was that the buyer's agent did the work of finding buyers and bringing them to the home, and that an inducement was needed to get them to do that, but that merely placing the ad on the MLS was not worth yet another 3% of the ultimate sales price.

I heard from people working in and around the industry that the full-service realtors disliked the discount realtors, and that some tended to move listings offered by the discount brokers to the bottom of visit lists to punish those offering discount services. One full service broker assured me that the use of a full-service broker was indispensable to getting good service. She assured me one second later (this was in 2005) there was absolutely no bubble in housing :D One must consider the source. My understanding is that the discount model didn't work well (for whatever reason, including being shunned by many buyer's agents), and I believe they sold out a few years ago.

In sum, I'd say that beating the "system" whether in Real Estate or in 401K plans is difficult, and in this case, the system is the network of MLS brokers who very much want the 6% (sometimes 7%) commission structure to remain in place.
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Re: Fee Only Realtors?

Postby steadyeddy » Tue Jan 29, 2013 2:48 pm

I think you can expect an experienced agent to give you lots of time and attention for a full fee. You can probably also get an experienced agent to assist minimally for a reduced fee. I can't imagine an experienced agent voluntarily electing to make less money per hour out of a sense of "fairness" for the buyer. That sort of Jack Bogle thinking is once in a lifetime it seems.
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Re: Fee Only Realtors?

Postby pshonore » Tue Jan 29, 2013 2:50 pm

I guess the problem is Brokers figure they need 2 1/2 - 3% of net sales volume to stay in business and pay expenses. Don't forget all commissions are usually split 50/50 with two agencies (selling and buying). In additon most selling or listing commission is split 50/50 between the agent and the broker. (In most states, all agents have to work under the supervision of a broker). So in the end, everybody get 1 1/2% (listing agent, listing broker, selling agent, selling broker. And of course sometimes the agent and the broker are the same person. When I sold Real Estate in the the pre-Internet days, we had extensive advertising expenses. That was the only way to let people know what you had for sale. There is still some advertising but significantly less. Brokers also have the typical office expenses - rent, heat, phone, computers, support staff, MLS fees and dues, franchise fees, continuing education, signage, E&O insurance, car expenses, etc. It all adds up. And there are good years and bad ones too.
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Re: Fee Only Realtors?

Postby Phineas J. Whoopee » Wed Jan 30, 2013 6:58 pm

jasc15 wrote:I'm not exactly in the market for a house at the moment, but I am trying to learn as much about the process as I can. I came across this thread while searching "fee only realtor". There seems to be an even split on the utility/necessity of using a realtor. Having someone who knows the market, especially in an area with which you are unfamiliar, seems to be a good idea. However, this seems like the same as using a financial advisor who is knowledgeable about the market, and earns commissions on your purchases/investments. They are interested in the commission and closing quickly rather than you getting the best price.*

On this forum, fee-only advisors are almost exclusively recommended over those who work on commission. Does the real estate industry simply lack this type of realtor? If not, I'm surprised not to hear more about them.

*There was a freakonomics "study" on this that essentially showed that a seller's agent's gain in increased sale price was not offset by the time required to achieve that result.

Joe

Hi Joe,

Realtors can be fine as long as you understand what service you are getting when you buy.

Almost all real estate agents are in fact agents, but they are not your agent. They owe a duty to the seller, who pays them. In a legal sense they will be subcontractors of the original listing agent. They have a fiduciary duty, but it is to your counterparty in the transaction, not to you.

In some markets there exist true buyer's agents, who work for you and not somebody else. They may charge a set fee or a percentage of the sales price. Please note that the latter places their interest at odds with yours. You will have to sign a contract with them before they start working for you.

If an agent says "you don't have to pay me anything" it is a sure sign they represent the seller.

That said, real estate agents can provide real value to buyers, and are highly motivated to facilitate sales on which the seller (through the seller's original listing agent) pays them.

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