WatchIf competition could be restored to the home buying process, transaction costs could be greatly reduced which would connect more buyers and sellers with deals. This claim to 6% ownership of all real-estate causes the market to be sticky, fewer transactions occur as a result. More sales would occur if there wasn’t a 6% barrier between the seller and the buyer, and the purchase price would be lower for the buyer as well.
The housing market would recover faster if home deals could omit this expensive middle man. People should not revert to realty offices when thinking of buying or selling homes. Individuals need to default to internet sites like Zillow.com or other housing sites in order to reduce the market collusion from realtors. The internet is a great device for competition! Now people need to realize that websites can be used to organize home buyers and sellers just like Amazon, Craigslist, or Ebay, without the expensive middleman.
Many people argue that buyers do not pay the fees to the realtor so they should not care if the realtor gets paid. Well due to the fungibility of money, the buyer could have bought the house for 94% of what they paid because that is what the seller was willing to accept for the house. This makes it obvious to see that the seller nominally pays for the realtor fees, but the buyer, in real terms, pays about 6% too much for the home. Not realizing that a realtor’s 6% could be negotiated is a flaw that must not be overlooked.
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Saint George, UT
elliemae's website
since realtors aren't necessary and don't do shit, bypass them if at all possible.
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EconPete says
Really, people still pay 6%... that so 1990's.....
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Madison, WI
Realtors will steer buyers away from FSBO, the last realtor that stopped by told his buyers the cedar siding on my house was asbestos, I don't say anything, between him and the buyer knowing it all, they can pay more, the realtor makes more, the banks make more, it's all good.
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Call it Crazy says
Exactly, I've seen realtors offering 2% commissions in my neighborhood. Then again, the homes are all $300k-$500K so that's still a sizeable chunk of change. I think REDFIN's commission is 4.0% with a $5500 minimum... So your house has to be atleast over $150K to start seeing real savings.
But once again, the 6% and 7% cost of selling is a myth that is perpetuated by housing bears.
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6% of nothing = "0"
Housing,Autos and pretty much anything optional will have to be reset because Joe/Jane Smith cannot afford to keep them up anymore.
Example A:
2012 Silverado ...Joe see's & Joe likes but he brings home $32K a year and when he looks at the $44K sticker he remembers the home ATM has been shut down since 2008. Silverado sits on lot till paint starts peeling from exposure.
Example B:
2300 SF home...Jane lust after it because #3 is on the way and they have outgrown the 1600 SF , 2 bedroom pad they now own. Jane looks at the flyer and rubs her forehead when she see's the 220K asking price. Jane knows they cannot afford more debt on the 32K Joe makes even if she goes to work making 32K to suppliment Joe's salary... The childcare would eat up her earnings.
Joe & Jane can afford nothing new...NOTHING my friends...and 80% of the American public see Joe & Jane every morning when the look in the mirror.
Time for a reset...
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The time to sell has passed says
Read that quote above AGAIN folks!! No truer words have been spoken. The consumer is 70% of the economy and the consumer's pockets are EMPTY!!!
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Realtors claim 6% ownership to all property in America for the same reasons that slimy lawyers claim 33% ownership and greedy politicians claim 75% ownership of all property in America (25% Federal tax + 5% State tax + 45% Death tax = 75%)
Realtors are kinda dumb to work for so little.
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E-man says
The point of this post is that the buyer pays the realtor fees in real terms by paying about 6% too much for the home. The buyer has no control over any individual housing sale utilizing a realtor or not. Even if the buyer doesn’t use a buyer’s agent and the home is listed with a seller’s agent, they still pay for the realtor. This is my point! I'm trying to tell sellers to avoid using agents if at all possible to reduce market collusion.
Thanks for not taking the time to understand the post before you deny its validity and make a fool of yourself, again!
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I wish it were this easy, but there are two big problems with this.
1) The majority of FSBO sellers are, by all outward observations, greedy as hell. FSBO houses are always overpriced because they have the "make me move' mentality, they'll just sit until you overpay. They are also cranky when you suggest their house in overpriced, sometimes I'd rather talk to a rat realtor over a clueless, angry house owner.
2) People continue to use Realtors to sell houses, because it's just that thing you do. Until it's heavily advertised that not using them is not that difficult and saves you lots of money, that will just continue. Your best bet as a buyer is to work with the seller's realtor to get the best deal; they'll want the double commission and will likely screw over the buyer to make it happen.
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Kissimmee, FL
Patrick, I've been trying to buy a house for my parents, and I've been thinking about this same ridiculousness.
Let's do something about it instead of just complaining. I'm a software developer and entrepreneur. Anyone interested in teaming up with me to develop some kind of application/website/mobile solution to compete with the realtor?
Patrick, you seem to be tech savvy and also have a keen eye for opportunities. Get in touch with me if you are serious about competing with antiquated customs.
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EconPete says
This is a weak distorted argument. I'm the first one to agree that Realtors aren't needed, and in my experience when I bought in '10. I had a hell of a time getting a realtor to even give me the time of day, if you weren't calling him for his fax number to fax over a signed contract before you even saw the house. That 6% did not hold up the deal though, it was their lack of professionalism and constant price fixing strategies, like talking about multi bidders, when I knew damn well the property in question has been on the market for 27 months.
My biggest gripe with them would also be, you call the number listed in the front of a house, then the Realtor acts aloof, like they can't be bothered with you. You have to then dig up a buyers agent to call him.
You call a buyers agent, and they are more interested in selling properties they've been coddling.
Also buyers agents treat you like slimbag recruiters, you get one shot with them. They represent you on one deal, and if that deal falls though for what ever reason. They stop taking your calls, or answering email.
I had to dig up a commercial realtor I knew from the 80's to help me find a house. After I enlisted his help, I had a signed contract on my house with in a week.
But actually in the end, at closing the selling agent and my buyers agent had to split 3%. There wasn't anything in the deal for them.
I privately gave my friend a few extra hundred dollars to make it worth his while, against the advice of my title lawyer.
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Honest Abe says
Honest Abe == Resident Wingnut. As usual for the wingnuts, facts do not matter at all. When the reality is not sufficient, they just make stuff up.
Some remedial facts and questions to ponder for Abe:
The lawyer 33% is just pure fabrication.
Do you understand the difference between property tax and income tax?
Have you fathomed that we all get something back from the taxes we do pay?
Do you know that hardly anyone pays estate taxes, except the very wealthiest, who have, let is face it, made their wealth on the backs of all other taxpayers?
The difference between Realtors and the government is that Realtors do absolutely nothing useful.
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Saint George, UT
elliemae's website
StoutFiles says
Every seller has a "make me move" mentality. FSBO means that they'll bypass the realtor fee and either pass the savings on to the buyer, or not. It's their choice.
Even if you use a realtor, you still have to deal with the seller. You're crazy if you think that it's worth 6% of the sale of a home in order to not speak with someone. But then again, it's a free world.
If you can find a realtor that can have a reasonable conversation without trying to push you into a sale because they desperately need the commission, more power to you. It's a useless profession that does nothing more than sucks the $ out of people who can't read the newspaper, use the internet, or read FSBO magazines.
StoutFiles says
Your best bet as a buyer is to use a realtor that will likely screw you over to make the sale? Makes absolutely no sense - your best bet is to buy a fsbo.
I have a friend who's a realtor, although she hasn't sold anything in a couple of years. She thinks she's necessary to a sale, and constantly complains about people who look & don't buy or don't want to spend any money. Now is the time to buy - because she desperately needs the commission dollars now.
She brags about ethics and disclosures and all that other shit they taught her in the mail-order school she took 15 years ago... but they're shysters. The only goal of a realtor is to list as many houses as possible so that they can sell some of them. they don't give a shit what the buyer wants and snipe about them behind their backs.
Like printers, realtors aren't even relevent anymore.
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Pleasanton, CA
Premium
So, many just focus on the 6% and argue that it is only 4% and try to put this issue to rest. Nonsense. The fact that someone, who does the same amount of work regardless of the value of the place, gets paid as a percentage of the sale is absurd. Realtors should get paid a fixed amount. Period. I carry around a large wooden percent sign when I go to open houses, and at the mere sight of a realtor I chase them with it. If I ever catch one of them, I'll shove it as far as I can get. :)
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RentingForHalfTheCost says
There you go, a smart answer!!
That's what I always think... does a realtor that sells a $600K house deserve DOUBLE commission of a $300K house?? Don't they have to perform the same services regardless of the actual cost??
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Madison, WI
I think another reason may be that they have a monopoly on the market. They act like it too.
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Justme says: A realtor does nothing useful but the government does". Hahahaha. The government? Hahaha.
If realtors committed half the financial fraud that government participates in every day, they'd all be in jail.
You whiney libs still haven't figured out the secret. Rather than trying to FORCE an entire industry to change, beat those slick realtors at their own game. Go get your own realtors license and save the 6% yourself - on every deal!!!
Problem solved, now you can go whine about something else.
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Honest Abe says
That's it in a nutshell... Negotiate and be smart.....
My last two houses, I paid 2% total commission on one and 2.7% total commission on the other and got FULL service....
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Boston, MA
Call it Crazy says
Perhaps it does cost twice as much ($30K vs. $15K) to sell a $600K house as a $300K house. Maybe there's twice as much marketing and it takes twice as long. I can almost accept that.
But why is the BUYER'S agent's commission also a percentage of the purchase price?
I know that "it's always been done that way", but does it really cost twice as much to help someone BUY a $600K house as a $300K house?
Aren't most of the buyer's agent's costs fixed, regardless of the size of the deal?
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31 male
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Buyers actually overpay 6.39%,,,,,in order to cover the 6% commission
I paid a flat fee for my realtwhore,,,,,was less then 1% of purchase price
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errc, you would have saved a lot more if you would have gotten a real estate license. You paid too much.
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Fitzclarence says
They both have to go through the same steps and processes no matter what the house price is...
Marketing from the Listing Brokers side... all they need to do is get it listed on MLS and Realtor.com..... the buyers come flooding in... in today's technology/internet age, the listing agents got it real easy...
Actually, it's the BUYERS agent that does the most of the work coordinating the mortgage, appraisals, inspections, attorneys, etc. and handles all the meetings. If anyone earns the commission, it's the buyers agent.
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elliemae says
A lot of sellers think their house is worth more than it is. While Realtors want to sell the house for more than its worth, they want to sell the house period. It does them no good to be the realtor for a property so overpriced no one will come look at it, and then be dropped in 6 months. Realtors are usually able to convince the seller they won't sell the house at that price and to price it lower.
elliemae says
As a buyer, the sellers agent will usually pick your lower offer over a higher one with a buyer's agent. 3% of 300k is a lot less than 6% of 280k. $9000 vs $16800. It makes perfect sense to have a realtor who wants your lower offer over all the others.
As for the FSBO in my area, it's practically non-existent. A little more if you include the Zillow "Make Me Move" houses, but those are comically overpriced for anyone dumb enough to make an offer.
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Brookdale, CA
Honest Abe says
Um, try to get your facts right. Lawyers only get 33% on cases they take on contingency. That means they take all of the risk, and you pay NOTHING unless they win.
"Death tax" is only paid if your estate is worth over $5 million, and if your estate is worth $5,000,001 dollars, you pay the tax only on that $1. Federal Estate tax is currently 35%, not 45%. Some states have an additional Estate tax, but there is NO state Estate tax in California.
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San Jose, CA
theRebel says
I was running site to match sellers with buyers for three years to see how its work in real life. We got plenty of inventory searchers but very few posters. We come to conclusion that market is not ready yet. It was easy for stock market brokers, where stock is not treated emotionally, nor invasion in private live. So far 6% commission is implemented to the price regardless who actually pay for it. Often at cost of 2-3 years appreciation or principal paid down.
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Marietta, GA
If real estate brokerage was easy and profitable, 80% of those licensed would not leave the occupation within 1 year and 90% within 5 years. As one of the 1% in the field longer than 20 years, I can say many agents are paid too much and most good agents are not paid enough. The knowledge, skill and expenses expended on behalf of a client where payment is only made if and when the client is 100% satisfied is a small price to pay. Attorney's charge 25-50% for contingent fee cases. Consumer pay waiters 15-20 percent for a simple service where the waiter has a base salary and perhaps benefits. Truly 6% for professional services is a bargain in the context of other services. Try to get a doctor, accountant, engineer to work with no guarantee of payment. Good luck.
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Bruce Ailion says
Truly professional services? What? What exactly does a Realtor do that is so special?
1) Unlocks doors.
2) Finds houses that are easily found online.
3) Compliments house as you walk through it, attempting to hide flaws with words like cozy.
4) Does paperwork that someone can be hired hourly for.
5) Lies about other offers so you'll pay more money.
6) Takes a % of the house cost instead of a flat fee, regardless of how much work they actually do.
7) Tries to lock you into a contract so you can't escape working with them.
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Marietta, GA
Stout
It appears you shop for REALTORs based on price and get what you pay for. I provide sellers and buyers expert market analysis. I broadly market the property to tens of thousands of agents and hundreds of thousands of buyers, advice clients how to prepare their home for sale, bring the experience of 4000 successful negotiations and the negotiation skill and knowledge and experience as a licensed attorney. My clients save time and money and are happy paying a professional fee. Many buyers pay a fee above the seller offered commission to be represented by me and my firm because they know the value of professional representation. I am happy to work hourly, no buyer or seller is willing to pay the higher amount that would result from that compensation system.
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The way I look at it, you calculate what you pay the agent, and then ask if his services provided that much value to you.
In my case, buying a $140k condo, my share of the agent's fee (it's split 50/50 here) was about $5000.
Here's what my agent did for me to earn that $5000:
* Accompanied me to seven or eight banks in search of one that would lend me money (we didn't find one, so I had to purchase with cash)
* Accompanied me again to some of those banks to see if one would lend me money to renovate the place before moving in (we found one, and I borrowed $30k and paid it back well in advance of the scheduled end of the loan)
* Did all the research at city hall to obtain past ownership records for my building
* Pulled up past sales in the same building so that I could both get "comps" and estimate how the value will probably change in the coming years
* Explain any RE terminology unfamiliar to the average person, and also explain irregularities in the building's history (they had sold off part of the land to another builder, who put up a second building which raised the ratio of built land to open land on the plot to a number above what the district normally allows, which makes some banks not want to issue a mortgage on the property).
All in all, even though he couldn't get me the mortgage, I think he earned his money, and I'd be happy to do business with him again.
The problem is that it's a fixed percentage rather than an hourly, or service-by-service (mortgage, deed research, post-purchase renovation loan, etc.), charge. Someone who spends hours in city hall doing research and then buys an expensive house at a high price for cash is paying the same fees as someone who has the agent doing all kinds of things and is buying a cheaper house.
RE lawyers already charge a flat fee, don't they? Already we're seeing flat-fee agents and I think in the future we'll see more of them.
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Fort Lauderdale, FL
In practice the MLS and Realtors (with all it's faults) still works far better than any FSBO method. That's why most people will always be willing to pay 6% despite advances in internet technology.
I used to work for a FSBO company called BuyOwner.com where the seller could list in the MLS and simultaneously use their extensive FSBO system. They would even refund the ad fee if it ended up selling through the MLS. At least 80% of the listings ended up selling through the MLS, and they sold at a price at least 6% higher since we would always add the commission to the asking price. I saw it happen hundreds of times over with my own eyes.
I started working for BuyOwner after a very bad experience with Realtors selling my home. What attracted me to BuyOwner is the owner told me they hated Realtors and wanted to put them out of business. In reality they were playing both sides. They even paid all the education and agent licensing fees. Doing over 1000 listings taught me what really works. One thing for sure, you are shooting yourself in foot being prejudiced against a system that more than pays for itself.
Do all the FSBO advertising you can and use the MLS, but if the Realtor won't do an open listing send 'em packing. I've found that dealing with Realtors may cost you in terms of grief, but it won't cost you financially in the long run.
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31 male
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You want to bitch about being forced to pay exhorbitant fees for virtually nothing in return, look no further then those scam ass title "insurance" companies. Talk about a goddam racket,,,,,
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Beverly Hills, CA
StoutFiles says
Many buyers believe this so I tested it. Sometimes listing agents will shaft the seller if they know they can get away with it to double their commissions, but sometimes they really screw the buyer for thinking they would do that. So I came up with a "reverse" screw of the listing agent, and it WORKED. Here goes. Buyer buys cheap cell phone from Walmart and requests an area code known to be high priced -- Beverly Hills or San Francisco. Buyer telephones listing agent using this number. Buyer also uses Seinfeld type bogus name like Dr van Norstrand or Art Vandelay. Buyer MUST know value of area by doing research first. I was able to get the listing agent to concede to a 30% mark down in price in only 30 minutes. I told her I "my plane" was leaving in a few hours and wanted to know is she could show me the property. She cancelled her appointments as soon as she believed that money was no issue and that I did not need to sell a house before I could buy one. The walk through took only 5 minutes and I told her I would call next week. She told me EVERYTHING I needed to know about the sellers, the house and she reminded me that she could "help" me buy it at an even lower price if I selected her as my agent. I asked her how much lower and she gave me a figure. Within hours my wife and her realtor called to look at the house. My wife made an offer at the lowest lowball price over 30% below asking! How? my research found that the house had already had an NOD not disclosed by the listing agent and that it had a date set for auction.
The listing agent knew that she would lose all commissions if the house was sold at auction. The bank accepted my lowball offer because I had NO contingencies compared to other much higher offers. Realtors HATE contingencies because it slows down the closing process and they must work more for the same commish. Also one of the main reasons for a sale to fail escrow are the contingencies.
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Beverly Hills, CA
I forgot, why buy this house? The day it closes I will realize paper equity of about 30% after closing cost expenses. I know that housing prices in this area will drop another 20-30% over the next two years. The price is so low, its difficult to see the price going lower. The cost to build is over three times the selling price. My gain is the rent payments I WILL NOT make over the next two years. BTW my rent = my monthly PITI and the mortgage is a 15 year conventional fixed at 2.7%. In my case, I may have "won", but the sting is still there knowing that Realtors even get one dime for doing nothing more than saying..." and here is the kitchen and here is the living room..." Yeah right.... GET A REAL JOB....!
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Beverly Hills, CA
BTW My offer price was at 1998 values! Watch these prices collapse!
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Virginia Beach, VA
investor90 says
He does fine work
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Realtors are jokes. I only need a minimum wage "fast food" worker to unlock the house to show it to me, otherwise I only need the internet to search for a house.
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46 male
Menlo Park, CA
theRebel says
How would you get around realtors' refusal to share MLS listings?
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El Cerrito, CA
It has been tried and the public is no interested enough to do it. There are tons of websites for the MILS already or similar ones that download from the MILS. People know they are getting a service and are willing to pay the 6% bc it is worth it. There are many Discount RE service companies
that list for 2-3% but the public doesn't use them. They are almost all out of business. Help U sell, Assist to sell, tons of others bareley make a dent in the market. The Public is willing to pay for great knowledge, service, and the help of a professional. Realtors are neeed and are here to stay...sorry you are so upset that others make a decent living.
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El Cerrito, CA
Right, then you should do it that way. You have no clue as to what is involved. The public must fee quite different bc they keep the industry going and are willing to pay for the service and expertise of a Realtor despite all the technology around they prefer a Realtor? Technology cost a lot of other jobs but so far the public keeps hiring realtors? Must be a reason that they like.
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46 male
Menlo Park, CA
mike2 says
Maybe the public doesn't like realtors, but also doesn't have any real choice about it.
No one ever asks the buyer if he wants to pay the 6%. Buyers are trapped by the system as soon as the seller signs a listing contract. They agents get in the way and hide information for their own profit, without providing any real value.
Agents prevent buyers and sellers from talking directly to each other.