Do you have realtors whom you know and
trust for advice? While I am a realtor, I have seen a lot of bad advice
given out by some realtors. At the same time, I have seen a lot of
realtors give excellent advice. Only after working with a realtor over
an extended time will you be able to decide if their advice is good or
Hopefully, realtors will be willing to talk you out of a deal if it
is not in your best interest. If you are working with a realtor who
tries to talk you into deals that don’t make sense, they will probably
hurt you more than help you over time. If you find a realtor who is
willing to advise you against a purchase, then this person may provide
a great long term service.
A second thing to consider when working with realtors is to assess
how you motivate the realtor through monetary means. Realtors are
generally paid by either helping you buy a house, or helping you sell a
house. They are generally paid a portion of the sales price. Because
their incentives are structured this way, they are not motivated to
find you a property at a huge discount, nor are they motivated to help
you sell for a higher price. It is extremely important to note this
fact before getting involved with realtors.
Realtors are motivated to sell you more houses, and sell more of
your houses. If you make nothing, the realtor will generally receive
the same commission as if you made $50,000 for the same house. Why do I
bring up this point?
There are two reasons really. The first is that you should always be
aware of what it is that actually motivates what they do. Because they
receive generally the same amount regardless of your profit, many
realtors will do whatever they can to get you to buy and will do
whatever they can to get you to sell. In other words, they will be
motivated to get you to work for less profit. Many of the realtors will
not be conscious of their intentions, and they will disagree with my
assessment; however, I ask you to think about it logically. Why would a
realtor talk you out of taking an offer for $112,000 even if they felt
you should get $115,000? They are paid almost the exact same
commission. They generally will only make an extra $45 for telling you
to hold out.
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Additionally, they will probably have more than $45 in additional
advertising expenses. The longer they have the listing, the less they
make and the more time they have to spend on your property.
The second reason that I point this out is that real estate
commissions are entirely negotiable. You do not have to pay a realtor a
set split. You can entice your realtor by offering them more money for
finding you a better deal. Additionally you can offer a realtor more
for selling your property at a higher price. For example: Let’s say
that a realtor wants to list your property for $100,000 at 6%. If that
property sold for full price, you would net $94,000 minus the other
costs. What if you told the realtor that he or she could have all the
commission for anything that netted you more than $94,000? Do you think
the realtor would take this arrangement? I don’t know. It depends.
Some realtors might not be allowed by their broker to work for this
arrangement even though it is entirely legal. Other agents will be so
confused by your question that they don’t have an answer at all. Other
agents will actually see this as an exiting strategy. It would be
interesting to see what the same agent would want to list the property
for if their incentives were changed. You AND the realtor might net
more because you align their incentives with your incentives.