Over the past decade there has been an increase in the number of people who sell their own home privately without the use of a realtor. Some people enjoy the process of selling a home and enjoy meeting prospective buyers but most people are motivated by cost.
The average real estate commission paid by a seller on a $400,000 home is nearly $24,000. While some insist on using a realtor, there are a few things they likely don’t mention that could influence the decision on whether to use one or not.
Agent Expenses are Tax-Deductible
Virtually all real estate agents incur personal expenses in the process of buying/selling homes. Examples could be general admin costs, the salary of a personal assistant, coffees and dinners for prospective clients, advertising and marketing fees and the personal use of a vehicle.
All of these items can add up as the agent works with multiple clients at once. While there are special rules regarding the use of a personal vehicle and home office expenses, the realtor can deduct these expenses on their tax return (assuming they were incurred in the process of earning business income).
So when your realtor takes you out for dinner, buys you coffee or drives you around town to see homes, they do incur personal costs but they aren’t as high as you’d think because they are tax-deductible.
Open Houses Benefit the Agent
Open houses are a good way to get some foot traffic into a home and show people what the home has to offer. They are an even better way for the agent to market themselves and their services.
During an open house agents meet potential buyers, so it makes sense that an agent would promote their services when meeting visitors and view them as potential clients.
The issue with some agents is that they could possibly spend more time marketing themselves and their services than marketing the home that they are currently trying to sell.
Some Agents Provide Biased Referrals
Along with agents, the real estate business has several other key groups – home inspectors, lenders, lawyers, mortgage brokers, contractors and builders.
Since agents are constantly on the go and work together with these groups to provide services to buyers/sellers, it is only natural that they have connections with many of them. Some buyers/sellers rely on their agent to provide solid recommendations when choosing a lawyer, home inspector, mortgage broker, etc.
But many (especially first time buyers) don’t realize that the agent may have a financial incentive to provide recommendations to a certain individual.
When we bought our first home, we asked our realtor about choosing a lawyer and mortgage broker. We were relatively new to town and didn’t know anyone who could help us out. He gladly provided us with the name of a lawyer and mortgage broker.
What we didn’t realize (until several months after) was that both paid referral fees for business brought to them by others in the industry.
It would be almost impossible to tell if our realtor had received a referral fee for the recommendations he gave, but most realize it would be hard to give unbiased recommendations when there is money at stake.
Conclusion: Many realtors work very hard to provide good service to their clients, and constantly follow leads that are dead ends.
Some realtors may face a conflict of interest when providing referrals to lawyers, home inspectors, mortgage brokers, etc because they may be paid referral fees. Open houses sometimes benefit the agent more than the seller and while realtors do incur personal costs when earning commissions, many of their expenses are not as high as they seem because they are tax deductible. For these reasons (along with purely financial reasons) some people sell their homes privately.