How to Tell If a Real Estate Agent Is Worth the Price

By Susan Campbell

The housing market is still weak in much of the U.S., forcing sellers to try to squeeze every penny out of their home sales.

To save money on real estate agent fees, which can total as much as 6% of the selling price, more and more sellers are considering the for-sale-by-owner route, also known as FSBO.

The equation seems easy, right? Do-it-yourselfers can put in a little extra time and effort and walk away with thousands more in their pockets.

But before you get over-confident, it's important to understand exactly what a real estate agent brings to the table, and whether or not your skill set is an adequate replacement.

The Potential Prize: Thousands of Dollars More

There is really only one notable advantage to selling your home on your own: saving money. By selling your house yourself, you can save the commission that the real estate agent would normally receive for his or her services.

In a typical transaction, the seller of the property is responsible for paying the commission to both the buyer's agent and the seller's agent, with about 3% of the selling price going to each. For example, if you sell your house for $200,000, you'll end up paying $12,000 in fees to the real estate agents ($6,000 to the buyer's agent, and $6,000 to the seller's agent), and that's before accounting for closing costs, repairs, attorneys' fees, etc.

But even though the price involved in working with a real estate agent can be steep, it's of the utmost importance that you recognize the amount of work the agent performs behind the scenes to ensure a swift and seamless transaction.

How an Agent Earns His Keep

Real estate agents are specially trained to handle the complex legalities involved in selling a home. Without a real estate agent, it's up to you to know all of the documentation that must be presented to interested parties, including property records, building permits, insurance documents and all disclosures required in your state.

Many states have mandatory disclosure laws that require the seller to list all known defects to the property, such as water damage, structural problems or issues with the plumbing, heating or cooling system. Sellers are legally bound to provide a detailed list of all existing and potential problems with a home. If you don't know or understand this requirement, you could face a lawsuit down the road.

In addition to all the legal and transactional know-how, real estate agents know what they're selling and how to sell it.

First off, real estate agents have access to tools that many homeowners do not, including the multiple listing service (MLS). An overwhelming percentage of interested and qualified home buyers now do their initial search for properties online, using the MLS to gather information about properties for sale all over the country.

Your real estate agent has access to the MLS, but you don't -- at least not in the traditional sense. While there are some FSBO companies that will list your property for you for a flat fee (as much as $1,000), that's where their services end. And if you don't list your home with the MLS, you'll be missing out on the 93% of homebuyers who begin their search online.

And when it comes to marketing, real estate agents are often much more cost effective. Just one color ad in your local newspaper, for example, can cost hundreds of dollars. Even if that's well within your budget, you may not be trained in how to word your advertisement to make it legal. Or interesting. A real estate agent has likely marketed scores of homes and knows what buyers are looking for. You probably don't.

Finally, the basic function of a real estate agent is to act as a mediator between the buyer and seller, making sure that a potential deal runs its course without emotions getting in the way. If you're one of the rare sellers able to take your emotions out of the transaction, maybe you don't need this particular service. But most homeowners tend to believe their homes are worth more than market value, and can be offended by criticism from buyers.

Not to be taken lightly, a real estate agent's strong negotiating skills should also result in a higher selling price, as much as 16% more according to the National Association of Realtors. If they're worth their salt as an agent, negotiating the best deal possible will be a large part of their skill set.

[If you feel like your agent isn't providing these services, they may not be looking out for your best interests. Watch out for the red flags identified in our InvestingAnswers Feature: Why Your Real Estate Agent Isn't Always Working For You.]

Still Not Intimidated?

If you are ready to do all of the things that a real estate agent does as his or her full-time profession -- generate potential buyers for the home, show the home, negotiate offers and write up the paperwork for the sale -- then you are ready to sell your home yourself.

But go into it with your eyes wide open. Many people that try to sell their homes without the benefit of an agent often find that any savings on the commission are negated by the added expense of advertising the property, showing the property and trying to keep track of all the legal minutiae that is inevitably involved. And ultimately, a big portion of any money that you save could be spent on hiring a real estate attorney to draft purchase agreements, review offers, and research mortgage, loan and lien documents.

The Investing Answer: A good real estate agent (especially in real estate agent and in an uncertain housing market) can be an asset to any homeowner who is looking to sell.

Depending on your marketing savvy, attention to detail and time available to allocate to the project, selling your home as an FSBO property may be a good idea. In most cases, though, it is usually best to enlist the help of a professional real estate agent who will work hard to get your home sold and make sure all legal matters are met for a smooth transaction.