Do Homebuyers Really Need Real Estate Agents… if 64% find the Home they Purchase without the Help of an Agent in the First Place?
On April 5, the NY Times real estate blog, The Walk-Through, did an article regarding a company doing new online tatics in the real estate space. The article quoted that 2/3 of homebuyers found their own home without the help of an agent.
In reading the comments to the blog post, many agents appeared surprised by this 2/3 statistic, asking to see the statistic, so I pulled the press release again (I had previously discussed this NAR report which was spun to show 86% of buyers using agents, more than ever before) from the NAR at: Realtor.org/publicaffairsweb.nsf/pages/hmbuyersellersurvey06 and reviewed the statement which is as follows:
So my initial math was as follows:
24% internet (Note: up a whopping 63% from just the year before) + 15% yard signs + 7% other = 46%… that’s a lot of homebuyers finding homes on their own… but…
If you interpret it the other way…. “36 first learn about the home they buy from a real estate agent” which leaves us to assume that really 64% of home buyers found the home they purchased without the help of a real estate agent. (100% - 36% = 64%). Like you, I’m not sure where the other 18% is but this is a NAR statistic and that’s another post.
A long time argument from real estate agents to justify their fee is the time and money they spend showing clients homes and their ability to find homes… these NAR statistics obviously put a big hole in that argument.
What is the Buyers Real Estate Agent Really Doing?
So, if 64% of homebuyers are finding the home they buy on their own, (which is supposedly where all the work is), what are the real estate agents really doing to earn the 2-4% buyers side commission? Here are some thoughts.
a) Letting them into the house – the obvious increase in agent use, is because the buyer has to be able to get into the property they found and since they can’t call the owner directly they MUST call a real estate agent. Are homebuyers willing to pay a fee to be let in to view a home? Can this service performed by someone else… like the home owner?
b) Writing the Offer – if a buyer found the house, calls an agent who let’s them into the home and the buyer likes the house, then the next step is the buyer to ask the agent, how to make an offer. The buyer does not view this innocent question as possibly costing them 2-4% of the sales price in fees for the real estate agents service, as buyers agent services appear “free” (See my previous post regarding this “Free Service” fake-out).
Statistics from the CAR indicate that 71% of homebuyers select their agent based on who calls them back first (and I assume the reason they call the agent in the first place is to show them the inside of a home they found… see reason A).
Can just writing the offer / negotiation be performed by some else for cheaper? I.e. actual listing agent (who is already receiving the other portion of the commission), escrow, title, closing attorney? Do homebuyers really depend on the buyers agent for their negotiation skills or is the agent just “supporting” the decision as indicated in the Century 21 commercials? (See interesting post regarding this commercial on Slate)
c) Refer Homebuyers to required Services – This appears to be a big one, since it represents reason # 1 according this the REALTOR.com marketing piece on “Why Use a REALTOR” after this beautiful PR piece… “REALTORS® subscribe to a strict code of ethics and are expected to maintain a higher level of knowledge of the process of buying and selling real estate.”
Higher level of knowledge than whom? The home buyer? The home seller?
Also, this “Referring of Services” is the broker / owners favorite reason as it allows the agent to guide the buyers into using “broker owned” services, like title, escrow, mortgage because it increases the profit potential of the transaction.
Can someone else perform this “referral” service for cheaper and with less strings attached? You bet, see social networking sites.
d) Guide the buyer through the real estate transaction – Yes, the agent helps manage the transaction but so does the $2,300 a month “real estate transaction coordinator”, who typically performs this for most agents. Also, keep in mind that the mortgage lender, escrow, title, home seller and buyer also want the transaction closed because they all get what they want (income / house) and this can only happen when the deal is done. Can someone else other than the agent do this for cheaper and better?
There may be more items completed by buyers real estate agents used to support their value-proposition... maybe some agents would like to comment or add to this list to get these points across.
Do homebuyers really need agents to perform these services?
When broken down into separate components it’s easy to see that the real estate model can be done more efficiently when it pertains to time and cost. Will there be full service agents... of course, will they still make 5-7%, of course but the standard of service will be much, much higher than currenty. Is there change coming...
I personally think any homebuyer in California who saw that it cost them $15,000 (3% of $500,000 average sales price) to use their “free” buyers agent, would seriously think twice. Personally, I don’t think that most real estate agents could provide a strong enough value proposition to justify the cost.
Imagine this…
What if the buyers agents real estate commission appeared as a “cost” on the homebuyers final closing statement…
Think homebuyers would also look for other home buying options… much like home sellers have with discount brokers, flat-fee services and For Sale by Owner services?
What are your thoughts?
In reading the comments to the blog post, many agents appeared surprised by this 2/3 statistic, asking to see the statistic, so I pulled the press release again (I had previously discussed this NAR report which was spun to show 86% of buyers using agents, more than ever before) from the NAR at: Realtor.org/publicaffairsweb.nsf/pages/hmbuyersellersurvey06 and reviewed the statement which is as follows:
"When asked where they first learned about the home purchased, 24 percent of buyers identified the Internet, up strongly from 15 percent in 2004 and only 2 percent in 1997. Although most buyers use an agent to complete the transaction, 36 first learn about the home they buy from a real estate agent and 15 percent from yard signs; five other categories were 7 percent or less."
So my initial math was as follows:
24% internet (Note: up a whopping 63% from just the year before) + 15% yard signs + 7% other = 46%… that’s a lot of homebuyers finding homes on their own… but…
If you interpret it the other way…. “36 first learn about the home they buy from a real estate agent” which leaves us to assume that really 64% of home buyers found the home they purchased without the help of a real estate agent. (100% - 36% = 64%). Like you, I’m not sure where the other 18% is but this is a NAR statistic and that’s another post.
A long time argument from real estate agents to justify their fee is the time and money they spend showing clients homes and their ability to find homes… these NAR statistics obviously put a big hole in that argument.
What is the Buyers Real Estate Agent Really Doing?
So, if 64% of homebuyers are finding the home they buy on their own, (which is supposedly where all the work is), what are the real estate agents really doing to earn the 2-4% buyers side commission? Here are some thoughts.
a) Letting them into the house – the obvious increase in agent use, is because the buyer has to be able to get into the property they found and since they can’t call the owner directly they MUST call a real estate agent. Are homebuyers willing to pay a fee to be let in to view a home? Can this service performed by someone else… like the home owner?
b) Writing the Offer – if a buyer found the house, calls an agent who let’s them into the home and the buyer likes the house, then the next step is the buyer to ask the agent, how to make an offer. The buyer does not view this innocent question as possibly costing them 2-4% of the sales price in fees for the real estate agents service, as buyers agent services appear “free” (See my previous post regarding this “Free Service” fake-out).
Statistics from the CAR indicate that 71% of homebuyers select their agent based on who calls them back first (and I assume the reason they call the agent in the first place is to show them the inside of a home they found… see reason A).
Can just writing the offer / negotiation be performed by some else for cheaper? I.e. actual listing agent (who is already receiving the other portion of the commission), escrow, title, closing attorney? Do homebuyers really depend on the buyers agent for their negotiation skills or is the agent just “supporting” the decision as indicated in the Century 21 commercials? (See interesting post regarding this commercial on Slate)
c) Refer Homebuyers to required Services – This appears to be a big one, since it represents reason # 1 according this the REALTOR.com marketing piece on “Why Use a REALTOR” after this beautiful PR piece… “REALTORS® subscribe to a strict code of ethics and are expected to maintain a higher level of knowledge of the process of buying and selling real estate.”
Higher level of knowledge than whom? The home buyer? The home seller?
Also, this “Referring of Services” is the broker / owners favorite reason as it allows the agent to guide the buyers into using “broker owned” services, like title, escrow, mortgage because it increases the profit potential of the transaction.
Can someone else perform this “referral” service for cheaper and with less strings attached? You bet, see social networking sites.
d) Guide the buyer through the real estate transaction – Yes, the agent helps manage the transaction but so does the $2,300 a month “real estate transaction coordinator”, who typically performs this for most agents. Also, keep in mind that the mortgage lender, escrow, title, home seller and buyer also want the transaction closed because they all get what they want (income / house) and this can only happen when the deal is done. Can someone else other than the agent do this for cheaper and better?
There may be more items completed by buyers real estate agents used to support their value-proposition... maybe some agents would like to comment or add to this list to get these points across.
Do homebuyers really need agents to perform these services?
When broken down into separate components it’s easy to see that the real estate model can be done more efficiently when it pertains to time and cost. Will there be full service agents... of course, will they still make 5-7%, of course but the standard of service will be much, much higher than currenty. Is there change coming...
I personally think any homebuyer in California who saw that it cost them $15,000 (3% of $500,000 average sales price) to use their “free” buyers agent, would seriously think twice. Personally, I don’t think that most real estate agents could provide a strong enough value proposition to justify the cost.
Imagine this…
What if the buyers agents real estate commission appeared as a “cost” on the homebuyers final closing statement…
Think homebuyers would also look for other home buying options… much like home sellers have with discount brokers, flat-fee services and For Sale by Owner services?
What are your thoughts?
posted by Jessie B at 1:10 AM
7 Comments:
1. One doesn't have to use a buyer's agent. You can have an agent that still solely represents the seller as a sub-agent, help you find a home.
2. Most home buyers, especially first time home buyers, don't know what's involved in the entire purchase process. An agent that does follow the ethics and rules set by NAR is the right way to go when choosing a guide through the process.
3. Realtors can pull all the information necessary about a property for a buyer, they are more experienced at negotiating (usually), and save the buyer all the expenses of subscribing to all the services the agent already uses.
All in all, the commission is usually split in half with the brokerage, leaving somewhere between 12% and 25% for the listing or selling agent, which then has taxes taken out of it. This usually covers the common expenses a Realtor has as an independant contractor, and leaves enough left for the Realtor to make a living. Most Realtors are not the greedy rich dirty salesman that most misinformed and naive buyers and sellers believe. In fact, it's the buyers and sellers that tend to show more greed, both in overpricing their own homes, or low balling offers on homes they wish to purchse.
If anyone knows of any FSBO related real estate marketing company that is unpublicized and about to launch, please contact
carlton@buyontv.com
I have an interest in that kind of business
Of course buyers could use the listing agent as there agent, but why would you? If a buyer simply chooses to use the agent who is selling the house then you have what we call dual agency. The buyer needs to ask themselves, "Can the listing agent represent both the buyer and seller fairly." Why risk it? You might as well have your own agent (buyers agent) representing and protecting your interests, since the the listing agent will get the full commission. You have nothing to loose. Also, keep in mind: The seller pays the buyers agents fee, not the buyer. Folks need to look at the net result, the so called bottom line. Yes, you could use some alternative approach to buying property and think your saving the buyers fee. But at the end of the day when you close escrow did you really save any money? What if you did use a buyers agent and the buyers agent did negotiate a cheaper price versus if you used the listing agent. Guess what: You probablly just saved a heck of a lot more than just the 3% buyers agent fee.
I could not agree more.
As a technologist for a large real estate brokerage (disclosure-grin), I see messed up deals come through our office every day. Our agents put tons of time into helping folks avoid the pitfalls that happen in these transactions.
Can a homebuyer avoid a buyer's agent. Yes.
Should they? Nope.
There is a large gap between CAN and SHOULD, IMO.
Eric
i think agents do help in as much as guiding the client through the whole buying process, so thats where the money is going really.
"any homebuyer who saw that it cost them $15,000 (3% of $500,000 average sales price) to use their “free” buyers agent, would seriously think twice."
"What if the buyers agents real estate commission appeared as a “cost” on the homebuyers final closing statement…"
This article is very misleading! It is important to point out to prospective buyers that the listing broker is going to charge the same 5-7% commission whether they split it with a buyer's agent or not. So don't let the thought of "saving" thousands of dollars keep you from obtaining representation!
Imagine you've been charged with a crime and are going to trial. Do you have to have a defense attorney? Absolutely not! You could always put your faith in the DA and hope for the best...
I am a agent. Though the client finds the home. We assist them with the sales contract and price negotiations. An agreement of sale coule be difficult to understand. Keeping with deadlines and corresponding with the lender. I would advise that you interview your agent and find one that matches your personality.
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