Are Real Estate Agents Worth It? Yes!

NOTE: This is a reprint of a post I made in early February on the Market Intelligence blog that I write for my company in New York.  Since it has some universal application to the industry, I thought I would share it here.  The bottom line: good real estate agents are, and always have been, worth the money they’re paid.


The New York Times ran an article on the front page of its real estate section last week describing how some home sellers are starting to consider whether it makes sense to sell a home on their own, or otherwise try to sell without paying a full brokerage commission.  For example, the Times pointed out:

  • · For sellers who have watched the prices on their houses slide in recent months, the idea of eliminating the middleman — a real estate agent and his or her 6 percent commission — can be alluring.

Oh, wait! Sorry, that was actually a quote from an article in the Times from June 2008, which made basically the same point.  Actually, what the Times said was:

  • · This is subversive stuff. Homeowners across the United States are figuring out that they do not need to pay what agents demand and they may not need an agent at all. At the same time, technology is giving consumers tools to nearly circumvent the agent.

Oops.  Sorry, my mistake again!  That was actually from an article in the Times in September 2005, which again made basically the same point.  Let me try again.  Here’s what the Times said:

  • · Highly competitive marketplace conditions coupled with concerns about inflation are encouraging a number of sellers and brokers to look for alternative ways to market homes without paying a full brokerage fee.

Darn it, I keep quoting from the wrong Times article!  That was actually from the Times from 1981 (!) the first of what turns out to be many, many articles from the Times over the past 30 years that keeps forecasting the end of the real estate brokerage industry as we know it.

Indeed, in just fifteen minutes or so of searching, I found that the Times basically has written the same article over and over again for the last 30 years, making the same points that sellers are just about to turn their backs on the industry and turn to the internet, or discount brokers, or selling homes on their own:

And yet, year after year, about 95% of home sales are conducted through brokers.  I daresay that the real estate industry model seems to be in better shape, even after a bunch of down economic years, than the newspaper industry model. (Not to mention the deep irony of the Times writing year after year about how the real estate industry is essentially doomed in a section of the newspaper that would not exist if not for real estate broker advertising….)

So it occurred to me that it might be helpful to set out why I think that the brokerage compensation model has survived relatively unchanged after all these years, even with all the challenges of media hostility, technological change, and alternative business models.  I started putting it together, and it took longer than I thought, so here’s a basic outline of what’s coming:

  • · First, some stipulations to guide the discussion.
  • · Second, a fundamental guide to how the real estate industry works.
  • · Third, an explanation as to why most sellers still choose full-service brokers.
  • · Fourth, a review of what you need to know if you’re going to sell on your own.
  • · Fifth, some conclusions.

If you have any comments you’d like to make directly to me, you can email me. I look forward to substantive comments below, but would ask people to avoid incivility.


Now, it’s always a little dangerous for a real estate broker, which is what I am, to defend the brokerage industry online, because all it does is invite message board “trolls” to swam the post with various diatribes about the industry, their brokerage experience, the massive success they had selling their home on their own, etc.  I fully expect to hear from all of them, which is a wearying prospect.

So let me stipulate to a few points:

First, not all brokers are worth the money.

I agree that many of the players in the industry don’t deserve the commission they charge.  Let’s stipulate that any argument I make below is really only in defense of brokers and agents that actually provide top-notch marketing services, great communication and information services to their clients, and professional assistance in marketing, staging, negotiating, and facilitating a sale.  (But can we also stipulate that if most brokers didn’t do that, at some point the buyer and seller community would have vindicated the Times’s 30 years of doomsday forecasts?)

Second, all commissions are indeed negotiable.

Before I get in trouble with the Justice Department, let me also stipulate that all commissions are indeed negotiable, and sellers are free to try to negotiate the commission on the sale of their home.  It’s just that an individual broker can set his or her fees for the services provided, just like doctors, lawyers, plumbers, hair stylists, or anyone else that provides a service.  The cost of coffee at Starbucks is technically negotiable, and may not be worth what they ask you to pay it, but Starbucks also has the right to set the fee on the services it provides.

Third, sellers can indeed sell their homes on their own.

People often think that real estate brokers are insulted by people who try to sell on their own.  That’s not really the case.  I don’t see FSBO’s as invalidating the industry and what it provides. I understand what they’re doing.  If you really think that you can sell your home and net more in your pocket than you could by hiring a broker, then I certainly don’t begrudge you that choice.  (More on that below).


Getting past those stipulations, I wanted to make sure that we understand the basic structure of the real estate brokerage. When I read those articles in the Times, the main thing that strikes me is how little these journalists, one after another, actually understand the industry. They don’t seem to understand how brokerage commissions are split between two sides (the list side and the buy side), they don’t appreciate how much work agents do in a real estate transaction, and they never consider how agents do all that work without a guarantee of getting paid.

First, commissions don’t just go to the listing broker.

The first thing you need to know is that the legendary “6% commission” (and let me stipulate again for the good folks at the Justice Department that I am simply using the figure from the Times) does not mean that your individual real estate agent collects 6% of the sale of the home.

Rather, that 6% commission is usually split between a listing broker and a buyer broker,the brokerage and agent who represent the buyer in the transaction. Hiring a listing broker who is part of a multiple listing system means that the listing broker will make an offer of cooperation to all the other members of the MLS, which usually includes all the other brokers in the county.  You don’t hire a listing broker and only get the services of that broker to sell your home.  Instead, listing with that broker gives you access to all the other brokers and agents working in the county. But those other brokers and agents aren’t going to work for free, which is why the listing broker splits that commission with the successful buyer broker.  You need to incentivize buyer agents to want to show your home.

Second, agents need to get paid for the work that they do.

We can argue all day long as to what the appropriate compensation should be overall, but I don’t think that anyone disputes the basic idea that real estate professionals need to be properly compensated for the work that they do:

The listing side needs to be compensated for the time, energy, and money required to help the seller analyze prevailing market conditions, consult with the seller on setting a sales price given the market, identify priority selling points, prepare the home for sale, ensure compliance with legal requirements for selling your home, document the relevant property data, take pictures of the home, write up descriptions, upload the property to MLS and various internet sites, prepare flyers, put up a sign, prepare a lockbox, coordinate showings, answer questions from potential buyers and other agents, hold public open houses, obtain feedback after showings, communicate with the seller, monitor online traffic for the home, field offers, negotiate offers, schedule inspections, handle remediation requests following inspections, prepare documents for attorneys, coordinate a walkthrough, and help facilitate the closing.

The buyer side needs to be compensated for the time, energy, and money required to consult with the buyer about their needs, help them ascertain their price range, get them pre-qualified by a mortgage lender, do comprehensive searches to determine what properties to see, track down answers to questions that buyers might have about properties, stay on top of the market as new properties come up, schedule showings, preview properties to be showing, prepare show sheets and buyer tours, attend showings, provide feedback to listing agents, prepare, present, and negotiate offers, schedule and attend inspections, handle inspection issues, coordinate with the mortgage lender, provide documentation to attorneys, schedule and attend the walkthrough, and facilitate the closing.

Moreover, all that is just what brokers do in a “clean deal,” not factoring all the work that goes into more difficult situations.   Some listing agents will end up doing a lot more when the home needs significant remediation work, when the home takes longer to sell and requires multiple open houses, or when offers and deals require significant handholding and care. Just think of the time spent doing four or five open houses on a home (not unusual if a home is for sale for six months or more, which is the average time in this market), at four hours per open house.

And we’re glossing over the amount of work buyer agents do in preparing showings, particularly for buyers who often see dozens of properties before they settle on something. The rule of thumb is that the showing of a single home takes about an hour, factoring in the previewing, preparation, travel time, showing time, etc., so a buyer seeing dozens of homes racks up significant agent time.
Third, don’t forget that brokers only get paid a commission on an actual sale.

On top of that, remember the fundamental trade-off in a commission environment – after all that work, a real estate broker doesn’t get paid if the deal doesn’t go through. The listing broker gets nothing if that home does not successfully sell, and the buyer agent gets nothing if the buyer never finds the right place to purchase.  In other words, you get the benefit of the services provided by a real estate broker, and you get that benefit for free if you ultimately do not sell or buy a home.

Now, of course, none of that matters to a seller who actually sells and pays a commission – the successful seller shouldn’t have to think of herself as subsidizing all the work that the agent did for the seller who never actually sold.  And I don’t think that she does. I think that the agent gets fairly compensated for the work done on the deal that actually happened.  But it’s worth remembering that anyone who hires a broker gets those services regardless of whether the home actually sells.


With all that in mind, I just want to explain why I think most homeowners make a fully rational choice when they use a broker to sell their home.  Indeed, I think that the industry itself generally does a poor job of explaining its value to clients, which is why the industry is not generally held in high regard and is prone to unremitting attacks on its value.

Here’s why I think most home sellers use a broker to sell their home.

1.  The real estate brokerage industry creates a great market for homes.

The most misunderstood part of the industry is how the brokerage industry cooperates to create a very fluid market for the sale of homes.  Because listing brokers split their commission with buyer brokers, the industry creates an open market in which you can go to any broker in an area to get help to buy virtually any home for sale in the area.

Think of it this way: it’s actually easier to buy a home than it is to buy a car.  When you want to buy a car, you have to go visit dozens of dealerships to find the right car. Yes, you can do some searching online, but if you actually want to go see cars you have to go to individual dealerships, because the dealer can only show you the cars that particular dealer is selling.  So let’s say you’re looking to buy a $30,000 sedan – you have to visit the Chrysler dealer, the Chevy dealer, the Ford dealer, the Hyundai dealer, the Honda dealer, the Nissan dealer, the Toyota dealer, the Acura dealer, the Lexus dealer, the Infiniti dealer, the Mercedes dealer, the Audi dealer, the BMW dealer, and all the rest (I’m sure I’m missing some).  Also, you have to visit multiple dealers for the same brand, since one particular Chrysler dealership won’t sell you a car offered by a different Chrysler dealer.

And you have to do all that without any representation. No one is setting up tours for you, or giving you advice on recent sales, or counseling you on your offer. There’s no “car representation agent” service available to help you choose among the various options, help you weigh those options, or help you negotiate your deal. (If any burgeoning entrepreneurs out there want to start a company like that, I’d like to be your first client, and I’d probably invest!).

Buying a home is different. You go to any broker in the area, and that broker can show you virtually any property for sale by any other broker. You don’t have to go from broker to broker to find out what that particular broker has listed, because brokers cooperate.  But cooperation requires incentives to both sides, which you won’t get if both sides are not cooperated.  If you think that brokers are overpaid, that’s fine, but then you’re really arguing that the real estate industry should behave more like the auto industry, which I don’t think anyone wants.

So that’s one reason why most sellers use a broker, and why virtually all buyers use a broker.  Because the industry creates a fluid open market in which every seller has access to all buyers in the area, and all buyers have access to all properties for sale (including information on other sales for comparison).

2.  Good real estate brokers provide a comparatively good value for their fee.

So now let’s look at the fee itself, and whether it is disproportionate for the services provided.  Let’s say that a broker charges 6% (just an example, for all your fine people at the Justice Department!), and offers out 3% to cooperating brokers.  That means that the listing broker collects 3% for the listing side work, and the buyer broker collects 3% for the buyer side work.

Is that really disproportionate?  Let’s compare that commission to what some other service-providers who are paid by percentages charge:

  • · Attorneys on contingency: Attorneys charge about a 35% contingency fee, not including their expenses, for most personal liability claims.  That’s essentially a 35% fee, but only if they are successful, much like brokers charge their fee only if they are successful.  Unlike brokers, though, attorneys also take their expenses off the top.

  • · Asset Managers: If you hire someone to manage your assets, either in high net worth situation (i.e., a hedge fund) or even in a simple mutual fund, the normal charge is a small percentage (say 1%) of the amount of the assets, but it’s charged every year.

  • · Interior designers: interior designers usually get paid in two ways: a basic fee per hour, and then a percentage of everything they help you buy (which is essentially offset by discounts that designers get you).  So that might be, say, $100/hour plus 30% of the furniture you buy.

You may object that real estate agents do not have the training or expertise of attorneys or asset managers, which is a fair point (although my experience with the performance of most asset managers does not inspire me with faith in their abilities).  But I’m not comparing what brokers do to what these professionals do.

My point is more that a 6% (just an example for all the fine people at the Department of Justice) as a commission, split between the listing side and the buyer side, is not an outsize compensation structure given some of these other services.  Attorneys take 35% of your recovery if they represent you in personal liability issue, or probably $200-500-1,000/hour for their services.  Asset managers keep roughly 1% of everything you invest with them, regardless of whether their investments go up or down, just for the service they provide in managing your account.  And they collect it every year you’re invested in them.  And interior designers routinely get 30% when they advise you about furnishings to buy.

I’m not complaining about any of that. I am an attorney myself, but I hire attorneys all the time to represent me (I don’t trust myself…). I have someone managing my assets.  I have a great interior designer who did a wonderful job when I bought a new place last year.  They all do wonderful work (not so much the asset manager, but at least I have something left), and they’re all entitled to be paid.

But given those structures, I’m not so sure what’s so bad about a real estate industry commission structure that charges 6% (or whatever the number is) for services provided, especially given that:

  • · The commission doesn’t even get collected if the deal doesn’t go though.
  • · The commission is paid one time, regardless of how long you own the home.
  • · The commission is split between a listing broker and a buyer broker, to create incentives for both sides.

If you don’t like those comparisons, let’s then just compare what real estate agents make versus the other professionals involved in a real estate transaction.  Essentially, if you compare the revenue generated by full-time professionals involved in a real estate transaction, the revenue earned by agents participating in the real estate industry is not out of line.

  • · Real estate attorneys.  In real estate situations, attorneys usually charge a set fee for handling everything involved in the transaction.  The fee varies, but generally runs in this area between $500 and $2,000.  How much work is involved? It depends. It could be just a few hours for a simple deal to prepare a contract, review title, and set up and conduct a closing.  But let’s say that an attorney charges $1,000 for a closing and spends five hours on the transaction (an hour on the contract, an hour on negotiation, three hours on the closing).  That’s $200 per hour of work.

  • · Engineering Inspection. Companies that do physical inspections of homes generally get paid about $400-$500 for a service that takes two or three hours, including the physical inspection itself and the report that gets completed.

  • · Lenders. Regardless of whether you use a mortgage broker or a banker, you generally pay about 1.5% to 3% of the mortgage amount for the bank’s services (and of course, for the bank’s money).  The amount of time the lender’s employees have to spend on the file varies widely, but at minimum it takes 20-30 hours to properly process a loan, including consultation, documentation generation and review, underwriting, and clearance.

Although comparisons are difficult if we don’t actually know what the particular charge is or how much time it takes, we can make some assumptions that will help us.  An attorney who does mostly real estate transactions will generally close about 200 transactions a year, and could do quite a few more (or less in a difficult market).  That sounds like a lot, but it means about four closings a week, which is not a ridiculous schedule for a real estate attorney.  An engineer probably does about 300 or 400 inspections a year. And a really good individual mortgage loan originator might close 50-75 loans in year (most close a lot less, that would be a pretty good year for most).

So how does that work out:

  • · An attorney charging, say, $750 for a closing and doing 200 closings a year would generate $150,000 in closing revenue in a year.
  • · An engineer charging $450 for an inspection and doing 250 inspections in a year would generate $112,500 in revenue per year.
  • · A mortgage originator making 1.5% on an average loan of $300,000, and 75 loans for the year would generate $225,000 in revenue per year.

Let me again stipulate that I don’t have a problem with any of that.  Attorneys, engineers, and mortgage professionals provide a great service to clients, and they deserve to get paid.  Indeed, I think that attorneys, for example, are underpaid for the work they often have to do on a real estate closing.

But I also think it’s instructive to compare the revenue generated by the participants in that industry compared to real estate agents.  So let’s compare the revenue generation at the current compensation models.

What do agents get paid?  Really good real estate agent will close about 12 transaction sides a year.  Some agents close a lot more, most close significantly less. Indeed, the average agent in the local MLS participated in about 3.5 sales last year (but that includes a lot of non-full time agents).  As a comparison point, I can tell you that most real estate systems have award programs that start to kick in when an agent closes about 7 or 8 transactions. So 12 transactions is a very good year for a real estate agent, akin to a full-time real estate attorney, experienced engineer, or good loan officer.

So what is that agent making?  Well, if the agent closes 12 transaction sides in a year, with an average sales price of, say, $300,000, and an average commission side of (for example) 3%, that agent would generate revenue of $108,000.  (Note that this revenue gets split between the agent and the broker, much like the revenue earned by a mortgage broker.)

So if we compare what a good real estate agent generates for yearly revenue against an attorney, engineer, or mortgage originator, it doesn’t seem out of line.  Note that we’re just talking revenue, without considering expenses or anything like that.  We’re just comparing the revenue streams generated by the various industries involved in a real estate transaction.  And if you look at it that way, even a 6% commission does not seem out of line with the compensation structures set up for attorneys, inspection engineers, or mortgage professionals, particularly when you consider that the commission is again only collected on a successful transaction.

3.  It takes a lot of work to sell a home.

People who complain about broker’s fees often underestimate the work that goes into selling a home. They take a superficial view that all they have to do is put up a sign, write up an ad for the paper, and handle the transaction yourself.

I’ve already articulated the various services that both a listing agent and a buyer agent provide for the commission paid by a seller. I think that most sellers appreciate the time and energy those services require, which is why most sellers hire a broker.  But if you are considering selling your home without a broker, I can just itemize some of the things that you need to do on your own:

  • · You need to properly price your home. Properly pricing a home requires access not just to properties that are on the market – in fact, pricing your home to the unsold properties on the market is a good way to ensure that your house joins them.  What you need is access to what has actually SOLD on the market, which is not as easy to find.  You also need to know how to read the market.  You could, of course, ask agents to come in and help you, but it requires a certain intestinal fortitude to bring in agents to help you price your home with the intent of using their advice and then selling on your own.

  • · You need to be able to watch the market. Even if you get an agent’s unpaid advice on the initial price of your home, you have to be able to watch the market so you can adjust your price. Again, this requires you to have access to information on homes that have sold, which is not easy to access.

  • · You need to do the fundamental marketing: sign, pictures, descriptions. Assuming you’re going to get your home online, either on your own website or through some FSBO-oriented website, you’ll have to take your own pictures and write descriptions.  That’s not impossible, and some agents do a relatively poor job of it, but really good agents get that way because they know how to write engaging descriptions and take evocative pictures.  Also, if you’re going to put up a sign, put some money into it and get it done professionally. Nothing looks worse than getting one of those hardware store “for sale” signs and stapling it to a stick in your hard.  That’s not going to impress a buyer with the care and dedication with which you’ve maintained your home.

  • · You need to market your home online. When you list with most brokers, you’ll not only be on their website, but all cooperating broker websites, major real estate websites like, Trulia, Zillow, and others, and also media sites like,, and recordonline. Not all brokers are on all the sites like we are, but most brokers provide some online marketing. You can get access to some of those sites as a FSBO, and there are dedicated FSBO sites, but it takes some work and money to upload everything.  But if you’re going to sell your home, you need to be online.

  • · You need to be able to negotiate your own deal. Most people think they are good negotiators, and a lot of them are. Maybe you’ve done negotiating as part of your own job, so you’re confident that you can negotiate a good deal.  That’s very possible, although don’t discount the difficulty of negotiating directly with a counterparty, rather than through an intermediary. It’s sometimes tough to negotiate something on your own without having someone to act as a buffer, if only because having someone negotiate for you can remove some of the “personal” aspects of the transaction.  It’s also tough, by the way, to get good feedback from buyers directly, who might be uncomfortable talking directly to you the way they would to an agent.

  • · You need to have some free time available. Selling a home requires a lot of availability for showings and open houses.  Realize that an open house generally requires four hours of time, and you might need to do multiple open houses.  That kills a bunch of Sundays.  And you need to be available to show the home, something that brokers do for you either personally or with a lockbox that makes the home available to other brokers. In a market like this, the home needs to be available to show as much as possible.

All that said, it is indeed possible to replicate the work that a good listing agent does on your own.  It takes a bit of research, a little money, and quite a bit of time, but it’s possible.


Even if you have the time, energy, and money to do all the listing work yourself, though, you still are going to have some challenges in selling your home on your own.  Remember that even doing all these things yourself, and doing them well, you’re only replacing the services of a listing agent.  You’re not doing anything that replaces the work of the buyer agent.

Which brings us to the fundamental problem sellers have if they try to sell on their own, above and beyond the work that they have to do if they are acting as their own listing agent — the size and nature of the buyer market that you reach.  Here are the problems:

1.  You’ve got a much smaller buyer base.

If you list with an MLS broker, you get access to all the buyer agents in your market, and all the buyers they represent. If you’re not listed, those brokers might not know you’re even on the market, and the buyers working with them won’t be aware that your home is for sale.

The problem is basic economics.  If you want to sell your home for the highest price possible, you need the biggest buyer market possible.  That means making your home available to every potential buyer in the marketplace.  But you don’t get that if you sell on your own.  You’re limiting yourself just to the group of buyers who are looking for homes on their own, which is a very small group. You don’t incentivize buyer agents and all the buyers they represent, you don’t reach buyers unless they’re looking specifically for FSBOs, and you thereby don’t reach the largest number of brokers possible.

2.  You’ve got a skewed buyer base

Not only is your buyer base smaller, but it skews to precisely the kind of buyers you don’t want.  Most legitimate buyers are working with agents.  Why wouldn’t they, when buyer agents will do all the work for them and get paid by the seller?  The buyers who are not working with agents are doing so for a reason – they’re bargain hunters looking for a deal, and they believe that if they find a FSBO they can save money.

How?  Because they know you’re not paying a commission, so you’ll take less.  Indeed, the buyer will use your FSBO status in negotiation: “well, you’re listed for $400,000, but if you had a broker you’d only net $374,000 after a broker’s fee, so I’ll offer you $350,000.” Show me a buyer who is trolling the classified ads or the FSBO sites for homes, and I’ll show you someone who is looking to get a house on the cheap.  Think of it this way: you’re working without a broker to save money, but so is he!  You think that you’re saving on the commission, except the buyer is going to try to save that money, too, by taking it out of the purchase price.

All that said, you don’t have to accept any offer you don’t want, so you don’t have to let the buyer use your FSBO status against you. But the bottom line is that if you sell your home yourself, you’re attracting the wrong kind of buyers: bargain-hunting buyers who are willing, like you, to do the work themselves to save some money.

3.  Even if you are willing to pay buyer agents to enlarge your buyer base, you cut into your commission savings.

Some sellers who are going FSBO recognize that they still need the services of buyer agents, so they either indicate their willingness to compensate buyer agents or find a low-cost entry into MLS.  Those are viable options, but in both cases it does require giving up some of the savings you were trying to make on the commission, and still doesn’t create quite the same market as listing the property with a broker.

Some FSBO sellers advertise they’ll pay a fee to a buyer agent if the agent finds them a buyer.  That’s fine if that buyer agent finds out your home is for sale, becomes aware of your offer, is willing to work for that fee, has the perfect buyer for your home, and is willing to do the extra work required when a seller doesn’t have an agent (more difficulty setting up showings, handling all transactional details alone).  But you’re not really generating a market for your home, since you’re not attracting the attention of the full buyer brokerage community.  And remember that you’ve now cut your savings quite a bit: you’re only now saving the, say, 3% that the listing agent was going to charge you, since you’re paying the buyer agent (and a fee to the service getting you on MLS).  Maybe you’re still saving money, but not as much, and you’re spending quite a bit of time to do all the listing agent work.

Alternatively, some people selling their own home list their home with an MLS through a discount broker that does not provide seller service but can get you on MLS.  In those cases, at least you do have access to buyer agents, and if you are listed with MLS your home will be available to the brokerage community on some online sites.  But now you’re again cutting your savings, since you’re now paying a fee to the buyer agent, a fee to the discount service, and you’re still doing all the work of the listing agent. And although you will be in MLS, you don’t necessarily get all the internet distribution that most brokers provide.


This post obviously grew to be a lot longer than a simple response to yet another Times article about the coming demise of the real estate brokerage industry and its compensation model.  My point was to try to explain how the industry works, and in particular how the smooth functioning of the industry and the housing market depends on the compensation model inherent in the industry.

I realize that no one likes to pay fees, and that the brokers and agents in the industry don’t always provide the quality of service that justifies those fees.  The quality of the services brokers and agents provide their clients is something that I’ve written, talked, and worked on a great deal in the last few years, and we’re constantly trying to improve it for the agents in our company.

If you’re currently working with someone at Better Homes and Gardens Rand Realty, and you’re not happy with the level of service you’re receiving, just email me and let me know and I’ll look into what we can do for you.  And if you’re not working with a Rand agent, and would like help in finding someone who does justify that fee, just email me and I’ll set you up with someone who will earn any money he or she is paid.