My girlfriend at the time and I dealt with two different realtors when looking for a home in Austin, and both of them encouraged really bad decisions. The first was pretty new to the job, and was a bit heavy-handed in his tactics and advice, and I saw right through it. The latter was much more subtle and good at it (she'd been a realtor for 30 years; we didn't stand a chance). We ended up in the wrong part of town, much farther out than we intended to be (we weren't familiar with the area, and were driving 3 hours each way, on days off from work, for our excursions to look at houses, so we didn't know enough to know; we were also in a bit of a rush because our apartment lease was up soon), and in a neighborhood and house that was not at all appropriate for us, and not at all what we'd asked for.
I've since read quite a few books about the sales process, and influencing peoples decisions, and I've realized that our realtor had used just about every single trick in the book to convince us to buy quickly, and from a seller that was associated with the same real estate company. There are very few people on this earth that I have strong dislike for, but that realtor is one of them. She was an extremely good sales person, but a pretty horrible person.
The incentives are way wrong in that business, and the kind of folks, in general, it attracts are not who you want to trust.
I'm sure there's an honest realtor out there somewhere (maybe even two or three), but I've never met one. I consider it a very expensive lesson learned, and one I'll never forget.
When we sold that abysmal house, we sold it ourselves, and we were completely honest about everything that was wrong with it (and in the time we'd been there we had fixed almost everything that the realtor-recommended inspector had conveniently failed to notice when we bought the place). It sold to the first person that looked at it, and for a fair market price for the neighborhood and size. And, I rented a place out here in the valley from an individual with no realtor involved. Found it on craigslist, it was a good deal in exactly the location I wanted, the landlord is a nice guy, and he likes my dog. No complaints at all.
Anyway, I can't say enough bad things about realtors, in general. I just don't see how there is any good reason to use one in a world with craigslist.
One thing that many people don't realize is that if they don't have an agent representing their interests as a buyer of an MLS-listed property, it usually just means the listing agent gets a double commission. The fact that there is not a buyer's agent doesn't lower the price for the buyer at all. The listing agent just does a "notice of no agency" and pockets both commissions. FSBOs (and some REO properties) are pretty much the only exceptions, because they don't go through the MLS, which has its own arcane rules. So, if you're going to pay the money anyway, you should try to get representation. Just educate yourself about the process, stand strong about what you want, and try to find one of those two or three honest agents ;-) Or pay for a RE attorney.
FSBOs are usually overpriced, especially during market corrections like we're in now. I admire your honesty in listing YOUR property but, unfortunately, not all sellers are as honest. Agents have more accountability, legally speaking, than a random dude on CraigsList. You have more avenues open to you if an agent screws you over than if a private seller screws you over. In fact, you should report your bad agents to your state licensing agency. Many state agencies use 'mystery shoppers' to check out agents when they've been reported a few times. The fewer bad agents out there, the better for everyone.
Which I view as merely another good argument for buying or renting directly from the home owner. Leave the sellers agent out of the picture, as well. MLS is a 20th century idea. While many houses sold are still listed that way, there is no reason other than inertia for it to remain that way.
When we sold our house, we explicitly stated in the craigslist ad, "We will not be responsible for buyers agent fees. If you have a real estate agent, that's your problem, not ours." Our buyer was working with a friend who was an agent, and was able to work out a deal they were both happy with which I wasn't privy to the details of (and given that the buyer found the house himself with no help from the agent, who had showed him lots of houses that weren't right for him, I'd say the agent got more than they deserved, whatever the amount was). But, the buyer did get a better deal on the house, because we didn't give any percentage to a realtor. So, we could sell the house cheaper than a realtor listed house and walk away with more money than the seller.
Anyway, as you may note, my own personal experience with realtors has been so bad that pretty much nothing will convince me to use a realtor again. This could be a case of two bad apples. But, the one that took me for a ride was a 30 year veteran, and had won awards and such. The industry rewards those most effective at screwing people.
So, now that it's an industry that serves no real purpose other than injecting themselves in between buyers and sellers in large transactions (marketing real estate for sale and finding real estate to buy can now be done on the Internet; legal stuff has always been handled by the title companies and the lenders, anyway, and realtors just stake a claim to providing guidance in navigating the process...but if you call a title company, they will happily provide all the guidance you need), I simply have no use for the industry. Realtors are selling wagon wheels, and I don't have or want a wagon.
I think you, as a technically savvy individual, probably well above the average intelligence of realtors, would be well-served to think long and hard about whether the industry will change or die...and get yourself at the head of that curve, whatever it is.
As I said before, I invested in this industry because I hated it and because I thought the incentives were misaligned. I definitely have a different background than any other agents or brokers I know, which puts me at odds with most of them. That being said, I think there IS a role for a (much smaller number) of good, honest real estate agents if the incentives are realigned and consumers can be made to understand more of the process and what they're actually paying for. As with any industry, SOME intermediaries do create value. To think that no intermediaries create value is, in many ways, just as ignorant as trusting agents too much and paying the 6% "like everyone else does." I just want consumers to be able to separate those that do create value from those that don't, and to pay a fair price for the value they receive. Those seemingly small goals will probably not happen industry-wide in my lifetime the way things are going, but I'm slowly working on it...
I initially tried a more revolutionary attack on the real estate industry (and MLS), and was severely beaten by the experience just like so many that came before me. One of the main obstacles is the entrenched players in the industry and their power over the regulations, etc. Even more powerful and disturbing, for me anyway, is that most consumers simply don't care if the industry changes because they don't even understand financial basics. Most alternatives to the status quo fail because of consumer inertia, not competitors.
I think the industry WILL change, but not die. I've looked at where I think the industry is going, and right now I'm satisfied to educate consumers and to save them a substantial amount of money. A website can't replace an agent in all cases, on either the buy-side or the sell-side. Of course, in some cases, it can. I believe my company is doing better work by operating in the customer's interest on the leading edge of the industry, versus working on an idealized version of where we or others might WANT it to go. This is probably the least lucrative company I'm involved with, but it is very satisfying when some people do get it and we can help them out.
The other benefit is when it comes time to negotiate. A good buyers agent can help guide you (but recognize that in the end you're on your own). The other big benefit is that they are a proxy for you. You won't talk directly with the sellers or sellers agent when negotiating. This has the benefit of them not knowing how excited you are about a particular property, and prevents them from getting a good "feel" for exactly what you can afford.
Also, just as an FYI, if you look at foreclosure properties (which are tempting in this market) be aware of all the fine print. These generally take a longer period of time to close and are much riskier overall. If I were buying another property in this market (I'm 1/2 looking)... Find a good buyers agent, get pre-qualified, know your limits and tell the buyers agent that if they happen to "hear" (all realtors in a market talk to each other) of a listing where the sellers are on the verge of foreclosure and would take a quick deal at a big discount that you would be interested...
You give some great advice, brk, buy you should know that the average buyer's agent commission is 2.5%, not 1% or 'nothing." There are discounters that will give you around a 1% rebate on their commission in states where RE rebating is legal, usually subject to a minimum commission, but it is impossible to represent a buyer for 'nothing.' Most buyer's agents that will consider larger discounts are not really representing your interests, because they are either designated agents or (much worse) dual agents, who are just trying to eke out a bit more cash from the transaction that they might not otherwise receive. I can explain that in great detail when I have more time, if you're interested. In any case, you should know that people don't work for free, so you WILL pay for any services you use at some point in the transaction.
Unfortunately, most consumers are woefully uneducated about real estate transactions, including important details about the principle of agency and commissions. My entire business model for our RE brokerage is built around educating the customer enough so that they don't get screwed over by agents or lenders. I would recommend that a buyer obtain representation from an EXCLUSIVE buyer's agent and to attempt to negotiate a commission rebate IF it is legal in their state and IF they will actually use less of the agent's time by being a savvy, educated shopper. I suspect most HN readers are savvy, educated shoppers who can use the web to save time and trouble for themselves and their agents, so most should be able to get a commission discount/rebate. I wish real estate rebates were legal everywhere, but some states have allowed lobbyists to overpower common sense and consumer rights.
I know this, but most listing agents will cover some or all of the buyers broker fee, so the actual buyer (typically) ends up paying somewhere between nothing and 1%. At least this is how it's worked on the 4 properties I've bought in the last dozen years.
I didn't realize that he was renting instead of buying. My original advice was 100% geared towards buying. I've never rented, so have no good advice in that regard.
One of my goals in life is to correct this misunderstanding among buyers. BOTH the buyer and seller pay for the agent services if they are used. Believe me, it is not your fault in thinking that the listing agent and/or seller pays for the buyer's fee, because that is the way the paperwork is worded and that's what everyone says, but it is NOT the complete story. Even most real estate agents don't seem to completely understand this fact.
I want people to not get lost in semantics and to understand that, as a buyer, you WILL pay for any services you use (and you may even pay for services you don't use if you're not smart about it.) In the long run, you will pay even more than the seller. The fact that the HUD-1 form creates a fiction doesn't mean that you don't pay. If you REALLY understand how everything works, you can get a real value and service for what you pay, saving money in the overall process. If you don't understand how it works, you will pay for an agent who may not have your best interests at heart, and not even realize that you paid for this dubious benefit.
We found that out when we bought our first house back in the 80's in Connecticut. A very nice older lady was our realtor, and she really didn't serve us well. (Lots of house issues swept under the rug, so to speak, until it was too late.)
That is great advice, no matter what kind of transaction you're entering into. I actually got involved with the real estate industry because I hated how it worked. It is ridiculous that incentives are so misaligned in this industry. I thought I could change some things in my small corner of the world, but I was too naive, and it will take much longer than I thought for me to have any impact. Unfortunately, most consumers simply don't care enough about their money to educate themselves. Sad and irrational, but true.
I will not work with anyone who stands to make more money simply by getting me to pay more. There is NO WAY they can represent my interests if that is the case. In my real estate brokerage, buyers pay for the actual services they use. They know the cost up-front, and there are no incentives for me to try to get them to buy a specific property or a more expensive property, because I'm not paid based on an (arbitrary) percentage of the property price. In 99% of cases, the money they spend on me will be spent whether I help them or not, so my fees aren't even an extra expense. Yet I still have to spend (relatively) much more time than my competitors to educate them about how and why I can help them, just because I am different. It's like the entrepreneurial cliches about the stupidity of introducing a completely new product (pioneers get arrows in their backs, right? It's easier to move to territory that has already been settled.)
There are real estate companies with good business models and good agents...they're just very rare :-(
No offense, but you have a firm grasp of the obvious. This is true almost 100% of the time when you are "hiring" someone to work for you. In any transaction you should do some research yourself, get some references, and so on.
When buying properties, my wife and I have always used the agent as a sort of voice-command Googlebot. Tell her (it's been in a her in all of our cases) what we want, what our budget is (usually holding back about 10% of what we really want to spend), and then go over the listings we're sent. We'll often do a quick drive-by and scout the neighborhood first and then use the agent to make the appointments and shuttle us around, and then finally handle any paperwork.
I always get a home inspection, and I go around with the inspector as he is going through the house. I also escort the inspector when he is going over properties I've sold (one inspector shorted out the fuse panel (yeah, fuses) when doing an inspection for a buyer on my first house. He was ham-handed when removing the fuse box cover, touched a fuse and made sparks. He tried to cite that on his report as a faulty fuse box and I called him on it and made him account for his own error).
I also tend to make it pretty clear, in plain English, up front that I like to find realtors, lawyers, accountants, etc that I can work with over many years. Attempt to screw me now and you'll lose a significant amount of future/repeat business, plus referrals.
Most people can spot a sucker, and can also spot someone who is knowledgeable. Spend some extra effort on the latter, and the whole transaction process will be easier and more rewarding.