The bottom line is that of the almost 25,000 real estate agents with recorded residential sales in the last 12 months only 3,189 agents exceeded $3 MM in sales. If we make the simplifying assumption that those agents earned 50% (their split) of a 3% commission on average then close to 22,000 agents earned less than $45,000 last year – and that is before expenses. At the national level median expenses for realtors were $5,810 in 2008. When you factor in that this is not a cheap area to live in you can see that these agents are struggling. Furthermore, as you might expect, a minority of the agents closed most of the deals.

Now this analysis comes with a whole bunch of caveats:

• I emphasized above that this focuses on agents that had recorded sales. If an agent never closed a deal in the last 12 months then they are excluded from this analysis because I have no way to know who they are. But I suspect there are quite a few who did nothing in the last 12 months.
• Assuming that these agents earned 50% of 3% on average is a very big assumption. Many agents earn quite a bit more than 50% but on the other hand the commissions might be a bit less than 3% – e.g. typical cooperating commissions are 2.5% but could be as low as 2%.
• Many of the agents that are included in this analysis might actually make most of their income from commercial real estate and maybe they just did one or two residential deals in the last year.
• Many of the included agents might be part timers
• There may be quite a few agents that are excluded because they have no recorded sales in this time period but they might actually be quite profitably employed as members of a celebrity realtor‘s team, where the celebrity realtor takes all the credit for their business (this is a common practice).
• There may be a few agents that are included above who are members of a celebrity realtor’s team but one or two transactions appear under their name for one reason or another.
• As you start to get into the really high numbers – even as low as $16 MM – you start to run into the celebrity realtors who have teams working for them, some of which do a lot of developer work. So it’s not like the #1 realtor did $171 MM of closings all by himself.

Nevertheless, I believe that this data is directionally correct as it is consistent with data provided by the National Association of Realtors. In their 2009 member profile they show that on a national basis 62% of realtors had gross income of under $50,000 in 2008, with a median gross income of $36,700. After taxes and expenses those numbers drop to 64% earning under $35,000, with a median net income of $23,200. And those numbers are all for 2008. You can bet that 2009′s numbers are going to be a bit worse.

Meanwhile, business hasn’t  been good for the brokerages either. Realogy, which is probably the largest brokerage organization, just reported a loss of $262 MM on revenue of $3.9 B. In case you didn’t know (most people don’t), Realogy is the parent organization of the following brokerages:

• Coldwell Banker
• Century 21
• ERA
• Better Homes & Gardens Real Estate
• Sotheby’s International Realty (and you thought they were high end)
• NRT

How do you charge outrageous commissions and still lose money? For starters, it doesn’t help if you have a huge overhead and spend a lot of money on advertising of questionable value. However, the biggest issue is that Realogy was taken private in 2007 by Apollo Management, a private equity investment firm. As with most private equity deals this one was heavily leveraged and today Realogy still has around $6.7 B of debt from that deal. Oh…and they have negative equity – close to $1 B worth – which is appropriate given that most of their former clients also have negative equity. Things got so bad last fall that Realogy was on the brink of bankruptcy when Carl Icahn stepped in at the last minute and saved them.

BTW, I find Realogy’s so-called strategy interesting. Either they’re not too bright in having all these brokerages that compete with one another or they’re smart enough to realize that there really isn’t any real competition between them. What do you think?

Anyway, Realogy’s woes are symptomatic of the entire real estate industry. RealTrends and Bloomberg recently reported that the dollar value of real estate commissions dropped by 6.2% last year. So, that’s about in line with the decline in the number of real estate agents in Chicago, which makes sense.

But what does all this mean for you? I’m afraid not much. There are still more real estate agents than there is productive work for them (much more on that topic in upcoming posts). And even if Realogy closed the doors on all their brokerages I maintain that it would have zero impact on the real estate industry because all those realtors would simply get new business cards with a different broker’s name on them. At least that’s the way it works with the independent contractor model (more on this some day soon also).

Two townhomes in University Village on South Campus Parkway. 6 doors down from each other. 5 months apart. Identical floorplans. One sells for $775K and the other sells for $591K. That’s just weird. How does this happen?

Normally the real estate market is pretty efficient, which means that things sell for a pretty fair price and it’s hard (but not impossible) to find bargains. But I think in this case there is clear inefficiency at work.

The first University Village townhome was listed at $828,000 and went under contract at the end of March at the higher price. BTW, it sold for $695K in August 2004. Now I’m aware that home prices have held up really well in University Village but this is ridiculous.

This first townhome was fully furnished and showed well. It amazingly grew in square footage as it changed hands from one listing agent to another – 3300 sq ft, 3400 sq ft, and finally 3500 sq ft.

When this first townhome was on the market my wife and I checked it out because we live in a 3000 sq ft townhome in the immediate neighborhood. One identical to ours had sold in 2008 for $720K. After viewing the South Campus Parkway townhome we decided it wasn’t as nice as ours:

• The layout was not as good. 136 sq ft was on a 4th floor that we didn’t have, the second and third bedrooms were larger than the master bedroom, and it had one less room on the main level where several family members may be simultaneously and need separation from each other. It sure didn’t feel like 3300 sq ft, let alone 3500.
• The first floor is partially below grade, compared to our first floor, which is entirely above grade.
• This townhome had a backyard which we didn’t but that meant that you had to maintain it and your garage was accordingly detached. We really like our attached garage – especially in the winter.
• These townhomes face the UIC sports fields. It’s a little known fact that during some sporting events the constant drone of the announcer at a very high volume can drive you nuts, not to mention the high intensity lights that are on during the night games.

So how did it sell for such a high price? Well, the listing agent tells everyone that he has some special skill but in reality he doesn’t really do anything different from any other capable realtor. In fact, if he did have a special skill in achieving a higher price for his listings then buyers would be well advised to avoid his listings. What’s more likely is that a buyer came along that was willing to pay a high price for something that exactly fit their needs. But why didn’t their agent get them a better deal? I can only speculate but it is interesting to note that the buyer’s agent in this case works in Glenview.

The second University Village townhome was listed at $579,900 and went under contract in early September. It was vacant, bank owned, needed paint, carpet and some appliances. However, otherwise it was in pretty good condition and that should have been apparent to anyone interested. However, there was one other fly in the ointment. There had been extensive water damage at some point from broken pipes and that had resulted in basement mold. The damage had been completely repaired and the mold remediated. Usually this work is guaranteed so….

Clearly the listing agent was pricing this for a quick sale. Personally, I liked the place enough that I put in a full price bid for myself. My wife and I weren’t exactly sure what we would do with it if we got it so we only wanted it if we could get it dirt cheap.

At the end of the day my conclusion is that the buyer of the first townhome overpaid and the buyer of the second townhome got a great deal. If I was the first buyer I’d be ______________.

Uhhhh…I refuse to go around in a ghost costume – even at Halloween. I’d rather discount my commission and give rebates to buyers.

This shot of the living room shows you what the room will look like after consuming the Skyy Vodka shown in the kitchen photo.

The agent liked this shot of the kitchen so much that he put it on the MLS twice. The staging is priceless, with the towel wrapped around the refrigerator door, the garbage can in the corner, and the dishwashing soap in the kitchen sink. These are nice touches because they show that the kitchen is barely large enough to fit the garbage can and people can see that the sink is to be used for washing dishes. The Skyy vodka is to the left of the refrigerator.

This photo highlights the natural light available at night.

In general, short sales have the worst photos. Who knows how the banks come up with the agents to handle these and I can assure you that the bureaucracy of a bank would make it near impossible for a capable realtor to take business from these amateurs. Is it any wonder that the banks are losing their asses on these properties and need the taxpayers to bail them out?

You see, we keep our eyes open for worthwhile real estate training. The only problem is that we rarely find anything that looks interesting and even if we do it ends up being pretty lame 9 times out of 10. Usually it’s fairly superficial or just a rehash of what we learned in our initial licensing course. Nevertheless, I had great expectations for the CRS program because it is so highly regarded but then we received an email promoting the program that really turned me off.

Really, the only problem I had with the program was the program. Here is a verbatim summary of classes and the topics covered in the current program offered by one of the local real estate associations:

Business Planning & Marketing (2 core units)

• Business plan development
• Prospecting techniques
• Budgeting and cost analysis
• Personal promotion techniques

Wealth Building (2 core units)

• Indentifying [sic] money – making opportunities [investing in real estate]
• Comparing potential investment opportunities
• Retirement planning and investing
• Calculating initial investment to rate of return

Marketing with Microsoft (1 elective unit)

• Maximize the effectiveness of e-mail by utilizing
  more features.
• Maintain your customer database in Outlook along
  with their e-mail correspondence
• Establish recurring contacts for birthdays and
  anniversaries
• Create a prospecting system a year in advance
• Provide financial information worksheets for buyers
  and sellers to make better decisions
• Maintain a single calendar and address list on both
  their computer and PDA
• Reduce your marketing costs with the HTML mail
  features of Word and Excel
• Transfer your database to Outlook without retyping
  the names
• Identify more time in your week to work with buyers
  and sellers
• Develop multimedia presentations for buyers and
  sellers, and a pre-listing package

Here are examples of some of the other courses offered at other times:

• Building an Exceptional Customer Service Referral Business (2 core units)
• Technologies to Advance Your Business (2 core units)
• Maximize Your Potential…Personally and Professionally (1 core unit)
• Personal Skills for Professional Excellence (1 elective unit)

Do you see the problem here? Most of this stuff has very little to do with the real estate transaction and everything to do with building a real estate business. Granted, there are other courses offered that have plenty to do with the transaction such as:

• Mastering the Art of Selling New Homes
• Listing Strategies
• Financing and Tax Advantages for Agents and Their Clients

and I’m willing to try these courses when they are offered. However, it’s possible to meet the education requirements for the designation without ever taking a course that has anything to do with real estate transactions. And judging from my experience with other real estate courses I’ve taken it looks like the transaction focused courses might simply be further rehashes of the licensing material. As with most of what the real estate industry does, I think this designation is just another way to justify high commissions.

• Pictures taken with cell phone cameras
• Poor lighting
• Out of focus
• Center on the wrong thing

The last point is my favorite, of which there are numerous examples. For instance, it is fairly typical to see pictures of floors or corners of rooms as in this picture below for a condo in Bronzeville (it took me less than 3 minutes to find a picture like this).

With absolutely no perspective on the room, it’s not at all clear what attributes the realtor is trying to highlight. The dirty carpet? The abandoned phone in the closet?

However, nothing compares to this photo found for a listing in Riverside, CA, which quickly became an Internet sensation because of the contents of the toilet, which were not pixelated in the original listing.

I first learned about it in the comments section for a post on Cribchatter and it was originally part of this listing from Redfin. Now if you go to the Redfin listing link you will no longer find this photo because apparently they eventually figured out that they were drawing the wrong kind of attention to the listing. Fortunately Dr. Housing Bubble preserved the photo for posterity and had the good sense to pixelate the contents of the toilet. I might not have been so sensitive.

So let’s give this realtor the benefit of the doubt. Maybe the water had been turned off and the toilet couldn’t be flushed. But then why isn’t the lid closed? I see pictures of toilets all the time in the MLS (but not dirty) and it always fascinates me that a) they took the picture of the toilet in the first place and b) they left the lid open.

The bottom line: if your home is currently for sale you should run to the nearest computer to find out if your realtor is highlighting your toilet.

“I don’t discount my commission because if I did I wouldn’t work as hard selling your property”. Some sellers already subscribe to a variation of this lie themselves: “I don’t want to negotiate the commission down because then they won’t be motivated to sell my house”.

This is utter nonsense. The reason a real estate agent won’t discount is because they are sitting fat and happy with lots of referral business with people who are willing to pay full commission. They’ve got a strong network that they have been very effective at leveraging to get more business. Furthermore, many of these same agents will take referrals from other agents or take Internet referrals from their broker and forfeit up to 30% of their commission in each case. So, obviously they don’t have an issue with earning less under the right circumstances. If you want a deal, move on to someone else.

Also, if a real estate agent takes a listing at a reduced commission don’t believe for a minute that they are going to work less diligently on it. First, if they took the listing they must have decided it was worth it. Second, if they are the kind of agent that would take a listing and then neglect it you were going to have trouble with them anyway. Third, if their degree of attention was proportional to the commission rate then perhaps you should pay them 15% and get lots of attention, right? After all, there is no reason to believe that you coincidentally get the optimal amount of attention at 6%.

“I will look for buyers in _____________” or “I have a lot of buyers for this type of house” or “My office works with a lot of buyers for houses like this”. This falls under the heading of the listing agent delivers buyers. Many sellers already believe this without a listing agent having to tell tall tales of their prowess with buyers.

More nonsense. The fact of the matter is that the listing agent is usually not the one that delivers buyers. It’s the buyers’ agents that deliver buyers. The listing agent gets the listing in front of the buyers and their agents and positions the house in the most favorable light for them. For instance, I just pulled over 600 sales of single family homes in Lincoln Park over a more than 2 year period from the MLS. In less than 15% of the cases did the listing agent produce the buyer. The other 85% of the time it was a buyer’s agent.

One other thing. If a potential listing agent is talking about delivering the buyers herself or through her office I would get very worried. That might be a red flag that she is trying to get both sides of the commission and might pursue that strategy to the detriment of exposing your house to other agents. I have heard conversations where this appears to be an explicit strategy.

“My list-to-sell ratio is___” or “My average time on market is______”. You’re supposed to be impressed with a high list-to-sell ratio or a short market time. However, how do you know the agent isn’t giving the houses away? That would certainly make both of these numbers look favorable. I’m not suggesting you ignore these numbers entirely, but you should be aware of the limitations of these numbers and take them with a chunk of rock salt.

As always, when dealing with those slippery real estate agents caveat emptor.

Starting with my parents, my family has always had a great degree of mistrust with regard to the real estate industry. Therefore, selling a house without a real estate agent is an approach that my parents have successfully taken on several occasions and my wife and I successfully pulled it off just prior to moving back to Chicago in 2000. Faced with the prospect of an $18,000 commission on a $300,000 house my wife and I decided we could do it on our own, despite the fact that we had a strict timetable. So clearly it can be done, but under what circumstances?

First some random statistics of questionable validity regarding FSBOs (For Sale By Owner. This is an almost derogatory term used by the real estate industry which is meant to imply that these people are exceedingly naive to think that they can perform the “highly skilled job” of a real estate agent on their own):

• According to the Chicago Association of Realtors the number of FSBO classified ads that run in the Chicago Tribune is virtually negligible. Of course, I would imagine that most FSBOs don’t run classified ads.
• According to a survey conducted by the National Association of Realtors (NAR), only 11% of people selling a home in an urban area like Chicago sell that home on their own. Of that group approximately half knew the buyer ahead of time so that they really didn’t have to “sell” their home.
• There is an interesting myth out there. What they told us in our training classes on marketing to FSBOs is that 80% of the people who attempt to sell their home on their own will ultimately turn it over to an agent. However, I calculated from the NAR’s own survey data that for sellers that did not know the buyer the percentage is closer to 38%. Perhaps the myth originated with an often quoted December 9, 1998 Realty Times article by Steven Poscente where he claimed that “studies show that 70% eventually hire a Realtor and 80% of those who don’t say, ‘Next time I hire a Realtor’. ” Only thing is, he doesn’t exactly say what studies show this. Looks like this is another one of those industry lies.

The real estate industry would like you to believe that it’s not a very popular or successful option. Maybe. Maybe not. More importantly, let’s examine what you should consider in determining if selling your home on your own makes sense for you. Because clearly it often works.

How much money will you save?

This is probably the #1 consideration for most people. When most people ask themselves this question they are thinking in terms of a 6% commission and if it’s an expensive home the answer will often be “a lot”. However, 6% is the wrong number for a few reasons.

First, even if you sell your home yourself you will likely have to pay a buyer’s agent a “cooperating commission” to bring a buyer to the table. Why? Because, according to the most recent NAR survey of buyers and sellers, 89% of buyers are working with a Realtor and you don’t want to limit yourself to only 11% of the potential market. And the commission you pay the buyer’s agent will usually be 2 – 2.5% and it’s the same whether you are using a Realtor to sell your home or not. The only difference is that a good listing agent can provide you with some guidance regarding what that number should be based upon current listings on the market. So you don’t save the entire commission by selling the home yourself, just the sell side commission.

Second, if you can find a good discount broker (like us!), that sell side commission should be a lot less than 3.5% (6% – 2.5% cooperating commission). In addition, when you sell a home yourself you will still want your home to appear on the MLS and you are going to have to pay a broker several hundred dollars to do that. The bottom line is that the savings of selling a home yourself might only amount to a few thousand dollars.

How much is your time worth?

The other side of the savings equation of course is how much of your time will you have to spend in order to realize the savings discussed above. Selling a home yourself can be a lot more time consuming than you realize – especially if you’ve never been through the process on your own before. As you read through some of the issues raised below stop to think about how much time it will take for you to duplicate these efforts. You’ll be surprised at the time that will be spent gathering the proper documents together, becoming familiar with the legal requirements, coordinating various services, obtaining feedback, negotiating the deal, and coordinating closing. If these activities weren’t that time consuming we would be able to lower our commissions even more or we would be a lot more profitable.

Then there is the question of whether or not you even have the time to devote to selling your home. When my wife and I sold our home in Richmond we just about ran out of time after 3 months in a fairly hot market. We lucked out when a buyer materialized at the last possible moment, just prior to us throwing in the towel and listing the home with an agent.

Do you really know what your home is worth?

My wife and I were lucky in this regard as well. We lived in an area where all the houses were pretty much the same – two story colonials built at approximately the same time. The difference in prices was pretty much driven by the square footage of the homes. If you live in a development like this or you live in a large condominium complex with fairly identical units currently for sale then putting a price on your home should be pretty easy. Unfortunately, not many people in the Chicago area have this luxury and even if they do there are always some people (actually a lot of people) that think their home is somehow special and worth a lot more than everyone else’s – after all it does have that special gold embossed maroon wallpaper in the kitchen. For instance right now there is a home for sale by owner right around the corner from me for $850,000, which is clearly priced higher than very similar units in the development by approximately $130,000. It’s just not going to move, which is a very expensive mistake. And of course, underpricing a house is also an expensive mistake. Back in the days of the real estate boom I used to always cringe when a FSBO would tell me that they sold their house in 1 week, at list price. That tells me they under priced their house.

The fundamental question you need to ask yourself is what is the probability that you will lose at least as much on mis-pricing your home as you will save by selling it on your own? A one or two percent error is pretty easy to make and will wipe out anything you saved on the commission.

Are you sufficiently familiar with the home selling process in Illinois? In your city?

Some examples of the process issues to be aware of:

• There are a host of legal obligations that you need to be aware of, such as disclosures.
• Then there are the various closing costs for which you will be responsible. You don’t want surprises at the last minute so you should make sure you accurately estimate your proceeds.
• And there are the various land mines that some prospective buyers bring with them – contingencies, skittish lenders, buyer’s remorse, unethical behavior.
• There are also other last minute surprises to be on the lookout for such as unfavorable home inspections, title problems, survey problems, local government obstacles.

How do you navigate all of this?

Do you know how to market your home?

It’s all about exposure. Better exposure means a quicker sale and a higher price. A good agent will provide a fairly standard package of marketing tools:

• MLS Listing
• Professional photos – a variety of studies have shown that a good set of photos will improve the ultimate selling price by 4.2% and the number of days on the market has been shown to be shortened by 30 days
• Virtual tours
• Public open houses
• Broker open houses
• Print ads
• Distribution of your listing on over 100 Web sites
• Perhaps an “exclusive” relationship with Yahoo! Real Estate
• Your home’s own Web site

Some of these are bogus – a topic for another blog post at some point. However, there is a necessary combination of these that are critical to a successful sales process. For the individual trying to sell their home on their own it’s actually difficult to replicate these because of the cost and the learning curve. Because Realtors use these tools frequently they get better pricing and can execute a marketing plan much easier than you can.

In addition, a good agent will provide you with staging advice, which can prove invaluable. This is another area where my wife and I lucked out in Richmond. A parade of real estate agents vying for our affections offered lots of staging advice, which we took.

How will you handle letting total strangers into your house?

This is pretty straight forward. There’s a certain value in letting the real estate agent take the bullet instead of you.

How will you conduct yourself when showing your home to a prospective buyer so as to maximize your negotiating position?

I’m always amazed at how much information people will inadvertently divulge about their situation. They freely discuss personal matters, life events, and their motivations – all of which a skilled buyer’s agent could leverage for a lower price. Even their demeanor can leave clues regarding their vulnerabilities or convey nervousness.

How effectively can you negotiate the contract?

There are actually several traps that sellers can fall into on their own and any one of these can easily wipe out any commission savings.

• Believe it or not people often get emotional when negotiating the single largest transaction of their life and this impairs their judgment. They are inclined to argue over trivial points, over complicate the deal terms, allow themselves to get offended, or offend the other party.
• A seller might not have access to the right data or know how to leverage the data to improve their negotiating position.
• I have been shocked by people who sold their home on their own who have told me that they were able to drop their price during negotiations because of the money they saved on the commission. Aside from the fact that they overestimated the commission savings, it was clear that they were far too eager to forfeit their savings.
• Armed with an unrealistic belief in the superiority of their own home, sellers can often overestimate the likelihood of a better offer in a reasonable time frame.

My wife and I lucked out again in this area since the other party was not represented and willingly paid our asking price. However, as a coldly rational negotiator I was aptly suited for a much more vigorous negotiation.

The Bottom Line

If you really feel like you are up to the task of selling your home yourself then go for it. My wife and I were definitely up to the task and we benefited from a fair amount of luck. On the other hand you should also realize that there is a point at which the value provided by a good Realtor is worth at least as much as the savings from selling your home yourself. That premise has served as one of the guiding principles in establishing our commission model. Our goal has been to set our commission so that when a seller looks at what we offer and compares it to the cost they will feel absolutely certain that it is worth it. That’s usually not the case for a full commission broker.

You can get a good feel for just how weak the playing field is by actually reading the direct mail pieces that come to your home or browsing through the online profiles of some real estate agents. For the most part there is nothing that distinguishes these agents from each other – there is no value proposition and in some cases… well, check out some real examples:

• Mission Statement: to assist my clients in utilizing other peoples (sic) money to aquire (sic) appreciating assets of which the profits can be 100% tax free
• I have excellent customer service skills and always put my clients first.
• My #1 priority in the course of business is my clients.
• As a __________ agent, I have a commitment to my clients to provide them with exceptional service.
• I am a client advocate…I am customer focused and work at clients’ pace.

I think you get the picture.

So let’s talk about how you should go about making this decision and, just as importantly, how not to make the decision.

Knowledge

One of the key reasons for using a real estate agent is to be able to tap into their knowledge of the market and the real estate transaction. Don’t be afraid to quiz prospective agents about information that you are looking to access through them. However, no agent can know everything so it’s also important to find an agent who has…

Intelligence

It’s critical to find an agent that is resourceful, knows how to deal with unusual situations, and knows where to go to get answers to questions. Unfortunately, determining how smart an agent is is a bit of a squishy undertaking. You can start by talking to them to see how they come across. You can also find out about what educational background they have, in what academic area, and what business experience they had prior to their real estate career.

Integrity

As you can surely appreciate, when dealing with the purchase or sale of a home integrity is a major consideration and the real estate industry has not done a great job of making people comfortable with the integrity of their agents. In the absence of direct feedback on the integrity of an agent there are a variety of questions you can ask to reveal an agent’s integrity:

• Have you ever served as a dual agent? In that case describe for me how were you able to balance the interests of both the buyer and the seller?
• Have you ever discouraged a buyer from considering a home that they liked? Tell me about it.
• Tell me about how co-operating bonuses work and how you deal with them when working with a buyer. See if you can draw them into a discussion of the possible conflict of interest in showing a buyer a home with a bonus and whether or not they disclose these bonuses to buyers. Of course, if you come right out and ask them if they do, they will answer “yes”.

Business Model

What type of business model does the agent/brokerage employ? Will you be getting full service or will you be expected to do a lot of the work yourself? Find out exactly what services and support you will be receiving. If you are selling your home find out what vehicles will be used to market it. Here is the typical list:

• MLS listing
• Professional photos
• Brochures
• Direct mail
• Newspaper
• Newspaper Web site
• Specialty magazines
• Open houses
• Broker open houses
• Email
• Craig’s list
• Other Web sites

This is a fairly standard list, yet agents will present this list as though they are the only ones that can provide it – and consumers fall for this all the time. On the other hand, the list is useful for what an agent might leave out in an effort to cut costs. The only trick is that several of these are ineffective at selling your home and are used to merely pacify you, raising their operating costs in the process. So you need to carefully consider the options being presented.

One other consideration. Find out how the agent will communicate with you and how often. During what days/hours are they reachable?

Cost

Don’t let anyone fool you. Cost does matter. Find out what the agent charges and how they justify their commission. And if you are buying find out if the agent provides a commission rebate and how much you will be getting back. At this point most agents will look at you like you are from another planet.

Skills

Find out what capabilities the agent has in key areas. There is no better way to do this than to get specific:

• Negotiation skills. Ask the agent to describe for you in detail a particularly difficult negotiation that they handled.
• Communication skills. Is the agent articulate? If they can not communicate clearly to you then not only will you have difficulty in working with them but they will not be able to communicate effectively with the agents on the other side of your transaction.
• Marketing skills. This is key if you are selling. Ask the agent to write up a description of your property for the MLS to share with you. Does it capture the essence of your home? Does it set your home apart from other properties in the area?

Avoid These Pitfalls

Friends or Relatives in the Business

Friends don’t let friends handle their real estate business – unless they are the most qualified to represent them. Many people make the mistake of using a friend or relative simply because they feel like they are expected to do so. In fact, this is a key element of the traditional real estate model: get your friends to do business with you because they won’t try to negotiate the commission down. However, this creates a serious problem when the friend or relative is not really qualified. In fact, from our observation of the characters in this industry we would guess this happens at least 50% of the time.

Getting a Referral From Another Agent

Agents love to give referrals – for a very simple, self serving reason. They get paid handsomely to do so – anywhere from 25 – 30% of the commission. They will give you a glowing recommendation of someone from the other side of the country whom they have never met – just so they can collect that fee. Often that person is just some random agent from an affiliated office. So beware of referrals and ask the referring agent specifically what their experience has been with the referral.

Getting a Referral From a Friend

There is nothing wrong with getting a referral from a friend but just make sure that your friend’s referral is based upon a rigorous examination of objective criteria. Ask them what they specifically liked about the agent. If all they can talk about is the annual wine and cheese picnic or birthday cards or pumpkins at Halloween then you should look elsewhere.

Going With the High Volume Agent

Everyone wants to work with the winner but there are a couple of problems with this approach. First, top producers don’t discount because they don’t need to. They have all the business they can handle. Second, they have so much business that they won’t have much time for your transaction. You will either have trouble getting the time of day from them or they have a team of agents working for them and you will be passed off to one of them.

Going With the Highly Visible Agent

The agent that has high name recognition usually spends a lot of money and time building up that recognition. They advertise, they belong to civic groups, and they do lots of charity work. But that says nothing about their capabilities. The only thing you will know for sure is that they are brilliant at marketing…themselves. And all their marketing activity raises their operating costs.

Going With the Big, Highly Visible Brokerage

Some people get a sense of security from going with an agent from a large, highly visible brokerage with a particularly appealing image in the marketplace. Similarly they might be impressed with a fancy office on Michigan Avenue and CMAs that are bound in leather. But it’s a false sense of security. First, all that “brand building” is really expensive. They do that to justify their high commissions and they need their high commissions to pay for their high overhead. Second, real estate agents move between brokerages like bees pollinating flowers. The agent that works today for the broker with pictures of clients in formal wear was wearing a yellow jacket yesterday. When the rubber meets the road you will be dealing with the agent, not the brokerage, and most of the time that agent is just an independent contractor.