Real Estate - An Information Website

The role of a realtor has changed quite a bit since the advent of the computer and internet. The search and advertisement of the properties was mainly the responsibility of the realtor and the related associations; now that is accomplished through searches on the internet.  Each client often spends numerous hours and many months doing research before obtaining the services of a realtor. The realtor no longer escorts the client to each and every property under review. And the realtor associations and multiple listing services no longer control every aspect of the marketing process as the internet becomes the major source for research.

Why use a realtor at all? For people who wish to sell their property, that is often a question related to the expenditure of between four percent and six percent of the sales price. For people who wish to purchase a property, the question of expenditure should never arise as the realtor is paid out of the seller’s sales amount. If we could step away from the fees issue for awhile, which is covered in the fees area of this section, I will attempt to explain the main reasons why a realtor is used in the transaction process.

The main role of the realtor is to act with a fiduciary responsibility for the client during a transaction of property. There are only three professions that act in a fiduciary capacity in most people’s lives: an accountant, a lawyer, and a realtor. Most people have a lot of experience with their accountant and understand that role and how the accountant must act with the best interest of the client and the client’s finances. Most people have some interaction with lawyers and understand how a lawyer must act in regards to the clients personal information and finances. But most people only buy or sell a house every ten years or so. For some people it is a once in a lifetime occurrence. So the vast majority of people do not understand the responsibility of a realtor during the transaction; a transaction that often affects a client’s major portion of their personal wealth. And one that very often includes a lot of downstream work for the client’s accountant and lawyer.

So what does a realtor do? The main roles are to negotiate the transaction, provide and process the legal paperwork, guide the transaction through the title company and banking system, and guide the client through the legal disclosures process. Depending on the client, that may also include many tasks that start much earlier in the process and finish much later in the process.

There are many reasons why the fees are all over the place when it comes to negotiating the listing agent’s commission. Part of it comes down to the company where the agent is employed. A large company such as Coldwell Banker, Alain Pinel, and Intero will have many guidelines for the agent that dictates a general range of commissions. A small company with a single broker agent can negotiate the fees to whatever level of service provided. Each type of realtor has their own qualities.

Realtor’s Fees

There are many reasons why the fees are all over the place when it comes to negotiating the listing agent’s commission. Remember that clients who wish to purchase property do not have to negotiate the fees because the fees are dictated by the listing agreement and published for each property. This fee is almost always 2.5 percent or 3 percent.

Part of it comes down to the company where the agent is employed. A large company such as Coldwell Banker, Alain Pinel, and Intero will have many guidelines for the agent that dictates a general range of commissions. The brokerage firm takes out their office costs and depending on the agent, they will also take between 10 and 50 percent of the commission. A small company with a single broker agent or relatively few agents can negotiate the fees to whatever their current bank account and work load dictates. But they still have to pay 3 percent to the agent representing the buyer. And the discount firms often advertise that they can process the transaction for between 1 and 2 percent.  Remember to read the small print and realize that the advertisements in the paper and the internet are not always inclusive of the full amount that a client will pay.  For example, a discount broker may say 1 percent commission, but then there is another fee of 3 percent for the agent representing the buyers, and then advertising and transaction fees often add up to the thousands of dollars. The net result no matter which type of brokerage firm is used will always add up to between 4.5 percent and 6 percent.

There are many pros and cons to each type of brokerage firm. Using a large company will provide the legal protection and disclosure system that will result in less legal problems downstream, but will cost towards the higher end of the fees spectrum. A large firm also has the most connectivity with other agents to gain the most exposure for a property which usually results in a higher sale price for the client.

Using a small brokerage firm may save money as they have quite a range of fees, but is highly dependant on the experience and training of one person, the founding broker. And using a discount brokerage firm can save money if the transaction requires no advertising, has no complexities, and the minimum amount of legal, disclosure, and accounting issues are required. Considering the highly litigious nature of real estate, this is not a good place to save money. As in other fiduciary roles, the cheapest lawyer and the cheapest accountants are not always the best. There are places for all levels of expertise, service levels, and price ranges.