Consumer traps in the real estate industry

Six consumer traps in real estate that you need to avoid

Six consumer traps in real estate that you need to avoid

If you are getting ready to buy or sell, there are a few things that you need to be aware of that can potential cost you time, money, and stress.   Below are six of the most common traps in real estate that you need to know about before you decide to take the plunge into real estate.  

1. The “Contact Agent” button

You will find this button next to a home listing on almost all websites that circulate MLS information. While this button says “contact agent,” it typically does not direct you to the listing agent of the home you are viewing. The actual listing agent’s info is usually found further down on the page, which means you have to scroll and search for it. When you click on this button and submit your information, it will most likely take you to one of three avenues:
  • A separate company that does not sell homes, but is paid to “feel you out.” They will ask you questions to see if you are serious about buying or selling. If you seem like a good lead, they will then sell your information to an agent that paid a lot of money for it.
  • Your information will be sent directly to a different agent that paid $x for your information in hopes of converting you to a client
  • Your information will be sent to an agent that agrees to give %10-%30 percentage of their commission when you decide to buy or sell.

2.  Websites that promise to find you “The Best Agent/Selling Service For Free”

Similar to the “contact agent” button, platforms offering to find you the best agent for free are just another way for companies to partake in the billion-dollar referral business. These platforms only refer you to agents that are willing to pay a lot of money for your information, or agents that are willing to give up to 30% of their commission earned when you buy or sell to the referral company. You are not referred to the best agents.   Instead, you are referred to agents willing to pay.   

Are these platforms really “free” if the payment is coming out of the commission you pay when selling your home? How can you negotiate a lower listing commission if your listing agent is already giving away 30% of what they earn when you sell? Are you going to be able to negotiate a buyer’s rebate if your agent is already giving away 30% of what they earn when you buy?

If you want to find a good agent, ask you friends and family for referrals, or take a quick search on social media by searching "(your city) real estate agent."   Learn more about finding a good agent here.

3.  The “administrative fee” charged by the brokerage

Lately, we have seen comments from buyers asking why they have to pay an “administrative fee” to their agent. This fee can range between $150 - $600. Every time we talk with an agent, we ask them about this “fee.”  Some dance around the issue, some claim it is to cover the office’s time to put the deals together, but a few honest ones said it’s really just a money grab for the brokerage. You should most certainly negotiate to not pay this fee.  


4.  Anyone telling you that commissions are non-negotiable

We recently saw an article for an agent publication that said “Protect your commission! Here’s how to defend every well-deserved penny!”  
The funny thing is that the article never mentions the real reasons why agents have a hard time lowering commissions.  

It doesn’t mention the issue of referral companies eating away at agent’s commission or the fact the brokerages recruit like crazy. Recruitment is profitable for a brokerage, but harder for agents as it is one more person to compete with for your business.

What you need to understand is that consumers had no part in creating the issues above. These issues were created by an industry that is no longer putting the consumer first. 
As a seller or buyer, you have every right to negotiate a lower commission because commissions are always negotiable. Some agents might not want to negotiate, but because of massive brokerage recruitment, there are now 2,000,000 agents in the US. If you speak with one that does not negotiate, you can quickly find another agent that will.    Don't believe us?  Go to HomeOpenly and search by your zip code.  It will show you a list of agents that are willing to lower their commission in your area.


5.  Open Houses

While this one might not be applicable during COVID-19, it is something to be aware of once things get back to normal. In a seller's market, hosting an open house is more for the benefit of agents to meet and secure buyer clients than it is for finding a buyer for the home. Some established agents will let newer agents cover an open house for the main purpose of the chance to gain new clients.


6.  “I know someone that can help you with that!”

This one isn’t always a trap, but it is something that you need to be cautious of, as not everyone is looking out for your best interest. Some agents refer to other people within the housing industry because they are great at what they do. However, some agents refer you to people based on other incentives and obligations.

A great example would be when we were contacted by a major home warranty company. They offered to pay us $40 for every home warranty our members purchased. We immediately declined, but it got us thinking. If they are willing to offer us $40, what do you think they give to agents or brokerages when they refer clients? While a home warranty might be helpful for some, do your research to understand what it covers, shop around, and even ask your agent if they are being compensated by selling you the warranty.  

In addition to warranty companies, kickbacks can be found in relationships between title companies, escrow companies, and even termite companies. While not all agents participate in kickbacks, you have every right to ask your agent if they, or their brokerage, are receiving a kickback for referring a specific business to you.

While kickbacks between mortgage lenders and agents are forbidden, we have uncovered different tactics such as mortgage lenders renting out office space within a brokerages office. Recently, we had a lender tell us about a broker that sits on the board of a big bank. Can you guess which bank their agents refer their clients to for lending?

Again, not all agents are referring companies based on kickbacks. The really great agents do what is best for their client. But, not all agents are equal, and as we have learned, not all agents look out for their client's best interest. If you are referred to a company by your agent, do your research and read reviews before signing anything. This is especially important when it comes to lenders and home inspectors.