* Re: How do real estate agents earn their steep commissions?
May 14, 2008 by William JSometimes I’ll get asked, “How do real estate agents earn their commission?”, or they’ll say something like “What does a real estate agent do for 6% that I can’t do myself?” So after having been posed the question again last week by Nathan, I decided it would be a great topic for discussion here.
If you want to sell your house today, basically you’ve got 2 main options. One, you can sell it yourself (For Sale by Owner), or two, you can hire a real estate agent. Simple enough, right?…not always.
Sellers often have a tough time making this decision for themselves. On one hand, they would like to sell their home quickly and painlessly. On the other hand, making as much money as possible is a top priority.
I mean let’s face it, these days hiring a real estate agent to sell your home at 6 or 7 percent could cost as much as a new Honda Accord . Only you might feel better spending it on the car. And seriously, what does a real estate agent do to earn that much money anyway?
Well before diving into what a real estate agent does, it’s important to understand a few things about agents, like the different types of representation. An agent wears different hats depending on if they are working with a buyer or a seller. We’ll refer to them as buyer’s agents and seller’s agents. In both scenarios, the agent has fiduciary duties to their client. Fiduciary duties means that the agent’s relationship to their client is held to a higher standard of confidentiality, trust and loyalty than is commonly standard with the general public. Realtors also must abide by a “code of ethics” which is enforced by their association and the state.
Additionally, real estate agents must be licensed and complete continuing education requirements in order to renew year after year.
So let’s look at a general outline of both a buyer’s and seller’s agents activities in working with a client.
- Buyers Agent -
- * Educate the buyer in an initial “buyer orientation”
- * Advise client through the loan pre-qualification process
- * Find properties that fit the buyers needs & wants
- * Schedule preview appointments with agents and owners of homes for sale
- * Preview properties with the buyer
- * Analyze the value of each property previewed
- * Offer personal/professional opinions regarding client’s favorite properties
- * Research that property’s history, current value, and future potential
- * Help determine a strategic offer price
- * Coach the client on the negotiation process
- * Fill out purchase contracts, addenda and disclosure forms
- * Present offers and negotiate on behalf of the buyer
- * Present counter-offers to the buyer and advise
- * Handle earnest money according to state requirements
- * Process purchase contract
- * Order and review preliminary title report
- * Offer references to the buyer for inspections and home warranty
- * Work as a team with the seller’s agent, the lender and title company to ensure a smooth transaction
- * Review seller property condition disclosures and present to the buyer
- * Schedule and orchestrate the inspection
- * Negotiate repairs and other objections that may arise from inspections and disclosures
- * Assist buyer in working through other miscellaneous issues that may arise such as loan glitches or buying concerns
- * Protect buyer’s interests and earnest money in the event a cancellation of contract is desired
- * Ensure key deadlines are met, such as appraisal, loan denial, inspections, disclosures, settlement etc.
- * Review settlement statements for accuracy
- * Coordinate closing and possession
- * Handle any post-closing issues that may arise such as property misrepresentations, possession, and failure to fulfill on contract agreements
- * Close out transaction file
- …and when everyone else bails out at the last minute…, even help them move
- Seller’s Agent -
- * Preview the property
- * Make suggestions on preparing the home to sell
- * Educate about the selling process in an initial “seller orientation”
- * Prepare and suggest a sales price
- * Present a plan to generate a buyer
- * Promote the property, execute marketing plan
- * Network with other agents, affiliates, and vendors
- * Arrange and schedule showings
- * Follow-up with buyers and agents who preview the property
- * Deliver regular feedback reports to the seller
- * Track & analyze specific market activity weekly
- * Report personal observations and progress
- * Suggest price adjustments in a timely manner if necessary
- * Motivate agents and buying prospects to submit an offer
- * Present all offers to the seller
- * Generate net-sheets to show seller’s bottom line after all expenses are paid
- * Give personal/professional opinions in respect to offers
- * Give best and worst case scenarios with each offer
- * Negotiate on behalf of the seller with the buyer or buyer’s agent
- * Process purchase contract
- * Order and review preliminary title report
- * Work as a team with the buyer’s agent, the lender and title company to ensure a smooth transaction
- * Coordinate and process escrow
- * Negotiate repairs and other objections that arise from inspections and disclosures
- * Resolve other issues that may arise such as buyer loan problems, buyer’s desire to cancel, or unforseen issues with buyer’s ability to fulfill contractual agreements.
- * Protect sellers interest in the event the contract is cancelled
- * Strategically re-list the property for sale so as to generate another offer quickly in the event the contract is cancelled
- * Ensure key deadlines are met, such as appraisal, loan denial, inspections, disclosures, settlement etc.
- * Review settlement statements for accuracy
- * Coordinate closing and possession
- * Handle any post-closing issues that may arise such as buyer complaints & accusations, possession, or failure to fulfill on contract agreements
- * Close out transaction file
- …and even mow the lawn just before a hot buyer previews because the seller extends their vacation and the there’s no one else who can do it in time :p