‘Tragedy Of Commissions’ Leaves ‘Nobody Better Off’
The Wall Street Journal looks at the way the housing market works. “As home prices soared in recent years, so did the percentage-based commissions charged by agents. Residential real-estate commissions in the U.S. totaled $61 billion in 2004, up 42% from 2000. But isn’t this trend at least making Realtors happy? Alas, no. The number of real-estate agents has grown even faster than total commissions.”
“Membership in the NAR, the dominant trade group, totals about 1.25 million, up 63% since 2000. As a result, there’s not even close to enough commission income to keep all those agents in Porsches. The median annual income of real-estate sales agents in 2004 was only $37,600, down from $39,300 in 2002, according to the Realtors. Even that figure overstates agents’ well-being. Because most agents are independent contractors rather than employees of the firms where they work, they need to pay out of their own pockets for such things as health insurance, pension plans (and) driving customers to see homes.”
“A 2003 study by Chang-Tai Hsieh and Enrico Moretti found that when home prices go up in a city, more people become agents. Their productivity, the number of transactions completed per agent, then declines. The result is that income for the typical agent remains low, even though some top performers earn six-figure incomes. ‘Somebody is paying more, us, consumers, but nobody is better off,’ Mr. Hsieh says. He calls it the ‘tragedy of the commission.’”
“Realtors often point to the large number of agents and their relatively low pay as proof that the industry is highly competitive. But as Mr. Hsieh and other academics have found, a large number of competitors doesn’t necessarily mean lots of price competition. Commission rates have come down only modestly in recent years. Real Trends estimates that the average fell to 5.1% in 2004, from 5.5% in 1998.”
“Of course, some brokers do compete on price, including a growing band that charge a flat fee for selling a home. But a recent report from the GAO found that real-estate brokerage firms have ‘displayed more evidence of competition on the basis of nonprice factors, such as reputation or level of service, than on price.’”
“One possible reason for this, the GAO said, is the use of MLS databases. These services allow agents to see how much commission is being offered on each home. They have more incentive to show their customers the homes with higher commissions.”
“Another reason is that Realtors are well-organized and have persuaded states to pass laws discouraging price competition. For instance, about a dozen states prohibit agents from rebating part of their commission income to the consumer. Peer pressure also plays a role: Agents need to cooperate with one another to sell homes, and offering discounts isn’t a good way to make friends in the trade.”
“Yet consumers also are partly to blame. Many people don’t even consider using a discount service or negotiate with their agents on the commission.. The message for consumers is clear. Those looking for a new home should insist on being shown all of them, not just the ones that come with the fattest commissions. Home sellers should interview at least a few agents before choosing one to market their homes”
Thanks to the reader who sent this in.
and never list your home with a realtor who is a friend.i did that and gave my buddy the realtor a 90 day listing, after 90 days no offer, i asked him what his game plan was for the next 90 days,and he looked at me and said he would just continue doing the same thing,so i fired him and listed with a neighborhood expert who sold my house the first week she had the listing,and now my friend the realtor wont talk to me…how can he be mad at me,he cost me money,because after 90 days on the market a home becomes stale,and we were getting nervous,so i negotiated in a weakened position…p.s we were friends for ten years…..
I agree with that. I interviewed a friend to list my house too. It was really uncomfortable. Fortunately I talked my wife into staying in the house a little longer. Next time when it comes time to list we’re going to stick with people who aren’t friends and we’re going to try to get one comission waived (we’re going to do a trade up). We’ll let them have either seller’s comission or buyers, but not both. It’s a load of crap to have to pay both sides in the same transaction.
Bond News Update:
Treasuries Fall as Government Sells $21 Billion of 3-Year Notes
U.S. Treasuries fell, reaching their lows of the day, after demand declined at the government’s $21 billion sale of three-year notes.
…
Indirect bidders, the class of investors that includes foreign central banks, bought 22 percent of the securities, the fewest since August 2003. Indirect bidders purchased less than 30 percent of the three-year notes sold in each of the past two auctions as well, down from an average of 44.5 percent in the previous six sales.
…
Interest-rate futures show traders are pricing in an almost 90 percent chance the central bank will raise the federal funds target rate to 4.75 percent at its next meeting on March 28, up from 58 percent two weeks ago. The odds of another quarter-point increase at the May 10 meeting rose to about 40 percent, from zero percent two weeks ago.
grim
Northern NJ Real Estate Bubble
I got lucky when I listed with a friend…listed Aug of last year. This site, not my friend, helped me sell the house. I listed it for an astronomical price listening to him. His reason was b/c the one down the street sold yesterday for a lower price. the one that sold was sooo much better than my place, but he was sayin list it for 20K more. After 2 months of no interest/calls, I had him lower the price by 40K and it was under contract 2 weeks later. My scenario worked out, but I was extremely nervous at the time.
I just sold a rental house a couple months ago in Sac, and I found a RE broker (ironicaly the guy I bought it thru 8 years earlier as a VA repo) to list it on the MLS for me for $1000. He also took care of all the paperwork, stuck a sign out front so he got the calls, & put a lock-box on the door. The house was vacant and I never had to show it once.
I also offered a 2.5% comm to the buyers agent. Originally I offered only 2%, but quickly changed my mind. Turns out that REALLY pisses em’ off, and they end up steering their clients away (which is illegal I might add)
One tip if you plan on going this route: Find a reputable broker who will list it for you versus using one of $500 servies on the internet forsalebyowner.com etc.). Times are getting tough for these guys. Shouldn’t be too hard to find one.
” about a dozen states prohibit agents from rebating part of their commission income to the consumer”
Huh? Which states have laws like this?
Inventory is now “officially” above last year’s inventory numbers according to ocrealestatefinder.
There is a big jump today from yesterdays number (13,958) and todays number (14,935). I’m not sure why the jump or if it will be corrected. But as it stands todays number has passed the 10/25/05 peak of 14,579 so it is now at a new high.
Several neighborhoods are confirming this as they are also at new high inventory levels.
This was expected but it will be interested to see what this years inventory numbers will peak at.
in Uk they get 2-2.5 %total
after the fall the 5 and 6 % will be dead
Mad_tiger:
apparantly California is one of the states that now prohibit commision kick-backs, or so I was told by an agent last time I tried it, about a year ago. It must be new, because I had an agent kick me back 1% in 2003.
Maybe somebody can clarify.
I think a lot of this price competition and cliquishness in real estate is going to get majorly overhauled in the housing debacle that appears to be brewing, much the same way that high commissions and clubiness were knocked down in the stock brokerage business in the early 70’s. There are layers of bureaucracy in place with title research, etc, that are just waiting for reform. If the industry gets majorly ravaged, all these areas will take a hit.
People like Charles Schwab reached out to the little guy with low commissions. Now just about anybody can access to very recent market data - you know longer have to call up a broker to get a price quote or look in the morning newspaper to see what X closed at the night before.
Maybe instead of “Will work for food” we’ll be seeing unemployed realtors with signs that say “Will sell your house for food” or “Will do a title search for food”.
good advice regarding the discount mls services like mls.com and others…the local real estate agents boycott the homes listed by those agencies and will not show those properties,so u get your house in the mls, but no local agents work it,and the home just sits……
yeah, five years slinging RE and I can tell you agents avoid showing houses with reduced commissions.
the discount RE brokers come and go, but almost all end up failing b/c the overhead to run your own RE broker shop is too high to survive on cut rate commissions.
I have a very good friend who is engaged to a guy in S. Florida. He has been dabbling in real estate development (highly leveraged) and she is a newbie Realtor ™. Of course, she is the listing agent on couple of his specuvestor properties.
He won’t reduce from his ridiculous asking prices, and she has no prospective buyers other than competing developers low-balling. Needless to say, their relationship is well on the decline…
He is a wanker, anyway. Good riddance!
On FSBOs and the NAR cabal:
Please keep in mind that nearly 40% (or maybe even larger) of prospective home buyers search online before they go see a realtor. So…. once a listing is in MLS, prospective homebuyers can see it, then demand of their agent to show it to them. If the agent refuses, well, the homebuyer can go elsewhere. If you really like a house, are you going to let an ineffective agent stand in your way? Nope.
There’s this house in my neighborhood, a FSBO. My neighborhood is one of the best in the city — Glover Park. 3 story row houses go for $650 -750 easy. And are sold within weeks, sometimes days. Excellent schools, good location in terms of driving around the city, and more excellent transportation than you could shake a stick at.
The FSBO listed his house at $819, way overpriced. He’s had a 10,000 price break. I bet people have approached him, and have made offers (houses don’t come on the market all too often) and he’s refused them for being too low. Sometimes, FSBOs sit on the market for the failings of the owner.
“A 2003 study by Chang-Tai Hsieh and Enrico Moretti found that when home prices go up in a city, more people become agents.”
Go (Berkeley) Bears! Moretti also found that, real estate agents don’t benefit much when 6% commissions go through the roof, due to relatively low barriers to entry.
Commissions won’t come down until google does google.realestate.com or something else similar in nature. there MUST be a single consolidated site with access to ALL real estate info on property (specs, price, taxes, local comps, etc.), and it must be idiot user friendly.
Until then, there will always be a “club” of realtors keeping commissions high because they control the information. If you take the information away from them, you reduce their profession to security/screening personnel hired to show your home.
“There is a big jump today from yesterdays number (13,958) and todays number (14,935). I’m not sure why the jump or if it will be corrected. But as it stands todays number has passed the 10/25/05 peak of 14,579 so it is now at a new high.”
Superbowl Sunday marks the begining of the “Spring” selling season. This is typically the time of year when the Spring listings hit the market.
“yeah, five years slinging RE and I can tell you agents avoid showing houses with reduced commissions.”
Does anyone know the status of the DOJ investigation into this practice? Any predictions on if any real changes will result from the investigation?
Sunny,
I can pretty much find out everything I need to know here in VA - we have a lot of free MLS information as well as internet-friendly tax records.
I would hesitate to buy a property without some form of representation, and a reputable real estate agent is a decent idea. I called a Re-related phone number out of the local paper recently and some guy was trying to get me to put a massive earnest money deposit down right away. He was a crook. I could tell it was his intention to find a way to keep the money and not sell the property. He also wanted to defraud my lender as well with false information. Thankfully I am somewhat experienced and knew what was up. But he will, I am sure, find out a way to defraud someone in future.
How can there be real changes from a DOJ investigation where its the pursuit of “nickel and dime” individuals. Talk about proof problems. Provide a private cause of action with punitive damages and force all realtors to carry $1mil E&O insurance, THEN you’ve got some bite.
Arwen U.,
Again, if you take the information out of their hands, you reduce their monopoly and bargaining power. Representation in a transaction, if you desire it, is better and cheaper with a hometown real estate attorney.
Although many appraiser sites carry the relevant market info, most people cannot digest it or access it b/c its not idiot proof. Google needs to idiot-proof a real estate info site.
I don’t have much sympathy for the pay of realtors. I think getting 6% of the sale of inflated properties, for the little work involved, is highway robbery.
I’ve noticed some are willing to lower commissions if asked. For example, I am buying a home and selling another (actually 2 counting my fiance’s) and several realtors I recently talked to were easily willing to go down to 1% commission on the sale price (which would amount to payout of 4% as 3% paid to buyer’s agent) of each home and they would collect 3% (of the 6%) commission when we purchase another home.
I’m starting to wonder if I can go lower … perhaps ask for a 1% kickback of the 3% commission they make on the buy side.
Anyone have any feel or stories on commission negotiation in hot RE markets (I am in the Phoenix area)?
Some smart guys are going to make RE’s E*Trade a reality.
More and more sellers can’t afford that 6% commission any more.
61B in RE commissions in one year is insane. At 6% a crack, at these high prices, what a con job.
I think 06 will be the year that sellers, very much underwater, will begin to demand discounts on these ridiculous commissions.
Whoever comes up first with a viable MLS alternative will be the next GOOG.
sunny-
You are wrong selling a house thru an attorney is not cheaper nor is it gaurenteed(sp?) to be better. Don’t know many attorney’s that will work for free on some overpriced listing that the seller swears his neighbor got the same price last week. Nevermind the fact his so-called neighbor lives 30 miles away.
As far as taking information out of the realtors hands all the information is available to the public. But I don’t think that many buyers or sellers have the time, knowledge, or desire to sit down and sift through all of it and analyze it to make an informed decision.
As far as your call to action to idiot proof real estate. It’s impossible to do that. Because every transaction is different. Every house is diferent, every appraiser is different, and every buyer and seller is different. Every deal has it’s own set of problems whether it be a cloudy title, divorce situation, or a borrower whose Uncle didn’t come thru with the closing cost money.
Oh and btw most reputable realtors have e & o insurance that you can sue if something goes wrong.
Wake up sparky your attack on realtors is way off based
The error in this article is to assume that all realtors depend on selling house for their income. Almost all realtors I know do have a regular full time job. An extra 20K per year will not hurt. Of course the full time ones get much more.
OK, I’ll share my agent horror story too.
I got a great new job out-of-state. Listed my house with the same agent I had used to buy it with a few years earlier. Moved away, leaving the marketing of the house in his able hands. Of course, being my agent, we had discussed my position in detail, including my rock botom price, what my cash-flow-bleed was going to be on it (time constraint), etc.
~45 days later, I get a call. Great news, he says. He has decided that he would like to buy the house for himself.
I’m assuming you all can guess what kind of offer he had for me. And just how hard do you suppose he had really been trying to sell it for those 45 days?
But, I’m 1500miles away, bleeding red ink. Don’t really have anybody back in the old location who can help me find a new realtor; or a lawyer. Decided to cut my losses and be done with it. Lesson learned I guess- but I’m still not sure if I could tell you all how to avoid the same trap.
Needless to say, I have a rather dimished respect for the profession after that.
Mrincomesstram-
I sold a house without a realtor and got 15% MORE than my realtor friend said I should have listed it for. All contracts were done through my real estate attorney who was EXTREMELY helpful. His fee was $550.00. That’s all we spent- no advertising- no open houses- no glossy brochures. We ended up living in our sold house for 1 month rent free without any escrow. The transaction went so smooth because we had a direct dialog with the buyers without any intervention from realtors. By the way no other house in our town has sold for the price we got
( May 2004). I would not hesitate to sell again on my own- it does not take a rocket scientist or a realtor to sell a home.
bottomfisherman-
How so wrong you are!! You’re so wrong it’s laughable. The only thing that’s going to happen when the market goes south is the commissions are going to go up. You’re going to see 6% commissions flying out the door like diarreha. Why?? Because sellers are going to be desperate to unload their spec properties or properties in general. Your going to see 6% commissions with anywhere between $1,000.00 to $10,000.00 bonuses to the agent who sells it. How soon we forget what the last downturn was like. The only reason why you have seen an attempt to lower the commissions is because the sales prices are astronomical even in the crappiest neighborhoods.
As has been previously noted on this blog the houses with a 2% commission have a tendency to sit. Actually I know of instances where houses with 2.5% commissions sit. And it’s not because the realtors get pissed. It’s purely economical. Contrary to popular belief realtors do work for their commissions. They have to keep up with all the laws and disclosures to keep buyers and sellers out of court. The research etc etc.. Nevermind the seller who won’t pay for a repair, or some inspection or home warranty to keep them free and clear of a major court battle that a realtor has to come out the pocket for. Then you have the expenses of your own insurances and other business related expenses. And god forbid you wind up in a court battle not of your own doing and have to pay an attorney to represent you.
Why in the hell would you partcipate in a deal for less than 3% commission. In the grand scheme of things 6% of the asking price is a helluva bargain.
Especially considering what could happen if you did it on your own. Hell, even though I’m licensed to do so I haven’t partcipated in a home sale for many years because I happen to believe in the home arena sellers are idiots and buyers are borderline retarded. I won’t even represent myself on a house buying transaction. Why would I when if something goes wrong all liability falls on the broker and I can just sue him and his e&o provider. Ex: I had a neighbor who went fsbo because he was a real smart guy. Got tied up with some carlton sheets minion and winded up being tied up in escrow for 3 mo’s. It winded up costing him 25k in attorney’s fees just to get out of the deal. He winded up listing the property sold in a week closed in 30 days paid roughly 30k in commission. Costly mistake for being a smart guy.
in this market it does take a realtor and marketing,but most would accept 4%-4.5%,because they no if they dont another shark will……and 4- 41/2 % is a nice pay day for the hours these people put in on each transaction.
njcoast-
Where are you not in a major metropolitan I can assure you of that. In population: 10,000 or less in some rural part of nowhere. I can see that happening. Probably sold it too someone who wasn’t famialliar with the area etc. etc.
My husband and I bought our first house in 1994. We were 26 and 23, and complete idiots about real estate. But we got some good leads for agents from relatives who’d lived in Northern VA all their life. We had a terrific agent. He advised us to buy a well-kept home that needed no work. And he helped us look high and low until we found the perfect one. Of course, we were young and stupid and did end up upgrading things that didn’t need upgrading. He also won a bidding war for us, got us a great loan, and took care of everything else.
Then we wanted to move up in 1998 and the same agent said he only saw prices escalating from there and it was the perfect time to buy our single-family home. Again, we were idiots and waited too long after that. (We did end up buying, but had to change our life to do it. But it worked out very well in the end as we are much happier with our new location).
mrincomestram,
Our house was within commuting distance of NYC, my husband commuted there for 20 years, and we sold the house to relatives of our neighbors who were VERY familiar with our area. Our town is 4 blocks by 4 blocks, a sleepy New Jersey shore community established in 1896. Certainly not rural. So much for your theories.
mrincomestram-
Oh and forgot to tell you, our “must be rural part of nowhere” house sold for $3.5 million. How much commission did we save- $210,000.00?
njcoast-
LOL no I would say my theory was spot on
mrincomestram-
I’m laughing all the way to the bank!
Just smile and wave, smile and wave
Offering a bonus to the buyer’s agent is plain and outright graft.
Bottomfisherman said…
Whoever comes up first with a viable MLS alternative will be the next GOOG.
_______________
I’ve actually suggested this before. I think Ben could do it!!! Right now, he has free advertising (through this blog and any newspapers referencing the blog), and many followers who have a lot of money and are very interested in RE. I’m sure he could get some tech-savvy people from this board to help out. Also, some investors???? I was thinking of trying it myself, but don’t have the time.
Ben??? This could be your big chance!
NJcoast said…
The transaction went so smooth because we had a direct dialog with the buyers without any intervention from realtors.
______________
This is a BIG deal. As much as Realtors like to think of themselves as slick salespeople who can “hold together” a transaction, I think they hold things up and cause problems w/ communication. They have different priorities (getting the deal done so they can get their commissions).
We were going to trade up to a house in spring 2004, but because of the inept agents (on both sides) who refused to allow buyer/seller to negotiate, the deal fell through.
As far as the RE MLS idea, there could be income streams from the actual listings, and from advertisements from title/escrow companies, lenders, security services (for open houses), stagers, Realtors (for those who still wish to use them for a flat fee), etc. Also the service shoud include information from public records, and show kick-backs and incentives, IMHO. I think this would be such a good idea.
Loren-
You’ve obviously never needed to sell in a downturned market where 8 out of 10 pieces of property that were for sale in your neighborhood competing for buyers were either a seller in foreclosure or a R.E.O. with a bank manager who has the feds knee deep in his rear.
Keep your eye’s open you’ll see a lot of it this time around
A lot of people complaining about what realtors make now wait until as one guy who posts here says “the knives start falling” and all the bandwagon newbie agents have went back to substitute teaching and selling shoes for a living. And for every 20 agents you call only one returns your call. For every 10 you set an appt with only 5 actually show up and out of that 5 only 1 will take the listing but at 25k or more less than what you wanted to list it for at a 6% commision all the while suggesting that you may want to put a $2500.00 bonus to entice agents to show their buyers. “LOL”you maybe inclined to ask him is that enough.
Believe me the last time the market downturned this and a whole lot more was going on. And those bonuses were’nt coming from seller’s equity but seller’s saving 401k and anything else he could tap into.
Even Fannie, Freddie and HUD were giving bonuses from the taxpayers pocket to the realtors, mortgage brokers and the buyers.
It’s coming again you’ll see.
Mr. Income.
Diarreha is what realtors are going to have when they can’t sell and make their beemer payment. Ouch! Doesn’t matter how much bonus you get if you can’t sell and for the most part you are not going to sell much in the coming years.
Anyway, an educated consumer is figuring out a percentage system is stupid. Get ready for change. Those who adapt will survive.
ca_renter-
I disagree with your assesment of most Realtors who think of themselves as slick salesman. Slick will get you in a courtroom especially in California, experienced realtors know that and most realtors I know of want to avoid that at all costs. Can’t make a living sitting in the courtroom waiting on the disposition of somebody you were trying to be slick with. There’s not enough money on a transaction for that. Now mind you there are some who try but they are not in the business long and most of the time facing long jail time or loss of livlihood for 3% of a sales price. 3% of anything is not worth a jail cell with bubba the butt raper as your roommate. Come on get real.
I would venture to say that 80-90% of real estate transactions would wind up in court or loss of life if there were no realtor involved. And 99.9% of the time the deal is held together and consumated by the realtor because he comes out of pocket or has the experience to navigate thru when the buyer, seler, or both have proven that they are friggin mental midget idiots.
Your transaction in 2004 that you wanted to negotitate buyer/seller if you wanted to negotiate that bad why didn’t you go around the agents and do it. I’m sure you had gathered enough information on the other party to contact him smart guy.
It didn’t happen because either what you were suggesting was highly illegal or a sure court battle. Or the other party had got wind of what you were proposing and wanted no parts of it. Doubt if a realtor with a signed contract in escrow would’ve prevented both parties from doing a conference call or meeting for lunch if he thought it was going to result in a closed transaction ie: him getting a check. I know when I subjected myself to the hellish business of selling houses for demon spawn I had no problem with it if it was on the up and up. 9 times out of 10 it resulted in me getting paid. Which is the desired end result.
As far as asking Ben to be the next MLS alternative king. It’s being worked on by deeper pockets then he has and I’m sure if their was a sure bang solution it would have already been put out there. Untill you can eliminate the need for human interaction 100% it’s not going to happen it’s too complicated
Harry_Peter:
Not true, psssst i’ll let you in on a little secret, I made far more money on a downturned market than I did or will on the bubble. But that’s just between me and you. There’ll be plenty of people to sell too. Like people who are reading this blog when they laughingly take their money off the shelves and start picking up property for 50 cents on the dollar all because they were patient and smart and non-emotional about their buys.
Or the real real estate investors who sold all their trash properties to the bubble lemmings at outrageous prices. Who have boatloads of cash just waiting to spend to scoop up the carnage.
These folks will gladly pay a percentage commision to further their enrichment.
Consumer only gets what consumer wants when their is money in it. If their was any money in any other way the percentage system would have been gone long ago. Just like with these discount brokers like help-u-sell etc. etc. These business open up and go out of business all the time. Why because consumers want things but consumers are very litigous when things dont go their way. And prices go up on rent, utilities and everything else that’s needed to run a business. Although ZIp Reality is a good concept it’ll be interesting to see how long they are around. Their only chance of survival is based on the fact their founder own and ran one of the largest commercial brokerages in America.
Competent real-estate investors never object to buying through a real-estate agent (it’s the seller who pays the commission after all), but they never use a real-estate agent to sell their own properties. That’s because competent investors are never in a rush to sell. They buy during the real-estate slumps, like the one which is coming soon to much of the United States, and they sell, if they sell at all, during the booms, like the one which is just finishing up. During a boom, a real-estate agent is not really necessary, or you can throw 1% on the table for the buyer’s agent if you feel like it.
mrincomestram-
Do you really think the antiquated realty business model will hold up forever? I think it will be just a matter of time before realtors go the way of travel agents, floor brokers on the NYSE and all other “middlemen”. The internet has been essential for disseminating information to the public. Pandora’s box has been opened and there’s no turning back. NAR needs to change with the times or get left behind.
“If their was any money in any other way the percentage system would have been gone long ago. Just like with these discount brokers like help-u-sell etc. etc. These business open up and go out of business all the time.”
***you’ve admitted that one of the main reasons discount brokers don’t succeed is because full price brokers won’t show their houses. these are plainly anti-competitive tactics and a violation of the buyers’ agents’ contractual duties to their clients.
the other reason you’ve cited is that most buyers and sellers of real estate are just plain stupid. I’m sure most of us would agree with you there. The thing about stupid people is that they tend to get twice as mad as smart people when they realize that they’ve been played for suckers. I guess you already understand this since you’ve been involved in so much litigation.
When the average stupid American realizes that their nice local realtor has been colluding with the other realtors to keep commissions high and prevent homeowners from selling their own homes, how do you think they’ll react? Do you think they’ll be just a little bit mad or a lot? do you think there may be politicians who will try to cash in on this anger?
The truth is the average realtor is just as dumb as the average person. They have a high school diploma. They have no specialized knowledge whatsoever. They give tours of houses and put cookies in the oven to make them smell nice.
To the extent that realtors are able to make unemotional guesses about what a house is worth, they save sellers from their own worst tendencies. but that’s about it.
there is no good reason why fees should be 6%. 6% might make sense if a house sells for $30,000. not if a house sells for $1m. $60,000 for giving a few house tours? that’s a scam if I’ve ever heard one.
and here’s a strategy for a down market. cut your price. pretty simple to sell a house if the price is right.
Frank-
Your wrong, wait let me say this your wrong for the California market now if your in some godforsaken place or some rural community then yea your arguement may have some weight. Here in California I find that most investors who employ your tactic don’t stay around too long. Here’s why when you employ those kind of tactics your either looking for an illegal immigrant who doesn’t understand the laws of the land or some uncreditworthy individual that you can rake over the coals. If that’s what float your boat then more power too you. But most folks won’t go for it and realtors will stay far away from the shadiness.
Most investors out here will if they don’t have a real estate license (I have a database full of them from the last downturn when I sold R.E.O.’s by the boatload btw) will gladly pay a commision.
Here’s why:
1.) The commission paid is a legitimate business expense they can write off against large gains.
2.) Most want the highest and best price they can get.
3.) Realtors have qualified buyers who more than likely have been pre-qualified with a lender that which makes for a faster transaction. Which means less hoding time for them.
4.) If he pays a commission the agent who earned the commission is more likely to bring him undervalued deals. Which does nothing but make him richer and increase his volume. I’d say that is a win-win which is what it’s all about. Ex: If he pays a commission on one deal and the agent in turn brings him 5 undervalued deals who wins that race.
etc etc
I know of a guy out here who buys all his deals at the foreclosure steps. Everyone of his deals is listed at 6% he routinely sells 20 deals a month averages 25k to 30k net per deal. Bet your not doing those kinds of numbers. Doesn’t sound like incompentence to me smart guy.
njcoast-
Hold up forever probably unless you can eliminate 99.9% percent of the human population’s penchant for fraud, white lies, litigation and non-disclosure, buyers cold feet etc etc. When you sold your house how many quirks about your property did you get selective memory about that was missed by an inspection. Being that you sold in a small market at the top of the food chain to a neighbor’s relative you’ll probably never see any repercussions. Good for you. But the guy who’s working double shifts and eating oatmeal to afford his nice new mortgage is looking for someone to sue if not the broker’s e&o than you. Most likely the broker because he hired one so he wouldn’t have any problems
Untill people feel comfortable going on the net and spending 500k+/-, not worrying about their digital signature getting hacked, the seller being 100% completly honest, buyers penchant for trying the latest carlton sheets technique to buy, among other things the business model will stay intact.
What most realtor bashers forget if their was no need, they’re wouldn’t be any around. Too much caselaw supports that. Just like everybody thought the internet was going to be the end of the car salesman hasn’t happened. A lot of people are just not that comfortable with the wire. A lot of people thought the Do not Call List was going to be the end of Realtors. It just hasn’t happened.
Your right the internet is changing the industry but not as you would think. It’s weeding out the weak and uneducated but for the most part it’s business as usual.
Try this one on for size.Seller accepts offer, buyer gets approved for new loan, gets ready for close; WOOPS - Not enough money in pot to pay off existing loan, last 3 IO payments(didn’t tell you),accrued late charges(didn’t tell you), prepayment penalty (didn’t tell you), past due taxes (didn’t tell you). Well, you’ve got the general idea. Not enough money to pay commissions. Seller says screw it and will not put money to close ’cause they don’t have any and are moving out of state back to Arkansas. Lender says ‘ok but you rich realtors will only get to take 1% total’. Buyers agent says no deal or sellers agent says no deal. Lender tells buyer to deal directly with them after they kiss off the agents. Seller packs Uhaul, turns off utilities, trashes house and leaves. Are you laughing yet. Senarios like this are coming back again. Get ready.
Almost everybody here missed the point of the article. The barriers to entry to being a Realtor are so low that as total commissions go up so do agents such that median incomes are lower today at the top of the market than previously.
My prediction is that RE agents will go the way of travel agents.
Most people don’t use travel agents and the bad ones are gone. However, there still are a few providing premium service but joe sixpack certainly doesn’t.
Check out: http://www.zillow.com/
The same management team that created Expedia will soon shake up the RE Industrial Complex (cabal).
Pismobear-
LOL If an agent gets burned like that then he really shouldn’t be in the business or he should change broker immediately cause his training is dismal. I would love to know where that happened at.
I have never heard of anything like that. A simple title search would have shown the back taxes, no equity, and the fact he was in pre-foreclosure.
And if in fact he was doing what vaguely sounds like a short sale a deal with the lender would have been struck before the deal went into escrow.
“Mr. Barton didn’t provide a full description of his business plan. But he said the company won’t operate as a brokerage firm and won’t be based on listings of homes for sale. He also declined to give details on the tools to be provided but said they will draw traffic to the Web site, which will sell advertising to companies providing services to home buyers and sellers.
Zillow faces the risk of unrealistically high expectations, as change will come much more slowly in real estate than it did in travel and other businesses such as stock trading, Mr. Barton said. That is largely because home sales typically involve lots of personalized service from agents who know their local markets and how to solve the many problems that can crop up before a transaction is completed. It isn’t simply an order-taking business, he noted. ”
That has said it all right there. I wouldn’t get my hopes up too high.
Been there, heard that before.
Look for a lot of agents who have called themselves “Listing Agents” to drop that moniker now. This was their way of saying, “I’m so picky I don’t need to work with buyers.” Taking listings in hot markets was easy money for them. But now the table has turned and listers have to spend a lot of time and money (advertising) to move a property. Presto, we will have a shiny new crop of “Buyer’s Agents,” who don’t pester anyone for listings for a long time to come, I think.
PismoBear-
After pondering your post for a second. Here’s another reason your post doesn’t make sense and i’ll qualify by saying that in reference to California. The lender doesn’t call that kind of shot of telling the buyer to deal with him direct because he doesn’t own the property untill he forecloses and he can’t do anything untill either he has the sellers approval to do so or he owns the property. So in your instance they all get screwed. The lender gets screwed cause he has to take another property. He has to add to that cost legal and tile fees, holding fees etc etc plus commission when he sells it with another agent cause he can’t afford to hold it real long because it just adds more fee’s. That banker would have to be a real idiot to have a deal on the table and short agents like that and tell the buyer to deal with him.
Your post i think is fantasy
Chip-
Yea that’s one thing I have to agree with, I really don’t think there’s going to be a distinction between Listing and Buying agents. Agents are really going to have to work for their money again and all this speciality crap buying agent listing agent is going to fly right out the window. Fraud is going to become even more rampant as the less scrupulous try to afford the 150k Mercedes and $10,000.00 house notes the F.B.I. agents will be marching into offices and clearing out files and computers again it’s going to get real nasty.
mrincomestram-
Maybe where you live nobody talks to each other, that’s why you need realtors. I’m considering selling the house I bought in 2004 ( I was going to knock down and rebuild but have decided not to due to popping bubble). I just did a little research on the New Jersey Property Search website and saw that someone was buying multiple properties in my area, I contacted him and he is interested in buying my property. All the records are public on the web so he can see what I bought for and I have looked up all the comps on a website and gave a fair, informed price. Especially in this tighter market taking out the 6% realtors commission really gives me an edge over the other homes for sale! I’m interested in a home in another community that I heard the owners were thinking of selling ( Grocery store gossip). Easy as pie just stopped by their place and told them I was interested in their home and if they were to sell to please contact us before they list with a realtor. I looked up on the County Clerk website the last sale price, property taxes, assesments, and looked at permits to see what they have done to improve the place.All this without a realtor- imagine that!. As far as things wrong with the house it’s caveat emptor as far as I’m concerned -that is what inspections are for.When I bought I had $5,000 taken off the price for various things after the inspection. Yeah the house had a little water in the basement after a storm soon after I bought the home. I would never think of sueing the realtor or the homeowner- I had my chance to inspect the home if I missed something shame on me.
I will concede that it will be much harder to sell in the coming crash. It’s real easy to sell when buyers are knocking on your door asking if you want to sell your house. But if people are willing to do a little research they stand to save lots of money. Like I said before, it’s not rocket science.
skeptic-
After this I think I’m done with this post. I haven’t sold a house in years I mostly deal with investors and commercial property. But I have been down in that trench of selling houses and dealing with the demon spawn (ie: buyers and sellers) never again I tell you and most experienced realtors are good hard working people who try to satisfy their clients whims no matter how illegal or illogical the request may be. I just get a little tired of the bashing so I decided to defend them today.They earn every bit of their commission. Most people who complain about it or try to avoid it are not the kind of folks you would probably want sitting at your dinner table if you had your druthers and their complaints if truly honest is mostly sour milk from something they were trying to do that wasnt really on the up and up or had they listened to the advice given the situation probably would have turned out a lot different. Are there some bad apples in the industry of course there are just like their are bad cops, lawyers doctors or any industry that provides a specialized service. How many bad employee’s are out there goofing off reading this blog when their heads should bent to the stone working. You can’t bastarderize or fire the whole industry based on the actions of a few. You get the point.
As far as discount and online brokers their best chance of success and survival is in a bubble market.Yes in a lot of instances their listings get shunned. Why? 1.) It just doesn’t make sense for a “buyers agent” economically to show it. Is it illegal or whatever you want to call it probably but it’s also reality. 2.) If the buyer wants the property he can just go around his agent and buy it. Why is that likely not going to happen because at the end of the day. It’s a relationship business and more than likely some form of bond and trust has been established for whatever reason between buyer/seller and agent. And especially in the first time buyer scenario it’s a little more comfortable when you have someone you can lean on and guide you when your about to spend 500k +/- at $3,500.00 per mo +/- for the next 2 to 30 yrs. Vast majority of people don’t have the nuts to do that by themselves and need a little guidance. Or in the instance of the seller do you really want to take a chance of dealing with an unscrupulous or unworthy individual buying your property that may end in litigation. Probably not. 4.) In a down market like most people in bubble area’s are about to experience here real quick. Your going to need someone to work your property. Someone to get on the phone and follow-up the open house people, someone to get on the phone and call buyers or walk apartment complexes to find buyers, someone to advertise your property with mailers, flyers,internet ads, expensive newspaper ads etc. Do you want to pay for this stuff, Probably not. Especially if your bleeding red on a property. In a metro area with a lot of competition this is crucial. Then filter the wheat from the chaff the real buyer from the looki loo. How much of this do you think your really going to get for 1200.00 or 1% of the list @ 500k median. It becomes even more crucial the higher the value because the sharks are even more deadly and sophisticated in a high-end market. If your in a hurry and need to sell 6% of list is nominal. And speaking of being in a hurry do you really have the time to do all that stuff and maintain a real job probably not. Could you handle it and still get the highest best price again probably not why because you don’t and have not done it everday
Also unless your connected or in a rural area your not going to get a real estate attorney to do those things. How much do you think it will cost you @ 150 to 300 bucks an hr for an attorney to do all that.
Then add on the cost of litigation because if your in this business and you or your brokerage haven’t been sued or been involved in a court case then your not in business.
And lastly the real estate business is not something that everyday someone is going to walk into your office and give you a listing discount brokerage or not. This is where the discount brokerage scenario is heavily flawed. The average brokerage house in a metro area thats doing good business spends at least 25k a month trying to attract business not including what the agents themselves are doing. If you have 5 people on the payroll 25k a month in advertising to attract business nevermind insurance costs utilities and everthing else how many listing at 1200.00 a pop or 1% of the sale price do you need to have a positive cash flow. Then factor in what has to be done to service and work those listings in a down market. It’s just not feasible. Some systems work and are successful for a reason.
In reference to your assumption about “average” people being in real estate. I would disagree there is nothing average about survivng this business if so everybody would do it. Andwould do it for 20 yrs and retire a gazillionaire.
For every 3o people who pass the test for real estate 70 fail. Of those 30 who passed only about 5 to 10% last over 2 yrs. Being average will have you homeless.
Granted all that is required to get a real estate license is a high school diploma. But the vast majority that have survived longer than a yr or 2 have advanced degrees in business and or marketing. Just having a high school diploma and no other training or schooling will have you seriously lacking. Most successful agents have come for other industries and have been laid off or couldn’t find work so they got out there beat the bushes and made it happen.
njcoast-
yea your right, people don’t talk here. They also don’t have the time to do what your talking about.
It sounds like your either retired or independently wealthy. So you may have the time to search the internet and go around and talk to the neighbors about selling their house. Sounds like there might not be a whole lot of inventory in your neck of the woods. Where as here a 4 block by 4 block neighborhood may consist of 500 properties or more. With the people in them going in 500 different directions during the day and not being anywhere close to home untill about 6 or 7 p.m. With 500 or more personalities ( I say or more cause theirs some real loonies out here never know what your getting into). A lot figure that 6% not only saves them time from having to deal with it but it also limits their exposure to the “or mores”
It may not be rocket science but it’s not exactly elementary either.
Mr.incomstream, sounds like you know you’re stuff, a great bit snide and crotchety, but knowledgeable.
I’m a broker in FL (don’t practice), I prefer to practice law. The old style model won’t last. Brokers, especially residential ones, are having a harder and harder time finding clients not ambitious enough to turn on their computer to look around at real estate. Realtors are putting up a good fight, but they are losing it in a broad sense. There will always be the ambitious ones out there that can squeeze the blood from an orange. The oldest secret truth of it all is that real estate sells itself, it doesn’t need an agent’s help.
BTW, you are a litigation fearmonger, which is a classic agent’s salespitch. The percentage of cases to closed deals is so small, espcially in residential real estate, that it doesn’t even deserve a glance.
http://www.zillow.com: another chink in the agent’s armour.