Over the last two years I've bought a couple of properties and I see the value of realtors as professional negotiators and experts on real estate laws and contracts.
That being said, the National Association of Realtors (NAR) and their local branches are the definition of a cartel. My parents owned a real estate agency when I was growing up in the 80s and 90s. Back then, the cost of selling and marketing real estate was much higher. Most real estate advertising was done in print which the broker paid for out of pocket. Cameras used film back then which meant multiple trips to the property to take nice pictures. Someone had to always be manning the telephone because there were no mobile phones. The listing broker would have to arrange a showing with interested buyers and their broker. MLS was a huge printed catalog you would flip through to look for houses your clients may be interested in.
Nowadays, the cost of listing a house is nominal for a brokerage. Advertising is free because all of the real estate sites that consumers visit (realtor.com, zillow) pull directly from MLS. All cameras are digital so you can take that perfect picture the first time. There are now phone apps that automate broker access to houses to show their clients.
There are all of these productivity improvements for real estate agents on both sides of the negotiating table but the commission structure is almost identical to what it was 30 years ago. I believe the standard commission structure has gone from 7% to 6% in thirty years.
> "That being said, the National Association of Realtors (NAR) and their local branches are the definition of a cartel."
NAR was actually investigated by the federal government (FTC i think?), who concluded much the same, but lobbying buried the report and nothing came of it.
MLS's maintain power by strictly controlling access to information. they have the most up-to-date and the most detailed information about properties, buyers/sellers and sales transactions, among other things. this allows them to be the arbitors of deal flow, giving their members the advantage.
and this is the linchpin that props up the 6% commission rate. it's classic rent-seeking, since marketing costs have been dropping, as you mention. a truly competitive market would probably put the commission in the 1-2% range.
(i did my MBA thesis on disrupting the real estate industry)
> Nowadays, the cost of listing a house is nominal for a brokerage. Advertising is free because all of the real estate sites that consumers visit (realtor.com, zillow) pull directly from MLS. All cameras are digital so you can take that perfect picture the first time. There are now phone apps that automate broker access to houses to show their clients.
There's a brokerage in Canada now called "1% Realty" which pretty much serves the purpose of getting your home onto the MLS, and doing some very basic sellers agent services. Its whole shtick is that its fee is literally one percent.
In my opinion that level of sellers-agent fee is much better aligned with the actual hours of effort, and operating costs on the part of the listing agent.
Those who are persistent can always eventually find someone willing to sell their property for 3%. That isn't some online discount scam, that's a local realtor with local billboard ads, regular newspaper inserts, and a respectable web presence who is will to take half to do this job. Maybe you're in a hurry, maybe you like gold-plating, maybe you have to use your sister-in-law as a realtor, but if none of those circumstances apply then a 50% discount is well worth pursuing...
Of course it's because of all the efficiencies you mention. Their job is significantly easier than it used to be. They can afford to charge less; they just forgot to tell the general public about that.
1. Real estate agents aren't often "experts" at real estate valuation, inspection or execution; They have dependencies on appraisers, inspectors, and lawyers. The work an average agent does is more or less cookie-cutter from my anecdotal experience, though I think there is a proportion of rockstar agents that do much more.
2. Not every buyer wants homebuying to be a client-services relationship. I'd rather have a trusted intelligent ratings system based on criteria like location, price and so on. I would hypothesize that there is a divide here with boomers and millenials / gen z. If I sell my house, it will be on a technology platform that takes 1%, not through an agent.
3. The vig an agent takes is insane in urban centers - 3% might make sense in areas where the avg. home costs 200-250K, and is harder to sell. In dramatic sellers markets where homes are in the 600K - $2M range, the take should be much much lower.
Most of the appraisers, inspectors and attorneys are filling a compliance role.
The reality is the real estate person usually drives the process. Good ones know which appraisers to call and which inspectors to avoid. There's no real professional ethics involved, so most of them have arrangements with preferred folks whom they get referral fees from. (It's one of the reasons why home inspectors are almost completely useless.)
Real estate is ultimately a shady business that is about who you know.
"Good" real estate agents are interested in moving as many houses as quickly as they can, to gain as much vig revenue as possible.
"Good" real estate agents from the buyers perspective would be slowing down sales, reducing the overall price they make a percentage on anyway (which is why fixed rate for a "class" of real estate would work better) as a disincentive.
Why would a real estate agent dissuade someone from buying something? They can compartmentalize/offload the moral responsibility to the inspector (which are pretty hit or miss too).
Add to that the title company which actually does much of important legwork of getting all the ducks in a row, and doing the research and insuring the transaction. I've never had a real-estate agent that did much more than recommend inspectors/mortgage companies/etc. In the end I've never actually used any of the recommended people because I've been able to find better deals on my own. Pretty much once the title company is named, its more a case of relaying all the information to them where they distribute it to interested parties.
AKA, much of what you think your real-estate agent was doing was likely the title company. Even more so from the perspective of the seller.
>The work an average agent does is more or less cookie-cutter from my anecdotal experience
indeed majority are uneducated, there is a low/no barrier of entry with a similar shark mindset as it exists in recruiting - a lot of promises by your employer (profit sharing etc) but the competition is fierce. I doubt it's an industry that can easily be disrupted. at least to date I've seen no tech proposals/ideas that can compete with this setup because it's already a race to the bottom (and unlike recruiting) requires interfacing with old-school bureaucratic notaries, legal advise etc. In the end you still need a human making an appointment with another human to view the property and a robot doesn't cut it.
The listing agent should have expertise in the valuation for the ask price. I don't think appraisers are generally involved. Appraisers are primarily working for the mortgage company. My last 4 appraisals have been within a couple thousand of the purchase price.
As a realtor for the past 6 years I can say a couple of quick things as to why I don't see the real estate industry going anywhere, even though I think that real estate brokers are extremely overpaid.
- selling your house, at the end of the day, is quite the undertaking. A lot goes into it, it can get emotional, messy, and sometimes quite complicated. Having someone that does it on a daily basis can be nice and really smooth things out.
- people are too attached to their homes emotionally. More often than not, when trying to sell on their home without a realtor they will not have it in a saleable condition and price it too high for the marketplace. It will sit and not sell, or they will get an offer that is appropriate and be offended and not sell it. A GOOD broker will bring facts, data, and logic to the table so that a person that is actually committed to selling their home will get the job done.
If people saw their homes for what they were when they decided to sell them, a product or a piece of property and nothing more, the real estate industry would die in no time at all.
Then again, there are a lot of swindlers out there too, so it's nice to have someone as back-up to watch out for those types of things as well.
... But I'm curious if the definition of "broker" includes online marketplaces or other digital services.
It's true that realtors (and other players, including real estate lawyers) do have expertise that can help buyers and sellers deal with the unique issues that come up with each home, not to mention the mandated paperwork. Streamlining those requirements may be extremely difficult.
However, I think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to doing things online and want nothing to do with realtor-mediated transactions ... or will scoff at the ridiculously high fees charged by brokers.
> However, I think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to doing things online and want nothing to do with realtor-mediated transactions ... or will scoff at the ridiculously high fees charged by brokers.
No way. Find me the mythical millennial who wants to deal with a first-party negotiation.
In some fantasy land where you ride your unicorn to work and shop for pre-fabricated houses on Amazon.com, sure. The reality is that your bank demands due diligence, houses are always in some state of disrepair, and nobody wants to deal with that.
I'm a millennial, just bought my first home this past August. It never even crossed my mind not to use a realtor. Sure I did a lot of communication with my realtor over text and e-mail but I never even considered not using one. I had done a lot of research and looking around before going to our realtor but I trusted our realtor more than I trusted myself to make sure everything was covered. It was more of an ease of mind deal and our realtor wasn't pushy and let us choose homes we were interested in for the most part, only occasionally making suggestions.
Well, until they coordinate to change laws at the state and federal laws, facilitating real estate transactions as a non-realtor will expose such individuals to legal action.
Kinda like Tesla trying to sell in states that require a franchise dealership.
Also, the term commission is ambiguous in the context
of the headline.
Do we mean a percentage of sales or an officiating body that controls an MLS or something at the state level, etc?
>I also think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to online transactions and want nothing to do with realtor-mediated transactions.
Practically, the #1 reason to use a realtor is that if there is an issue with the home that should have been known ahead of time, there is a chain of insured entities that provides legal recourse.
The shop and decide part is secondary to their value, but that is how they are so entrenched. The local MLS in any given area has the ability to cut off access to anyone. Some are even privately owned. In order to disrupt an area, you have to get a slice of listing larger than what’s available in the local MLS and then get more people’s eyeballs on those listings than the combined circulation that the existing MLS feeds were getting...and then still have some means of showing the houses in person.
And you have to do that for EVERY single market you enter.
A young buyer is welcome to shop for a home without using a buying realtor...but there are still very high odds that the seller used a realtor on their end. The only difference in that situation is that the selling realtor doesn’t have to split the commission and pockets more of it.
This is ironic too, because realtors are more valuable to a buyer in most cases and there is more work involved for buyer representative realtors with no guarantee of a payoff.
The entrenchment remains because realtors will often avoid FSBO showings and sellers aren’t interested in experimenting...they just want their house to sell.
Real estate agents have three things they offer that until recently you could not get on your own. The first is listing on the MLS. The second is the MLS lockbox so other realtors can easily show the listed house. The third is access to the negotiated forms. All of these you can now get from a startup called Savvy Lane for a flat fee. We listed our house in Portland, paid Savvy Lane $495, and it sold 11 days later. I paid a full 3% to the buyer's agent (the buyer's agent actually plays a bigger role in selling your house than your agent), and still saved like $18k. I'm a big fan of Savvy Lane and hope they do well. Realtors are paid way too much for what they do, particularly on the seller's side.
I've bought and sold on separate occasions through Redfin and saw no difference between their service for 1% and my previous transactions with a traditional realtor for 5%. They both took me around to see properties, provided neighborhood and property insights, acted as my negotiating proxy, and guided the closing process. I don't understand how Redfin can charge so little, but as it stands today I wouldn't dream of paying 5% again.
I used what was termed a "transactional broker" when selling my previous home - I paid a flat fee of a few hundred bucks to them as the seller's agent, plus 3% to the buyer's agent. As the article mentioned, there's not much value driven by the selling agent - I managed all the showings via an app and we sold it in a week. The only real value to me as a seller is someone who can bring me a buyer (hence keeping that 3% commission). Buyer's agents also spend time taking clients to see houses and provide some assurance that people aren't arranging viewings just to steal your stuff, so I see a continued role there.
Honestly, I've rarely been impressed by the real estate knowledge of either type of agent. Their general incentive is to make a deal happen - "seller's" agents will often try to talk up a below market offer if it gets them a commission faster. Likewise, I've only met one realtor who I felt was really trying to get me the best deal as a buyer.
I'm the founder of a real estate tech startup that caters to realtors.
This article was written before Opendoor and before a record breaking $10B was pumped into proptech in 2018.
The consensus now is that this industry is undergoing rapid change. At the bottom end of the market (maybe 10%), iBuyers like Opendoor will likely completely disrupt the traditional brokerage model. Next, you will see discount brokerages (Redfin, Purplebricks, et al) take more and more of the market. Full commission brokerages will still be the mainstream for the foreseeable future, but commissions will come down modestly, even for them.
As purchasing or selling a home is one of the most expensive, most emotional, and most intimidating transactions you will ever do, seeking the help of a real estate agent is generally a good idea. Increasing competition will create more options and more value for consumers than we've ever seen before and that's a good thing.
People love to complain about realtors. Companies like Redfin have been trying to disrupt this market for years. People on HN and other places like to complain that realtors are pointless and that the only reason they exist is they are entrenched.
I posit a different theory, which may well be controversial here, and that is that realtors continue to exist--and charge large commissions doing so--because they provide a service that most people want.
I think of it like advertising. "I never watch ads" is a common catchphrase when decrying ads but again, ads exist because they work.
The job of a realtor, and what they are incentivized to do, is to facilitate a transaction. People might point out that a selling realtor isn't incentivized directly to get the best sales price. They are correct. Why show a house 100 times in the hopes of getting $550k when you can flip it tomorrow for $520k and your work is done?
Thing is: that's what most sellers actually want, even though they might say they want the best price. Most of them are selling for a reason and they just need to sell it and move on with their lives.
Likewise, when it comes to buyers, they too are buying for a reason, typically because they need somewhere to live or they want to establish (more) permanent roots in a given community. The best thing for most of them is to pull the trigger, move in and get on with their lives. It's not to get the best deal. It's not to wait 2 years for the perfect property.
Realtors facilitate both sides of this equation.
Have you ever deal with a For Sale By Owner? I have. I refuse. I won't even go and look at a listing FSBO. It's a nightmare. Those owners tend to be cheap (hence not paying commission), have unrealistic expectations of their property's value, overvalue whatever "improvements" they've done and, worst of all, are emotionally invested so they re more likely to take a lower offer personally rather than as a negotiating tactic.
It's worth noting too that with negotiating in general, it's often better to have someone else do it for you. If you're the guy who can say yes or no you have no fallback. If you represent that guy you now have the position of "my client won't accept that". Think about the psychological difference of rejecting someone personally or just being the messenger.
So add fixed-fee home sales to the other startup traps like dating sites, travel sites and anything to do with "fixing recruitment" (you'd be surprised how many cold call emails I get about this one in particular). Hell, let's add blockchain to that list too, but I digress.
This is dead on. The HN crowd that prefers to buy on their own based on objective measures and data they can find on a property is a tiny minority. Most people want and need human guidance in a complicated situation like buying a house.
There's also an interesting aspect to a realtor that fills a guiding role. They're the person who helps turn seemingly intangible preferences into tangible search criteria (which can be executed by either party on mostly-public databases).
In fact, in the long-term, as jobs are automated, I'd expect people to spend more time, not less, on taste clarification. Then the pattern is to think about how all guiding roles in society will form to tools that automate the simple bits and let humans spend time doing what they do best. Imagine how much better it would be as a realtor to spend time in conversations inside virtual homes rather than sitting in traffic, navigating database searches, or fiddling calendars.
I was home-shopping recently, and every time I looked at a FSBO home and tried to figure out what the price should be, I got the overwhelming impression I had spent more time looking up comps for the home in question than the owner had. I ran into realtor-sold homes that struck me as priced high for the market, but nothing like the FSBOs.
I agree that there's benefit in hiring a broker when selling.
But I'm not as convinced that brokers are necessary when buying; at least to me, it seems like selling a house will often be more work than buying one. When selling, you need to advertise the house, show prospective buyers around, research the market to better understand pricing, etc whereas for buying it seems less time intensive overall, and easier to find some reasonable options, meet with sellers or listing brokers directly, and write a persuasive offer letter.
It may be a service people want but why do they almost all charge the exact same fee? The market would look less dysfunctional if they all competed on price as well as service.
I'm in the process of selling right now and I can assure you you are wrong. I got a realtor out of fear that I would be missing out on buyers simply as a punishment for not going through the realtor system. After getting astonishingly little value out of the realtor for what would have been an almost 10k seller fee, I fired them and I did a flat fee listing service, and I'm seeing about the exact same foot traffic.
I have still left the 10k buyers agent fee because you will DEFINITELY be blacklisted by the buyer side agents if you don't pay their fee. So basically I'm paying 10k in cartel bribes to get my house shown to people who could have easily found it on their own on zillow or redfin.
The only reason people are going through agents is out of fair of being screwed over by agents who will push them out.
As a back-of-the-envelope approximation, if the commission is 6%, and there's at least a 6% chance that having a real estate agent keeps me from doing something stupid on the largest financial transaction I will do in my life, it's worth it. Probably, they do nothing for me I couldn't have done myself, but there is that chance that I would have (for example) bought a house in an area where it could flood, and then not be able to sell it because of that fact.
There may be real estate agents that are not good enough to be doing the job, but a competent one is absolutely worth it for a person who does maybe 1 or 2 house transactions in their lifetime, just for the chance that they might make a really bad decision if they don't have someone experienced to help them think through it.
6 years old thread. Low end commodity RE commissions will be chipped at, but higher end you want an expert. Buying a million dollar house without an expert is fool money gone.
Having bought and sold quite a few houses now I can say I won't go down the FSBO route anymore. I successfully bought my first house this way, but selling it was a train wreck. Not fun dealing with selling your own home at all. I eventually listed it with a realtor and sold it a few weeks later.
Later in life though spending larger amounts of money on a home I would always recommend finding a good realtor. Someone friends/family can recommend. There are just hundreds(if not thousands) of pitfalls to buying or selling a home.
On a different note I did have the opportunity to build several data driven local realtor sites a few years ago. They were deceptively simple looking on the surface, I mean all you do is sort and filter house results right? The process of syncing to the RETS system proved to be really clunky and complex. Imagine building a site on top of a database you have to query to discover the tables, fields, and datatypes, and oh by the way it could CHANGE SCHEMA at any time. If your broker was part of multiple MLS (Multiple Listing Services) then you could have to deal with completely different structured DBs. I handled these issues by building a normalized table for listings I could map the data into. MLS data was pulled into a 1:1 mapping table of the same name upon querying the schema. I had to build a Sql Script generator to create the tables. It was very frustrating dealing with schema updates.
The whole process was interesting to me though as to how your listing data is handled when you list a house for sale and how others can gain access to it. Long story short you have to pay to play. Zillow for example is paying (or should be) to access your for sale listing data once entered in the a regional MLS. This is likely several thousand a year conservatively (per MLS). This gains them the right to access the data, however, many times these agreements are 20-30 page legal documents. My first time seeing one of these was extremely uneasy (I nearly didn't sign it). Again fascinating in the case of Zillow I know for a fact they are violating this agreement in our particular region when they hold onto listing data and images past the duration of a listing (sold or removed). They simply just keep it indefinitely it appears. On the other hand keeping up with 100+ MLS agreements across the US would be impossible as well.
IMO, agents are not almost always not acting in buyer's interest. The percentage based commission is twisted in getting the buyer to bid for as much as they can pull.
So, realtors at least for buyers, not such a great value, other than getting you access to lock box to view a property.
The SF bay area is ripe for disruption and is being disrupted. Buyer's agents here don't have to really put any work together - I know from experience having worked with a couple realtors. Most homes sell here completely free of contingencies (loan, inspection, appraisal), thus once you as the buyer commit, you commit.
Sellers here don't tend to be sentimental. Just because you attach a nicely written letter with a photo of your family and your dog doesn't mean the seller will turn down an extra $20k.
Thus, a buyers agent really won't be able to negotiate a better deal for you than you can get for yourself. It's highest bid wins, and buyers' agents will always tell you to bid more so you have a better chance to win the house (something obviously self-evident).
Also in the bay area, especially the south bay, housing prices are at the $1.5 - 2.5m range. Tell me how whatever service for the buyer can possibly worth $45k - $75k for putting together an offer for maximum amount with no contingencies. Realtors are entrenched but there's a reason why these real estate startups are proliferating.
Homie is a VC backed startup replacing real estate agents in Utah and Arizona and they seem to be doing very well. Massive adoption over the last year. I feel pretty confident that agents will eventually be a thing of the past.
This entirely depends on the real estate agent. For the company I work for, a decent amount of purchases are made from afar, where an agent really helps with finding and buying a property. Some of our purchases come through with "pocket listings", where an agent knows of a house or piece of land that someone would sell, and approaches the seller with a buyer already. How would you do this with tech?
There's also the agent's access to their rolodex, which new agents will not necessarily have, they'll depend on leads from zillow, trulia, knocking on doors, etc.
It's also "free" to buy with an agent.
For most higher end listings, it is expected that you do participate in the monthly mailer real estate magazines, that's just the cost of doing business. Brokerages do buy these in bulk, and can offer the discounts to an agent to participate in this sort of marketing.
All of this is pretty tough to do, you can't just wrap the MLS in a skin, make some signs and be in business. Real estate isn't just a tech problem, though there are some things you can do with tech to make the buying, researching and selling process easier.
You have to have distinctions for your specific market, some of these don't make sense nationwide, but are very important locally. For example, a "deep water canal for sailboat" is a term that comes up pretty often in Florida, an Ohana Suite is something that is often requested in Hawaii. Local knowledge matters unless you're in suburbia where literally every house fits into a formula consisting of: ++school - commute time + square footage - age of house +++in monthly payment. The formula would be different for every buyer.
Disclaimer: these opinions are my own, not of the company i work for.
Weird/unrelated anecdote: Nobody in Greece uses realtors.
I can't remember the exact historical reasoning, but it starts with the Ottomans. The Ottomans controlled the Greeks since about 1453, and when they were finally overthrown after the Greek War of Independence, there began about 120 years of political turmoil until the end of the Greek Civil War.
So, post-civil war time. Tons of people are in exile, the country is torn by rival factions, and everything is in an even worse state than when the Germans occupied it. After hundreds of years of being occupied by foreign powers, there isn't really a clear indication of who owns what piece of property. Most of what you went by was "Well, somebody in my family used to own it." Cool.
When it comes time to buying or selling property, there aren't really well defined "properties" per-se, or even a market for them. Somebody might just come up to you and tell you somebody else wants to buy your land, and if you just give them some cash up front, they'll get you a really good deal. So you give them some cash, and either they never return, or they come back with a really horrible deal. If they claim they're going to help you with the legal paperwork, they'll almost definitely sabotage it.
Today, if somebody tries to help buy or sell a home in Greece, the average Greek will think they're a grifter trying to make a quick buck. To make matters more difficult, apparently there's been multiple confusing ways of legally registering and searching properties, and the red tape involved with completing the title transfer is crazy.
So there's very few registered realtors in Greece, and basically nobody uses or trusts them. Meanwhile, the country is fucking stunning and there's abandoned property all over the place that nobody can shift. An ocean front property in the Peloponnese can go for a hundred grand. But good luck finding it or having any help in acquiring it, because they're all FSBOs that pin an advertisement on a telephone pole in the nearest city.
[+] [-] ryanackley|7 years ago|reply
That being said, the National Association of Realtors (NAR) and their local branches are the definition of a cartel. My parents owned a real estate agency when I was growing up in the 80s and 90s. Back then, the cost of selling and marketing real estate was much higher. Most real estate advertising was done in print which the broker paid for out of pocket. Cameras used film back then which meant multiple trips to the property to take nice pictures. Someone had to always be manning the telephone because there were no mobile phones. The listing broker would have to arrange a showing with interested buyers and their broker. MLS was a huge printed catalog you would flip through to look for houses your clients may be interested in.
Nowadays, the cost of listing a house is nominal for a brokerage. Advertising is free because all of the real estate sites that consumers visit (realtor.com, zillow) pull directly from MLS. All cameras are digital so you can take that perfect picture the first time. There are now phone apps that automate broker access to houses to show their clients.
There are all of these productivity improvements for real estate agents on both sides of the negotiating table but the commission structure is almost identical to what it was 30 years ago. I believe the standard commission structure has gone from 7% to 6% in thirty years.
[+] [-] clairity|7 years ago|reply
NAR was actually investigated by the federal government (FTC i think?), who concluded much the same, but lobbying buried the report and nothing came of it.
MLS's maintain power by strictly controlling access to information. they have the most up-to-date and the most detailed information about properties, buyers/sellers and sales transactions, among other things. this allows them to be the arbitors of deal flow, giving their members the advantage.
and this is the linchpin that props up the 6% commission rate. it's classic rent-seeking, since marketing costs have been dropping, as you mention. a truly competitive market would probably put the commission in the 1-2% range.
(i did my MBA thesis on disrupting the real estate industry)
edit: here's one, but i don't think it's the one i was thinking of: https://www.justice.gov/atr/competition-real-estate-brokerag...
[+] [-] walrus01|7 years ago|reply
There's a brokerage in Canada now called "1% Realty" which pretty much serves the purpose of getting your home onto the MLS, and doing some very basic sellers agent services. Its whole shtick is that its fee is literally one percent.
In my opinion that level of sellers-agent fee is much better aligned with the actual hours of effort, and operating costs on the part of the listing agent.
[+] [-] jessaustin|7 years ago|reply
Of course it's because of all the efficiencies you mention. Their job is significantly easier than it used to be. They can afford to charge less; they just forgot to tell the general public about that.
[+] [-] unclebucknasty|7 years ago|reply
Not to mention housing prices have greatly outpaced inflation and real wages over that same period.
[+] [-] garagemc2|7 years ago|reply
[+] [-] aj24|7 years ago|reply
[+] [-] anonymous5133|7 years ago|reply
[+] [-] walshemj|7 years ago|reply
[+] [-] muhneesh|7 years ago|reply
1. Real estate agents aren't often "experts" at real estate valuation, inspection or execution; They have dependencies on appraisers, inspectors, and lawyers. The work an average agent does is more or less cookie-cutter from my anecdotal experience, though I think there is a proportion of rockstar agents that do much more.
2. Not every buyer wants homebuying to be a client-services relationship. I'd rather have a trusted intelligent ratings system based on criteria like location, price and so on. I would hypothesize that there is a divide here with boomers and millenials / gen z. If I sell my house, it will be on a technology platform that takes 1%, not through an agent.
3. The vig an agent takes is insane in urban centers - 3% might make sense in areas where the avg. home costs 200-250K, and is harder to sell. In dramatic sellers markets where homes are in the 600K - $2M range, the take should be much much lower.
[+] [-] Spooky23|7 years ago|reply
The reality is the real estate person usually drives the process. Good ones know which appraisers to call and which inspectors to avoid. There's no real professional ethics involved, so most of them have arrangements with preferred folks whom they get referral fees from. (It's one of the reasons why home inspectors are almost completely useless.)
Real estate is ultimately a shady business that is about who you know.
[+] [-] AtlasBarfed|7 years ago|reply
"Good" real estate agents from the buyers perspective would be slowing down sales, reducing the overall price they make a percentage on anyway (which is why fixed rate for a "class" of real estate would work better) as a disincentive.
Why would a real estate agent dissuade someone from buying something? They can compartmentalize/offload the moral responsibility to the inspector (which are pretty hit or miss too).
[+] [-] StillBored|7 years ago|reply
AKA, much of what you think your real-estate agent was doing was likely the title company. Even more so from the perspective of the seller.
https://smallbusiness.chron.com/duties-roles-title-company-2...
[+] [-] DyslexicAtheist|7 years ago|reply
indeed majority are uneducated, there is a low/no barrier of entry with a similar shark mindset as it exists in recruiting - a lot of promises by your employer (profit sharing etc) but the competition is fierce. I doubt it's an industry that can easily be disrupted. at least to date I've seen no tech proposals/ideas that can compete with this setup because it's already a race to the bottom (and unlike recruiting) requires interfacing with old-school bureaucratic notaries, legal advise etc. In the end you still need a human making an appointment with another human to view the property and a robot doesn't cut it.
[+] [-] davio|7 years ago|reply
[+] [-] rb808|7 years ago|reply
1% sounds crazy expensive to me.
[+] [-] iwantedjusttom|7 years ago|reply
- selling your house, at the end of the day, is quite the undertaking. A lot goes into it, it can get emotional, messy, and sometimes quite complicated. Having someone that does it on a daily basis can be nice and really smooth things out.
- people are too attached to their homes emotionally. More often than not, when trying to sell on their home without a realtor they will not have it in a saleable condition and price it too high for the marketplace. It will sit and not sell, or they will get an offer that is appropriate and be offended and not sell it. A GOOD broker will bring facts, data, and logic to the table so that a person that is actually committed to selling their home will get the job done.
If people saw their homes for what they were when they decided to sell them, a product or a piece of property and nothing more, the real estate industry would die in no time at all.
Then again, there are a lot of swindlers out there too, so it's nice to have someone as back-up to watch out for those types of things as well.
[+] [-] ilamont|7 years ago|reply
87% of buyers purchased their home through a real estate agent or broker—a share that has steadily increased from 69 percent in 2001.
Source: National Association of Realtors (https://www.nar.realtor/research-and-statistics/quick-real-e...)
... But I'm curious if the definition of "broker" includes online marketplaces or other digital services.
It's true that realtors (and other players, including real estate lawyers) do have expertise that can help buyers and sellers deal with the unique issues that come up with each home, not to mention the mandated paperwork. Streamlining those requirements may be extremely difficult.
However, I think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to doing things online and want nothing to do with realtor-mediated transactions ... or will scoff at the ridiculously high fees charged by brokers.
[+] [-] Spooky23|7 years ago|reply
No way. Find me the mythical millennial who wants to deal with a first-party negotiation.
In some fantasy land where you ride your unicorn to work and shop for pre-fabricated houses on Amazon.com, sure. The reality is that your bank demands due diligence, houses are always in some state of disrepair, and nobody wants to deal with that.
[+] [-] crysin|7 years ago|reply
[+] [-] general8bitso|7 years ago|reply
Kinda like Tesla trying to sell in states that require a franchise dealership.
Also, the term commission is ambiguous in the context of the headline.
Do we mean a percentage of sales or an officiating body that controls an MLS or something at the state level, etc?
[+] [-] shdh|7 years ago|reply
What platform will facilitate these transactions?
[+] [-] brightball|7 years ago|reply
Practically, the #1 reason to use a realtor is that if there is an issue with the home that should have been known ahead of time, there is a chain of insured entities that provides legal recourse.
The shop and decide part is secondary to their value, but that is how they are so entrenched. The local MLS in any given area has the ability to cut off access to anyone. Some are even privately owned. In order to disrupt an area, you have to get a slice of listing larger than what’s available in the local MLS and then get more people’s eyeballs on those listings than the combined circulation that the existing MLS feeds were getting...and then still have some means of showing the houses in person.
And you have to do that for EVERY single market you enter.
A young buyer is welcome to shop for a home without using a buying realtor...but there are still very high odds that the seller used a realtor on their end. The only difference in that situation is that the selling realtor doesn’t have to split the commission and pockets more of it.
This is ironic too, because realtors are more valuable to a buyer in most cases and there is more work involved for buyer representative realtors with no guarantee of a payoff.
The entrenchment remains because realtors will often avoid FSBO showings and sellers aren’t interested in experimenting...they just want their house to sell.
[+] [-] hkmurakami|7 years ago|reply
[+] [-] hcurtiss|7 years ago|reply
[+] [-] hkmurakami|7 years ago|reply
Also this is a PR move for Zillow to tell agents that they're on their side.
[+] [-] picodguyo|7 years ago|reply
[+] [-] AmericanBlarney|7 years ago|reply
Honestly, I've rarely been impressed by the real estate knowledge of either type of agent. Their general incentive is to make a deal happen - "seller's" agents will often try to talk up a below market offer if it gets them a commission faster. Likewise, I've only met one realtor who I felt was really trying to get me the best deal as a buyer.
[+] [-] henryl|7 years ago|reply
This article was written before Opendoor and before a record breaking $10B was pumped into proptech in 2018.
The consensus now is that this industry is undergoing rapid change. At the bottom end of the market (maybe 10%), iBuyers like Opendoor will likely completely disrupt the traditional brokerage model. Next, you will see discount brokerages (Redfin, Purplebricks, et al) take more and more of the market. Full commission brokerages will still be the mainstream for the foreseeable future, but commissions will come down modestly, even for them.
As purchasing or selling a home is one of the most expensive, most emotional, and most intimidating transactions you will ever do, seeking the help of a real estate agent is generally a good idea. Increasing competition will create more options and more value for consumers than we've ever seen before and that's a good thing.
[+] [-] cletus|7 years ago|reply
I posit a different theory, which may well be controversial here, and that is that realtors continue to exist--and charge large commissions doing so--because they provide a service that most people want.
I think of it like advertising. "I never watch ads" is a common catchphrase when decrying ads but again, ads exist because they work.
The job of a realtor, and what they are incentivized to do, is to facilitate a transaction. People might point out that a selling realtor isn't incentivized directly to get the best sales price. They are correct. Why show a house 100 times in the hopes of getting $550k when you can flip it tomorrow for $520k and your work is done?
Thing is: that's what most sellers actually want, even though they might say they want the best price. Most of them are selling for a reason and they just need to sell it and move on with their lives.
Likewise, when it comes to buyers, they too are buying for a reason, typically because they need somewhere to live or they want to establish (more) permanent roots in a given community. The best thing for most of them is to pull the trigger, move in and get on with their lives. It's not to get the best deal. It's not to wait 2 years for the perfect property.
Realtors facilitate both sides of this equation.
Have you ever deal with a For Sale By Owner? I have. I refuse. I won't even go and look at a listing FSBO. It's a nightmare. Those owners tend to be cheap (hence not paying commission), have unrealistic expectations of their property's value, overvalue whatever "improvements" they've done and, worst of all, are emotionally invested so they re more likely to take a lower offer personally rather than as a negotiating tactic.
It's worth noting too that with negotiating in general, it's often better to have someone else do it for you. If you're the guy who can say yes or no you have no fallback. If you represent that guy you now have the position of "my client won't accept that". Think about the psychological difference of rejecting someone personally or just being the messenger.
So add fixed-fee home sales to the other startup traps like dating sites, travel sites and anything to do with "fixing recruitment" (you'd be surprised how many cold call emails I get about this one in particular). Hell, let's add blockchain to that list too, but I digress.
[+] [-] kbos87|7 years ago|reply
[+] [-] LukeWalsh|7 years ago|reply
In fact, in the long-term, as jobs are automated, I'd expect people to spend more time, not less, on taste clarification. Then the pattern is to think about how all guiding roles in society will form to tools that automate the simple bits and let humans spend time doing what they do best. Imagine how much better it would be as a realtor to spend time in conversations inside virtual homes rather than sitting in traffic, navigating database searches, or fiddling calendars.
[+] [-] cwyers|7 years ago|reply
[+] [-] no_broker|7 years ago|reply
But I'm not as convinced that brokers are necessary when buying; at least to me, it seems like selling a house will often be more work than buying one. When selling, you need to advertise the house, show prospective buyers around, research the market to better understand pricing, etc whereas for buying it seems less time intensive overall, and easier to find some reasonable options, meet with sellers or listing brokers directly, and write a persuasive offer letter.
I recently bought a condo in NYC without a broker, and if you're interested, I left a comment with more info about my experience: https://news.ycombinator.com/item?id=18927393
[+] [-] cheerlessbog|7 years ago|reply
[+] [-] sokoloff|7 years ago|reply
[+] [-] anm89|7 years ago|reply
I have still left the 10k buyers agent fee because you will DEFINITELY be blacklisted by the buyer side agents if you don't pay their fee. So basically I'm paying 10k in cartel bribes to get my house shown to people who could have easily found it on their own on zillow or redfin.
The only reason people are going through agents is out of fair of being screwed over by agents who will push them out.
[+] [-] blang|7 years ago|reply
[1] https://www.opensecrets.org/orgs/summary.php?id=d000000062
[+] [-] btgeekboy|7 years ago|reply
[+] [-] igolden|7 years ago|reply
[+] [-] rossdavidh|7 years ago|reply
There may be real estate agents that are not good enough to be doing the job, but a competent one is absolutely worth it for a person who does maybe 1 or 2 house transactions in their lifetime, just for the chance that they might make a really bad decision if they don't have someone experienced to help them think through it.
[+] [-] blazespin|7 years ago|reply
[+] [-] benmorris|7 years ago|reply
Later in life though spending larger amounts of money on a home I would always recommend finding a good realtor. Someone friends/family can recommend. There are just hundreds(if not thousands) of pitfalls to buying or selling a home.
On a different note I did have the opportunity to build several data driven local realtor sites a few years ago. They were deceptively simple looking on the surface, I mean all you do is sort and filter house results right? The process of syncing to the RETS system proved to be really clunky and complex. Imagine building a site on top of a database you have to query to discover the tables, fields, and datatypes, and oh by the way it could CHANGE SCHEMA at any time. If your broker was part of multiple MLS (Multiple Listing Services) then you could have to deal with completely different structured DBs. I handled these issues by building a normalized table for listings I could map the data into. MLS data was pulled into a 1:1 mapping table of the same name upon querying the schema. I had to build a Sql Script generator to create the tables. It was very frustrating dealing with schema updates.
The whole process was interesting to me though as to how your listing data is handled when you list a house for sale and how others can gain access to it. Long story short you have to pay to play. Zillow for example is paying (or should be) to access your for sale listing data once entered in the a regional MLS. This is likely several thousand a year conservatively (per MLS). This gains them the right to access the data, however, many times these agreements are 20-30 page legal documents. My first time seeing one of these was extremely uneasy (I nearly didn't sign it). Again fascinating in the case of Zillow I know for a fact they are violating this agreement in our particular region when they hold onto listing data and images past the duration of a listing (sold or removed). They simply just keep it indefinitely it appears. On the other hand keeping up with 100+ MLS agreements across the US would be impossible as well.
[+] [-] amatai|7 years ago|reply
So, realtors at least for buyers, not such a great value, other than getting you access to lock box to view a property.
[+] [-] toldyouso|7 years ago|reply
Sellers here don't tend to be sentimental. Just because you attach a nicely written letter with a photo of your family and your dog doesn't mean the seller will turn down an extra $20k.
Thus, a buyers agent really won't be able to negotiate a better deal for you than you can get for yourself. It's highest bid wins, and buyers' agents will always tell you to bid more so you have a better chance to win the house (something obviously self-evident).
Also in the bay area, especially the south bay, housing prices are at the $1.5 - 2.5m range. Tell me how whatever service for the buyer can possibly worth $45k - $75k for putting together an offer for maximum amount with no contingencies. Realtors are entrenched but there's a reason why these real estate startups are proliferating.
[+] [-] yroc92|7 years ago|reply
[+] [-] honopu|7 years ago|reply
There's also the agent's access to their rolodex, which new agents will not necessarily have, they'll depend on leads from zillow, trulia, knocking on doors, etc.
It's also "free" to buy with an agent.
For most higher end listings, it is expected that you do participate in the monthly mailer real estate magazines, that's just the cost of doing business. Brokerages do buy these in bulk, and can offer the discounts to an agent to participate in this sort of marketing.
All of this is pretty tough to do, you can't just wrap the MLS in a skin, make some signs and be in business. Real estate isn't just a tech problem, though there are some things you can do with tech to make the buying, researching and selling process easier.
You have to have distinctions for your specific market, some of these don't make sense nationwide, but are very important locally. For example, a "deep water canal for sailboat" is a term that comes up pretty often in Florida, an Ohana Suite is something that is often requested in Hawaii. Local knowledge matters unless you're in suburbia where literally every house fits into a formula consisting of: ++school - commute time + square footage - age of house +++in monthly payment. The formula would be different for every buyer.
Disclaimer: these opinions are my own, not of the company i work for.
[+] [-] peterwwillis|7 years ago|reply
I can't remember the exact historical reasoning, but it starts with the Ottomans. The Ottomans controlled the Greeks since about 1453, and when they were finally overthrown after the Greek War of Independence, there began about 120 years of political turmoil until the end of the Greek Civil War.
So, post-civil war time. Tons of people are in exile, the country is torn by rival factions, and everything is in an even worse state than when the Germans occupied it. After hundreds of years of being occupied by foreign powers, there isn't really a clear indication of who owns what piece of property. Most of what you went by was "Well, somebody in my family used to own it." Cool.
When it comes time to buying or selling property, there aren't really well defined "properties" per-se, or even a market for them. Somebody might just come up to you and tell you somebody else wants to buy your land, and if you just give them some cash up front, they'll get you a really good deal. So you give them some cash, and either they never return, or they come back with a really horrible deal. If they claim they're going to help you with the legal paperwork, they'll almost definitely sabotage it.
Today, if somebody tries to help buy or sell a home in Greece, the average Greek will think they're a grifter trying to make a quick buck. To make matters more difficult, apparently there's been multiple confusing ways of legally registering and searching properties, and the red tape involved with completing the title transfer is crazy.
So there's very few registered realtors in Greece, and basically nobody uses or trusts them. Meanwhile, the country is fucking stunning and there's abandoned property all over the place that nobody can shift. An ocean front property in the Peloponnese can go for a hundred grand. But good luck finding it or having any help in acquiring it, because they're all FSBOs that pin an advertisement on a telephone pole in the nearest city.
[+] [-] gamechangr|7 years ago|reply
[+] [-] gamechangr|7 years ago|reply
https://www.theguardian.com/world/2014/feb/28/home-ownership...