Real Estate Agents: how they work

The process of purchasing property in the United States is really quite straightforward, although one might not appreciate that while immersed in the game.

Real estate may be purchased directly from the owner or, if it is listed with an estate agent [“real estate agent”], he will necessarily act as a middleman, handling all discussions and negotiations with the seller. The reason for this is that the real estate agent in the States is acting FOR the seller, as their agent, not as yours. This is how they earn their commissions, a percentage of the purchase price which come directly out of the proceeds of the sale. While this obviously gives them a financial incentive for obtaining the highest possible sale price, their motivation to actually close the sale can be even more paramount.

The “listing agent” may not be the person who is actually showing property to you, however, since, if the property is “multi-listed” [that is, not an “exclusive” for the listing agent], then any other agent can advertise, show and “sell” the property. In this case the agent with whom you are working will negotiate with the listing agent who will, in turn, negotiate with the seller. If a sale is made, the two agents will then split the commission.

Yes, double the incentive to keep the sales price high.

Is there any way to avoid this ménage à troi?

Yes, if the property is for sale by owner [meaning not listed with, and thus under contractual obligation to, an agent], by dealing directly with the listing agent [who might be more amenable to a lower sales price, since her commission will obviously be higher than if you were dealing with another agent] or by using a “buyer’s agent.”

Buyers agents are just appearing in Ireland, but they have been around for quite some time in the States. The idea is that they, unlike the real estate agents, are working for you, the buyer, acting in your interest, negotiating for more favourable terms and so forth. They do not work for free, of course, charging the buyer flat fees and/or a percentage of, yes, the purchase price on the property. This can create a fairly convoluted dynamic, raising questions as to possible collusion between the buyer’s and seller’s agents [again given the incentive to maintain an elevated sales price], whether or not the buyer’s fee can be financed and various other issues.

I have never used a buyer’s agent myself, and most of my experience with real estate agents has been fairly benign. Given the nature and complexity of the industry, I have found that, despite all the obvious caveats, successful agents tend to be remarkably knowledgeable, smart and flexible.

My best advice would include:

Research the local market as much as you can. This includes reviewing the “comps” [details of completed transactions of similar properties in the area] yourself, rather than having them cherry picked by an agent or seller.

Carefully evaluate any potential agents, preferably before they show you a property [since once an agent has shown you a particular property, you will be stuck with her if you do decide to purchase it]. Ask to see her sales records and references, investigate the agency with which she’s associated and make sure she’s fully conversant with any and all regulations concerning foreign nationals.

If you do decide to use a buyer’s agent, do all the above and then some.