In this blog post I will look into five common believes about estate agents and some arguments that go against those beliefs.
- Commission based pricing leads to higher sale prices: In Ireland, most estate agents price their service as a percentage of the final sale price. This can be anywhere between 1% and 2%. If you ask an estate agent who charges commission on a sale why they do it this way, it is likely that you’ll get an answer that goes a little something like this: “By charging a commission on the sale price we are encouraged to get the highest price possible for your property.” Okay, but if someone has instructed them to sell their house, shouldn’t they be trying to get the best price for their customer’s property anyway? Also, consider this situation: Anne is selling her house and it’s listed for €350,000. Anne’s estate agent, Bob, receives a bid for €340,000. In this situation, are Anne and Bob looking for the same outcome? If Anne sells for €340,000 she loses out on €10,000 (a large amount of money). Let’s say Bob is charging 1.5% as his fee, so he will only lose out on €150. It is quite obvious that there is an incentive for Bob to “encourage” Anne to sell at that price rather than spend another week or so trying to get Anne’s asking price.
This point is further illustrated by the University of Chicago’s study that looked at houses that belonged to estate agents and how much they sold for and how long they stayed on the market. It found that, when an estate agent sold his/her own house, the house sold for 3.7% more than other houses and stayed on the market for 9.5 days longer. This shows that when agents are also the vendor looking for a particular price, they are more willing to keep it on the market a little longer. The complete study can be found here.
In general, it is more beneficial for a commission based estate agent to sell a property quickly than for the right price. Have a read of a our blog post on a real life example here.
- Estate agents take care of a lot of legal jiggery pokery when selling a house: I think this myth is especially true in Ireland. The main goal of an estate agent is to introduce a buyer to the seller. When it comes to the legal stuff, it’s time for the solicitors to step in; this is a completely different service than what your estate agent provides.
- “No sale, no fee” benefits the customer: This is an interesting one. Traditional estate agents have an image of being very expensive, but why do they charge so much? A lot of it has to do with the “No sale, no fee” model. If an estate agent doesn’t get paid until a house is sold and they have some houses on the books that are more difficult to sell than others, then they will have to make up the cost of taking on those tricky houses by increasing your fee. So, in fact, you are not only contributing towards the cost of selling your house, but also towards the cost of selling other houses too. Doesn’t seem right, does it?
- Estate agents are a necessary evil: Firstly, it isn’t a prerequisite for all estate agents to be evil (some of them are actually good), but I think the craziness of the second half of the 1990s until c.a. 2007 led to a bit of greediness in the industry which, in turn, led to a negative perception of estate agents in Ireland (they commonly appear in “Top 10” lists for most hated professions).
Secondly, estate agents aren’t actually necessary. This ties into the second myth in this list. It is perfectly legal, acceptable, and financially beneficial to sell or let your property yourself. The steps involved in doing this are straightforward. If you would like to read a case study on a man who sold his house himself without any previous experience, you can do so here.
- Estate agents have a unique list of buyers that only they know about: It may well be true that your estate agent has the numbers of some people that are in the market for a house, but I doubt there are any buyers out there that would declare their interest to one estate agent and leave it at that. It is an undeniable fact that the vast majority of people looking for a place to buy or rent will also look online and keep their eyes open for “For Sale”/”To Let” signs, even the ones that declared their interest to a few estate agents. Traditionally, Daft is the place that people go to find a place to rent and MyHome is the place to find a place to buy. They both list sales and lettings, but each has its strengths.