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If there was ever a more mafia-like business than that of the residential real estate agent, we have yet to encounter it. Outside of the Godfather movies, naturally. Real estate agents provide lists of reasons you need a real estate agent. We would like to refute these reasons and draw back the curtain of mystery they have used to veil the very simple process of buying and selling residential homes.

Reason number one – better access to potential buyers. Real estate agents like to make you believe they have a roster of potential buyers they plan to reach out to who might already be interested in buying your home. Not true. Most people buying a home will spend a relatively limited amount of time shopping, then will find a ‘good enough’ home at their price point and buy it. Not many buyers have the luxury of waiting around for your ‘perfect home’ to show up on the market. Which means your agent is lying about having this list of potential buyers in his or her back pocket. As long as your home ends up listed on the multiple listing service, buyers will find it. Within Ontario these days the prices for a ‘mere’ (that’s realtor slang for for sale by owner – FSBO) listing? You will pay in the neighbourhood of $100.

Reason number two – negotiating is hard. Really? First, the agent says they are the only one who can tell you what your home is worth. False, you can hire an Appraisal Institute of Canada (AIC) designated appraiser who has been professionally trained to appraise your home and provide comparable properties that have sold in your neighbourhood as part of the report back to you. Most real estate agents don’t actually have the professional appraisal designation, they simply have (or pretend to have) experience based on helping people buy or sell homes. However, unless they specialize in your neighbourhood, they will never be as good at appraising your home as an AIC appraiser. Cost for this service? In the neighbourhood of $500. By the way, a very common tactic of realtors is to promise you a listing price that sounds better than expected, just to get you to sign up to list the property with them. Then when there’s no interest after a couple weeks, because your house was over-priced to begin with, they will come back and tell you there’s been a downturn in the market which means you should drop your price. This is a tactic – it’s unprofessional and it’s untrue. Beware the ‘too good to be true’ pricing offer. It’s a trap and a waste of your time. Once you know what your home is truly worth, only you can decide if you are sufficiently motivated to sell below that value. But at least you will do so as a conscious decision if you want to make the sale. Otherwise, hold out and wait for your price. Studies show that’s what real estate agents do with their own homes.

Reason number three – contracts can be hard to handle. Guess what? There’s an entire profession dedicated to handling contracts on your behalf. They are called lawyers. When selling your home, seek out a good and affordable real estate lawyer to review and provide advice on any offer to purchase you may receive. Do not take your real estate agent’s word for the fact they are the only one who can advise you. They aren’t. Cost of a real estate lawyer to handle your contract review and the actual sale transaction? In the neighbourhood of $1000.

Reason number four – real estate agents can’t lie. Hah! According to the ethics of their licensing standards, this is true. But there’s a big gap between an outright lie that might cause a real estate agent to lost their licence, and all the little mistruths and pressure tactics they use with their clients to move a property. They will absolutely stretch the truth so they can get their commission, without acting in the best interest of the client. When agents are involved there are often claims of ‘multiple offers coming in’ and a single agent trying to cover both ends of the deal. In which case, by acting on behalf of both the seller and buyer, they are in reality acting on behalf of no one but themselves. FSBO buyers and sellers know they don’t have to pay outrageous commission fees (5% of selling price anyone? Outrageous by any standard). This means they can more easily meet in the middle when negotiating and approach this transaction as they do any other interactive transaction. As two human beings trying to reach a deal, not working through an opaque middleman.

Reason number five – not everyone can save money. The realtor theory here “buyers who are looking to purchase a home sold by owners may believe they can save some money on the home by not having an agent involved. They might even expect it and make an offer accordingly. However, unless buyer and seller agree to split the savings, they can’t both save the commission.” That’s the point though – if there’s no agent, the buyer and seller can split those savings and they will both come out ahead of where they would be by paying an agent.

So, in Ontario right now the average price of a home is $477,000. If there are two agents involved in the sale, each taking the standard 2.5% commission, the agents each make $11,925 (yes, we know they have brokerage and office costs to pay out of that – it’s a poor business model in our opinion). The seller ends up walking away with only $453,150 even if the buyer pays the full asking price. But if the seller and the buyer split the difference, the house sells for approximately $465,000. The buyer and seller are both better off and the house sells for its actual market value, not its market value plus the built-in real estate commission.

  • Riverside

    Excellent analysis and I wish I’d been braver to go the FSBO route. In my case (and I’m betting in most people’s case) it was always exactly what you outlined. “I’m not an expert, I don’t know how to do the legalities” “this is my biggest financial asset, I NEED the professionals or someone could scam me!”

    I never believed realtors had access to hoards of people they could ring up that were just waiting for a property such as mine to jump at as you outlined so that was never a factor in my decision. In fact when selling multiple properties I always got a chuckle when people said to me “well your realtor must really suck that it’s been 2 months and he hasn’t found someone to buy it yet. (3 properties sold in Calgary during “busts”. Yah I have great timing). Most people nowadays even thinking of buying, check out the MLS before they ever contact a realtor to help them buy.

    I don’t want to do the math because it will just depress me, but I’ve probably paid realtors 60-75k selling various properties over time. A large portion of that could have stayed in my own pocket had I been smart enough and brave enough to do FSBO.

    Next time, I’ll be going realtor less.

    Thanks, Underground Woman

    • Patronized

      Thanks for the feedback! It’s happening slowly, but I believe real estate agents. like taxi drivers, have a business model that will ultimately be disrupted by the internet. Someday it will only be specialty properties that will need that kind of advice, once information on selling prices and ‘comparables’ become widely available.