I was out with a group of friends and some of them had been considering buying their first home. I recommended the use of real estate agents for their purchase since the vendor will typically pay all of the commissions to their agent, so there isn't a direct cost. They made an interesting point by suggesting that there may be collusion between the agents to keep the price high so that they can collect higher commissions.

I've written before about how many parties involved in a real estate transaction may not be looking out for your interests and are driven by other motivations, usually in collecting commissions. Why is it that lawyers are required to avoid having a financial interest in transactions (i.e. commissions), but agents are not? Can they really be looking out for you if they are paid this way?

An interesting point was made that vendors are also affected by this alleged "collusion". If an agent sells for $10,000 less than market value, it only results in around $500 of lowered commission for them. A small sum considering the thousands of dollars they'll be collecting from commission, but quite a large sum the vendor is out.

This isn't to say that real estate agents are greedy or evil, but simply that there is something inherently wrong with the system. Real estate agents need to be renumberated by other means, rather than the actual selling price. Whether this is done through an hourly pay scale or a flat agreed upon amount in advance (e.g. 5% of the listing price) is something for discussion another day.

In the end, I'd still recommend using an agent, but always be cautious of who you choose. It's like interviewing someone for a job.

On a side note, I've recently heard ads on the radio about how using an agent will prevent purchasers from being left with "only a lightbulb", so it would appear that real estate agents are now taking responsibility for the condition of the property after closing. So if something is missing from your home purchase, ask the agent to fix it.
Sent from my BlackBerry device on the Rogers Wireless Network

        

 

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