How did you meet your agent? Why does it matter?
There are many ways buyers and sellers form business relationships with real estate agents and brokers. However, most buyers and sellers are unaware of how the economic incentives are structured based upon the origin of these relationships. The goal of this post is to explain to buyers and sellers the different economic incentives operating "behind the scenes" which may affect the quality of service. I will describe some common ways people begin to work with agents, and discuss the advantages and disadvantages of each situation. Hopefully, this post will help buyers and sellers determine which kinds of business relationships will be most beneficial.
1) If you met your agent by contacting them on Zillow, Trulia, or some other 3rd party advertiser:
- Zillow pits agents against each other to respond to you first, so it is very likely that you'll get a quick response on this site.
- If you're calling about a property with at least the area average sale price, you're probably going to get a call back.
- New agents with money to burn, and very experienced agents with tons of money to burn advertise on this site. New agents will be very motivated and eager to help you, and very experienced agents will probably have excellent teams to help you find the right home for you.
- The more experienced agents pay for a large volume of leads from these companies. When you click "contact" you become a lead. If they're busy enough, or if you're looking for a lower-end home, it might be less likely for you to get prompt service.
- Newer agents often can't afford to pay a premium for placement on more desirable listings, and sometimes you will be contacting an agent about a house that sits on a street they've never been to and is totally unfamiliar to them!
- Some companies will pay for advertising on third party websites, but charge their agents a "referral fee" for those sales which originate from a lead captured via third party websites. This can mean that the agent is getting paid up to 50% less to work with you. You can imagine the affect that may have on the quality of service.
TIP: If you have a question about the home, ask the listing agent. As of this writing, Zillow allows you to directly message the listing agent. If the listing agent doesn't have an online presence, call the listing broker. Whether or not you want the listing agent to represent you as the buyer is a different matter and will be discussed in a different post.
2) If you met your agent at an Open House:
- This agent will be motivated to help you find a home because they met you in such a way that they don't owe any "referral fees" to anyone. If you have them help you buy a home, they will get to keep a larger portion of the commission.
- If you aren't necessarily ready to buy the home where you met the agent, but are interested in the neighborhood, it is very likely that agent will be knowledgeable about the neighborhood where he or she held an open house. Very few agents would do an open house outside of neighborhoods they know well.
- If you met an agent at an open house in one neighborhood, but are actually interested in homes in a completely different area, that agent may not know your target area quite as well.
TIP: This is a good way to meet active agents that are willing to hustle and work hard. In fact, it gives you a chance to "shop" for homes as well as agents. If you are interested, when asked to sign in, give your name and phone number rather than email. It is too easy for agents to automatically generate unwanted junk mail, but very few agents will make frivolous phone calls. If you get a follow-up call thanking you for attending the open house, you've found yourself a serious professional.
3) If your family member or friend recommended an agent to you:
- This agent will not owe anyone any extra money if you were referred to them this way, so they have an economic incentive to deliver their best service.
- This person has probably done a good job in the past, since your friend or family remember cared enough to refer them to you.
- This agent has a greater incentive to deliver top service since their former clients have vouched for them. Agents value their former client's "networks" and will work hard to maintain their reputations within those networks.
- Many of the top selling agents have been around for decades, and most of their business comes from their former client referrals. During those decades, their skills may have become outdated and they may have become complacent. It is a risk that comes with a high degree of success.
- This agent may know certain neighborhoods extremely well, but if you're not looking in those neighborhoods, you may want to keep your options open. Real estate is a hyper-local business, and not every agent will be knowledgeable about every neighborhood.
- You can't complain to Mom, Grandpa, or your best friend about the agent they referred that you didn't get along with or didn't deliver good service!
4) Your corporate relocation company set you up with an agent:
- The agents within brokerages that are called on to handle corporate relocation business are usually among the most competent in the company.
- This agent will know the area and be experienced and competent, if the company is well known and does a lot of business.
- This agent will know how to work with the relocation company and will be sensitive to your timeline.
- This agent could be making up to 50% less money by working with you. You can imagine that they may try to wrap up your sale quickly in 50% less time with 50% less effort.
- This agent may be very busy and probably won't have time to attend to minor issues, maybe not the best choice for a first time buyer.
5) Your friend in real estate in your current area set you up with an agent in your new area:
- This agent will probably be competent and knowledgeable since they're being referred by other agents from outside their own market.
- Your friend in your current town will probably make a couple hundred bucks.
- This agent may be getting paid up to 50% less just by working with you due to referral fees. This has an effect on their relationship with you. How hard would you work if your pay were cut in half?
TIP: Upon first meeting an agent, ask them if you can see a state-mandated agency relationship disclosure. In PA it is called the "Consumer Notice." If they've never heard of it, run, don't walk!
6) You "shopped" around for agents on the internet and called one directly:
- You can read reviews, testimonials, and their statements. You can review their listing and sale history. You can read about their brokerage and find out a lot about them without ever having to call or give away any of your personal information.
- If you find your agent this way, they won't owe anyone else any extra fees or payments, so they're earning more by working for you.
- You can quickly eliminate those who don't answer the phone or respond to your emails in a timely fashion. Punctuality is essential, and if they can't respond to an inquiry regarding new business, how will they be when it is necessary to keep a deadline during escrow?
- Some agents will be disappointed if you end up deciding to work with someone else. This can be awkward for you if they have your contact information and call you to complain or beg. This is unprofessional behavior but unfortunately does happen sometimes.
TIP: Don't sign a "buyer agency agreement" until you're sure you want to work with someone and you have set an appointment to see a house. See if you can get your agent to work with you under a "non-exclusive buyer agency." This contract (in PA) takes care of many liability issues but doesn't obligate you to pay the difference of insufficient commissions offered by the seller or work with the agent for an excessively long time. Many agents want buyers to sign up for a year-long exclusive buyer agency. Yeah right!
1) You hired the agent who sold your neighbor's house:
- Proven track record, especially if it sold for a high price, or quickly, or both!
- This agent very likely knows your neighborhood market quite well.
- This agent may know buyers looking in your neighborhood. This can expedite a sale.
- There is no economic disincentive for the agent, so they'll be working as hard as possible.
- This agent may be a top-producer who is way too busy to give you extra attention.
- Could just be a one-off lucky sale for the agent.
TIP: Check to make sure this agent is active in the neighborhood and has good reviews. Maybe contact your former neighbor to ask about their experience with that agent.
2) You hired a family member or friend who is also an agent:
- You know, trust, and like this person (one would hope)!
- They know you well and will probably know what you want.
- It will be awkward at best if it doesn't work out!
- They may not know your particular market well enough, or have enough familiarity with the local buyer's agents.
- Their company may not be optimally set up to do business in your neighborhood.
- Sometimes real estate deals between strangers can become contentious and "personal." With a family member or friend as your agent, you're taking a risk of things becoming a little too personal.
TIP: Ask your friend or family member if they can refer an agent who works primarily in your neighborhood to you. Your friend or family member can collect a referral fee from whomever ends up working for you. Tell them you respect them as an agent but don't want your personal relationship to get mixed up in the sale of your home.
3) Your corporate relocation company referred an agent to you:
Read # 4 under "For Buyers" above.
4) You hired an agent you met at an open house:
- This agent probably knows your market very well.
- You have seen them "in action" working on behalf of another seller.
- No economic disincentive so you're more likely to get better service.
- Could be a newer agent since he or she still has time to do open houses.
- Could be a buyer-focused agent since open houses are a good way for agents to meet buyers.
TIP: Ask about their marketing programs and strategies. Check out their listing history. If they aren't listing homes at all, or listing homes that aren't anything like yours, they may not be set up to serve your insterests to the best of their abilities.
5) You tried to sell your house "By Owner" and ended up hiring one of the dozens of agents who contacted you:
- This agent is probably very hardworking and tenacious. Did they chase after you for months? Did they always follow up politely and consistently? Imagine how they will treat your prospective buyers!
- This agent probably knows your market very well. It takes confidence and knowledge of the market to call a "for sale by owner" seller, and many of these agents will be very knowledgeable and well prepared.
- You may be able to negotiate a lower commission, especially if you have competing offers from several agents.
- There is no economic disincentive from the agent's standpoint, and they will be trying very hard to impress you since they had to make an effort to earn your business in the first place.
- Could be a scam artist or a brand new agent trying to get a first sale.
TIP: When an agent calls you, find out what they want by asking directly. Many sales trainers and brokers encourage their new agents to engage in bogus diversionary tactics to find a way to "get the listing." Ask if they want the listing directly. Their answer will say a lot about the way they do business. Some agents will call and say they have a buyer. If they actually do have a buyer, they're probably going to want you to sign something saying you will agree to pay them a commission. Be sure to read it carefully and maybe have a lawyer review it for you.
6) You saw a postcard, billboard, TV commercial, web ad, etc:
- This agent has the money to advertise, so they're probably well established.
- No economic disincentive for the agent.
- Could have a great team to help them deliver excellent service.
- Could have too many clients to deliver top-notch service.
- Could be unfamiliar with your particular market.
TIP: Read their reviews on a third party website. Check their sale history. Ask for references and call them.
7) You researched local agents on the internet and hired one of them:
- Read #6 above under "For Buyers"
- Most agents will be happy to give you a sales pitch.
- You may be able to negotiate a lower commission if you have several offers.
- 30 minutes of research online can help you find a couple of agents who would do a great job!
- It is always difficult to inform agents that you have decided to hire someone else.
- Some information available on the internet is unreliable.
TIP: Ask "Why should I hire you to get my home sold?" Their answer will tell you much of what you need to know about how they do business and should help you narrow down the field of potential agents.
EXTRA TIP: Call them and ask some questions about one of their listings pretending to be a buyer. See how they handle it, and ask yourself if this is how you want your home to be represented.
I hope this information is useful to you in understanding the various kinds of relationships you could have with a real estate agent! As always, contact me if I can be of service.