How Agents Work

Who Are They?

Realtors, or real estate agents and brokers, are people licensed by the state to help people buy and sell property.  Agents usually specialize in a location or neighborhood, and in a type of property (e.g. condos, or single family homes). 

Why Do You Want One?

Agents can be incredibly valuable sources of information, and can make your buying process smooth and trouble-free. 

Buying or selling a home is something most people do only a few times in their lives.  Many realtors do more than one sale per month. They’ve got lots of experience buying and selling homes so they know what to look for and how to deal with problems and lots of contacts to help with loans, appraisals and inspections.

How Do Agents Work?

It can be very helpful for you as a buyer to understand who the players are, who works for whom, and how everybody gets paid. 

Agent and Brokers:

The broker generally owns and runs the realty office, the agent works for the broker.

  • The broker provides the office, and often a suite of services to make the agent’s work easier.  You often never meet this person.
  • The agent is the person who helps you buy or sell the property, and you usually spend a lot of time with him or her.
  • The agent earns a commission when a property sale is complete, and they then give part of that commission to the broker.

Three Methods of Agency:

There are three ways that agents work with buyers and sellers:

  • Traditional Model: this is the most common.  A seller signs a contract with an agent and his or her broker called an “exclusive listing agreement.”

    Commission: This entitles the agent (sometimes called the “listing agent” since they are the ones posting the property listing) to a commission.  The commission is a percentage of the sales price, usually between 3 and 6% of the property sales price, paid when the home is sold. 

    Listing Agents: get the commission even if they are not the person who finds a buyer; the commission is considered compensation for the agent’s help in selling the home.  This help usually involves:
    • listing the property on a database shared by all the realty agents in the area called a Multiple Listing Service (MLS)
    •  holding open houses for other agents and their clients
    • helping the seller set a price on the property
    • helping the seller get the property ready for sale

    Buyer’s/Selling Agent: The agent who works with you the buyer can be called the “buyer’s agent,” or “selling agent.”  Your agent most likely works for a different broker than the listing agent (and if not, that’s called Dual Agency), but they will receive a part of the listing agent’s commission as compensation for bringing you, the buyer, to the property and helping you through the purchase process.

    So there are four people getting a slice of the commission:
    • the listing agent
    • the listing agent’s broker
    • the buyer’s or selling agent
    • the buyer’s agent’s broker

    The vast majority of real estate agents are great people who love helping buyers and sellers and do their best to make sure that everyone is getting a fair deal in the process. 

    But you should be aware that since everybody’s paycheck depends on a percentage of the selling price, the higher the sales price that you pay, the more money they all make.
  • Buyer’s Broker Model: this model avoids the potential conflict of interest of having the buyer’s agent be technically a subagent of the listing agent (the buyer’s agent gets paid based on the listing agent’s commission).
    • Buyer’s Rep Only: Even if the buyer’s agent (while called the Buyer’s Broker Model, it doesn’t actually involve the broker) is paid as a part of the listing agent’s commission, the agent only represents the buyer and is bound by law to get the best price and the best deal for the buyer.
    • Paid By Buyer: In many cases of this model, the buyer’s agent is paid directly by the buyer, rather than the seller. This makes it absolutely clear that the agent is representing the buyer’s best interest, but it does mean that that you the buyer will be paying someone directly (rather than indirectly through the listing agent’s commission which is a percentage of the property selling price), which is cash out of your pocket rather than just a higher mortgage amount.

  • Dual Agency: this is when both the listing agent and the buyer’s or selling agent work for the same broker.  The broker likes this because they don’t have to split the commission with another broker, so they make more money on the deal.

    Instead of four people splitting the commission, only three do. The two agents get their split of the commission (and sometimes they get a higher percentage), and the broker gets the rest.

    This is sometimes called keeping a listing “in house,” it is legal in many, but not all states, and both the buyer and seller must be told when it occurs.  Check with your state real estate board to see if it is legal in your state. 

    If you think this might happen to you, ask your agent whether he or she will receive a higher commission if you purchase the house listed with their realty. 

    Most agents will try to find the best house for you, regardless of what brokerage lists it, but it’s good to know where you stand if your broker seems intent on steering you to a particular property listed with his or her brokerage.

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