Wednesday, May 16, 2007

The problem with real estate agents?

According to this report, real estate agents are becoming increasingly unpopular as complaints rise. The real estate agent issuing the report claim this:

'I think possibly it's down to people being less ready to be satisfied with something which they perceived as poor service - given the size of the financial commitment that they're taking on by buying a house.

I completely disagree. While some real estate agents may provide poor service from time to time, I feel there is a fundamental problem with the way real estate agents do business. The problem stems not from the agents themselves but from the industry in which they operate. The entire system puts the buyer at a disadvantage and drives up the price of homes.

The agent on either side, either buyer or seller, makes all of their money through commissions. The higher the final price, the more the agents get. This makes perfect sense for the seller. They want their agent to sell their home for as much as possible. But the buyer's agent also wants it to sell for as high as the buyer is willing to go. That doesn't give the buyer's agent much of an incentive to haggle down the price, does it?

What's the solution? Base seller commissions from the sale price, base buyer commissions off something else entirely. Perhaps buyer commissions can be based on the value of the asking price verses the selling price. The buyer's agent gets paid more when the final price is lower than the asking price. To make it fair, increase the standard percentage that the agent receives. This puts the agents in the position of competing with each other for their commissions, rather than pushing the price up for their mutual benefit.

If the new 21st Century commercials are any indication, real estate agencies know that their usefulness is coming to a close (if you have seen these commercials, apparently one of the most important jobs of a real estate agent is watching your eyes light up as you enter a home and knowing that you love it) with the Internet becoming increasingly more useful for finding everything from the home to the mortgage, insurance and title company. There needs to be some advantage for a buyer to bother with using an agent. So far, their usefulness is dwindling.

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