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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Why Your Real Estate Agent Isn't Always Working For You

There's a reason why you hire a real estate agent -- they're experts at selling homes! They're better informed on the worth of your house, the state of the housing market, and even the buyer's frame of mind. And that informational advantage makes them indispensable to you. But if you think they always use that advantage to help you, then think again.

What really motivates real estate agents? Your domestic happiness and financial gain? Yeah right. To paraphrase James Carville's famous remark about the economy: It's the commission, stupid. More often than not, their financial incentive is at odds with your best interests. Here's why.

Agents are motivated to sell your house, ASAP.

It's in a real estate agent's interest to dump your house as quickly as they can, without waiting for a better price. That extra $10,000 on the selling price may make a big difference to you, but the additional commission your agent earns is negligible.

That means your agent may prompt you to just settle for a lower price, sometimes using fear as a tactic -- e.g., "Housing prices are poised to fall, better take the offer now." However, studies have shown that when real estate agents sell their OWN property, they keep their house on the market an average of 10 days longer and sell it for an extra 3%.

Agents aren't obligated to show you homes.

Agents are under no obligation to show homes that might be of interest to you. They will show you homes that serve their purposes, not yours. (For example, a home that would be easier for them to sell.) If you have a signed contract with the agent, you can specifically pinpoint the homes that you want to see. But don't expect them to take it upon themselves to show you everything that's available. They reserve the right to be selective in what they show you.

Agents typically use the same coterie of home inspectors and mortgage brokers.

When it comes time for appraisals, home inspections, legal work, and mortgage brokers, agents have a group of contacts that they regularly turn to. These supporting players are grateful for the repeat business that's funneled their way, which means that their true loyalty is to the agent -- not to you. That's why you can't always assume that a home inspection is as thorough or accurate as it should be. The outcome often depends on what best suits the agent's needs.

Isn't that "conflict of interest" illegal? In most cases, yes. Sometimes, kickbacks are involved. But it's hard to prove. If you doubt any of this, think back to recent scandals in the news, involving shoddy home inspections and skewed appraisals. Agents often get paid for referrals. To protect yourself, just keep in mind the old saying: Trust, but verify.

Agents often downplay the cost of repairs or renovations.

As noted above, agents are motivated to close a deal, sooner rather than later. If you're a prospective buyer and you notice certain aspects of the house are amiss, it's not uncommon for agents to minimize the cost of rectifying the problems. Don't take their word for it; they’ll low-ball the potential costs, to pacify you. Conduct research to see what the repairs or renovations would really cost. Their motivation isn't your pocketbook -- it's to get you to sign on the dotted line.

#-ad_banner_2-#Agents sometimes play the old "bait and switch" when estimating the value of your home.

When initially evaluating the worth of your home, agents aren't averse to making you salivate, by feeding you an inflated figure. Subsequently, once they have you on the hook and your home is not selling at the inflated price, they'll start to persuade you to lower the price -- an eventuality that they knew was coming, all along.

[Want to add value to your home? Make sure you're not throwing your money away! Check out our InvestingAnswers Feature -- Adding Value to Your Home: Nine Things You Think Add Value but Don't.]

How to Make Sure You're Getting Your Money's Worth

When you're selling your house, you don't always have to play the victim. Remember, only you can make that final decision to sell. If you don't think your agent has your best interests at heart, start being proactive! Do your own homework; the Internet is a huge asset in that regard. There are a number of websites that provide up to date information about recent home sales in your neighborhood.

The Investing Answer: Let's be clear: Real estate agents aren't necessarily crooked. In fact, most of them are honest and law abiding, and they perform a valuable service. But you need to remember that, in our modern free-market society, transactions boil down to incentives and motivation. Look beyond their sweet-sounding assurances, to determine the story behind the story. Always be on guard for what truly motivates your realtor -- and trust me, it's probably not altruism.