Every time I buy or sell a home, I'm very thankful that one of my friends has a realtor's license. None of that 7% BS. None of the dumb games they play. How it came about that the services of two realtors was worth $35k on a $500k home is beyond me. Especially in this day and age, where we all just look online and tell our realtors what houses we want to go to. Half the work they used to do is now done by the client.
I would have to disagree. Yes, much of what they do as far as finding houses can be done online these days, but there are many edge cases where a (good) realtor can save you.
When I first purchased a home my credit history was.. interesting. The value the realtor provided was putting me in touch with the right grants, forms, etc and ways to build and fix my credit. They helped me not get scammed with a high interest or ARM loan. Their knowledge helped me. Also she steered me away from a couple houses due to inspection concerns that would have cost me time.
Fast forward to now my credit is awesome, the homes I can afford are in a far different category and my last home purchase was fairly routine, so my realtor didn't do as much but I still value their knowledge and experience because you won't need it until you need it.
not arguing against there being value, but there are credit rehab companies that would have probably cost you a lot less than the realtor's commission. Many basic credit consulting services are free.
I bought a home recently and work in the mortgage industry. My opinion: the buyer's agent should be a flat negotiated fee, maybe an hourly rate. There is very little that most do that the buyer can't do themselves. If the buyer doesn't want to do it themselves, then that's a choice they make to pay, and for items like inspection reviewing and negotiating, I'm not sure I see why it's significantly different if I'm buying a $200k house vs an $800k house. I don't agree with their fees being a percentage of the home prices.
Seller's agents on the other hand...those guys are salesmen. I can see way more value in incentivizing that person to get maximum value for me.
The seller's agents are indeed salesman but their incentives don't end up quite aligned with the seller's.
For example let's say a selling agent is getting 6% on a house listed at $500k. If it sells at $500k he gets $30k, if it sells at $520k he gets $31k. If he were to get a $500k offer it probably isn't worth his time to put in a lot of extra effort to try to get that extra $1k, but to you that extra $19k is a lot of money. You might want to do another open house but the agent will convince you to just take the offer in hand. I think this is one of the reasons that agents use all these short deadlines and pressure tactics, it's not just to get the buyers locked in, they want to be in and out of each deal as quickly as possible so they can move on to the next deal.
Not sure how to fix that, but it is an issue to be aware of.
I wanted to do this the last time I sold a house -- I was thinking something like, the commission should be 1/3 of the difference between the sale price and an agreed-on minimum price. Stupidly, I didn't stick to it when the first agent I started talking to told me she wasn't empowered to negotiate such terms.
That agent was very helpful in a lot of ways, but didn't get me a particularly good price -- another, nearly identical unit in the same condo complex sold around the same time for about $30k more.
I think the next time, I will stick to my guns on the terms. That probably means I'll have to find an independent agent. This is not necessarily a bad thing; I think the agent who sold that other unit in my complex was independent.
I can only agree. Having had to sell a home via a realtor recently due to distance my (totally anecdotal) experience was that his incentive was to find anyone who would bid at least some amount within my price range. Not the best deal. He didn't exactly market it. And after signing all paperwork and visiting the house with the new owners I realized what positive aspects of the house were all unknown to them.
Lots of things like that. And then both parties having to pay 5.1k for his 'service'.
One minor nit. The selling agent doesn't get 30K. They get 15K because the buyer's agent also gets 15K in most normal deals. From that 15K their firm probably takes somewhere between 30-50% depending on the volume and size of deals they close. I'm not saying they're worth 7-10K but it's a far cry from the 30K you speak of. Which reinforces your point even more. They don't get compensated enough to spend another few weeks trying to get you 20K more.
Not only that, but if your neighbor has a 800k house to sell, guess what house your agent is hiding from their clients so it can get a better commission.
Well, so does the current scheme of a percentage, offset only by whatever desire there is to find a more expensive house you're willing to buy so they can get more money, which you hope isn't a large factor in their reasoning.
The fundamental underlying problem is that realtors are in a lemon market. The combination of low transaction volume, low cost to enter, and a general inability of customers to determine quality until the deal is done is a toxic blend.
I fully believe that there are realtors out there who make their clients money. There is, however, no reliable way for me to differentiate them from the lazy scumbags.
The seller does not pay for the buyer to receive their agent's service, except in accounting terms. The commission to the agents is (should be; if you as the seller aren't thinking of it that way, you're misconceiving the situation) priced into the cost of the home. All the money in the deal comes from the buyers.
When realtors' business model gets disrupted, sellers will not end up getting the same prices for their houses as they do currently, or get to keep the 6% that now goes to agents - that money will simply drop out of the cost of buying homes (except for the new, smaller, cost that will be captured by the new business model).
"When realtors' business model gets disrupted, sellers will not end up getting the same prices for their houses as they do currently, or get to keep the 6% that now goes to agents"
It's not clear to me that that is true. All economics tells us is that in the current system, sales clear, which means that buyers are fine buying at the current prices and sellers are fine selling at the current prices less commission.
If the commission were to suddenly disappear, it is not clear if the buyer, the seller, or some mix would retain that money. You're suggesting that the buyer would retain all the money without evidence, whereas basic logic would suggest that the seller has more economic power (because housing prices generally appreciate faster than inflation), particularly in hot real estate markets.
Your point is valid. It's not clear to me that my claim is true, either. I made it in part because I wondered whether it were true, and I subscribe to the idea that the best way to find out if something is true is not to ask whether it is, but to assert that it is and wait for arguments to the contrary.
But I think it might be partly true, too. As you said, currently "sellers are fine selling at the current prices less commission". When those commissions disappear, sellers who were previously content to get Price - 6%, should still be content to get Price*0.94, since those are the same, and at least in buyer's markets, competing sellers have an incentive to undercut one another in the effort to get their house sold. It seems probable that those would lead to houses moving to a new normal pricing structure 6 percentage points lower than the old normal (less whatever amount the new model is capturing).
Two words: bidding war. My realtor was worth every penny she got.
And I don't know where you are located but I've always known the standard commission to be 6% (3 to buyer and 3 to seller agents). But everything is negotiable, I got mine done at 5%. She knocked 1% of the seller agent fee to be my buyer agent on the next transaction when her fee wouldn't come out of my pocket. She got me a second great deal, could I have gotten the same? Maybe, but knowing that negotiation isn't my strong suit, probably not.
But then again, most people buy houses so infrequently that one or two experiences either good or bad is going to color your whole outlook on the industry. I've been lucky enough that my few experiences look like net wins from my perspective.
I completely agree with you on this sentiment. I've often been quite disenfranchised by this whole palaver around financial reward around realestate percentages...
From your wording it sounds like you frequently buy/sell houses.. Or is this just me reading into things?
Well, we're on our third house. We bought our first one in 2008. We may be on to house #4 this year. We're weighing remodeling our current place or moving, so we've looked at some homes recently. Not sure if that makes us frequent home buyers or not.
My friend has also worked with my sister, so all told he's helped myself or someone close to me with buying and/or selling 6 homes and maybe a 7th.
