How To Pick a Good Agent
Of all the stupid ideas I've had in my life, the stupidest might be when I got my license after years of investing. I assumed most other agents would be like me, dedicated to their craft, doing constant market research, really understanding the minutiae of real estate, and motivated to help their clients regardless of what was in their best interest. I have always believed if someone has enough trust in you to ask them to help them with the single biggest transaction of their life, you have a moral obligation to try your very best to do right by them. I was very, very wrong. That’s not to say there aren't some fantastic agents out there because there are, or even that an agent who gives you bad advice is doing it intentionally. The issue lies with the real estate ecosystem and how it warps agents' and sometimes even consumers' view of the market.
The Real Estate Ecosystem Explained
The first thing to break down is that very system, which I think is best described by Jim Halpert.
First, you have the media diet consumed by most agents and lenders. There are literally entire companies that exist to either give information or even skewed data that can be used by marketing to agents. If that's your business model, it wouldn't really make sense to ever say anything negative about the market because then people wouldn't use your service, and you'd go out of business and that would suck for you. Now, an important thing I'm starting to realize about this system is the agents don't quite realize they are the product. Add in social media, and all the agents and LOs posting and commenting on the same things; it creates an echo chamber detached often from the reality on the ground (seriously, go look at any social media post from any agent or LO and click through just how many comments and likes are from other agents and lenders, I bet it's well over 50%).
Brokerages and Their Role In The Pyramid Scheme
Then you have the brokerages themselves. They compete to hire agents to get a split of those commissions. In some cases, they compete on net commission for agents (For instance, I’m with Samson and we get 100% of our commission; other brokerages can be as low as 80%). But some compete on giving agents tools to promote themselves to clients, i.e., we have great tools for marketing, social media, getting awards, listing presentations, etc. Those frankly have zero to do with selling your house. I was talking with a marketing guy a few weeks ago about this exact point and how none of those really have any effect on selling a home, given the vast, vast majority of buyers just look on Zillow/Redfin, and he said, "Yeah, but the clients don't know that." Well, now you do.
Then farther down in this pyramid scheme, you have teams who take a split of the commission after the brokerage has taken their split. There are even some models that pay you a share if you recruit new agents to the brokerage. Frankly, none of this really affects you, but just wanted to point out the ridiculousness.
Finding a Good Real Estate Agent
Now that I've gotten to rant about the industry itself, let's talk about how to find a good agent. Are they knowledgeable about the market? I set aside about an hour a day to go into data about our local market and do deep dives on 15 counties. Now, to be honest, that’s a little obsessive and, frankly, most agents don’t need to do that, especially if they only focus on one smaller area. But can they tell you in detail about the market, are prices up or down, how much are they up since last year, since two years ago, what models of houses go for more than others, are there areas maybe they tell you to look at you had not considered, does it seem genuine, or are they just saying prices keep going up & it’s a great time to buy?
The Listing Presentation and Its Importance or Lack Thereof
If it's a listing presentation, honestly, the most important thing should be determining list price & overall strategy. One of the last listings I did was extremely hard to comp & had for a number of reasons a limited window to sell, so we spent well over two hours going over different comps, different strategies, potential different outcomes, and even a general calendar of when we would adjust the price and even when we would pull the listing if we couldn’t sell, which unfortunately is what happened. While things like social media and other marketing plans can make some difference on the margins, the truth is the vast vast vast majority of sales happen through either the buyer finding the house on Zillow or the agent finding it on the MLS. Often times, flaunting a complicated marketing plan is a way for an agent to market themselves to you, not necessarily get you the best price for your home.
Are they able to do a cost-benefit analysis of any repairs needed? It’s easy to say doing all these renovations will improve your property's value, but will it improve it more than the work costs? For instance, in the vast majority of cases in our hot suburbs, it doesn’t really matter what shape the property is in. I sold a rental recently in Gaithersburg that was basically original 1995 vintage everything, did basically nothing to the unit, didn’t even paint it, didn’t matter, set a neighborhood record and got 5k more than the property that had been significantly updated sold for just a few months earlier because supply was so low at that price point and area. That, however, would be a very bad strategy in either a higher-end area or an area with a lot of supply. A good realtor should be able to come up with a listing strategy that looks at local market conditions and the cost of improvements vs. what they will add in value.
. Lastly, and I cannot stress how big a red flag this is, if you talk to multiple agents and they all give you around the same list price & one agent tells you they can get you way more, it’s often a strategy called “buying the listing”. They often just count on once they have a listing agreement, just lowering the price; you often end up in much worse shape than just listing appropriately. That’s not to say they are always wrong; maybe they have a good strategy about listing high, maybe they have some comp or inside info other agents don’t, but honestly, it’s a big red flag.
Evaluating an Agent's Strategy
Are they going over multiple scenarios with you? Life is complicated; any plan to buy or sell should reflect that with gaming out multiple different outcomes and scenarios, and a lot of "if this happens, we do this" games. Any agent who is overconfident in a single scenario is a red flag.
Price Discussions and Financial Considerations
Do they always try to talk you up in price? Do they ever recommend things below your price point? A good agent should be able to get an idea of what you’re looking for and give you multiple options in multiple price points and multiple areas.
Do they look at your overall financial picture and try to figure out what works for you? Just because you're approved for a loan of up to 50% DTI (which, by the way, is pre-tax income) does not mean spending that would be a sound financial decision. Do they ever make the case for renting? I very often tell clients if they aren’t likely to stay in a place very long that often renting can make more sense.
Scare Tactics
Do they use scare tactics like “the market is about to reheat”, “you’ll be priced out forever”, “renting is a waste, you’re not building any equity”? Go look at an amortization calculator; you are not getting much equity your 1st few years of owning anyway. This is the biggest financial decision of your life, make a decision that works for you; don’t be scared into buying.
The Trust Factor in Choosing an Agent
Last of all, and this is intangible, but does this person seem trustworthy? Does he seem like a flashy salesman, or just a guy trying his best to do his job, which frankly isn’t that hard? A joke I love about real estate is “this isn’t rocket science”. That’s it; that’s the whole joke.
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Anyway, thanks for reading. Feel free to reach out with any questions or comments.