Home          ●          How to choose an agent          ●          Discussion forum          ●          About me

Unethical practices that affect buyers:   1  ●  3  ●  4   ●  5   ●  6   ●   7  ●  8   ●  9  ●  10 
Unethical practices that affect sellers:   1  ●  2  ●  3   ●  5   ●  6   ●   7  ●  8   ●  9 

How to Choose an Agent

There are good agents out there, and their advice can be invaluable.  To find one, I suggest you focus on four qualities:

  • Honesty.  Is the agent likely to put your interests ahead of her own?

  • Professionalism.  In my experience, agents either view themselves primarily as salespeople or as advisors.  The agent/salesperson tends to take courses and read books on personal marketing.  Agent/advisors, on the other hand, flock to courses on contract law, the art of negotiation, finance, and real estate economics.  You want a professional, not a salesperson, for an agent, since an agent's persuasive talents are more often put to use on his own clients than on other parties.   

  • Diligence.  It takes patience and hard work to get good deals for clients.  You want an agent who will work hard for you.

  • Experience.  New agents are more easily manipulated by their counterparts, and may not catch problems with homes or contracts.

Several real estate websites (like this one and this one) provide questions for buyers and sellers to ask agents while interviewing them.  Many of the standard questions are good, but they don't do a good job of screening out agents who engage in sleazy practices.  Indeed, some of the questions may favor sleazy agents: 

  • (for buyers' agents):  How many homes have you sold in the past year?  A high number of sales might suggest that an agent is an effective salesperson who's good at cajoling his clients into making offers that are more likely to be accepted--that is, high offers.

  • (for listing agents):  How many of your listings have sold in the past year?  A high number of sales might suggest that an agent is an effective marketer, or it may suggest that the agent systematically underprices listings for quick sales.

  • (for listing agents):  What is your average sales-price-to-list-price ratio?  This statistic is supposed to measure an agent's success in getting good prices for sellers, but a high ratio might reflect underpricing rather than good marketing and negotiating skills.  Note that some agents change their listing prices after they've received offers in order to improve their stats.

  • (for listing agents):  How long, on average, are your listings on the market before they sell?  A short period, again, can suggest underpricing rather than effective marketing, especially if the agent is also reporting a high sales-price-to-list-price ratio.

  • Are you a Realtor®?  A "yes" response is supposed to be a plus, since Realtors are expected to adhere to a code of ethics.  The US Department of Justice, however, seems to take a different view, and has taken action against the National Association of Realtors for alleged antitrust violations.  Being a Realtor isn't necessarily a negative (one benefit of joining is that it gives agents access to key contract forms) but I question whether Realtors are any more ethical than non-Realtor agents. 

I would add these questions to the standard ones:

  • (for buyers' agents):  Do you offer buyer rebates of part of the commission?  (Note that rebates aren't allowed in these states:  Alabama, Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, New Jersey, Oklahoma, Oregon and Tennessee.  Click here to read about efforts by the US Department of Justice to lift these bans on rebates.)  Subtract points if the agent pretends that she's never heard of this policy--signaling that the agent is either dishonest or incompetent.  For more information on negotiating buyer rebates, see my website CapturetheCommission.com.

  • (for buyers' agents):  Are you also a mortgage broker or do you have an in-house mortgage broker?  Subtract points if the answer is yes.  Your agent's interests already conflict with yours:  Since she gets a payday if you buy a house, she has a strong incentive to urge you to bid high.  If she's also brokering your loan (or in cahoots with a mortgage broker) then her payday--and her incentive to get you to make high offers--becomes even larger.  

  • What specific techniques have you used to negotiate better prices for your clients?  Add points if the agent appears to have given some thought to the art of negotiation.  Subtract points if the agent talks abstractly about being an expert negotiator without giving specific examples.  Walk away if the agent uses lies to get better prices--lying about the existence of other offers, for example, is a material misrepresentation that could get both the agent and client in trouble.

  • (for listing agents):  How much do you think my home is worth?   If the estimate is high, the agent may be trying to "buy a listing" by telling you what he thinks you want to hear.  If the estimate is low, the agent may be laying the groundwork so that he can underprice your home for a quick sale.  Subtract points if the agent asks you how much you wish to net, since that information is irrelevant.

  • (for listing agents):  How would you protect me from being sued after escrow has closed?  Give the agent points if she answers that she cannot completely protect you, since you can get sued if you knowingly make misrepresentations about your home, or fail to disclose serious known defects.  Also grant points if the agent's brokerage has a well established protocol for handling disclosures.   Subtract points if the agent says that she has errors and omissions insurance, since this is designed to protect agents, not clients.  Also subtract points if the agent promises you won't get sued--agents who make these kinds of reckless claims to clients may also make them to buyers.

  • How would you protect my private information?   Add points if the agent volunteers that she shreds unneeded documents, redacts social security numbers from FIRPTA forms (required by the IRS) before presenting them to the buyers for their signatures, or keeps the terms of your accepted offers to herself.  Subtract points if she doesn't appear to have given much thought to this issue.

  • (If the agent is a member of a large brokerage) How is being a part of a large brokerage advantageous?   Give the agents points if she says that the brokerage has a competent administrative staff, a good training program, and lots of collective experience to draw upon.  Subtract points if she indicates that the brokerage gives her inside information on prices--this might suggest that the agents in her brokerage trade confidential information at the expense of their clients.  Also subtract points if the agent says that her brokerage often finds its own buyers for its listings, since this might suggest that the brokerage engages in anti-competitive practices in order to get both sides of commissions.

  • (for listing agents):  What are the advantages of working with a full-service agent?  I wouldn't subtract points if an agent cites a widely circulated National Association of Realtors statistic saying that sellers who work with Realtors get 13% or 16% more for their homes than "For Sale by Owner" (FSBO) sellers, or statistics claiming that most FSBO sellers eventually give up and list with Realtors.  As I've noted elsewhere, I believe these statistics are bogus, but they're so widely circulated that agents can be forgiven for believing them.  Subtract points, though, if the agent appears to have memorized a slick FSBO-conversion script (like this one or this one).  FSBO converters are more likely to be inexperienced, since more seasoned agents tend to rely on referrals to get listings.  They're also more likely to view themselves as salespeople rather than knowledgeable professionals who are focused on providing competent service.

  • (for listing agents):  How much do you charge?  This fee should be negotiable.  Ask the agent to explain what services are provided.

I would also do the following:

  • (for listing agents):  Look at how the agent's active listings are being marketed.    Give points if the agent uses classy signage, produces quality flyers, has a good website, and hosts regular open houses. 

  • Check on the agent's license.  States usually provide information online about how long agents have been licensed and whether they've received disciplinary actions. 

  • (for listing agents):  Ask your agent for a written marketing plan before you sign the listing agreement.

  • Ask for references and check them out.

  • (for listing agents):  Incorporate a 10-day cancellation clause into the listing agreement.



Is it penny-wise, pound-foolish to scrimp on the sales commission?

Agents often point out that the standard sales commission is a mere 5 or 6% of the total sales price--and that it's silly to scrimp on such a small amount when so much is at stake.  You get what you pay for, after all.

But here's another way of looking at it.  Suppose you want to sell a home that's worth about $500,000, and that you think could sell it quickly on your own simply by putting a handmade sign on your lawn with a price of $450,000.  What you're really doing, then, is deciding how best to capture that additional $50,000 in value.

Your goal should be to get the most bang for your marketing buck.  One good move, for example, would be to offer a commission of, say, 2.5% to buyers' agents.  In most states, you can put a property on the Multiple Listing Service for a flat fee (about $200); this MLS listing constitutes a formal commitment to pay a commission to the buyers' agent.   You might also want to hire a professional photographer ($200), provide color flyers ($300), rent signs ($100), and hire a lawyer or closing broker to help you with the negotiations and paperwork ($4,000). 

For 2.5% of the sales price, a listing agent will take care of the MLS listing, photography, flyers, signage, and paperwork--saving you about $5,000.  In addition, a listing agent will coordinate everything and help you with open houses.  The listing agent also assumes some of your risk, since you pay nothing to cover marketing costs if your home doesn't sell.

If the listing agent succeeds in selling your home for $500,000, you'll owe him $12,500, or about $7,500 more than it would have cost you to do purchase most of the agent's services on an á la carte basis from different service providers.  When deciding whether to pay that 2.5% commission to a listing agent,  the question should be whether the agent's coordination services are worth that extra $7,500.