The buyer is (typically) the only one bringing money to the table at closing. They're paying for that convenience one way or the other. (To partially counter this, I negotiated a rebate of the commission I was paying [as a buyer] on our current house purchase. IIRC, the check I got back was four figures and started with a 8.)
Contracts (which is what I assume you're talking about) are only "boilerplate" in fair-weather deals. But if literally anything goes wrong during the escrow period, then the wording of that contract suddenly becomes critical. When tens of thousands of dollars are at stake, I'd never rely on AI-generated output.
That being said, I also agree with you as for the value of agents, because they're the ones who write these contracts and to be honest, most of them are pretty stupid. We really need real estate lawyers to be drafting these things, not relying on templates. A good contract is worth a hefty fee.
Most offers in the US are truly boilerplate, the text being provided by an association of real estate agents, and the wording is not customizable. This of course does depend on your state.
Contracts aren't worth much more than the paper they're on if you're not willing to litigate, and there's precious few cases where you'd want to. Most of the time you should just resolve your dispute by blowing up the transaction. Speaking from experience and having hired the lawyers to originally draft things, you really have no other remedy if the other party really wants to breach.
I wouldn't want to use a realtor for land worth more than 50k though. Use the percentage commission to work for you not against you.
This is the issue. If both sides had to pay their own agent, significantly fewer agents would be used. Instead the buyer externalizes the cost, and many sellers aren’t confident enough to deal with the buyer’s agent directly so they arm themselves with an agent.
The buyer is also paying additional taxes for many years afterward on the higher assessed value (as it includes the commission!).
Well I guess this gets a bit philosophical. Who pays the cost (the actual payment goes from the buyer to the seller’s lawyer which remits a portion to the agent) differs from who bears the cost (called the “incidence” [0]), which depends on the price elasticity of demand versus the price elasticity of supply, and this burden obviously shifts depending on the cycle of the housing market. You are correct that the incidence would fall to the buyer for quite some time now but perhaps this is shifting now.
In some jurisdictions where the growth rate is capped (like CA), a 3-6% drop in price will be locked in essentially forever.
The seller’s agent collects a listing fee for marketing and selling the home. The buyer’s agent collects the buyer’s agent fee for bringing a qualified buyer to purchase the home.
In my understanding there is costs borne by both the buyer and seller for the services of a real estate agent.
This is all important because there's a layer of legalities and agency relationships that the public completely ignores, but is relevant if we're going to have a conversation about commissions. It's also relevant because some states have begun to change their laws to be more in line with what the public thinks happens, which has its own weird twists.
*Brokers and lawyers in the audience will probably say I'm still handwaving away some nuances here regarding agency laws. Mea culpa, I'm trying to keep this simple.
Despite peak earning years just pre-CoVid, essentially just updating circuit panel violations and replacing GFCIs [read: well-paid work without much mental strife], I hung up the towel.
Realtors are nice simple people, the masters of soft skills (which I lack) — but ultimately I realized that "when you're the only person that gives a shit, you're gonna have a bad time." For their efforts, I think total sale comp should be 1-3% (both sides), depending upon their accessibility.
>They are incentivized to move houses as fast as they can.
Being told to "not worry about other sub-contractor craftsmanship, especially don't POINT IT OUT TO CLIENTS" — I just couldn't be part of a team that cared so little as to hand over duds for [typically] seven-figure homes/investments. "We carry professional insurance FOR A REASON."
Of course they won't spend money on craftsmanship. I doubt they would even fix dangerous shit like bad circuit panels if it weren't for government inspections to certify habitability.
A retired NFL player was purchasing this house and multiple inspectors indicated that the entire main panel would require replacement [note: NOT in contract to update any branch circuits; panel only]. Any pre-existing branch circuits unable to be update "to code" were to be de-activated.
Previous homeowner had made all sorts of "specials" [i.e. crappy work] within this home, and many of the branch circuits were just hots with neutrals tapped off other shared circuits [not multibranch; it was hack-work]. One such disabled circuit —per our contract— was for a TV above the kitchen sink, which had its own 15A hot — but jaked off another neutral [melt/burn/fire hazard; not "to code"].
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What does one do on a multiple thousand $$$ contract for a multimillion dollar property, when your lifeblood brokerage is telling YOU [the EXPERT] that "no permits are required, just make that TV work!!!" ?
Or other such new-homeowner surprises as: "please disable the garage door safety sensors even though I have over ten young children that could be crushed by one of the most dangerous items in a typical home [garage door]" —okay, I added that latter half.
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Firms don't often care if your house fetches slightly less, because to them it isn't really reflected much differently in their [already bloated] commissions. Any future land purchases I make will be lawyer only, up-front flat-fee [where possible].
Neither of these things require an agent, and neither are worth $40K.
Or it may not.
Worse: If I use the agent, I don't know whether the agent gained me 6% of the price in the negotiations. If I don't use the agent, I don't know if I cost myself 6% of the price (or more!) in the negotiations.
Someone could do a study, looking at sale prices of "for sale by owner" versus sale prices of comparable sales through agents, for comparable periods. Even that study is fraught - for us to trust it, it would have to be by non-realtors, but also by people not involved in the "for sale by owner" world in some way. And yet the study would have to get the comparables right - not just right, but clearly right, so that the results of the study will be believed.
Without such a study, we're all kind of just believing what we believe.
The Freakonomics book went into this in detail.
https://freakonomics.com/2008/02/real-estate-agents-revisite...
If your house sales for $50K more, each agent gets $1500 more and the brokerage gets 20-40% of that. Let’s say 30%. That means the agent will get a little over $1000 extra.
They would much rather sell your house for $50K less and move on than convincing you to hold out for $50K more.
if we're all for transparent markets, these commissions interfere and it doesn't matter how close to reality they are as we can agree that they're largely not real, but synthetic amalgamations of something not related to the market.
Typically, agents (on both sides) are incentivized to doing whatever makes the sale happen with the least time, risk, and effort, because what they lose on commission if that involves a (not extraordinarily unreasonable) price cut they make up for in volume.
The argument I've seen made is that the buyer's agent's motivation to lower the price comes from wanting their client to actually make the purchase. That said, I'd think that this is only motivating them to get down to the highest price that the buyer will accept paying, rather than the actual lowest price that's theoretically possible.
I'm a better negotiator than any agent I've ever dealt with. Add in the white hot market the last decade and the only 'negotiation' happening was figuring out how much to overbid.
Not exclusive to realtors.
Many realtors works take a consulting fee too navigate things. Try.
Beyond that getting a lawyer to handle a sale doesn’t seem much different with or without a realtor. They have their own liability insurance.
Realtors def help navigate the market agent they are competent in it.
* If I were a member of the public, I'd be more upset about referral fees than commissions. This is a far more grey / nebulous area of real estate compensation. We have to disclose and discuss commissions up front, but referral fees are often in the shadows and definitely can cause buyers / sellers to pay more.
Right now one of the realtors we've interviewed takes 5% and offers 2.5% to the buyer's agent. Not much better. They also offer 4% if they are a dual agent.
But I know of cases where a buyer without an agent got the seller agent to accept 4% overall while only representing the seller (but handling the paperwork necessary to complete the transaction.) That 2% was a worthwhile part of negotiating, allowing the buyer to get a lower price.
As a result you end up losing out on a large surface area of buyers who rely on their buying agent to find properties, which puts you at a disadvantage.
That tells you how the agents view their job responsibilities, the buyers agent ultimately sells a house (to the buyer), the sellers agent advertises (lists) it.
That entirely solved our purchasing problem - we got automated daily or sometimes hourly emails parametrically filtered by school district, build date, price, square footage, and lot size whenever a new listing went up. It would have been stupid to have our agent filter them based on the deals that were better for him or his industry.
We had a uniquely good agent who spent hundreds of hours with us filtering hundreds of listings, visiting probably 60 different houses at all times of day over the course of a year before we finally bought, submitting a dozen offers, and helping us through the closing process, and then using his builder's license to help us ready the home we bought for move-in. He was extremely knowledgeable about all kinds of building inspection issues and the procedural minutiae. We happily paid him the 6%, it would have been far more costly to bring along an inspector/attorney/general contractor at an hourly rate.
For their reduced work, we’d ask a reduction of their commission.
When I bought my last house, my agent was able to send me dozens of listings from MLS for homes that weren't listed on public websites.
One of our agents would still send MLS postings to us. We usually got that email after we’d gotten the same email listing from Redfin. And not once was there an MLS listing that wasn’t listed on Redfin.
*Pocket listings are something more of the public should understand, as they are almost universally bad. Listing creates a market and gets your property in front of the most potential buyers.
Setup alerts for the type of house you want, draw the geographic boundaries on Zillow, and spend 2 minutes looking at the listing and maps to find out everything an agent would have been able to tell you.
I wish I had a recent example, but I tested this theory multiple times when I was house hunting, and I don't think I'm hallucinating the issue.
These websites are great and I'm glad the public has the information they have, but they don't tell the whole story - especially for someone coming from outside the market.
I'm thinking here of just the last few of my transactions - flood zone issues, title issues, broken sewer lines, pricing, emblements, water rights - like needing to cure in order to preserve, surveying, sub-division, zoning use, farm tax status. Plus finding all the professionals needed to support the process - I'm spending my day calling plumbers so that I can keep a deal together for buyer and seller, for example. I don't think the public appreciates what life was like before listing services - it's one of the major advantages for consumers that we have in this country over other places, IE: attempting to reduce information asymmetry.
A) If you want to work with a flat rate agent, go find one. Every property I have in my pipeline right now is on a different commission level, and only a couple of them are this magical "6%" the public loves to believe is "standard". Some of them are even fixed amounts.
B) It's only "6%" if the agent does both sides, otherwise it's whatever the agreed upon split might be - say 50/50, so you are only getting 3%. And, as a few astute observers in this thread have noted, the brokerage is going to further reduce what goes into the pocket of the agent themselves. I've had plenty of deals where my actual net was at or under 1% - I've even had deals where I lost money.
C) So if I sell a $10MM property that takes a year to sell and needs tens of thousands in marketing dollars to sell, I should accept only $10K in compensation?
D) Let's say you've got some shitty dilapidated house or scrub ground with zoning issues, maybe a barely inhabitable cabin somewhere. I find a buyer for it to get the monkey off your back. What's that worth to you, to have the pain gone? You think I don't deserve compensation for spending potentially months or even years to bring you a deal? When I sell properties like that, it is at best a break-even proposition for me, but someone has to step up and assist the public.
E) Everything I listed in my post is about risk management. I am assisting you with not buying a foot gun. In some cases, I am assisting you with buying an asset that will bring cash flow or other financial benefits. In other cases, I may be assisting you with getting a financial drain off your back. Perhaps not for you, but do you begin to see why these service do have value for many consumers?
It's normally about this point that someone in one of these threads says "but I'm taking about 'normal' deals!" Dude - anyone who has been in the real estate business for more than 5 minutes knows that the so-called "normal" deals that the public loves to talk about are maybe one deal a year for an active agent. They are the unicorns of the real estate world. Likewise, people in urban markets have likely no idea the variety of real estate transaction that happen in the world. At the moment I've got transactions in my pipeline for land development, commercial, leases, duplexes, not to mention basic residential work. And every single one of those have unique challenges.
As the average price has increase this has also gone up.
The fees are high for a low level of digital literacy and competency. Running anything more than a basic level of search is usually impossible.
A friend of mine had some decent parameters (distance to school, work, family, etc) and it seemed to boil their brain to find a way to map this.
It was almost o the point where my friend almost was going to become a realtor tog dt access to the data to run his own searches.
He calculated it was cheaper than the commission.
Realtors are like lawyers, too many don’t know everything but act like they do. The ones who specialize and actually are experts are worth it.
For realtors it's very simple. Why spend time on something they won't get paid for? Why bother arranging a tour of a FSBO house, unless that one says "agents welcome" in its listing which means they will pay the buyer agent fee. But if that contract is standard, what's the disincentive? Just the unpleasantness of actually enforcing it when necessary?
Common here seem to be "flat rate MLS listing" services, where you pay a few hundred dollars and they list it, and you're your own selling agent. You still pay the 2.5% to the buying agent and say so in the listing.
And yeah, the dream customer of every selling agent is a clueless first-time buyer who just calls up the agent on the for-sale sign. Double commission!
Isn't that almost everyone doing work? I don't do work for free.
>the dream customer of every selling agent is a clueless first-time buyer
I've purchased multiple homes without a 'buyer's agent'. I'm certainly not clueless. It's actually a great negotiating tactic and often yields real savings.
Agents are grossly overpaid, but buyer agents in particular are just an enormous waste of time. It was actually our first home purchase where we did use a buyer agent and it was...eye opening. People under illusions that buyer agents are actually informed or acting in the buyer's interests are the most clueless of all.
If you're a buyer and your agent demands payment, they're probably taking you for a ride...
For selling a small plot of land I got so angry about the fees for nothing that I paid an obviously rogue broker to proxy-list the thing. This guy was charging half of what the other brokers were (still way too much), and did not do anything except upload documents from me.
It's a puzzle to you because you had the personality & motivation to do the work of marketing+showing+negotiating the house yourself. You have inadvertently projected your DIY savvy onto other homeowners to do the same thing. But, a lot of home sellers don't want to DIY a home listing.
- some homeowners don't want to deal directly with potential buyers (pre-qualify buyer's bank financials, show them around the property, etc). Some homeowners are uncomfortable wearing a "salesmen" hat.
- some homeowners are not savvy about how to present and market their home. Sure there are endless books and youtube videos on jazzing up "curb appeal" but some people simply want a "professional" to advise them.
- some homeowners feel uncomfortable with legal aspects and even hiring an attorney specializing in real estate feels "weird". It's just more "normal and easier" to use a real estate agent.
Analogous situation in people selling things on ebay. What's the value in a service like iSoldIt[1] charging a commission for ebaying on sellers behalf when the seller can save money by DIY by taking own photos, using ebay website to upload the photos and list the item, and then pack & ship the item themselves?!? The value is that some people don't want to DIY certain tasks. I had a friend sell his camera via iSoldIt. I sell stuff myself on ebay all the time and thought he was crazy for paying the iSoldIt commission. He was a young programmer so he's not an old grandfather that would find ebay's website intimidating. He simply didn't want to deal with the whole ebay workflow and wanted some cash as quickly as possible. Consider that ebaying a camera is way simpler than selling a house and yet some still offload it to a service to handle it for them.
EDIT to replies:
>, but I don't think most people would be willing to spend 12k just to be more comfortable,
>Agents provide value. [...] Do agents provide tens of thousands of dollars of value?
To be clear, I wasn't trying to justify their 6% commission rate. I was explaining why most homeowners don't go the DIY route to save money which seemed more "logical" to the gp.
For decades, I saw endless commercials on tv for FSBO (For Sale Buy Owner) services trying to educate viewers on "don't pay seller commissions and pocket the savings yourself!" And yet, real estate agents persist. People are already aware of "selling by owner"; they just don't want to do it and would rather pay a commission.
Do agents provide tens of thousands of dollars of value?
Also note the percentages I gave, it obviously depends on the price of the house.
Maybe real estate agents should structure their commission more like M&A bankers and account executives, which often have tiered or ramped fees that encourage the best prices, e.g. if the selling price is below X you get 5%, everything above X you get 10%, etc
It's sort of analogous to the American tax situation - many, many people I've talked to refuse to do their own taxes (even a very simple 100EZ) - or even use software to do it - because they've been convinced culturally that filing taxes is so incredibly complex and if they screw up they're going to be severely punished, so instead they pay an accountant a few hundred bucks to file a 1040EZ and get their tax refund - which they don't really feel because they just take it out of the refund.
I'm sure if I moved up tax brackets, the accountant would start providing specific feedback on minimizing exposure.
The 6% exists in a marketplace of various fees (some charging less) based on other arrangements (discount brokers, For-Sale-Buy-Owner). E.g. Redfin charges 1%: https://www.redfin.com/why-redfin-how-you-save
Apparently, Redfin has never made a profit.
Reminder that Amazon and Salesforce took multiple decades to make a profit
I might have implied I did much of this work. I didn't, outside of negotiating. The marketing is simply getting the house on real estate sites and in-front of buyer agents, which is what MLS self-listing services do for you for a flat rate. The showings were still handled by the buyer agents. The only thing I had to do was represent myself in negotiations, which was not that difficult.
Understood that some may want to do that, but the price difference is insane. If you save 4.5% (assuming buyer agent gets the 1.5% difference from 6%) on a $400k house, that's $18,000.
Regarding FSBO, this is where MLS self-listing plays a huge role. I tried selling my house for a few months by listing on Zillow (assuming Zillow is way more popular a decade later, but still) and sticking a sign in my front-yard. MLS gets you on every real estate site and at the fingertips of buying agents.
Lastly, as you say in your replies, the issue is justification of the 6%. There are lots of issues here -- super expensive, there is already a very serious principle-agent issue incentive misalignment, and the value is questionable. When housing prices skyrocketed, did their value skyrocket in tandem?
The question that this raises is even more puzzling: why hasn't there arisen agents that undercut the status quo? Are there guild or cartel effects at play?
The staying power of the Realtor Association may have something to do with it as well
There are a bunch of these brokers now.
I had an agent get halfway through listing my house for sale and tell me his fee was 7%. Noped out of that one.
When I was looking to buy a house, my agent received no financial compensation from me at any point. Their work was entirely subsidized by the buyer's agent fee - and we looked at a lot of houses trying to find the right one.
The negative effect of that is that they're incentivized to offload us asap.
Since Zillow and Redfin have existed for quite some time how, that service seems a lot less valuable. I'm sure it can be worth it in the right circumstances, though.
Suppose the market was hotter when you sold and your property was worth 2x the median. Is the same work worth $24k? What if you sold in a hot market in a hot neighborhood, which should make it somewhat easier to move the property? Does it make sense that this would increase the amount the agent gets paid?
For similar reasons, proportional pricing doesn't work well at the lower end of the market, where listings are often under $100k.
The buyer is the only one bringing money into the deal so they pay for both agents
It's only true if you consider your employer to be paying for everything you have in your house, because they gave you the money you used to pay for your stuff.
The problem with your house analogy is that (a) there can be long time spans between when your employer pays you and when you buy stuff in your house, and (b) you presumably have complete control over everything you decide to purchase in your house. That's not really true in the real estate example, where everything is part of a single transaction to which only one party is bringing any actual money.
A better analogy would be social security taxes in the US. In the US, the fiction is that the employer pays for half of an employee's social security taxes, and the employee pays for the other half out of their paycheck deductions. But basically every economist considers this a work of fiction, and since the true cost of an employee is everything the employer needs to pay, they basically consider all the social security taxes as costs to the employer.
When I’ve been a seller I’d have been willing to lower the price in a slow market more, had commissions not been a factor. Instead I shelved the listing until the market improved because I reached the lowest price I was willing to close at. So in that sense, the buyer is definitely paying for that commission via inflated price.
A lot of anecdotal evidence they encourage this.
But for the seller, who pays the tab, the only value is that some buyers' agents will steer their clients away from you unless you offer a large commission. The individual realtors I know are nice people who work hard, but the industry as a whole is pretty obviously maintained by collusion, and I'm glad it finally seems to be crumbling.
In fact, you could really view the commission split paid to the buyers agent (from the seller) as part of that expense of the seller marketing their property.
why does a buyer need a expert on all the objects out there?
I know there's technical examinations like a home inspection that the buyer would have done, but if you're just talking about navigating the property and legal docs, seems like the buyer isn't going to need an agent to do that other than once to accept the price.
The offer process can be a little confusing, but ultimately it's a bunch of standardized forms that everyone should be allowed to download from some government agency or whatever.
The negotiation process is in some ways more frustrating when having to go through intermediaries. The only value the realtor provides there is frankly pretty shady: often the two realtors (who usually know each other and have a cordial relationship) will share information about their client that they really shouldn't. I've benefited from that type of information, but have felt dirty about it.
Ultimately all the legal stuff is handled by a title company (and/or a lawyer), and the realtor isn't involved there.
I think the main places where you can get a better outcome with a realtor are due to industry protectionism, not anything inherently difficult about the process that requires a trained, licensed agent with insider information.
But I suppose she got an easy sale. I'm not sure if she actually showed us any houses in person, or just showed us listings. She definitely had to spend a lot of time helping us sign the 150-or-whatever pages of the offer letter, going back and forth with the seller, etc.
But still, it was probably 5 hours of 'visible' work, so I'll be generous and say 20 hours total invested.
Had we spent 6 months showing us houses, she'd have invested a lot more. And, of course, not gotten a dime more out of us. So, you win some, you lose some.
On the buyer side, once we'd toured a few houses and they understood better what we wanted, the number of "No, not a chance" houses dropped to almost zero. Also, when we were just "tire-kicking" and said we had no intent to buy for a year or more, our realtor flat out told us she enjoys seeing new houses and even if we aren't ready it's good leg-work and research for her to do for other clients anyway. Once we found one she was excellent at getting us to the right people for financing, inspections, etc. - in a very small local market. She was also incredibly helpful when we were trying to find a temporary rental from across the ocean remotely, which is what led us to ask her to help find a house to buy eventually.
On the seller side, we left the country, and my realtor sold our house at an amount that covered his commission and then some with almost no effort from us at all. He had the place cleaned, staged, and photographed as part of his fee, and sold it in a day.
Yes, I'm sure like any occupation there are people bad at their job and just collecting cash for doing damn near nothing, but if you find a good one on either side, they can add a lot. Look for referrals from people who've had good experiences, and don't just pick a name from the phone book.
For my most recent home purchase, my realtor easily made $1k/hour, even after taking into account whatever percentage her firm takes.
I'm strongly considering a DIY approach the next time I buy a house. I may eventually give up and get a realtor, but I'm curious to see if I really need one.
If you don’t ask for what you want or know what you want, you get those guys. If you do, you pay for the big leagues. You’re not going to find their business card at the coffee shop bulletin board or church bulletin.
When I sold my first house, I paid the full commission plus 50% of anything over ask if it closed within 45 days of signing.
This lady was a beast. She hung out at divorcee support groups and had a file of recently divorced women with cash settlements. All-cash offer, well over list, accepted the day before listing with no contingency; closed 10 days later.
Did I feel like a horrible person? Yes. Was the place sold to my needs? Yes.
Fixed that for you. I wish when real estate comes up on HN, as it seems to weekly, that more members of this community would reflect upon the 10x programmer conversation. In any given profession, there are going to be skilled people and less skilled people, in the same way that Pareto's principle tells us that 20% of the people are doing 80% of the work. So I appreciate you making this observation.
May I ask - why did you feel like a horrible person? Sounds to me like you had a good sense of what you wanted to accomplish and you found someone who could help you reach your goals.
How did you handle that?
I finally got a traditional agent just to field the phone calls.
The last time I sold a house was 2011, when the housing market was still down from the 2008/09 crash. I talked with multiple agents and never got a sense of them doing much to push the house other than listing it on MLS and coordinating showings. For the seller agent, they didn't even really want to be at the showings -- they'd just provide a lockbox and give the code to the buyer agent. So where is the value there? On a median home sale, the seller side agent/broker is netting $12,400. A lockbox and MLS listing are in the sub-$500 cost range, so where is the additional $12,000 in value?
I at least understand the incentive on the buyer side. A buyer can just ring up an agent and have them do their home search for them and coordinate everything. The buyer doesn't bear the cost at all, so why not utilize that convenience?
Anyway, after talking with a few agents in 2011, I had one recommended to me. He could get deals done quickly and was great to work with, so I was told. I met with him and he wanted to list the house at 8% below the price I thought the house was worth (no bidding wars back then so this was no good) and flat-out refused to reduce the total commission from 6% to 5%.
I said "good riddance" to the agents and did an MLS self-list for like $400. I set the buyer-side commission at 1.5%. I still got plenty of people looking at the house and sold it for the value I initially established it was worth. So I ended up saving over 10% from what the whiz-kid agent would have cost me in lost value and fees.
So back to my original point -- where is that seller value coming from? There isn't much legal stuff the agents help with. You need a purchase contract (boilerplate in most cases), some standard state/federal disclosure forms, and then the title agency handles everything else.