I'm a software engineer, and I started my career at a well known mortgage company in Detroit. Views are my own, BTW.
I bought a house a couple years after I started working there, and I wanted the full home-purchaser experience. I used my company's services for everything, and as an employee they hooked me up with a real estate agent (among other things).
I was honestly appalled at what little my real estate agent did for me through the whole process. I had what seemed like simple requirements: I wanted to live west of the city, I wanted at least 1 acre, and an outbuilding. The outbuilding is what threw off the search tool the agent was using to find houses for me; he rarely found good ones in my price range that had outbuildings.
I ended up finding the house I purchased. I'm honestly not sure what he did at all.
When it came time to sell my house, I did it by owner. It was super easy to do everything, including getting my home on the MLS with a service called Reozom, for a couple hundred bucks. I used several sources to come up with comps for pricing.
However, the purchasing agent who represented the buyers of my home was an absolute MONSTER to me; extremely rude in nearly every email or phone call. I think she was so horrible because I was proving how absolutely unnecessary she was in the whole process. I sold the house for a little under asking price, plus I paid her a 2% commission instead of 3%, and of course not 6% as if she represented me as well. The funny thing- she didn't notice the 2% in the purchasing contract until after it was already signed.
What I've anecdotally learned is this: real estate agents don't provide enough useful benefit for me to use them, and can be hostile as their industry is increasingly proven to be built on little or nothing.
She was hostile because a real estate agent's approach is to black ball any for sale by owner listing, or any for sale by Redfin / Zillow, etc. Agents around my area always blackball these listings and will NOT tell buyers about these listings unless buyers specifically ask. This is nonsense and not in favor of buyers and is an attempt to bring failure to reform. Fortunately, more and more buyers are realizing they can do the research themselves online.
Realtors have a fiduciary responsibility to act in the interest of their principal, even when it is against the interest of the agent.
"This duty obligates a real estate broker to act at all times solely in the best interests of his principal to the exclusion of
all other interests, including the broker’s own self-interest." https://www.nar.realtor/sites/default/files/handouts-and-bro...
Please note: That is for a "real estate broker". Most buyers and sellers are dealing with a "real estate agent". Agent is a lower level license, for which that duty does not apply.
In practice, no. The broker != agent distinction is key here. And the insulation between actuons of the agent and responsibility of the broker. Additionally the standard paperwork (AFAICT) routinely has the principal waive the brokers duty of representation as well.
At least from the perspective of the legal profession, the scope of "fiduciary duties" of realtors seems relatively constrained. Buyer's and their agent's interests appear to be misaligned. I can't think of other examples of fiduciaries where, the more the principle pays, the more the agent is compensated, like on the buy side of a standard realtor agreement. Fixed fee or hourly comp. would eliminate the misalignment, but my sense is it's disfavored in the industry.
You've corrected the buyer vs. seller agent thing, but I still can't make sense of this. The seller was always going to pay the buying agents commission (they hoped to negotiate a lower rate) - so why is that agent hostile to the sale and/or blackballing the listing? The only reason seems to be to protect the system they benefit from, at the expense of the buyers and sellers.
In such a situation the embedded interests (agents) may well be antagonistic to change, but it doesn't mean that change isn't globally a good idea....
I had a situation like that come up a few years ago, and it shocked me. I live in a condo building, I was looking to add a bedroom or two. The wife and I know what we want, and we came quite prepared with a list of units we wanted to see. One in particular, I thought would be very fitting. The agents kind of steered us away from it and showed us a few other units. None of those were quite the right fit, so I pushed the issue, and I was very direct and asked about the other. They both looked at each other and said "oh no, you won't like that one." I kind of tilted my head, but said alright fine and we went on our way- one of the agents was actually a neighbor in my building, so I didn't make an issue of it.
Something about the whole thing bothered me though, and a few months later, after a lack of success finding a new home, I went back and took a look at the listing. I found it, and noticed that I had found it through a zillow link. The lightbulb went off in my head- they didn't want to show it to me.
One thing to keep in mind in real estate transactions though- is that AGENTS REPRESENT THE SELLER. They do NOT have your interests in mind. The seller pays them, and at the end of the day their only motivation is to close the deal. Within limits established by law and regulations, they don't have to mention anything they know that may not help close the deal. Did this place get flooded by the last big storm? Do they happen to know that the plumbing isn't built right and you are going to have constant maintenance problems, or there is a mold problem in the attic? Maybe in a larger multifamily they know the insulation is crap and your heating/AC bills are going to be very high? They don't have to mention this unless you ask directly.
And quite frankly- don't trust a thing they say. If I am really interested in a place, like make an offer interested, I note down everything they say mentally that I can't really verify in a walkthrough. Then I follow up with "Hey Blondey McSalesy, We really loved unit 100 on 5 Some Street. The master bath was nice, and its really unique that the wall is tiled with marble from the North Pole! We really loved it when you told us the roof was made of unobtanium shingles and will last 2000 years. The furnace being a 2021 model made by Spacex, with such super high efficiency, that it will even spit out dollar bills from the vents in the winter, is a huge material factor for us. Based on the information you gave us and what we saw, we would like to make an offer. Let us know if we misunderstood anything!"
> AGENTS REPRESENT THE SELLER. They do NOT have your interests in mind.
Absolutely not true. Buyer's Agents represent the BUYER and have a legal obligation to act in the best interest of the Buyer.
> They don't have to mention this unless you ask directly.
Again, you are mistaken. The Seller and the Seller's Agent are required by law to disclose any known material latent defects in writing...or risk litigation after closing.
The reason I got my real estate license was to bypass the outrageous fees and my lack of trust of Realtors. But in doing so, I've come to realize that Realtors do bring a certain level of ethics to an industry which is extremely prone all types of shenanigans. I imagine without Realtors there would be a lot more litigation since the public is largely unaware of laws regarding disclosures, discrimination, kickbacks, etc.
> plus I paid her a 2% commission instead of 3%, and of course not 6% as if she represented me as well.
I tried selling my home twice: first with the “normal” approach, using a real estate agent and paying everybody full commission. My agent just didn’t do enough to move the process along. After my contract with her expired, I bid her goodbye.
On attempt #2, I listed it myself (for sale by owner) but put in the listing notes, “FSBO, but the buyer’s agent will get 4% commission.” Agents kicked my door down bringing buyers in, and we sold it for full asking price in under a week.
Thanks for sharing this. My first (and only) home purchase was a FSBO and I also did not have an agent. I didn't see what the point of it was from the buyer side. I'm hoping to sell soon and your 4% buyer agent commission technique is very intriguing.
I made contact with an agent last year in my search for a new home and she's since practically forgotten about me. Never sends me any homes that match my criteria. Looks like I'll be going alone, again.
in my life I did a "normal" buy, did a FSBO, and latest did a buy via Redfin.
I can see a place for buying agents, as they can/should do a lot of the legwork scoping out potential homes for their buyers. I did that myself when I did Redfin, which is what I wanted, but I can see how most people wouldn't have the time (basically house shopping was my fulltime job for 3 months)
I only did my FSBO sale at the peak of the last housing boom, so with that caveat in mind, I don't really see a place for normal selling agents.
I and almost everyone I know have had the exact same experience. Buyer agents seems to basically set you up on some auto-email service for a search filter (which you can do yourself on many real estate websites), and occasionally take you to see some homes. They use all sorts of fear tactics to keep themselves from getting cut, and everyone is starting to realize it.
I ended up buying a house via private sale (FSBO) and I had no agent, and everyone won BIG TIME. The closing costs, including the lawyer, title search, and court documents were $650. With an agent, the costs besides the home purchase would have been about $25,000. It's a prisoner's dilemma, where either of you has an agent, then both buyer and seller are worse off.
If there is a challenge to finding a good agent, and a challenge to doing it yourself, doesn't the option that saves you a ton of money just make more sense?
In some cases, yes, in some, no. It really depends on your situation, including what your opportunity cost for the marginal time commitment of doing it yourself is and if your transaction is special in a way which changes the expected value of an agent and/or the expected cost of doing it yourself, and if you've found solutions that put you in a better than average position with either of the two opposing challenges.
I’ll offer the alternate viewpoint. My parents sold a house last year in northern Virginia. During the market peak it was around 60% above what they bought it for in 2002, but by 2018, objective market price was 25% above purchase price. My parents—having experienced the 1990-2000s housing boom—could not believe it should be on the market for less than 50% above. A good seller’s agent absolutely helped them come to a proper asking price and made the sale happen.
Most buyers and sellers are not completely rational about houses, because they’re not repeat players. There is a good argument that agents help the market stay liquid and facilitate transactions happening.
I see many (likely realtors) defending the fees & the larger model. Here is some back of envelop math I once did to put it in perspective:
according to Bob Shiller (of case/shiller fame) it has historically taken about 30 years of work to own a house in steady markets. now on an average people move houses once every 7 years due to labor mobility/family/etc reasons. so roughly 4 housing buy/sell transactions in an average persons life. assuming 7% commisions (~9% if you include both buyer and seller plus origination as you are often both when you move). so essentially you end up with .93^4 or ~75%. which means you've worked 25% of your life for your realtor(s).
Now do you think the commissions are worth it? IM[NSH]O its total BS, at best their work is fixed commission especially in the booming & super expensive markets like sf bayarea.
that is in addition to mortgage interest. one could argue that is justified because ultimately its the bank taking a risk on giving you a loan for the property. so they deserve a premium for that risk, how much premium is another question but the fact remains that they are one of the parties in the transaction.
My issue here is with these middleman who have nothing to do with property once the sale is made & exist to take a cut of the transaction because they have monopoly on the listing service. the calculation I've done only reflects the cut to the realtor simply because they've inserted themselves in the process.
just think about it, increasingly Americans dont have any other retirement saving besides equity in their homes. so its not a hyperbole to say that you've effectively sacrificed 25% of your retirement to these (really resisting the urge to name call) people.
If you think the service isn't worth the cost that's fine, but it's nowhere near 25% of lifetime earnings. I'm 40 and have purchased three properties and sold one of them. The total commissions on all four of those transactions weren't even 25% of my earnings last year.
Did you even read the calculation I did? please go back and read the comment and work it out yourself.
>>> I'm 40 and have purchased three properties and sold one of them...
well, based on what you said you are a real estate investor and are hardly representative of average joe. another way to think about it is the math is for the residential RE market as an aggregate and as an aggregate it takes a shelter buyer regular joe 30 years of earnings to fully own a house. if you have issues with that stat please take it up with Bob Shiller. the rest of math is self evident assuming 4 transactions throughout the lifetime 'on an aggregate'.
> now on an average people move houses once every 7 years due to labor mobility/family/etc reasons. so roughly 4 housing buy/sell transactions in an average persons life.
You assume the aversge person owns a home at the beginning of, and throughout, their working today career. That has never been the case.
Very good point with the math. However with super expensive markets, doesn't their commission then match their increased cost of living to be working there?
that can be used to justify almost any level of commission including fixed fee rate. ultimately its modulated by increase number of realtors coming into the market. the core amount of work needed to buy/sell a house is not that much and can be effectively segmented to specialized (low-cost) individuals like Redfin is trying to do. you could also argue that in hot markets like sf-bayarea homes sell themselves so the workload on realtors is not so much, which means they can sell more houses to make up for 'lost' commission like rest of america.
the problem is that even if a realtor wants to reduce his commission, he has no control over the other party and they'll want to have full 3%. this minimizes the incentive to disrupt the process though in super expensive markets it may still make sense.
Former real estate agent, now software engineer. Doing a FSBO (for sale by owner) is as old as time. There's nothing wrong with this approach, but you are limiting your market (and you might therefore be selling at a lower price anyways) and it's highly dependent on your: patience, financial situation, free time, marketing skills, general sales skills, local housing market, tricky property situations, ability to assist buyers with locating financing, handling any objections or mortgage exceptions that come up (including zoning and inspections requirements), etc.
Buyer's agents deserve their 3% perhaps even more than listing agents and it's unfortunate you screwed this agent out of that. It's sort of like stiffing a server on a tip. Buyers are fickle, time consuming, and sometimes demanding. It can take many showings and offers to find a good fit for someone. Sometimes I would work with a client for weeks or months. Many clients would fall through and you'd get $0 for those clients. So you have to average out your earnings with the successes.
There's other things you have to do, too sometimes. Like once I had an FHA financed client and there were certain restrictions about the distance a well could be from the septic tank at the Federal level but they didn't match the requirements at the county level (which were looser). So I had to coordinate with local zoning and the FHA to get an exception for this loan. That was a bigger ordeal than I can explain here.
These online MLS listing services have been around since 2004-2005. They're nothing new. Are there crappy agents? Yeah. Just like any profession. But the profession itself is not going anywhere.
> and it's unfortunate you screwed this agent out of that.
This makes absolutely no sense to me. Why on earth would I be obligated to pay the buyer's agent? What has the agent done for me? When did I establish a relationship with this person and agree to pay them anything?
I would feel absolutely fine paying this person zero. If they want to get paid, they should take it up with the buyer because the buyer is the one who engaged their services.
They brought you a buyer. The buyer pays for everything in both cases. If you sell your house for $100K - 3% it's the same as selling your house FSBO for $97K.
He sold his as FSBO. It's highly unlikely the real estate agent brought the buyer since they hate FSBOs. It's much more likely the buyer found the house himself/herself.
> Buyer's agents deserve their 3% perhaps even more than listing agents and it's unfortunate you screwed this agent out of that.
3% of the value of a house is hardly 'a tip', a common fee in Europe for selling a house is around 1.5 to 2%, a typical buyer will not use a realtor at all. Oh, and it is illegal here for a realtor to charge both the buyer and the seller because there is a clear conflict of interest there, you can only work for one party. The real estate market in North America is ridiculous.
> Oh, and it is illegal here for a realtor to charge both the buyer and the seller because there is a clear conflict of interest there, you can only work for one party.
Technically, in the US, the buyer's agent is only working for the buyer. They're just paid by the seller (traditionally and stupidly).
> in the US, the buyer's agent is only working for the buyer. They're just paid by the seller (traditionally and stupidly).
I just went through this process. While the buyer's agent ostensibly works for the buyer, their main incentive is to get you to close. It doesn't matter if it's a good deal, a bad deal, or whatever. They take 3% so if you overpay or underpay by 10% of the appropriate value of the house that's only +/- 0.3% to them. They are much more interested in closing the deal quickly and moving on to the next than making sure you get what you want.
Not to defend the system, the incentives are clearly not well-aligned, but I also just went through this process had an unexpectedly great experience with my buyer's agent, whom I found through a referral.
He was professional, ethical, and actually took his fiduciary duty seriously. He didn't claim to find listings that I wouldn't have myself, but guided my search a bit based on my criteria, gave candid feedback on them and what to look for, and bargained on the price with the seller harder than I would have, saving me more than his commission. When I discovered a potential issue with the property and had second thoughts pre-close, he didn't try to discourage me one bit from letting a done deal fall through, and was ready to support my decision. And he set up the many appointments with the seller's agents, handled the literal ream of closing paperwork, dotted the i's and crossed the t's, and made this whole convoluted process go smoothly. From my end, he more than deserved his commission he got out of the deal, and he will certainly have my future business buying or selling.
Maybe I just got a bad buyer's broker (he was a reference from my mother, how could I refuse). My broker would refuse to CC me or BCC me on any communication with the seller's agent, or the co-op board, and when I asked him to forward this communication, he would remove timestamps and the underlying earlier threaded email messages.
It felt incredibly sketchy and unprofessional, but to this day I'm not sure if it was due to ineptitude, trying to provide cover for himself, or worse (maybe by deleting timestamps he could claim he responded faster than he did).
He also made a huge omission. He knew we wanted to renovate the apartment, but we did not get a copy of the alteration agreement until after we signed the contract. I didn't even know what an alteration agreement was, but it was something I felt a good buyer's broker should raise early if he/she knows you're planning a reno.
In the end, the deal did close, I think we got a fair price, but it came with many avoidable headaches and much unnecessary anxiety had our broker been more professional.
In the same way a lawyer works for you, a buyer's agent works for the buyer.
Emphasis on works for. My understanding is they are under obligations to (a) attempt to realize your stated goals & (b) ensure everything is done properly on the paperwork side.
If you say "I want to pay $750,000 for a house that appraises for $450,000", I don't think they have an obligation to say "You should probably pay less / not buy that property."
As you've rightly noted, there is a conflict of interest (mostly with speed of deal, rather than price). But ultimately it's the buyer's responsibility to set the terms of the deal.
That's not true in a general sense at all. My agent actively dissuaded me from several houses and pointed out why they were a bad deal. In the end I ended up with a house that I found while driving around a neighborhood I liked. The BA helped me with all the paperwork and made sure I didn't have any issues with the purchase as well.
Buyer's agents deserve their 3% perhaps even more than listing agents and it's unfortunate you screwed this agent out of that. It's sort of like stiffing a server on a tip
A tip might be $20, not $10,000. The two are nothing alike.
It blows my mind that the fees are percentage based. The amount of work required for an agent on a 100K house is very similar to that of a 2 Mill house. Presumably the seller agent wishes to get compensation for increasing the value of the house, but for both the seller and buyer agents, the number of deals done far outweighs slight incremental selling prices. In which case, both would prefer to settle on a lower price and move to the next deal. So frustrating. I wish the lawyers all the best!
Agreed 100%. Realtors do legitimate work, and deserve to be compensated for sure. But I think the pay is grossly disproportionate to the amount of value provided, and it's propped up by Realtor-sponsored laws and kickbacks. A lot of Realtors won't even deal with non-Realtor(tm) real-estate agents, which promotes their monopoly stranglehold on the real-estate market.
I'm not sure where I fall on what a real-estate agent's cut should be for selling a house. But for the buyer's agent, it's really over-valued IMO. And why should a buyer's agent in San Jose make 4x more than somebody in Des Moines for the exact same value-add?
When I bought my house, my Realtor found some good listings, arranged viewings, did the paperwork, and set everything up for me. All useful services, and worth paying for. But was it worth $12k for less than 40 hours of total work? I don't think so. That's a higher hourly rate than I'd be charged by a good doctor. And my house was a pretty cheap one by modern standards. Those are monopoly prices charged by people who know they've got you over a barrel.
Note they said "less than 40 hours", so that's "at least $300/hour". I feel like my buyers agent, who I really liked, worked more like 10-20 hours for $9K, for $450-$900/hour.
Don't get me wrong, I really liked her and she did a great job, but I'm not sure she did $9K great...
It’s at least that figure for engagements that result in a transaction. That doesn’t take into account the people they spend 40 hours with and don’t end in a transaction.
I feel you. I just bout a $715k house largely because I found it online, and went through an agent to show me the house and, I guess, do some paperwork for me? Her company made $21k off of the seller, and I'm sure she took at least half of it.
1. Lawyers are also a cartel
2. Realtors don't do much complicated stuff. If you take a "becoming a real estate agent" seminar they will probably walk you through the entire buy and sell side process for 90+% of transactions in a few hours.
My experience: the one time she actually had to facilitate a showing of the house, the alarm system got set off. And when the buyers asked to change the closing date (after plane tickets were bought), she agreed and told us we had no choice. The attorney set them all straight.
A realtor's primary skill seems to be getting you to sign the listing contract.
> But was it worth $12k for less than 40 hours of total work? I don't think so.
First, I agree that the fees charged are exorbitant. However, for many smaller realtors, they may not have much inventory at any given time. So, just like a freelance programmer, the buyer is paying for their work and for their downtime between jobs.
Isn't this a bit circular though? If the fees are high enough, it allows for an oversupply of realtors ... which only gets worse in a rising market because fees are % based and entry-to-market (for a realtor) is fairly easy. NB: easy to enter doesn't mean easy to succeed, which is borne out by the longevity statistics, I believe.
Sure, but a real estate agent who has a "seller" client has a pretty easy time finding "buyer" clients -- run an open house on a property you're selling and prospective buyers (specifically the ones that decide they don't want to buy the property being shown) come to you without even knowing that you exist.
I think though the average Realtor doesn't sell many houses in a year. I hear it is something like 12 sales/year. According to the Realtor website, the average gross income is around $40k.
"When I bought my house, my Realtor found some good listings, arranged viewings, did the paperwork, and set everything up for me. All useful services, and worth paying for. But was it worth $12k for less than 40 hours of total work? I don't think so."
A lot depends on the realtor.
One realtor I know not only does everything you mention, but also gives their clients lots of advice (based on many decades of experience in the industry) -- for instance, telling them if the prices they're setting on their home or bidding for are likely too high or too low, or what to do with a house in order to make it more likely to be sold. How much is such advice worth -- advice that could get them the house they're dreaming of or sell the house they desperately need to sell?
They also explain everything related to real-estate in great detail, tell them about the neighborhoods they're considering, drive them around all over the place (paying for their own gas, car, maintenance and insurance), sit in with them during the closing to go over the entire contract with them and explain everything and make sure they're not getting screwed. For sellers, the agent provides free advertising, spends a ton of time sitting at open houses waiting for people to show up and then showing them around, and trying to sell them the home, etc, etc. They negotiate deals and are the buyer's or seller's representative to the other party.
All this work is done for free unless the house is sold.
Again and again, I've heard how clients take months and months of this work done for free and then switch to go to another agent, paying the agent not a single dime for all the time they spent working for them. Or they'll just change their mind and no longer want to buy or sell.
I've heard so many horror stories from them: clients are often incredibly inconsiderate, calling at all hours of the night and on weekends (this is not a 9-5 job), expecting them to work when sick, or just being super abrasive assholes or liars. Personally, I would never put up with any of that, but agents have to make ends meet, so are often forced to work with those kinds of people or starve.
Watch the movie Glengarry Glen Ross sometime. The life of a typical real estate agent really is that bad, or worse.
Real estate agents also risk their own lives doing their jobs: they routinely go alone in to empty houses with complete strangers. It's not common, but real estate agents have been assaulted, raped, or killed while showing homes. How many people think of that: that being a real estate agent is actually a dangerous profession? I didn't until I got to know an agent well and they started telling me the horror stories of what they have to go through and put up with.
It's been a really long time since I saw that movie, but to my memory only one of them (the successful one) was a scammer.
One scene that stuck in my memory -- SPOILER ALERT -- was when one of the agents, who desperately needed to sell because he hadn't been able to sell in a long time and his job depended on it, finally thought he sold a home to a couple he had spent all this time and effort on, only to find out they have no money and just like talking to agents.
That actually happens. People will just waste a ton of real estate agents' time, with absolutely no intention to buy.
Real estate agents just get constantly jerked around, lied to, and cheated. That's just a fact of life for a real estate agent. I would never in a million years want to be one because of how constantly you get screwed -- and don't even get paid for your effort.
Isn't it kind of a self-inflicted problem though? As an organization, Realtors guard listings jealously, control access to house viewings, and bind themselves to clients with exclusivity contracts. It shouldn't be surprising their time gets wasted by people who are just window-shopping, because they're essentially standing in front of all the windows.
Maybe it is their fault. In my opinion the entire business model is fucked up. If it was up to me, I'd charge for every single hour of my time, charge for advertising and any other money I spend towards selling the home (or build it in to my hourly fee), and charge a commission on top of that. But from what I understand an agent can't do that because it's against the law.
As for exclusivity contracts: agents don't just impose those on clients. The client can sell the home themselves if they want, it's called "for sale by owner". But if they want an agent to represent them, then yeah, the agent will act as their representative. Why shouldn't an agent get paid for their time when they act as the seller's representative -- even if the house doesn't sell?
It just boggles my mind how much free work agents do.
You don't have to have an agent as a buyer. Real estate listings are easy to come by, and you could just even drive around a neighborhood and stop in to any home with a "for sale" sign yourself.
But if you've hired an agent, why wouldn't you pay for their time?
While you're window shopping, they drive you around (or at least drive to the homes with you in their own car, paying for the car, maintenance, gas and insurance), they give you their advice on the homes and neighborhoods you see, answer questions about the home, about how the sale will go or any other questions you have about real estate, giving you the benefit of their years of experience in the industry.
They take time out of their life to give you rather than being with their families, or with clients who are actually serious about buying.
I honestly don't understand how someone could take all that from others without trying to compensate them for all they've given you.
I'll watch it again, and I'll be the first to admit that there are unscrupulous salespeople of all stripes -- maybe they're even the rule rather than the exception. But there are also honest salespeople who truly want nothing but the best for their clients, who refuse to cheat or lie, and who often get screwed by people who do.
I personally know very well one of these latter types, and just feel really bad for them because of how much shit they have to put up with, how much work they have to do for free, and because it's a really tough business to succeed in if you're honest.
I think one of the main issues is it being a purely commission sale. I suspect that makes it easy for the principals to ignore the cost in their thinking but it makes the time investment riskier for the agent, which they have to balance against fee size etc.
Perhaps a better system would be a base fee + (lower) commission, and commission based on concrete sales target rather than market value...
In my own view the fairest structure would be an hourly wage plus commission based on the sale price.
That way even if the client backs out, at least the agent hasn't completely wasted their time, effort, and money for absolutely nothing.
I don't see why a commission should be limited, however. If you're great at your job and have a track record of selling homes home for more or buying homes for less than other agents can, why shouldn't you be allowed to charge more?
Even now, some agents (if they're desperate or just starting out in the field) will negotiate away part of their commission. So a lower commission is always an option too.
Commission is always limited in some absolute sense, but that's not what I was suggesting. I was suggesting structuring differently than on % of sale price ... after all that is affected by a lot of things out of the agents control and does not lead to incentives necessarily matched with the principal.
They already have options. You have 1% brokerages in every state now. There is even a guy in my town that will list your house on the mls for $500 until its sold. You bring him the pictures and an address. You do everything else yourself. He has an
a la' carte real estate brokerage.
Getting lots more agents playing around with the options is a good way to find out what works, so that's good.
I'm not sure how either of those address what I was responding too, though. If you are (as an agent) doing all the legwork in the hopes of getting paid on close, it's risky. Some form of industry standard way for agents to get paid a bit for this work I thing would improve it for everyone, but ymmv.
(Disclaimer: I work for a tech company in the real estate industry. Opinions are my own.)
> It blows my mind that the fees are percentage based. The amount of work required for an agent on a 100K house is very similar to that of a 2 Mill house.
Negotiating a $100,000 purchase or sale is an order of magnitude less lower stakes than negotiating a $2,000,000 purchase or sale. If you're a real estate agent and you're able to negotiate 5% up or down on the final sale price on a $2,000,000 house, that's equivalent to the entire value of the $100,000 house. It's not the same job. You could make the exact same argument about salesmen who are paid commission (which is almost exactly the same job as a seller's agent).
> but for both the seller and buyer agents, the number of deals done far outweighs slight incremental selling prices
There's definitely a bias for getting a deal done from the agent's perspective--moreso than for other sales or procurement agents because closing deals unblocks deal flow. I think this gets balanced out by the principals (buyers and sellers themselves) having final say on whether to extend or accept an offer.
$2M house. Seller's realtor says, "Drop the price $200,000 to get a sale". Costs seller $200,000. Gains realtor $54,000 (costs $6,000 from .03*$2M). Or hold out for the sale at $2M. Nets seller $200,000 and increases the realtor's commission only $6K additional with all concerns of delay, potential withdrawal of sale, etc.
This is an immediate and unpreventable conflict of interest that impacts the realtor's fiduciary responsibility to act in the principal's interest.
I'm having trouble following your math here, how can the seller's realtor gain money from selling the house at a lower price? How did you arrive at the figure of $54k??
It's true that a realtor might favor a slightly lower price for a faster sale but I don't get your numbers.
$2M house. 6% commission split 3% to seller's realtor and buyer's realtor. Seller's realtor gets $60K if it sells in 1 month or 1 year, same commission. No sale = $0.
First week gets a 10% low offer of $1,800,000. If sale completes, that's $54,000 income for the realtor (.03*1800000). Or, could hold out for a better offer after for some months of additional work to hopefully get an offer for the full $2M, and the realtor just gets $6,000 more - or $0 if no sale. Seller holding out would get $200,000 more, or if no sale, still has the house.
Realtor's personal interest is to maximize return on invested work - take an early offer and go on to the next sale, even if it is low. Seller's best interest is probably to hold out for a bit better deal.
I suspect this actually starts to change at the upper end of the market, but only if you have proportional commissions.
There aren't that many $10,000,000 houses. You can't just dump a $10,000,000 house ASAP and list another $10,000,000 house next week. And at $10,000,000, every percentage point in sale price is worth a marginal $3000 to the sellers' agent. If someone comes in 10% below listing on a $10MM house, the difference alone is equivalent to the sellers' agent commission on an entire $1,000,000 house.
I'm as suspicious of realtors as anybody, but this scenario here includes a real asshole as a seller. If she doesn't want to sell her house, she shouldn't waste everybody's time by putting it on the market. This sort of "just testing the market" shenanigan raises costs for everyone.
Levitt and Dubner found that, on average, self-listed homes stay on the market an extra 10 days, prompting the authors to hypothesize that agents might be a little more aggressive about their own homes because a 3 percent fluctuation makes a fair difference on the total sale price, but not that much of a difference when it comes to the commission.
ITT we're talking about "some months" (three? eight? more than a couple, anyway), not "10 days". The Freaks are just hypothesizing the price rise anyway; markets don't always go up.
Your link identifies the only actual service that realtors provide: objectivity. Houses are worth what buyers will pay for them. The realtor who can predict what price a house will fetch in the near term is providing a service. Permanent realtor's signs indicate failures of objectivity.
In the scenario the seller is gaining $200K by waiting two months. You think she should forgo this money to save everyone else's time looking at her ads?
I personally try and be a polite person, but I'm not $200K polite.
The commission shouldn't be based on the full price though. When a car salesman sells a car, their commission is based on the profit, not the total price. Selling a Honda can get you more commission than a BMW if you are good at what you do.
To make the same for a house, the seller should say "this is how much I want" and then the agent gets to keep say 50% of whatever they get over that price. Then the incentives are aligned.
It’s still a horrible idea. If I know the market value of my house which is easy to find out based on comparables, how much over could the real estate agent sell it for? The buyer can’t get a loan for more than the house is appraised for. In most house buying situations, the seller,buyer, and mortgage company all know what the house is worth with only a little wiggle room.
> The buyer can’t get a loan for more than the house is appraised for.
The buyer in most cases (there are exceptions) probably can't get a loan with a LTV ratio higher than some number less than or equal to 1 times the appraisal value (.8 typically for a conventional, first mortgage alone), but can generally put as much of their own money into a purchase as they want.
Outside of a very few areas of the country. There is more than enough housing inventory for people not to pay over the appraised value of the house. Most people are smart enough not to be upside down on their home the day they move in.
If you have good credit you can still get 100% LTV loans. Heck you only have to have a 600 credit score and not have had a foreclosure in 3 years to get a government back FHA loan with 3.5% down.
There are plenty of people who did “strategic defaults” on multiple properties after 2008, rented for three years and got an FHA loan for a new mortgage (ask me how I know).
If the seller doesn’t offer enough wiggle room no agent will take the deal.
The seller would have to offer enough wiggle room that the agent wants to take on the risk. Combined with a flat fee, the system would guarantee income for the agent and also align the incentives.
I have an even more cynical take on things. I purchased a house last summer and played the naive buyer and entered into a dual-agency agreement with the selling agent. Due to the competitive market in the town we were buying in, this was to hopefully give us the tiebreak with competing offers. I have few expectations from a buyers agent beyond opening doors to let us in to view properties and to communicate with the seller's agent.
For selling our prior house, I think our seller's agent actually performed some services. She ran the open house, gave us great advice on pricing in our town (5 square miles, she's been selling for 30 years), and -most importantly- gave a buffer in communication with the buyer. Should any issues arise, there's no direct communication with the buyer AND it also helped us be dispassionate when choosing among our various offers.
Was your hope with this strategy that the double commission would cause the agent to steer the sale to you?
I see things about strategies like this, and then seriously question whether I feel agents in general have enough integrity to warrant leaving me out of the communication process as you propose.
Yes, that was definitely part of it. In the town we purchased in (near Boston suburb) the median home value is > $1 million, so that extra 2.5 percent is a lot of money.
In our last homebuying experience, we lost two houses to other buyers. In both cases, our offer was higher than the closing price by 5-10% BUT our buyer's agent was from a different agency than the sellers. In both of those cases, the people who got the house were represented by someone from the same agency as the seller.
You can get breakfast at the Breakers for 50 bucks or the Waffle House down the street for 10 dollars. The Breakers waitstaff will get a 10 dollar tip and the Waffle house staff will get 2 dollars for the exact same meal and the exact same amount of work. It's a messed up system.
The way the market seems to compensate for this is that more agents flood into that job market for a given number of houses, and then they spend proportionally more time trying to find clients. They spend a relatively small fraction of their time actually helping existing clients in very hot markets, since they just don't have many (except the few top agents/brokers, who do very well for themselves).
But spending all your time finding clients isn't actually useful work in helping transactions happen, so it's less and less efficient as the home values go up.
At least that's what I've observed from a distance.
Maybe, but there are better options. As o nate's comment notes [1], the vast majority of their compensation comes from the house getting sold at all, and the gain from anything beyond that is weak. So they're actually incentivized to just make sure the deal happens and not go for the extra.
> the vast majority of their compensation comes from the house getting sold at all, and the gain from anything beyond that is weak
You might find this study[1] interesting:
>Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin.
There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients.
The reasoning they gave was that the difference in the realtor's percentage between a lower total price and a higher total price was not meaningful enough for them to do extra work or take extra time to get it. It is better for them to sell more houses for less, rather than fewer houses for more.
So yeah, the percent means the incentives are more aligned, but maybe not aligned enough.
>There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients.
It was a bit more subtle than that.
Given a fixed percentage (let's take the 6%), if the agent sells today the house (valued 100,000-120,000 US$) he/she gets US$ 6,000 today.
If the 100,000 offer is refused the house stays on the market for - say - 3 months more, and eventually is sold at 110,000 US$) the agents gets only US$ 600 more (and three months later), but has to arrange many more visits, so the formula is incentivating "quick sales" and the agent has all the interest to counsel the seller to accept a "low offer".
The proposal by the freakanomics authors was to increase the percentage due to the agent on the sums exceeding the "base value" of the property, so that the convenience would be shifted to "sell the house at the highest reasonable price in a reasonable time".
To the people citing Freakonomics. I've read that piece it was a comparison of real estate agents selling their own houses vs their clients houses. Not flat fee vs % based commision.
> There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients.
Real estate agents are more likely to plan sufficient time to maximize sale value; most people make plans with timelines where sale (or purchase; I bet you’ll find a similar issue on the other side, too) of the house is a blocker for other things before talking to an agent, so the disruption of not completing the transaction timely is significant.
My impression is that realtors who have their own investments in a market in which they operate sometimes err on the side of overpricing even when they know listings will remain on the market longer than the seller might want. In smaller, growing markets like Colorado it even looks like cartel behavior to me, since multiple brokers follow the same strategy.
Pretty simple to fix actually. Charge a flat fee up front, like $1,000, to do the initial listing. Get the house independently appraised, maybe subtract 10%. Give incentive commission equal to the difference in the sale price and the discounted assessed home value * 20%. So if the agent manages to sell a $500,000 home for $700,000, they get a $41,000 commission. If the home sells for 10% below its market value, they only get the $1,000 compensation for the listing.
Of course this will never actually happen due to the racket currently going on as described in the lawsuit. Why would they agree to this structure when they can already skim 6% off the home price just buy submitting some photos to MLS and opening up doors and closets for people for a few weeks.
No real estate agent I've ever worked with or heard of encourages holding out for a better price. They try to talk you into accepting the fastest close.
Time is money and the faster they close on your house the faster they can start selling the next one.
Then what’s wrong with buyers’ agents taking a flat fee, and sellers’ agents taking a percentage? That right there could almost cut these types of fees in half.
I'd rather see both sides take a flat fee + a higher percentage of the difference from some benchmark. Say, $2,000 + 20% * (Zillow's estimated value - sale price) for the buyer's agent. I have no strong opinion on whether the second addend should be floored at $0 or not.
I agree. But what most consumers don't know is that there are other models[1] to consider when buying or selling. Some brokerages now charge a flat fee, some do trade ins and so on.
Plug: a friend and I created listingrates, a way for consumers to learn about these new models and compare fees.
> The amount of work required for an agent on a 100K house is very similar to that of a 2 Mill house
Liability, and the odds of litigation, are vastly higher are bigger dollar amounts. My personal experience with realtors has been pretty much useless. But a bigger asset takes more resources to present and has a lower hit rate given the smaller pool of buyers. There are also unique lending problems that expensive assets run into.
I mean, the risk a realtor takes on 2million/100k times the risk in selling a $2mil house versus a 100k house. If the realtor makes false statements on accident, etc, they can be sued up to the total amount in consideration -- which is the price of the house.
Moreover, it is likely more work to sell a $2mil home, because there are proportionately fewer buyers, which means more work in sourcing buyers, more work in retaining interest, etc.
This comment is written by someone who's never sold a home. In general, it's very easy to look at someone else's job and say 'that person basically does nothing!'. I mean, half the time I look at software engineers sitting their typing and I think to myself "I could do that!".
Plus, if you're selling a $2million home, you can afford $120k.
The reality is realtors are well protected in the sale of the home for many reasons that are defined in the legal documentation required and not in the closing process.
Given the point I'm curious now of how many individual realtors take the blame in a sale after the fact? It is generally the seller who's on the hook and is directly sued from what I've seen. Maybe this is incorrect but it's rarely the middle man stepping in to take the bullet.
In fact I have a personal example where an agency did not do due diligence on behalf of me and shifted the blame to me leaving me holding the bag of potentially being out 5 figures in a botched purchase. Not until I threatened to take legal action against both agencies (never sign arbitration BTW) did both of then come to the plate to decide on how to avoid that as both agencies had points of blame.
Regardless, even though the realtors were to blame neither of them seemed concerned and ultimately the claim was handled by the agencies at a higher level than the individuals to blame.
There is an argument of diminishing return on the value of realtors however I wouldn't paint it with such a broad stroke. That being said I do believe it's s scam that realtors in a legacy mindset are offended when negotiating their rate comes up - regardless of their work put into the sale of the home. Many flat out will not even hear the argument and seem entitled to it while being unable to defend the rationalization of.
> Maybe this is incorrect but it's rarely the middle man stepping in to take the bullet.
Yes, the seller is the party responsible. However, if he hired an agent and was relying on the agent's advice, the seller can sue the agent. That is the difference between hiring an agent and doing it yourself. You are basically paying the brokerage to insure you against sticking your foot in your mouth, and the brokerage -- to limit their liability in the first place -- gives you an agent who tells you how not to screw yourself.
As you yourself said, once you threatened to sue, the agencies started getting stuff done. That's the point. If you didn't use them, you would have no one to shift the blame to.
> That being said I do believe it's s scam that realtors in a legacy mindset are offended when negotiating their rate comes up - regardless of their work put into the sale of the home
As someone who believes in the free market, I of course do not object to wanting to negotiate rates, but if no agent is willing to do it, well then, they're just charging what the market will bear. You are, of course, free to sell your home and take on the liability yourself.
> As someone who believes in the free market, I of course do not object to wanting to negotiate rates, but if no agent is willing to do it, well then, they're just charging what the market will bear. You are, of course, free to sell your home and take on the liability yourself.
This is exactly why I've sold my homes FSBO with an actual real estate lawyer. Real estate agents are rarely lawyers and their training sometimes seems to give them the idea they are legal experts - they are not. The point I was making was that the agents both made mistakes and neither were held accountable. The reason the agencies stepped in was to fix the mistakes (legal mistakes) that were made. There are other ways to sell a house that do not require an agent that do protect you as a seller (or a buyer). I don't use agents anymore because of this and I've had nothing but a more positive experience given that the information from the buy side is much more accessible, and cheaper. I know what I'm looking for and I'm well capable of setting up searches to find that. Realty agencies know this and are trying to protect their vested interest by playing new games like "premarket" opportunities. I don't see how they're progressing the experience, but are only making moves to protect a legacy model. Very similar to how ridesharing has been, overall, positive disruption.
Some states actually require a lawyer in the process as well. So not only is the RE agent holding out their hand for their 3%, there’s a lawyer that wants a couple grand for what is usually filling out boilerplate. Not only that, but you can also find states where the agents aren’t legally allowed to tell you what is a “good” neighborhood or school district.
I would rather pay an RE agent by the hour to show me houses than this percentage nonsense. Zillow/Google street view helps to drop most of the false positives, and the agent can help me focus on real candidates.
I have never had someone who has not done programming before, watch me typing into a terminal and say it looks easy.
I don't think its hard or requires a huge amount of intelligence, but I think it is crazy to compare the barrier of entry for real estate to that of software engineer.
The average person would take minimum a year to go from no-skills to an actually useful independent engineer. I could literally take a crack at selling a house after a week of training and probably do alright.
> I could literally take a crack at selling a house after a week of training and probably do alright.
My father was an agent, so I'm obviously biased. However, thinking that 'selling a home' is all there is to being an agent is incredibly naive. It is a professional certification, where you have to be knowledgeable about the laws of the state you operate in, because they control your business.
Compared to the regulatory environment of real estate, software is a dream. You pay the realtor for having passed a test saying that he/she is capable of representing you in accordance with the law.
Also, you probably would not be able to sell a home. Sales is a skill unto itself. Only non-salespeople think it's easy. Having seen what my dad would have to do, I noped out of sales real quick. Engineering is way easier.
> I have never had someone who has not done programming before, watch me typing into a terminal and say it looks easy
85% of realtors drop out of the industry within 18 months. My impression is that this is because "becoming a realtor" is very easy.
A counterpoint might be that it's because being a _good_ realtor is hard, and I believe that that is true to some extent. But that means you aren't _really_ paying someone "for having passed a test saying that he/she is capable of representing you in accordance with the law", because the licensing burden is really small. For instance, it's much smaller than the licensing burden you need to start cutting peoples hair.
But the barriers to entry for these things are also small. It's money for the fees, and given that these people are 100% commission finding a broker is not a big challenge.
Do you honestly disagree that the barrier to entry to being a practicing real estate agent is low? Doesn't mean it isn't hard to be a _successful_ one, but the basic barrier to entry just doesn't seem that high.
I thing the barrier to entry is not that low, otherwise we would have a ton of HN folks getting their license to make leadgen sites and collect 25% referral fees (from the 3%) for having to really not deal with the customer.
Barrier to entry is what makes some jobs pay more than others. I think programming is easier than working in fast food, but you could literally take almost anyone with an elementary school education and turn them into a productive fast food worker in a matter of days.
I might not be good at real estate, but I bet in a weeks time I could do a passable job filling out necessary documents and doing open houses.
There is no reality where someone who has no programming experience is anything other than a huge liability if you give them a week of training and then assign a feature to them and tell them to start coding, testing, and making pull requests for it.
I'm about to graduate college and move to NYC for a job. The unfortunate norm there is to pay a 15% fee (of the annual rent) to brokers to get a rental apartment. The cheapest the broker's fee gets is one month's rent, so about 8.33% of the annual rent. High end apartments sometimes pay the broker's fee on the renter's behalf [2]. Large apartment complexes sometimes have their own leasing offices, so there's no fee there either. To be clear, this is a one time fee paid when you initially move into the apartment. If you renew the lease, you don't owe another broker's fee.
Meaning if the rent on an apartment is $2,000/month = $24,000/year, the broker's fee on that would be $24,000 * 15% = $3,600. The cheaper apartment are usually owned by small landlords who use brokers to vet applicants. For those apartments, you're required to use brokers. There's no way to opt out by working with the landlord directly as the broker's fee is paid by the renter. The broker provides their services to the landlord for free.
I'm trying my absolute best to find a no fee apartment, but it pretty severely limits my options. For studio or 1 bedroom apartments under $2,500/month, there's currently 1,362 no-fee apartments [0] and 3,395 apartments at large (so, 2,033 for-fee apartments) [1].
I don't understand how this racket is allowed to operate. From my experience (three NYC apartments through realtors), the landlord's realtor provides pre-screening of "desirable" tenants for the landlord, showings, collecting paperwork from the prospect, and handing over the keys. None of this adds value from the (prospective) tenant's perspective, but the tenant must pay the fees (in all three cases, one month's rent).
I recently worked on a financial website that does a full credit, background and fraud check online and in real time for issuing small loans. There's some amount of manual auditing that can happen in the background for anyone that raises a yellow flag, but otherwise you can get a loan approved and disbursed with no fees and it happens in a few days and is fully automated.
Moved to NYC and paid a broker $8k+ for an apartment I had found by myself on streeteasy, and rent was around $3.5k... To this day my wife and I refer to her as "the parasite". She provided ZERO value other than showing me around the building, which any of the 20-person staff in the building could have done, and in any case certainly doesn't justify paying her more than TWO months' rent
I'm surprised there is not more progressive backlash against apartment brokers in NYC. Plain as day rent seekers disproportionally affecting people with low incomes. Who are their friends?
There is actually movement to cap the broker's fee at one month's rent, cap the security deposit at one month's rent (and allow for paying the deposit over six months), and mandate the return of security deposits within two months of the lease ending.
FWIW there is a bill working it's way through city council to limit the fee to 1 month's rent, so people realise it's an issue. Now if only they banned renter-side fees entirely.
When we sold our house, it was obvious that our realtor's incentive was to get a deal done. They had no incentive to go for a higher price if it lowered the chances of a deal getting done. If you really want an incentive to get the best price, you should have a base fee and an incentive fee, similar to how hedge funds operate. E.g. 2% of total price, plus 20% of difference of price above some baseline (e.g. assessed value).
The Freakonomics guys found that "when real estate agents sell their own homes, they tend to keep them on the market longer (about 10 days) and get a higher sale price (by about 3%) than when they sell homes for their clients."
Real estate agents don't get to choose how long their clients' home is on the market.
Quite often real estate agents work with people who want to sell quickly, and therefore price their homes lower than if they had more time to sell.
Also, the advice that real estate agents give on setting prices is often ignored by their clients. Clients routinely think that they know better about how to price their own home than the agent -- even an agent who's been in the business for many decades and who's sold hundreds or thousands of homes.
> Real estate agents don't get to choose how long their clients' home is on the market.
Like hell they don't. The real estate agent's job is literally to sell the house. If a house takes 3 months to sell it is likely because either the agent isn't doing their job, or the seller is not heeding the agent's advice.
I know the obvious takeaway is (to exaggerate) that all realtors are crooks who are selling your house for too little because they don't care about you. But are we to expect that every realtor should spend as much time and effort selling every home as they do on their own? They presumably only sell their own home every few years, if that, and sell other people's homes every week.
I'm actually surprised the numbers aren't "worse" for realtor's own homes. Never mind that realtor's are, presumably, the most aware of local market conditions and are then in a position to best prepare their own homes for a higher sale price, i.e.: more likely to do home improvements that reap a higher return, to know how to best show the house, etc.
Yes, we should actually expect them to spend more time and effort. It’s their job!
Would you be happy with the local plumber spending more time and effort fixing their own water valve or yours? Do you expect construction crews to spend more time or less time and effort when building a concrete bridge as compared to when they pour their own driveway?
These are even examples where we should expect the person to care less about their job than their own personal stuff. Realtors have a fiduciary duty to their client.
When I sold my house, I agreed a fee that was a lower than normal % on his estimated worst case sales price and a 3x higher % of any amount above this.
End result was he worked really hard getting prospective purchasers bidding against one another. I ended up selling for 25% above my reserve price.
Sure, I paid a lot in fees. But since I was living 20,000km away at the time, it was totally worth it for the peace of mind achieving a good price.
I am still surprised that almost everyone goes with the standard fee scale, for what is the largest financial transaction in your life!
My wife recently became an agent, and prior to that I was all about disrupting the industry.
But I’ve come to see the 3% on each side as an almost market clearing price. It’s really hard work, with low barriers to entry, and significant upfront costs.
In a tight market, being a buyers agent can be a blessing or a curse. She’s been working with one client for nearly a year, submitting over 20 offers and going all over the metroplex with nothing to show for it. On the other hand, she’s had buyers who found something within a month. It works out to a decent standard of living, but it takes a long time to develop a pipeline. Most agents quit within a year.
I’m all for disruption, and it’s an industry with a lot of legacy, slow moving players. Buts it also a complex one with lots of challenges on the individual agent level.
> Where you stand really depends on where you sit.
There's really only two seating sections. The one's paying the outrageous commissions or the one's receiving them.
> But I’ve come to see the 3% on each side as an almost market clearing price. It’s really hard work, with low barriers to entry, and significant upfront costs.
The vast majority of the upfront costs are a moat dug by the established players. Everything from mandatory trainings, registration to insurance requirements.
> In a tight market, being a buyers agent can be a blessing or a curse. She’s been working with one client for nearly a year, submitting over 20 offers and going all over the metroplex with nothing to show for it. On the other hand, she’s had buyers who found something within a month. It works out to a decent standard of living, but it takes a long time to develop a pipeline. Most agents quit within a year.
That's the natural pros and cons of sales working on commission. When you're making money it's great. When you're not, it's not. There's nothing special about real estate.
Everything from mandatory trainings, registration to insurance requirements.
People pay hundreds of thousands of dollars on their homes. It's the single largest transaction of most people's lives. I certainly hope the individuals hired to negotiate and manage these transactions are trained and insured...
When I last bought a house, I had an agent to show me houses. Then when it came offer time, I actually had my lawyer do the final review and he essentially did the bulk of the negotiation, the agent was simply a mouth piece with access to the databases and someone the other agents would talk to. It was during the 2008 time and I placed a bid on a short sell, my lawyer gave me distinctly different advice than the agent did (a personal friend, no less) the seller made some demands that he wanted in the contract and the agent simply wasn't capable of giving sound advice about it. Probably saved me about $50,000.
The big problem is agents are incentivized to have sales in the market. If you sell your house for $100,000 vs $110,000 is could make a difference of months and they're paid nearly the same even though it's a pretty large difference to the seller. To many of the people "helping" you sell, it's better for you to take less money now than 10% more in 3 months. Nevermind the roles they helped play in the big 2008 crisis... And this is a profession that has a claimed "code of ethics"
Most people can't afford to have a lawyer go over their home purchase/sales contract. They have to rely on their agent. So some training and insurance is absolutely better than nothing, which is what the comment I was replying to suggested.
Sure, for a single hour. A real estate contract is dozens of pages long, and a good attorney would review all of those.
$500/hour for one hour? Doable for most people.
$5000+? That changes the economics of buying, especially if we're talking a $100k house, since that $100k is spread out over 30 years but the lawyer's bill is due in 30 days.
It's not that people don't do something worthwhile. It's more a question that is it worth paying 60,000 when selling your house? It's not. At $100 an hour, do you get 600 hours out of work of them? No. It's not about market prices, because the cartel (real estate industry) prevents lowering percentages - and they fight to the death any upstart who wants to do it.
It should not be a percentage, it should be a fixed rate. A few thousand dollars. Or hourly.
Until people can set different rates, or you have the option of fixed rates if that is the preference of agent & buyer it won't be honest.
Who is paying $60,000 to sell their house? Most houses and agents aren't selling million dollar houses. There are some, but that's not the majority. Also houses that are priced like that don't have as many buyers, they take longer to sell. They have to market them to the right people, and have connections to sell those kinds of places quicker.
People gotta remember, the commission is split 4 ways unless one of the agents is a broker. Most agents themselves are only getting 1.5%
People CAN set different rates. Redfin charges a very low percentage compared to others. There are brokerages who charge flat fees, and will just slap your house in the MLS and then call it a day. You wanna list with a discount broker go for it... You can even sell your house yourself!
This whole thread reads like a bunch of people talking about tech people. "Oh you just sit at your computer all day surfing the web, why do you make so much?" or "Why pay you so much, I can just set up a website on Wix for $10."
Yeah there's some shady shit with the NAR and access to listing services, I'm not disagreeing with it 100%, but the average agent is doing a lot more work than you realize.
Allow me to introduce you to a place called California. In Santa Monica, where I live, median home price is over $1.5M. Yes, median. La Jolla is about the same. Irvine is just shy of $1M. In San Francisco it's over $1.2M median. San Jose is right around $1M. Mountain View is north of $1.7M. Etc. These places represent thousands of homes and average time on market is generally around a month. It's really that insane.
"Why pay you so much, I can just set up a website on Wix for $10."
I mean, that's a valid point in the age of Wix and Squarespace. I'm certainly glad I'm no longer in the business of building brochureware sites for small clients.
I understand your larger point that we shouldn't be quick to assume a realtor's work is not difficult. However, I think the issue is the buyer doesn't really have the option to forego the buyer's agent service and capture (through a reduced price) the commission that would have otherwise been paid. Not everyone needs a full-service realtor in the same way not everyone needs a bespoke CMS.
> the cartel (real estate industry) prevents lowering percentages - and they fight to the death any upstart who wants to do it.
Do they? I had a realtor once who worked for 2%. Anecdotally, it didn't seem like she was being run out of town. In retrospect, I'd rather have paid 3% for a realtor who did a better job. That extra percent was not worth the months the property sat unsold.
> It's more a question that is it worth paying 60,000 when selling your house? It's not.
So why does anyone use them? Other people must think they bring more value than they cost. And if they're too expensive why aren't people undercutting?
They are undercutting. Online brokerages like Redfin and Opendoor are challenging the 6% fee. Their success has led to the "standard" fee now being 5% in many markets, but if you use these platforms on both the seller and buyer side, you may now be able to get down to 2.5%. I expect the fees will continue to drop.
As the article points out, the realtor cartel works to de-platform individual realtors who undercut the fee by shutting them out of associations (broker networks) and in some cases removing local MLS access. By law, you have to be a licensed realtor to broker real estate sales.
I keep seeing people incorrectly using the word 'Realtor'. A Realtor is a member of the National Association of Realtors. Not all real estate agents are Realtors. And not all Realtors are real estate agents (some are appraisers, home inspectors, etc.) The "realtor cartel" will not de-platform individual Realtors as much as they will deplatform non-realtor real estate agents. To get access to MLS you must be a Realtor though.
They do not have to be a Realtor to broker real estate sales. They need to be licensed real estate brokers. Being a Realtor is optional.
Source: am a non practicing licensed sales person in my home state. I can't do anything without a broker supervising me. Also I am no longer a Realtor, I was when I was an agent for a broker who was and required NAR membership.
I am able to get MLS access as a licensed real estate agent as long as I am a member of the local board and pay for that membership and MLS access. I am not a realtor.
Also, it may be different where you are, but 25% is the standard for referrals (from the buyer or seller side).
To me, it seems easier to generate quality leads, and then refer them to a buyer agent.
The reason you must pay the commission comes back to the cartel nature. If you won't pay the 3% to each side as the buyer, then many agents refuse to show the sellers the house. I don't think they ask the buyers, they just don't tell them about it. Then when redfin in Seattle started selling houses for lower commissions, it again was difficult because of buyer agents not wanting to bring their customers to the lower commission redfin houses. Redfin I think experimented with only reducing the commission on the seller side, not the buyer side, to try to break the 6%.
It'd be less work if the tools and information were more open and transparent. It might be hard work, but a lot of it doesn't need to exist and only does because of the information asymmetry that realtors maintain
The real big issue here is not the agents -- although there's built-in systemic conflicts of interest that the industry engenders -- it's the people above the agents that really benefit from this system...
The companies who normally take about 50% of that commission from the agent do not provide anywhere close to the kind of value that they charge for.
These are the real winners and gate-keepers in the current system. These are the people that pay millions for lobbyists to keep the status-quo.
Does this just incentivize them to spend a lot of time without actually selling the house? While I think 3% is outrageous, it at least incentivizes selling it quickly (even if it doesn't incentivize getting the best price).
They should be paid by the hour with an additional commission based on the sale price.
The industry should also be completely transparent as to how quickly each agent sells houses and how much their houses sell for.
As a client, you should do your own comparison shopping, do your due diligence, and get recommendations. Then go with the ones who've been recommended by people you trust and who have a track record of selling homes quickly and for the most money compared to other agents, or buying homes quickly for less money than other agents.
Agents should also be allowed to charge however much they want. The agents who buy/sell quickly and manage to get great prices will naturally be able to sustain charging more than those who can't.
Wouldn't it make more sense to charge by the hour? Or perhaps you live in a location with low housing prices. In either case, it seems to highlight the fact that the system is broken.
> But I’ve come to see the 3% on each side as an almost market clearing price
What do you base your claim on? If you increased the fee to 30%, many more realtors would enter the market, the average earnings (per realtor) would stay roughly the same, the sellers would be paying much more, and you'd still have the impression that it's the "market clearing price".
Similar story. We ended up beingvery undecisive buyers, and our agent ended up working really hard. I felt sorry. She is doing honest work, and there are too many agents in the market who is in it for the quick buck.
I would consider getting a license myself for my own investments, nothing more.
Having done several real estate transactions by now, realtors sometimes take their 3% without having to do a lot of work. But sometimes, that 3% is an absolute bargain. The way I see it, it's worth the 3% to make sure things go smoothly.
If her client isn't providing a return, she should drop them. The fact that she doesn't means that the 3% she is hoping for is enough to cover all of that hassle. And most sales aren't worth the hassle.
If she adds value and the price is really market clearing, then surely she will thrive without the monopoly on brokerage that real estate agents have achieved.
Personally, I have seen what real estate agents do, I refuse to pay their fees, and I resent their stranglehold on the market. I consider them part of the cause of the housing affordability crisis. I'm happy that online platforms are cutting the fees, but I won't be content until the brokerage charges a flat fee or charges by the hour.
I’ll also add value I’ve seen she adds from a buyers perspective:
-she has access to a lot of off market listings via her networks. Sellers will somethings keep things off market so that when they sell, the tax base stays relatively the same - the appraisers don’t see a sale in the official pipeline
-my wife also is really good at sending bespoke letters to target homes of folks not yet willing to sell. She’ll ID a group of homes in the buyers range, send them letters, and usually gets a 5%+ response rate. These are from folks who wouldn’t have sold otherwise
"the appraisers don’t see a sale in the official pipeline"
huh? tax appraisals are based on recent sold values.. not MSRP pending. You have to record the sale with the county to transfer the property so there's no way to escape the ta x man.
That's not typical in the western US. Most western states have a public recording of the sale price and often the amount financed held at the county recorder. There can be a small tax (on the order of 0.1%) levied by the county that is a percentage of sale price.
The model's pretty broken now, when anyone can look up listings on realtor.com or Redfin, and get customized alerts based on preferences. I mean what special skills do agents even bring on the buy side? I can mediate things with the seller myself, thank you very much.
On the sell side, an experienced agent can be much more of a help. Even there, we used Redfin the last time we sold, and the difference in commission was a full 2% when compared to a more conventional broker.
I purchased my first home in 2017. I absolutely would not have known half of what to do without my agent. In retrospect there are some things that he swept under the rug that I'm paying for now, but all of the paperwork and having someone who knew what to ask for was invaluable. If I was left to my own devices I would have made some probably very stupid offers and lost the chance at my property. This might just be because there is another agent on the other end, but the whole system isn't exactly beginner friendly.
What were the things swept under the rug? A home purchase is arguably the largest purchase most people will make in the US. This is an area where I would actually want some laws requiring the agent to work on behalf of/ in the interest of their customer instead of only their own wallet.
We couldn't test the furnace due to the gas being off when the inspector came.
I didn't think anything of it since I didn't know anything about furnaces but my realtor put an extra contingency in to get another inspection of it paid for by the seller. The closing was within 30 days and they never got around to it in the week or two left after the first inspection, once I signed it was just forgotten. Maybe it was my job to get them on top of it, but he should have at the least brought it up near the signing to postpone it a day and enforce the contingency.
I ended up replacing it the next year. It wasn't terrible for me since I moved in with extra cash ready for such things, but could have been very bad for someone else who put everything into the down payment.
There were other things he was on top of though. He got the seller to come back and fix some wiring that the inspection had missed free of charge on my part which was fantastic. Not a safety issue, just usability. I didn't like what some of the switches controlled so I know they had no obligation to do it. The company who remodeled my house sells a lot of houses around here, so I suspect he has a rapport with them.
These seem like useful services, but the seller paid at least 3% of the home value towards them. Wouldn't you have rather just had that as cash instead?
I don't really follow the proposal. Are you saying that there should have been just their realtor and I keep the 3% I would have paid to have my own representative?
I don't expect their realtor to act in my best interest if so. Our goals aren't aligned. I almost fell into a situation where the realtor I was choosing was the buyers representative as well, which a family member who is a realtor as well as my bank advised was a terrible idea.
If you're proposing that realtors are just half price then I don't have a problem with paying less for things :)
No, what I mean is more straighforward. Let's say your signed offer is for $600k. Literally $18k is being set aside for your agent to point out these (IMO rather minor) things, and do some other pretty minor stuff, very akin to what a tax accountant might do during filing season.
What if you could just buy the house for $282k and never had to have an agent? Perhaps you would have missed these issues. Or more likely you would have Googled for a robust checklist of things to look for in an inspection, and discovered them yourself.
This is a structural reimagining of things could be.
I think it could work in certain scenarios. I just would not want to be alone for a major purpose were something to come up. Some years my taxes are super simple, some they are more difficult. When it's difficult I hire an accountant to do them. Same with a house, but there are a million little things that people might not realize they don't know about a house.
For example my house had a situation with taxes where I had to pay investor rated taxes for a year since it was held by an investor previously. That's the tax rate I see when I look at the MLS. I would have said no to the house if my realtor had not told me the way it worked, and that they would fall off the next year. I don't know that a generic list can capture that since its specific to my locale (or not, I don't know how it works in other places and that's great since I don't have to be an expert on it).
Mine made an offer way below asking that I thought was insulting, but he told me to go with it, so I did. And they took it, and even on top of that he said I should ask for a few repairs to be made, and they even did that too at 100%.
So I too am in the bucket of people who think's the 3% is well worth it. Not to mention the time spent showing houses and the research he did. I get some peoples issue with it being a percentage of the house, but for the house I bought at least, I see no problem with the amount of money he made. If I was buying a million dollar house, I'd probably think differently.
I still don't see why your experience means the pay should be percentage-based. Why not a flat fee? Why not hourly? Or a base fee plus hourly? The advice the realtor gave you was obviously valuable - but it shouldn't vary if you were purchasing a $100k house or a $2MM house.
The market for a $2 million house is going to be much smaller than for a $100k house. That big ass house can sit on the market for a lot longer, and have much pickier buyers. Houses like that also get a LOT more marketing. Would you spend 6 months unpaid working for a $3000 commission, or would you rather only list cheap houses that turn around more quickly for the same price?
Besides, if you can afford a $2MM house, please don't tell me you'd also be crying about paying a percentage.
I still think you're describing hourly work for the challenges of selling a $2MM house. Charge the seller hourly for open houses, pass through marketing expenses, etc.
At least I think we can agree that buyers and sellers should have choices! Today it is difficult to find anyone who doesn't play by the 6% rule, and realtors like keeping it that way.
I was replying to ApolloFortyNine. I definitely agree an agent who knows what they're doing can make a difference in the sale and have happily paid realtors in my life as well. I don't agree that that advice is somehow variable relative to the price of the sale.
Not sure how it is in different countries but in Sweden I haven't heard of anyone using an agent on the buying side. Not sure anyone would need one.
I personally think the whole real estate agent thing is a huge scam that will be solved with tech pretty soon. There are already options here for selling your house yourself through a DIY agency that just provides the boiler plate legal papers needed for 1/10th the cost. The only thing a conventional real estate agent does extra on that is pretty much host the showings.
Anybody can look up listings. And anybody can go directly to the selling agent to buy the house. It's not about negotiating a price, it's about making sure that everything is legit with the transaction. Are you going to make sure that everything is properly filed? Are you going to keep on top of all the other people involved to make sure they're doing their jobs? Are you going to go through 4000 pages of legal paperwork? Are you going to ride the sellers' asses to make sure the sale closes, so you aren't stuck homeless after moving out of your old place?
There's nothing stopping you from hiring a real estate lawyer instead of an agent. I'm sure he'll be happy to charge you by the hour.
And also as the buyer, you don't typically pay anything to the agent.
A slew of what you mentioned is the responsibility of the closing office and attorney. Your real estate agent is not our there verifying deeds, ownership interests, liens, titlework, or insurance. They have real estate attorney/title offices they generally work with, you always have a choice and generally the spend is the same.
The best bang for your buck buying/selling is choosing a great closing office. Even boutique ones tend to be within a margin of cheap ones and their the people making sure everything will be smooth, from loan closing to property transfer.
Same, my real estate lawyer charged $350 flat fee. He used standard documents, private sale. He probably spent about 1 hour on it in total, and that was about it.
You don't pay anything to the agent, directly. Why do you think for sale buy owner homes are cheaper? The seller can knock off a few percentage points because they don't have the overhead of paying 6%.
I'm not sure this is true. Short of actually colluding with the other agent, I don't think there's anything the buyer's agent can do that would be worthwhile to bring a lawsuit over.
Having a real estate agent as a buyer can be extremely useful. Time savings: they'll actively search out properties that fit your needs, handle negotiations, schedule inspections and work with the city or county, etc. They're also experienced with all of the legal aspects, and work with mortgage and insurance companies.
"Tech Bros" have a stereotype of thinking they can do everything themselves. Sometimes they should maybe step back and acknowledge that someone's profession is a bit more than what they can pick up in the course of reading blogs for a few weeks.
Now, it's understandable that there's plenty of bad real estate agents -- finding a good one can be difficult. And I'm not saying that the industry is perfect, there's certainly room for improvement. I just think that it's unfair to say they don't have value.
> Having a real estate agent as a buyer can be extremely useful. ... handle negotiations ...
I'll never understand how anyone can think someone who get's paid only if you agree to a deal could have their best interests in mind.
Even the seller's agent generally have perverse incentives as pushing to close a deal for $N,000 more only get's them $N,000 x %C vs. losing 100% of it if the deal does not close.
If you are working with some random real estate agent then sure. They are just going to push crap on you and hope you sign.
You should build a rapport with one you trust. Then they don't get paid until you are happy, since you aren't going to buy something you aren't happy with and they know that. It took 2 or 3 to find one that I felt was working for me. Dragged him to all 20 properties I wanted to see in a day and told him no on everything and that was that, until the one I wanted popped up. Then I let him argue with the seller about things that I wouldn't have any idea how to approach.
I understand all that, which is why I said the industry has room for improvement. What I'm arguing is that they have value -- they save you from taking on what is essentially a part time job that you're going to be bad at, and that they have potentially years of experience in. Whether the way in which they're compensated is fair or not is a different argument.
The tech bros are right about searching out and notifying you about properties, computers do just fine at that. As far as title, legal, etc, certainly something best left to a professional. But it should be fee based, not 6% of the value of the asset.
Even with an agent you separately hire a fee-based lawyer, title search, appraisal, and house inspection. The agent helps coordinate things but that's not really a specialized skill.
Fwiw a16z did a video on the realtor setup and ideas around interacting with companies more in the future for real
estate: https://m.youtube.com/watch?v=IRPH3K1GXj0
I haven’t looked into the details of the article, but it seems interesting that the RE startups may have some shared interest in changing the 6% rule, although one could speculate their goals
may be to replace an “organic monopoly” of many agents with a (scaled techno-geographic?) monopoly.
“The lawyers picked the top four largest real estate brokerages in their Complaint; I assume that they will quickly realize that RE/MAX and Keller Williams are not brokerages, but franchise companies, and will either amend the Complaint to include some other large brokerages (Howard Hanna? Compass? HomeSmart? eXp Realty?) and/or other large franchisors (Realogy brands, Exit, NextHome, etc.).
The basic claim is that the MLS rule of unilateral offer of compensation is a violation of the Sherman Antitrust Act.“
Recently bought my first home without an agent on either side.
If you were able to take away the complexities of applying for a mortgage, then the transaction would be as follows: buyer and seller sign a purchase contract(which defines what is being sold, for how much, and under what circumstances), establish escrow, have the property officially assessed for value (for tax purposes), have a title agent validate that the deed to the property is legally the seller's to sell, and finally file the deed with the local recorder's office.
You can pay a lawyer to draft the purchase agreement for you or write one yourself.
To me, its the closing costs and lending instruments that need an overhaul -- but yeah, get rid of the realtors too.
This is a big deal for "average" americans. Jack bogle took on the fees eating up retirement plans. Now the next biggest asset has an opportunity to be revamped. While real wages have stagnated, we can lower the costs so those wages go further.
There are 1.3 million Realtors(tm) in the U.S. Imagine what a productivity boon it would be if even half of them switched to gainful employment versus rent extraction via their cartel!
Better watch what you ask for. When they switched to no-fault car insurance in my home state, many years ago, the number of non-car-related lawsuits skyrocketed.
There are still consequences under no-fault auto insurance. First of all, you can still get a ticket for causing a crash. Second, your traffic record increases your insurance premium. Also you could get injured yourself. I don't think crashing cars is something sane people would do in the absence of the insurance system.
Since everybody has mandatory liability insurance, on average the net money transferred between insurance companies is probably close to zero, whether money changes hands in lawsuits or not.
The aim of no-fault in my state was to reduce the number of lawsuits that arose over petty incidents, that were flooding the courts.
currently, it is illegal to pay anyone a commission for selling your house except a licensed real estate agent. If you got rid of that restriction, imagine the opportunities. you could let your friends sell your house by sharing a link on social media and they could get the commission.
Also in England, real estate commission fees are about 1% vs. 6% in US. As the article states, in the US a lot of agents won't show FSBO (for sale by owner). I have personal experience with this where they trash talk or flat out refuse to show you fsbo.
If I was a realtor, I probably would refuse to show FSBO as well. I bought a house about a month ago, and when I was looking at houses, it was fun to go to a neighborhood, see five houses for sale, and to try to figure out why the FSBO house was selling for 25% more than every other house in the neighborhood. Spoiler: It's because the people who go FSBO often are FSBOing specifically because they want to get a higher price than what a seller's agent thinks the house should list for.
> currently, it is illegal to pay anyone a commission for selling your house except a licensed real estate agent.
I think you are confused about a realtor not being able to pay a finder's fee to anyone but a licensed agent.
You, as a seller, are free to pay anyone any commission you like. Unless of course you've contracted that right away in an agreement with a seller's agent. But that's just normal contract law.
Is there a significant difference between what an "estate agent" (UK) and a "realtor" (US) do?
Are they more involved in the actual legal side of things (the sort of thing a conveyancing solicitor would do in the UK), or are they still just there to advertise the property and show people round?
If they were doing a lot more of the legal side of things I could understand the difference, but a four or five percentage-point difference seems ludicrous if they are basically doing the same job.
For context for those outside the UK, an estate agent here just works for the seller, and normally gets a 1 to 1.5% fee (paid by the seller) for advertising the property and showing people round (and good ones will give you advice on tarting the house up etc). Once you make an offer on a house it's pretty much all in the hands of the solicitors and mortgage company from then on.
Depends on the state. For instance, in PA yes, they cover the legal side of things (at least to the extent that there isn't usually another lawyer involved in the process).
The other piece to this is that this 6% is split between the buyers agent and sellers agent. Typically, as a buyer, the person showing the house to you is _your_ agent (versus the UK where it is the seller's agent). Put another way, there's effectively a whole extra person involved who (at least legally) has a specific fiduciary responsibility to the buyer, and who takes on _some_ of the tasks that otherwise might fall to a selling agent.
It's also worth noting that there _do_ exist "discount agents". For instance, Redfin will charge sellers 1-1.5%, and if you use them as a buyer's agent, they will still charge 3% (since it is effectively baked into all prices) but then rebate you 1.5%. But this is less common.
So yes, overall, realtors here are doing more overall, but honestly it's largely (I think) just that they make more here because they've been effective at establishing norms, and also because small percentage point differences are easy to discount away. For instance, I'm currently buying using a traditional agent, because honestly the 1.5% fee difference is outweighed by the savings you can get with someone who can work better on offer price and post-inspection negotiations, and who is going to be someone the listing agent _wants_ to work with (which they will pitch to their clients as "this person is reliable and will ensure we close, whereas Redfin are useless and the deal might fall apart").
Not saying it's good, just giving more of the landscape.
Thanks, that was really helpful. I find it interesting how differently countries around the world do essentially the same thing.
I quite like the idea of having someone find houses for me, although with most houses in the UK being on either RightMove or Zoopla (the two main listing sites) it probably wouldn't be worth the fee.
In most US areas everything is on the MLS (a central listing source that all brokers use), so it's actually even easier: Zillow and Redfin both hook into it and make it easy.
Mostly I think the house finding part of it is kinda easy: I think the bigger value is having someone "on your team" who can help you understand value / issues to watch for / etc.
Especially as the agency work and cost required, both sides of the Atlantic, is far less than twenty years ago before sites like Right Move and easy production of details via DTP and colour printing.
It is state level laws. NAR is one of the most powerful lobbying groups in the US.
This lawsuit is interesting because as the article states... this is the first time a highly credible law firm has taken on the NAR. The courts are definitely a better place to fight because the lawmakers are easily influenced by powerful lobbyists.
The issue is more complex and nuanced than simply paying agents 6% commission and feeling you did not get your money's worth. One could argue that a lot of buyers agents and sellers agents are horrible at their jobs.
However, having met an exceptional agent, I would gladly pay this fee than deal with long term non-obvious issues that come with a property and then being upset with everyone involved in the purchase of the house. I don't think my "friends" know enough about what to look for in a house to recommend whether it is a good or a bad purchase for me. There's more to than just showing a property around to a buyer.
Also, all the marketing that a seller's agent does to sell the property, including renting furniture, artwork, presentation, print material, etc. is going out of that 3%. There's also an agency fee that the agent pays out of that 3%.
Yes, this. Good agents are the ones you come back to when you want another house. Good agents know this, and live off of referrals from happy customers.
The fees are fixed w.r.t. the price of the home, but the agent is exposed to the risk of how much work is involved in getting a buyer/seller pair matched up. Both agents can be on the hook for some time -- houses may not sell for a while, or either buyer/seller decide to stop trying to transact. That's sunk cost by the agents.
So if you're not asking very much of the agent, or giving much risk to them, it's not worth 6%. But that risk has to be accounted for somewhere, and spread across clients like any other risk.
Also, if you're doing a sale + purchase, you can usually negotiate that 6% down with your agent.
I assume there's some kind of fraud or expensive mistake that this law is designed to address, apart from just rent seeking for realtors. Does anyone have a sense of what those problems are, and whether the market would be better at addressing them now than it was when the laws were passed?
worth noting that a) transfer taxes exist in the US too and b) property taxes in the US are typically _much_ higher than council tax in the UK (though this isn't apples to apples, especially as council tax is usually also paid by tenants).
You know that most states have a stamp tax as well? It's just hidden in closing documents, and sometimes named something else. Basically a percentage of your sale price goes to the state.
I just realized this is about the same situation as "financial advisors" that you pay a percentage of your assests to to "manage them" and that get hidden commissions when you buy things. They insist that they are doing all for your benefit, and they further insist they shouldn't be held responsible for making advice that helps you (it's too restraining or some other bs).
This field is just like that. Unneeded middlemen who could help but in the vast majority of cases just soak up your money.
One thing I haven't seen yet in this thread is that buyers' agents actually make use of some pretty anti-competitive behavior on top of the regular cartel stuff. Not only do they get access to MLS listings a few days before they go "public" in most areas, but they also are starting to deal with "pre-listed" houses that they are able to know are about to go on sale via their personal networks. Of course, that's probably been happening forever, but in hot markets it's becoming more popular simply due to the low average time on market for appropriately-priced homes.
Also, I've taken a few classes on real estate (free) from real estate agents before and one of them told me that he often gets solicited by crooked inspectors who will exchange references for a-ok inspection results. Plus agents on neither side / inspectors can easily be held responsible unless there is provable, outright fraud. I think maybe real estate agents would be worth it if they also carried some kind of transactional liability but since they don't...
We bought our house with a realtor who found and walked us through listings. Ultimately, we found the house we ended up buying. Our buying agent was helpful and did a good job but the questions she answered and information she gave was available online.
We sold our house without a realtor and had no real issues. Buying agents tended to stray from our listing and most would communicate with us first to make sure we would "pay their fee". Most also tried to sell us on their agency.
Overall, I probably won't use a realtor again. The value for my price point was not worth the %.
This was my experience as well. I've bought two homes and both times we found it ourselves. Used the real estate agent friend of a family member (there's always one) to show us a couple houses and relay offers, but I never felt like they did something I couldn't have done myself. I went along to both home inspections and found things the inspector missed. At all 3 closings (buying and years later selling the first house, buying second house) I've been sitting there in a room full of people sighing and tapping their feet while I read all the paperwork they want me to sign and all three times I've caught mistakes, two of which were several thousand dollars in the other party's favor. All in all it's not just the realtors that are doing mediocre work to extract a percentage, but a whole industry (agents, inspectors, title companies).
I couldn't agree more that selling my house by myself was also a breeze. Maybe the experience is different in a down economy. I paid a flat $175 fee to a website for an MLS listing (which farmed the listing out to an agent in our MLS region 5 hours away) plus the 3% buyers agent fee and people started calling. I'm not a great photographer but I took pictures that were 100X better than a realtor walking around with a cell phone and put the Zillow "zestimate" as the listing price because I did a lot of research and took an honest look at my house and couldn't come up with a reason to go higher or lower. I definitely got the "will you pay my fee" calls despite already putting the buyer's agent fee on the MLS listing. As an experiment I tried to negotiate that with an agent and I realized that wasn't going to go anywhere. The only annoying part of the process was the buyer's agent clumsily slipping in some clauses in the contract that would have made it a terrible deal for me.
If anyone is reading this and wants to try going without an agent I'd recommend asking a friend who recently closed on a house to see their contract. That will help you spot any tricks an agent is trying to slip past you.
Nothing illegal, but the initial contract was definitely a bad deal for me. The most glaring item was some added in language that translated to if the appraisal comes up short of the contract agreement then the seller will lower the sales price to match the appraisal. In Texas at least an appraiser is chosen somewhat randomly (I'm not sure how, but neither the buyer nor seller get to choose) and they give what is at best a guesstimate.
The other glaring things were everywhere a fee was to be paid, they had checked the seller's box, and that wasn't the kind of market we were in. I had already signed for my next house and I wasn't about to pay all the closing costs when I was the buyer and again as the seller.
In Texas all the real estate agents use the Texas Real Estate Commission's forms for contracts. It has check boxes and fill-in-the-blanks for all the standard things. I found that almost any place this agent had deviated from one of the standard boxes she had tried to put something shady in. Maybe in her experience people representing themselves were less savvy sellers.
I bought my house, at age 19 without the help of an agent, all the have to do is coordinate: home appraisal, home inspection, title company. If you can make 10 phone calls you can buy a house without an agent.
Not necessarily. I bought my first house without an agent from a seller who was selling by owner.
It's quick and simple. We sat down at a table and negotiated a price in about 15 minutes, then had an inspection and paid a title company to do the rest.
It would be a good change. In Atlanta, I assume many other large markets, we have more than a few flat fee brokers. however it doesn't escape from having the buyer using a realtor expecting their fee being paid by you the seller.
When I bought my last house I used the same realtor for the home sold and was able to get a reduced fees on my sale.
As someone who has bought a couple of houses, a buyer's agent mostly provides convenience because they can access the property just as easily as the listing agent.
While agent fees usually run in the thousands of USD, probably the larger source of tacked-on fees is on the mortgage side, especially when the buyer does not have the 20% down.
So not sure if transferring more of the fee load to buyers will help move real estate. After all, except for strong seller's markets or when shopping for a specific type of home, the seller usually has more incentive to sell their home than a buyer has to buy it.
Regarding selling, I'm not sure this development is the realtor kill-shot - I would argue outfits such as Opendoor (convenience) or even Redfin (eliminate realtor fees) probably will inflict more damage to a realtor's income.
Because selling a house is a 100x greater PITA than buying.
Convenience shouldn’t cost 3% though. When I was looking for a house I was able to find houses I liked on search engines and then call the aeller’s realtor directly to set up a viewing. When time came for an offer, paying a real estate lawyer an hourly fee ends up saving $10k+.
There are some startups trying to fix these issues and price at flat fees to mixed effect (Trelora in Denver comes to mind as an example).
I think the true solution will come not by lawsuit but by mass scale market-making by companies like OpenDoor and Zillow. When you want to sell your home you can go to these companies and get a check within a few days, and when you want to buy a home these will have built software and systems to make purchasing a straightforward process. They'll provide liquidity and take a cut, but with a couple of companies in the market the 'spread' will probably be lower than buyer+seller broker fees.
They may not serve unique and luxury real estate in the near future, but for the 'typical' suburban home it seems like consumers could see a benefit.
I've bought houses using an agent and not, and the latter was in every way more pleasant and predictable. The agent (and their supervising broker) overlooked fundamental items in the contract which ought to have been obvious, like ensuring the current renters would be out before close. Even with the seller picking up the tab for both agents, as a buyer I would prefer doing it myself. The only drawback is, of course, that it's much more difficult to get into houses without being represented by an agent.
I couldn't buy a house without a realtor even though its a house that found myself and was paying 100% cash. 3%-3% is a lot of money if I don't use any service from a realtor.
In a hot market (e.g., Denver last year), the seller's agent would not return your calls for a showing if you didn't have an agent.
I suppose you could visit an open house and then submit an offer. Some houses never do open houses, or will already have offers before the open house. You would probably be competing with 2-3 other offers all over asking for a properly priced house. The odds of them choosing your offer would be lower since the seller's agent would not like it (it would be a lower offer on paper, since it has 3% less commission). They might go for it if it was all cash, but probably not with a mortgage.
In my home state at least, a sellers' agent is legally and professionally obligated to present all valid offers received to the sellers. Failure to do so can result in legal liability, fines, loss of license etc.
If your state is similar, then if you had made an offer by any means, like via the agent's voicemail and the agent didn't tell the seller about it, then you would have had cause for legal action.
I never made an offer. I was simply trying to see the house without an agent of my own. The house in question was near where I was renting and had been on the market over a week without an open house. It went to pending a week or two later. The seller's agent never got back to me at all.
It's funny you say that about legality though - some of my relatives recently put in a low-ball offer on a place in AZ. The seller's agent called them back, said it was insulting, and would not be even showing it to the owners. The house had been on the market for months. I wonder if that was legal.
If a market is hot then bidding is necessarily going to be more competitive and sellers are going to be less accommodating. It's not unusual for buyers to make an offer site unseen in a hot market. So if you have the cash and you really want the house, I suggest you check out the rules in your state and next time try making an offer by any necessary means.
That doesn't make sense. If you go to the seller's agent directly, they get the entire commission instead of splitting it with a buyer's agent. It's in their best interests financially to not have a buyer's agent come along. But that's also terrible for you because it's a conflict of interest for the agent to represent the buyer and seller.
More likely, they didn't see you as a serious buyer if you don't have an agent. There are a lot of tire kickers out there.
> More likely, they didn't see you as a serious buyer if you don't have an agent. There are a lot of tire kickers out there.
That's definitely it. I literally never got my foot in the door. My plan (which I never executed) was to use a real estate attorney and lower the offer by 3% since no buyer's agent commission would be needed. I had read about people doing this, but it didn't seem viable in a hot market unless you are flush with cash. I wasn't an all cash buyer.
Adding onto the complaints of economic inefficiency here: one of the worst things I found living in Boston (not sure how many other major cities this applies to) is that it's completely standard for the renter of a property to pay a broker's fee, generally equivalent to one month's rent, to the landlord's agent.
In most (healthy, cheaper) rental markets, the landlord will pay a real estate agent a fee (one month's rent, again) to find a renter. This intuitively makes sense, as the landlord requires some number of hours of effort from the agent to list the home, show the apartment to a ton of people, and find one willing to rent it.
It seems economically so incorrect that the renter should bear the cost of the fee the rental agent charges for showing the home to like 10 potential renters— they spend maybe 10 minutes of their time showing the individual renter, and they're late more often than not!
Edit: below commenter rightly pointed out that this is economically perfectly correct— unjust from a value perspective would be better phrasing
Standard economic theory predicts that the tax incidence falls more on the party that has lower elasticity — that is, fewer alternative options to make a deal. If it is hard to find an apartment, the renter will pay most of the fee. If it is hard to find a renter, it’s the opposite.
One of the strangest parts about mortgages to me is the "point" system lenders use to sell buyers lower interest rates. They offer a lower interest rate if you "buy points" rather than applying it towards your down payment. It seems like lenders are prioritizing their short term profit over their customers' long term financial stability.
Why is this strange? The majority of lenders repackage and sell off loans that they originate. Of course they are prioritizing short term profit.
As for buyers, also what's not to love? Buying points gets you more cash flow than the reduced principal. There's some math to do, and some financial projection, where you expect to be in 5 years, etc. It's great to have the option.
Yeah, I've never quite understood the value proposition of that fee myself. Between that and the gatekeeping that happens to become an agent, it seems like it's a bit inflated and held up by tradition.
At least the iBuyers like Opendoor provide a service whose value I can see, even if it might not apply to every individual. Having someone else take on the hassle of dealing with shady vendors and house showing, repair negotiations and flaky buyers, while letting me move out cash-in-hand whenever I want? I get that.. especially after experiencing my good friends hit every one of those nightmares themselves, ending up having to waste thousands on AirBnB's after contractor issues left them without either home for months.
I always wondered who represents home owners who have cheap houses... Like a $50k house. Whether you are selling a 50k house or 500k, there's a similar amount of work. But those houses do get sold.
Also as a rental property owner I hate how realtors charge by the monthly fee. Meaning, if I rent out my house for $2k a month, I need to pay them that amount for a new tenant. A $2k a month property with tenants that have jobs is easier to maintain than $500 property with tenants that barely hold a job.
They also take a 10% cut per month of the rent... $200 for $2000 rent... $50 for $500...just to do the same thing. Real estate fees make no sense!
I'm generally OK with commission based sales - if there are guarantees. There's very little due diligence on the part of the Realtor or real estate agent. They can't really be held responsible for anything related the to condition of the house if something was hidden or missed by a home inspector. They'll put anything on the market, and typically make suggestions to sellers that while intended to improve "curb appeal" and "showability" often cover up bigger problems that the property might have.
I mean, as a rule of thumb sure (because who wants to have to depend on the legal system for restitution), but not legally. Legally, the seller can't make any false representations. If you're worried about accidentally doing so, it's best to hire an agent who then takes on the responsibility for it.
Residential real estate is an odd one. Countless times I’ve seen it warp the ego of agents and their perception of value being provided. A friend was looking to buy a $15m house, so I vouched for a childhood friend that was newer to real estate. Agent friend was able to make it happen by tracking down the owner who lived an hour away and convinced her to sell. After close the agent friend then complained to me that he got hosed on the deal because of the “100 hours” he put in and only receiving 1% - $150,000 ($1,500/hr). A year prior he was delivering pizzas (!!).
The fee structure is X+1% for the first $350000, and X% above that.
One company advertises 1% fees, but they make it up with other charges.
From my experience, few people use a buyer's agent (maybe because property details are well recorded centrally, and often they are not part of a building, and so there are fewer legal risks in NZ).
We tried selling our first house ourselves. Ran ads in paper. Put up fliers. Etc. This was before the internet mind you. Tried this for 3 months and literally had no serious interest. We gave the listing to an agent and a week later had two full price offers. Sure, the internet has changed things a bit, but since then I always use a realtor. 6% is fair for the good ones. More challenging in some markets near me is where 6% isn't enough. Lots of $50K houses still. That's only $1500 for each agent.
If you're a buyer, what does the realtor do? Do they sort the legal stuff? Or are you (/seller) paying 3% to find you a house?
How does the legal mechanics of this work, do realtors have an obligation to work in the interests of the person that engaged them, or the person that's paying them? Presumably its who engaged them, as they won't know who's paying them. Why then are they allowed to not show certain homes???
In contrast to other systems used, The US system ensures the buyers are able to make a competitive offer without forgoing representation(because the buyers agent is paid for even if the buyers are unrepresented), and that almost all transactions have both the buyer and seller represented by separate agents. If the buyer is unrepresented, the listing agent is in practice representing them, and the seller still pays 5-6% so most buyers would want their own agent. Buyers agents usually sign an exclusive representation agreement outlining their duties to the buyer, and state law also covers their responsibilities to the buyer even if the buyer is not paying them directly. Real estate agents are only compensated when a sale closes, unlike real estate attorneys, or most everyone else in the real estate industry who are compensated when a service is rendered. This aligns the incentives of the real estate agents with the home buyers and sellers. Real estate agents are spending a lot of money on marketing, which is what allows for sites like Zillow to exist and for buyers to find homes for sale without directly involving an agent.
There is a noticeable difference having agents as a buffer when buying or selling a home. For many it is an emotional experience and without representation the sale would not close. There is also a difference between transactions where everyone is represented by an attorney who is paid even if the deal falls through, or where they are represented by agents who are only paid when the deal closes. Having a financial incentive to have everyone represented is overall a positive.
In the US the realtors recommend repairs or other changes before listing the home, sometimes handle staging the home, arrange a professional photographer, pull data for comparable recently sold homes, call the listing agent on pending home for sale to get the contract price(likely will be closed by the time the appraisal is happening) and have knowledge of the local market to help you decide on the list price. After listing a home they handle showings and setting up the lockbox, and this includes screening potential buyers, usually requiring that they have a mortgage pre approved before viewing a home. Really the buyers agent is doing most of the work showing homes. In many cases the listing agent will hold an open house to get more people to view the home, but this is more for the agents benefit than the seller. After getting an offer the listing agent still has a lot of work. They will negotiate counter offers. They will help with preparing the required disclosures. There is a lot of following up with third parties, the loan officer at the bank, making sure an appraisal is scheduled, being present with the home inspector, following up with the buyers agent to get contingency releases, negotiating repair requests or other amendments. Then there is last minute stuff that needs to be done, driving a contract somewhere to get a wet signature the day before closing, getting the county to confirm a deed was recorded today, so escrow can be released before 5pm.
Buyers agents are used in the UK too, mainly by the wealthy. Less well off clients go without because they cannot afford it and still make a competitive offer. 1% is on the low end, and it does not include VAT. If you go with a full service estate agent they are charging 2.5%, and you are paying 3% out of pocket for a buyers agent. 1.5%, and paying 1.8% total inc vat is closer to the average. In a lot of cases that is not far off from what is paid in the US. Another big difference is the US has the MLS, with virtually every home listed, and the UK has multiple marketplaces and not everyone will see every home. To reach almost everyone you need to use multiple agents and pay a higher fee, if you use a sole agent, you are not reaching all registered buyers. This is more of a problem in a buyers market, if you have a home in a hot market you will find a buyer either way. Multiple agency is not needed in the US.
They usually don't add any value unless you are maybe a naive buyer. They goal is complete the sale at any cost, otherwise they get nothing, and that's a bad incentive. At this point there's no real basis for a percentage commission.
When I was in OK the 6% seemed like a lot, but it was workable.
Now in CA, after selling my first home, this 6% is simply absurd. After selling and buying a new house, even with considerable equity, if I were to sell my house again I would actually be losing money.
We had several major life events at once recently (job loss, family death, and a couple others), and almost had to sell the house. Doing so would have been like starting over after building up equity for 30 years.
> cost that would be borne by the buyer in a competitive market
There is no such thing; any such cost is a parasitic loss that comes out of the value of the transaction. Two parties are transacting, and in comes this little vampire and sucks away a bit of it, leaving both of them poorer.
Reasoning such as "the other party pays it so it makes no difference to me" is horribly irrational and innumerate.
I took advantage of the situation when I last sold my house. I knew what the house would likely sell for, and told my agent that I’d pay him his 3% seller commission for that price, but for anything above that amount, I’d split the incremental amount with him (I believe I proposed 40/60). Ultimately I made an additional $10k.
Your local real estate listing service (also useful for competitive price analysis) is only accessible by real estate agents. This is anti-competitive. Real estate agents are one of the last bastions of rent-seeking bastards that will fall, and not a day too soon.
I just wish they could keep real estate companies from asking to buy the house I just bought a week ago. These people have access to all the listing and sales data. They know I just moved in. Why are they asking to buy my house?
There are some startups trying to fix these issues and price at flat fees to mixed effect (Trelora in Denver comes to mind as an example).
I think the true solution will come not by lawsuit but by mass scale market-making by companies like OpenDoor and Zillow. When you want to sell your home you can go to these companies and get a check within a few days, and when you want to buy a home these will have built software and systems to make purchasing a straightforward processes.
They may not serve unique and luxury real estate in the near future, but for the 'typical' suburban home it seems like consumers could see a benefit.
Exactly what I’ve done over the last 20 years. I FSBO and pay a lawyer by the hour at the doc signing. Not to mention I sell at a higher price than what realtors who try to land my business state I could sell for.
This may lead to banks and realtors colluding. Instead or the current model we'll get realtor/banks buying properties that go up for sale. Then the realtor/banks will upgrade the cost to a 50% markup. That will of course be after flippers fix the house and other things. But in general, we're see the rich buying out the poor.
I bought a house a couple years after I started working there, and I wanted the full home-purchaser experience. I used my company's services for everything, and as an employee they hooked me up with a real estate agent (among other things).
I was honestly appalled at what little my real estate agent did for me through the whole process. I had what seemed like simple requirements: I wanted to live west of the city, I wanted at least 1 acre, and an outbuilding. The outbuilding is what threw off the search tool the agent was using to find houses for me; he rarely found good ones in my price range that had outbuildings.
I ended up finding the house I purchased. I'm honestly not sure what he did at all.
When it came time to sell my house, I did it by owner. It was super easy to do everything, including getting my home on the MLS with a service called Reozom, for a couple hundred bucks. I used several sources to come up with comps for pricing.
However, the purchasing agent who represented the buyers of my home was an absolute MONSTER to me; extremely rude in nearly every email or phone call. I think she was so horrible because I was proving how absolutely unnecessary she was in the whole process. I sold the house for a little under asking price, plus I paid her a 2% commission instead of 3%, and of course not 6% as if she represented me as well. The funny thing- she didn't notice the 2% in the purchasing contract until after it was already signed.
What I've anecdotally learned is this: real estate agents don't provide enough useful benefit for me to use them, and can be hostile as their industry is increasingly proven to be built on little or nothing.