Introduction
Buying, leasing, or selling a house is one of the biggest decisions a person can make in their life. A large number of homeowners have this belief that they can lease or sell their assets without the help of a real estate agent. This is because they believe that they may lose money when they hire a realtor because of shooting house or land prices after that. On the contrary, this is not always true. It is just the because of the negative attitudes some homeowners have on the real estate agents that make them feel like they cannot use the services. This research is aimed at looking at the benefits of hiring a realtor as compared to selling the property unassisted. It also looks at the value that the agents bring to the real estate industry.
This study will look at the several factors that characterize a successful transaction of property specifically time in the market and price negotiations. Since this decision is one of the biggest in one’s life, and since few individuals go through the procedure more than once, it is imperative to look at how assistance will have an impact on this almost-one-time process. Realtors act as middlemen who employ their experience in marketing, industry know-how, and negotiation skills and expertise to make the sale ( Waller & Jubran, 2012 ). They match potential buyers to sellers while assisting with many other aspects in the real estate industry.
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Methodology
This essay took the form of a literature review. The method employed involved online search for the peer-reviewed articles on real estate. This search was done in various databases such as Google Scholar and the EBSCOhost library for purely peer-reviewed articles and journals. The search involved the use of keywords such as “realtors”, “real estate agents,” “FSBO,” “real estate transactions,” “intermediaries,” and “real estate brokers.” Most of these terms are just referring to the same thing that is the real estate agent. The keywords were such to ensure a wider scope of coverage by the search. The results were filtered to obtain 10 articles that were up-to-date. These works were also filtered to obtain four documents that were relevant to the study. These final four would later be used as the main articles while the other six would be used as supporting documents. The study was based on the review of the literature and summarizing the findings to fit the questions of the research.
Literature Review
The mindset of many homeowners is that the selling of property can be done singly by them and that they do not need the services of a realtor. Several studies have been conducted on the kind of value that real estate agents bring to the industry and how this translates to an advantage and to a successful transaction.
The first article is a study by Arndt et al. (2013) on the impact of the experience of an agent to real estate transaction. A homeowner who has decided to sell his or her house can either opt to use the services of a real estate agent, or they can attempt to sell the property themselves. One of the disadvantages that the property owners say is that the intermediaries charge a higher amount of commission, which at times goes up to ten percent of the sale price. The landlords say that this puts their lands in a tough place because they have to adjust the prices to fit the requirements, which makes many potential buyers fret. However, there are offsetting benefits of hiring a real estate agent that the owners do not think about. For instance, if the owner has shifted to another location that is far from the place where the property is located, the costs they can incur when holding open-house and showing the property to the potential buyers may be too high. This may, therefore, prohibit them from looking forward to the sale of the house.
Apart from the cost inconvenience for the owner to show the house himself, there is still the hurdle of calling the availability of the property to the courtesy of the prospective buyers. Without an agent, the sellers cannot get access to the resources they need to put their property across. One of this is the multiple-listing service. What is left for them to rely on is the post signs with the labels “for sale” on them, the neighbor word-of-mouth strategy, and classified ads in the local dailies. Intermediaries can access the computerized listings and have a channel of communication that may make them better positioned to make their property known.
By utilizing this, they also are better positioned to call the prospective buyers. Homeowners who take it upon themselves to make the sale alone, what is known as “for sale by owner (FSBO),” experience the bombardment of visits, phone calls, and fliers which can make them feel tired of selling the house because not every person who calls will buy. On the other side also, the real estate agents will make them sample the prospective buyers without the hassle and pressure that comes with it. It has been found that after real estate agents have called the owner should they change their minds, they will most likely retain them. This is because after numerous unsuccessful attempts to sell their own property.
There are studies that compare the outcomes of sales for the property listed by a broker and those sold by the homeowners on their own. Beck (2009) conducted research to find out the benefits of selling a property using the agent and using an FSBO. In general, it is expected that the broker should have a positive effect on the price and time on the market. However, few studies have also attempted to contradict this intuitive proposition. It is fair to say that the literature does not have a consensus on the benefits of agents on the prices of estates. Data from well-known FSBO website (FSBOMadison.com) can be used to compare the transactions between the FSBO and those made by the realtors through the multiple-listing services.
The results show that the homes that are listed by the brokers are not associated with higher prices absolutely. However, what the literature converges with is the fact that the time on the market is always shortened. Even though there is no direct linkage between listing the property using an agent and the seller selling it alone, there are several benefits that the brokers bring to the industry and to the seller. This is in the form of assistance through the process, which has its own value. With that in mind, it is untrue to say that the agents have no value to the real estate profession and that they are not worth the commissions they charge.
The study by Larceneux et al. (2017) that the brokers have several benefits to the sellers and buyers alike throughout the transaction process. These individuals utilize their knowledge and expertise to make justifications of the fees they charge. The agent provides the buyer with the information that is needed for the proper valuation of the property and which affects the price. The precise information is a function of the expertise and experience of the realtor in the valuation process. The realtor organizes the transaction on behalf of the clients, who are the sellers or homeowners. This study also considers the fact that some studies go ahead to refute the addition that the agents have in the cost of the property.
The authors cite several studies that suggest that the realtors do not have intrinsic value based on the context of the total accessibility of information. They only produce artificial sales. The same research asserts that many other studies that realtors have no single effect on the housing prices nor is there an average time that houses spend on the market until they are sold. However, the research points out that there are several factors that would make a client select one agent over the other. These characteristics include the capacity of the realtor to be at the same level as the seller in terms of the price, the reputation of the agency, and the skills and knowledge of the realtor.
Larceneux et al. (2017) also assert that regardless of this contradictory research literature, no study has been done to find out why an individual still pays for the services of the agent rather than carrying out the transactions themselves. The authors tend to explain this by describing the real estate industry as an idiosyncratic and non-standardized existence. In other words, each transaction appears to be specific with different characteristics from one another. Thus, it involves a lot of uncertainties to the individuals who may wish to withhold information for their own profit. The other reason why the agents are needed is that of the cost of associated work that the seller cannot see. There are strict legislation and many stakeholders in the property market and thus making agents have structured businesses that are in terms of a network of agencies which manage contacts between buyers and sellers.
Another study by Crowston and Sawyer (2015) looked at how real estate agents can help the sellers and buyers access the social networks of other professionals. The research shows how the realtors help in connecting the sellers and the buyers together during the transaction process. They advise the process but do not take an active part in it. The seller’s agent also referred to as the listing agent, help the homeowners in marketing their property. He does this through setting up the asking price, advice the seller on how to make the property attractive to the potential buyers, advertising the asset, and contacting potential buyers.
After the buyer surfaces and offers to purchase the property, the agent advises the owner on how to negotiate by providing details of the transaction (Crowson & Sawyer, 2015). The authors suggest real estate transactions have a high level of uncertainty for both sellers and buyers in terms of demand for and quality of products. Real estate market is characterized by an imperfection due to the lack of complete information on the property. The reason behind this uncertainty is due to the fact that there is a high variability among the assets. Each one is unique in one way or many others as well. Listing alone cannot offer the vast information needed to make a purchase decision. This makes the services of agents needed to provide the information particularly for buyers who are not familiar with areas that the property is located. The data include neighborhood characteristics or the availability of social amenities. As many people view the purchase or sale of a house as an emotional ordeal, there arises complication on the assessment of value. Thus, there is a need for assistance from an intermediary.
The research also acknowledges the risk associated with the real estate transactions. Some people take years to plan how to own a house one day. After purchase, the individual will have to live with the decision they made for the rest of their lives. This makes the purchase of a house the most expensive transaction most individuals make in their lifetime. In addition, there are slim chances that the transaction between the buyer and seller will ever repeat and thus no need to create a good reputation. The complexity of the real estate transactions requires a high level of specific information and the authors assert that it is necessary for assistance in that effect. The specific information about the particulars of the market like listing, purchase, and closing processes can only be obtained from an experienced realtor. As the frequency of transactions in this sector is low for most individuals, most do not get concerned about the level and specificity of the information. This makes the role of brokers become inevitable.
Discussions
All these resources converge on some issues. First, the real estate industry is one that is so complex and requires specific information and data. While many homeowners would wish to sell the property on their own, they are bombarded by a market that is complicated and is structured in such a way that the use of an agent is inevitable. These articles also acknowledge the fact that there is a discontinuity in terms of what the other studies have on the benefits of the agents to the pricing of the property. However, this is so because they focus on the market influence of the brokers rather than the value they bring to the transaction process.
The reason why most homeowners try to sell their houses on their own is that of the misinformation they get about the realtors and their roles. Most of the time, when one seller has had a bad experience with the agent, the whole brokerage industry comes under fire for that one instance. The mistake of one person is often rubbed to the entire profession in a negative way. The other reason why the homeowners do not tend to hire a realtor is the trust factor. Most do not believe another individual can help in putting their property to the market without shoddy deals.
Sometimes, they often feel that the agent will use other means to hike the price of the property after the owner has listed the property for sale. What seller do not understand, and this comes under the first point in this section, is that the agent will only look for a potential buyer and match them with the owner. The seller will do the negotiation with the help of the realtor. This lack of information is what makes the property owner lack trust in the agent. Most believe that the person would list the house, get a buyer, and sell it then transfer the money to the proprietor, which is wrong.
There is always a belief that the seller can save money by not engaging an agent and selling it on their own. This is because the realtor would charge a commission for the sale of the property after closing the sale. While this can be true, there are underlining difficulties in the FSBO method. As found from the articles, the homeowner will take longer to take the property to the market. In some instances, they will not reach the potential buyers because they do not have access to the multiple-listing services. This will end up wasting their time. It cannot go without mentioning that the complexity of the real estate and uniqueness of every transaction brings with it marginal expenses that the owner may not fathom. The sale of property requires specific information and the owner will need to invest in this. The expense in investing in information for a one-time transaction can be avoided when a seller hires a realtor. The homeowners do not always have the expertise that is required to put the property up for sale. The real estate agent can, therefore, mediate between the buyer and the seller by providing volumes of information so the seller can understand the true financial value for the practice.
The multiple-listing service, whose access is exclusive to the agents, can also include other qualitative description of the house being sold apart from the known factual characteristics. This information includes the property having been recently painted, have a location on a hill, and having a new roof. The agent can also include the use of pathos as a strategy to attract more potential buyers to the listing. The pathos includes things like good but, well-maintained, and good location. This information influences the perception of the prospective buyers to the property. Such positive opinions can increase the selling price of a home.
As the profession of the real estate agency is vast, several people feel like the agents get paid for doing nothing serious. With the advent of technology, a section of critics feels like a buyer can simply go to the internet, find a third-party website where there are property listings, and purchase a house from there without needing the services of a realtor. Part of this is due to the problematic realtors who charge a higher commission and get the house selling for a price lower than the listing price. This is not to say that there are no bad factions out there. Some realtors think of brokerage as a get-rich-quick scheme instead of a profession that someone needs to be dedicated to for the rest of his or her life.
However, the critics do not realize that there are clients who are too busy to even do the search for a house themselves. It is the job of the realtor to educate the seller first and foremost. This information is helpful in striking a trust between the agent and the client. Selling a house needs more than just taking pictures and posting online waiting for a buyer. The same is the case of buyers as it is not simply a matter of checking online for posts and clicking the “buy” button. Both instances require countless efforts and time. Clients need to first know what they are getting themselves into before purchasing or selling a property.
In conclusion, there is ample research out there supporting the work of realtors to the value of the transaction in real estate. Buying, leasing, or selling a house is one of the biggest decisions a person can make in their life and thus needs special attention. One of the disadvantages that the property owners state is that the intermediaries charge a higher amount of commission, which at times goes up to ten percent of the sale price. But the discussion above suggests that the advantages outweigh the drawbacks. Real estate agents save time and cost of making a property access the market. They match the potential buyers, list the product on the MLS and teach the clients on the negotiation process. Each transaction appears to be specific with different characteristics from one another thus experts are required.
References
Arndt, A., Harrison, D. M., Lane, M. A., Seiler, M. J., & Seiler, V. L. (2013). Can agents influence property perceptions through their appearance and use of pathos?. Housing Studies , 28 (8), 1105-1116.
Beck, J. S. (2009). Three Essays on Residential Real Estate Brokerage.
Crowston, K., Sawyer, S., & Wigand, R. (2015). Social Networks and the Success of Market Intermediaries: Evidence From the US Residential Real Estate Industry. The Information Society , 31 (5), 361-378.
Larceneux, F., Lefebvre, T., & Simon, A. (2015). What added value do estate agents offer compared to FSBO transactions? Explanation from a perceived advantages model. Journal of Housing Economics , 29 , 72-82.
Waller, B., & Jubran, A. (2012). The impact of agent experience on the real estate transaction. Journal of Housing Research , 21 (1), 67-82.
