Happy New Year!

That could be a mistake that you, as a seller, don’t want to make. [We'll cover the issue from a buyer's perspective in a separate post]

The MLS. You presumably know that soon after you fill out your listing agreement with your listing agent, your property information will soon be submitted to the local multiple listing service, or MLS. In a sense that is the master property database of properties being offered for sale by agents on behalf of their seller-clients in your area. It’s a proprietary database, meaning you have to be a real estate agent (and a member of that MLS) to have access to the database. With the (controversial) growth of property listing sites on the Internet, you can find property information all over the web. Some of it originates from your local MLS, while some is submitted directly by brokers. But none of it includes every last data field contained in the proprietary MLS database. For example, none of the the public property listing sites say anything about a co-broke.

Commission Sharing. Suppose your listing agent has offered to help sell your home in exchange for a 5% commission. Ever wonder where that 5% goes? Typically half goes to the brokerage/agent representing the buyer, with the other half remaining with the listing agent and his/her brokerage. The listing agent typically “splits” that remainder with his or her brokerage. Sometimes it’s a 50/50 split, sometimes not. But what you should be thinking about is the original commission division between the seller’s side (listing agent and brokerage) and the buyer’s side (buyer’s agent and brokerage). [In a future post I'll talk about situations where the buyer does not have a separate agent representing him or her.]

The Co-Broke. What determines whether half, or more, or less of the gross commission figure is shared with the buyer’s agent/brokerage? It’s the co-broke! (finally, 3 paragraphs in, he tells us!) When your listing agent enters your property information into the proprietary MLS database, there is a private field (meaning only persons with access to the actual, proprietary MLS database can view it) that contains the co-broke figure. It’s typically a percentage of the purchase price, but in some cases it may also include a flat dollar figure. By means of the co-broke, the listing agent “offers” agents representing prospective buyers part of the gross commission as an incentive to bring prospects to the property for a showing and, hopefully, to close a deal. This is how most agents who are representing a buyer in a deal get paid (there are of course exceptions to the rule). So your listing agreement may provide for a 5% commission, and your listing agent may enter “2.5%” into the private co-broke field on your property’s MLS listing. Again, this figure can only be seen by agents with access to the MLS database, and it is not set in stone.

So you now know what a co-broke is. But who cares? You should! Sometimes a listing agent, perhaps hoping it will draw extra attention to a listing, will offer more than what is customarily offered in a particular area. So instead of 2.5%, he or she may offer a co-broke of 3% or more. Conversely, an agent, possibly at the direction of the seller, may have reasons to lower the customary co-broke, offering buyer agents 2% or less.

What’s important is that you, as the seller, with a direct interest in all financial and marketing aspects of your home sale, should know what co-broke your agent is offering. Ask your listing agent (or prospective listing agent if you are wisely doing this due diligence before you hire an agent) what he or she will be offering as a co-broke. Is it at least in line with the local norm? Is it, or should it be, higher? If it’s lower than the local norm, why is that? If there is no local norm, ask your agent to articulate his or her thinking when setting the co-broke figure. You want to make the co-broke your business, sooner rather than later, because it may directly impact how quickly (or not so quickly) your home sells. More about this when we discuss the co-broke from the buyer’s perspective.

1. Is some or all of the fee refundable if a transaction is consummated (i.e., the agent succeeds in selling your home or finding you a new one)?

2. What is the fee for? For sellers, is it to help market the property? For buyers, perhaps it’s a fuel surcharge if your agent will be shuttling you all over town? Or is it simply an “administrative” fee designed to increase broker revenues?

3. Is this fee charged by all agents who work for your broker, or just this particular agent?

4. Under what circumstances, if any, will the agent (or perhaps supervising broker) waive or negotiate the fee?

5. Perhaps most importantly, shop around! Are other agents in your area asking for an upfront fee? If so, is it in the same ballpark as your agent’s fee?

We say there is no “best” agent, and there is little sense in considering what the fictional “best” agent would look like. Instead we think the appropriate question to ask is a subjective one – who is the best real estate agent for YOU?

Real estate agents are not commodities, and one size does not fit all. Consider what you are looking for in an agent, and what a prospective agent’s strengths are, before agreeing to representation. This might mean the agent who offers the lowest commission, highest rebate, shortest term, and/or greatest knowledge of a particular neighborhood or transaction type. Or maybe it’s the agent’s particular service offerings, quantity and quality of testimonials, personality type or comfort with technology.

Whatever it is, try to first identify your specific needs with respect to buying or selling a home, then vet some agents (perhaps some referrals or agents you discover online). Whatever you do, don’t just go with the agent with the most elaborate marketing campaign, essentially attempting to convince you that s/he is the best real estate agent in your area.

As a buyer, your full service agent has probably said you won’t owe him or her a dime, and not asked you to sign anything formalizing your relationship. As a seller, your full service agent likely has asked you to sign a listing agreement, which contains a percentage commission due to the listing broker at closing. For many consumers, the full service route is the most sensible way to proceed.

You may not know it, but in the past 5-10 years a new breed of brokerages has emerged. Commonly referred to as “limited service” or flat or fixed fee brokers, these agents offer a subset of services at a reduced price.

These agents may offer to place your listing on a local multiple listing service for a fixed fee (for example, $300.00 for six months). That may be the one and only service they provide sellers. Limited Service agents representing buyers may offer their clients a rebate in exchange for performing fewer services for the buyer (often times those countless hours spent driving from one listing to another, when buyers really get a feel for what they want, where they want it, etc.).

Some brokerages offer both full and limited service options. Others offer full service representation, but at discount (commonly referred to as discount brokers).

The point here is that in most states, you have choices. You may want to stick with what you are used to – a full service Realtor, or, mindful of your abilities (and limitations!), you may opt to utilize a limited service agent who will save you some money.

Unfortunately some states have passed laws prohibiting anything less than the provision of full service to buyers and sellers in some contexts (think of walking into McDonalds and being told you have to buy one of the Meal Deals . . . you can’t just buy fries or a drink by itself). In other words, a la carte options are illegal! Other states have similarly passed laws prohibiting rebates, which limits the ability of brokers to compete on price. Apparently some legislatures, heavily influenced on these issues by the Realtor lobby, have concluded that competition isn’t such a good thing, and have even gone so far as to suggest that such laws are intended to protect consumers. Unreal.

Anyway, off my high horse. Just remember that you likely have choices when it comes to level of service and price when working with a real estate agent. Be sure to ask prospective agents lots of questions, find out what you will (and will not) be getting, and what those services are going to cost you.

AgentsCompared.com believes in (and hopefully contributes to) an educated and informed consumer base. Whether it’s on our site or elsewhere, online or offline, do some homework before you hire a real estate agent!

I suggest a customer should ask the following questions.

Is this your full time job?
Are you familiar with property type client seeks (e.g. condos, REOs, etc)?
Where were your last five deals?
Who else will be working with me?
Will you show me all properties for sale?
When am I committed to working with you?
Has a client ever filed a complaint?
How are you paid?

Thanks for sharing, Greg. Mighty impressive feedback on your webpage by the way!

Anyone else?

In Illinois that’s the Department of Financial and Professional Regulation. Visit the Department’s website and confirm your agent is licensed as a “Real Estate Broker” or “Real Estate Salesperson.” You can do this by entering the agent’s last name, selecting Real Estate Salesperson (or Real Estate Broker) from the ‘Select a Profession’ dropdown, then clicking ‘Search.’

Confirm the agent is listed as either a salesperson or broker, his or her license status is “active”, and the license expiration date is in the future.

Also note whether the agent has ever been disciplined (if so, this is something to ask about). According to the Department, “if the ‘Ever Discplned’ column contains a ‘Y,’ there has been disciplinary action taken against this license. Click on the ‘Y’ to view details of the disciplinary action.”

An active broker or salesperson license is no guarantee that the agent is right for you. But consumers should consider it a prerequisite to working with any agent.

Naturally I gravitated toward the “Find REALTORS®” tab located toward the top center of the page. You can’t miss it – it has a fancy orange “NEW” ribbon hanging just above it.

Curious, I clicked it just now and entered my zip code. Immediately I was informed that 1,527 agents serve my area. Interested, but a little overwhelmed, I hit the search button.

You’re going to love this. Realtor.com has sorted this list of 1,527 agents alphabetically – using the agent’s first name mind you – and divided it up into 150+ pages of 10 agents each. Think Michael Adams, Michael Burke, Michael Carter, Michael Dole, etc. After clicking the search button, I was randomly taken to one of these 150+ pages.

Are you kidding me? ARE YOU KIDDING ME? Making matters worse, the only other way to sort this massive list is in reverse-alphabetical order. I think the only thing worse – and more useless – than sorting 1,527 agents alphabetically by first name is to sort them reverse-alphabetically by first name. Where’s the beef? I may as well flip through an old phone book and randomly select an agent, no?

As before, Realtor.com offers no easy way to compare agents on the few relevant fields included in its agent search results. The status quo lives on.

This is the kind of nonsense that consumers, to put it politely, can’t stand. It’s also what in part inspired me to launch AgentsCompared.com last year in Chicagoland. Our mission – help consumers choose the right real estate agent for them.

I’m not sure what, if anything, Realtor.com’s “Find REALTORS®” function accomplishes, other than frustrating consumers and inspiring entrepreneurs. Oh, but wait a minute. If I’m feeling like sorting my Realtor.com agent search results in reverse-alphabetical order, Zoran Denovich is going to be looking pretty good! (Zoran, if you’re reading this, email me and I’ll set you up with a free, one year Premium Plan subscription on AgentsCompared.com)

Thoughts?

Here are some quotes on the subject from folks on Real Estate’s A-list. Thoughts?

“I know of a dozen ‘Top Producers’ who, through time spent or number of transactions closed, are driving under the influence of their own “success” but have no business being behind the wheel.”
-Kris Berg

“Suffice it too say, real estate is and always will be a personalized business built off of relationships. There will still be many, many consumers that will be happy, in fact, more than happy to hire the nice young 22-year old kid they met at an open house who isn’t carrying 15 other listings and willing to kill for their one and only customer.”
-Marc Davison (comment #13)

“I do think that its interesting that the number of units an agent sells is still equated with their proficiency or the level of advocacy and skill they bring to a new client or potential transaction – the truth is there really isn’t a correlation – you could sell a quantity of homes without being the best possible representative for a potential seller – maybe you sell so many because your sellers are intimidated into accepting the first offer they get or accepting terms that might not be optimal for them. Even the number of homes they sell in a specific market only shows where they are most active, not that they are the best agent for the job.While it does indicate a familiarity with that marketplace, it doesn’t mean that the agent is the hardest working, most creative, or the best negotiator – it only indicates (factually) that they had the highest volume. Perhaps I’m alone in the experience but I knew an agent who was extremely high volume and hard working, but really difficult to work with because they didn’t take care of details and were much more interested in facilitating the transaction than being the best advocate for their client – not that they didn’t do an acceptable job, but they didn’t do the ‘best’ job – and the cooperating agent always needed to be the ‘laboring oar’ in any transaction.”
-Bill Lublin (comment #13)