We’ve bought two houses, sold one, bought a lot to built a house for my parents. We’ve never hired a real estate agent. The seller had an agent for the first transaction, none of the other counterparties had an agent. Paying a lawyer by the hour to handle things is simpler, cheaper, and a random lawyer is dramatically more competent than a random agent (the most complex transaction ended up costing us maybe $4k in lawyer fees-the standard 6% on that sale would have been $40k!)
Canadian here. Sadly, it's common practice around these parts for buyer agents to completely ignore listings that don't have a selling agent attached; it's their form of industry protectionism.
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.
Websites have obviated the utility of a buyer’s agent “finding” houses for 90% of 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 have routinely found more homes by looking around the neighborhoods I wanted to buy in than what I found on Zillow. They don't seem to capture all data sources well (or something else may be afoot, I'm not sure)
I presume their data source is MLS. Perhaps the homes you are finding are not listed in MLS?
Its possible, but I don't think thats the only thing, the reason being that they are listed via Realtors (usually) and I can sometimes find them on other websites (e.g. Redfin) or in the local real estate flyer booklet, but it simply isn't on Zillow for some reason.
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.
There are multiple MLSes and Zillow only has deals with most of them. It's possible you're in a region with prominent "local MLSes" that decided Zillow wasn't paying them enough for access.
The following video explains some of the possible discrepancy due to pocket listings not appearing in Zillow. It also suggested that realtor.com had more listings in its database in some neighborhoods.
find out everything an agent would have been able to tell you
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.
How can these services justify a large percentage of an asset with zero guarantees or clawbacks? You are seriously justifying all of that for a 6% of the most expensive asset anyone will ever buy? Why is it not a flat rate, i.e. $1-10k to sell a home?
Because:
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.
Whenever we’ve bought a house, we told the agent to not bother sending us listings or set up viewings. We simply checked open houses on Redfin and Zillow ourselves, and if we liked a house, we’d ask the agent to prepare an offer, at a price we set. It is not to figure out what a house will sell for if there are enough other sales in that neighborhood.
For their reduced work, we’d ask a reduction of their commission.
In the US, this will severely limit your options. Most houses are posted to MLS first, and don't make it to public sites until later. If you want to get the best deals, you gotta have an agent send you MLS listings daily, swoop in and make an offer on the first day before anyone else sees it.
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.
Then this is why agents exist. That’s gate keeping to protect their patch.
Definitely. But if you want to get a deal, for now, you have to play the game.
You can pay a flat fee to put your house in mls without an agency - it’s couple hundred bucks
Did you reply to the wrong comment? I am talking about buying a house.
That was not our experience in California.
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.
I'm curious about your location and whether your agent was engaged in pocket listings*. When I push new listings to the two MLSs I belong to, they syndicate to all the various sites almost instantaneously.
*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.
Canada is typically 7% commission on the first 100k and 3.5% on the balance.
As average prices have increased commission has also gone up.
Realtor fees are high for their low level of digital literacy and competency.
Realtors will be disrupted by tech folks who take a simple licensing exam and make software work for the customers.
Running anything more than a basic level of search is usually impossible for Realtors.
It’s this old realtor exchange which has more than had its clock tick past expiry.
A software dev buddy had some decent parameters (distance to school, work, family, etc) and it seemed to boil Realtors brains to find a way to map this.
It was more about making a sale.
It was almost to the point where my friend almost was going to become a realtor to get access to the data to run his own searches. He calculated getting a license 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.
Most sales are not that specialized
A "selling" agent IS the buyer's agent, a "seller's" agent (listing agent) works for the seller.
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.
But if the buyers see your property on Zillow wouldn’t they insist on seeing it?
Not showing houses that don’t have a selling agent is a great reason for buyers to avoid having a buyer’s agent.
Are the buyers not getting a feed of every MLS listing in their target area?
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.
^ this is good advice. There are really two things you need to rely on in real estate deals. The first is the legal aspect, which 100% absolutely should be handled by a lawyer. The second is negotiations, assuming you yourself aren't a skilled negotiator.
Neither of these things require an agent, and neither are worth $40K.
Negotiations could easily be worth $40K. It could easily be worth 6%.
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.
Negotiations could easily be worth $40K.
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.
That could be true in your case, but for many people that might not be the case.
HN is full of self-professed master negotiators. Just look at any salary thread. I am absolutely willing to pay a realtor to negotiate for me (and in general to have knowledge of the market and know how to find the real market price) because I suck at negotiating and have no idea how to do it.
Well, the average real estate agent is also a shit negotiator on your behalf. The incentive structure makes it so irrespective of the skill set. The agent’s primary job is to sell themselves to you when they get the listing not to sell your house at max price. On the buy side they are also incentivized to close the deal rather than make you do a wise bid. That said during a bidding war, if you are a buyer and your agent is a rando or you don’t have one, the seller agent almost certainly will give the last word to their buddies in the industry so you’ll lose the bidding war. That’s about the only value I’ve seen an agent provide.
I don't consider myself to be a master negotiator at all, but I can look at Zillow and know how much I want to spend or how much I want to sell for. The internet has removed a vast majority of the information asymmetry involved in house transactions.
True. But agents aren't incentivized to negotiate lower prices because payment on both sides is proportional to total price sold. So logically only sellers would benefit from this.
Actually they are. It’s about volume not the few extra pennies they get on a sale - especially once you consider the brokerage takes some of that money.
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.
This. Though also worth noting: these agents are often working with the same small pool of other agents throughout their career. Their relationship with them is often more valuable than with any individual client, so it doesn't really pay for them to be adversarial on behalf of their client. Both agents are incentivized to keep a healthy working relationship and focus on closing the sale despite the commission percentage.
right and their negotiations are likely synthetic and geared towards mass deal making, which distorts the market in nuclear ways.
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.
But agents aren't incentivized to negotiate lower prices because payment on both sides is proportional to total price sold
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.
Are buyer agents also paid at a % of the closing price? If so they also have an incentive to get their clients to pay more for the house.
I think that technically the seller's agent is the one given that 6%, but then they split it with the buyer's agent 50/50.
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.
There is insurance on real estate transactions for a reason.
Not exclusive to realtors.
Many realtors works take a consulting fee too navigate things. Try.
I never understood Title Insurance. Isn't the whole point of a lawyer handling the transaction to look for potential gotchas? As opposed to just rubber stamp it and let the insurance handle it if something does come up?
Here's an example: I've got a house under contract and in the title report it shows that in 1906 (!!) the then owner of the land (prior to the house being built in 1946) signed away mineral and timber rights. Unclear at this point who those rights belong to, but doesn't appear to be the homeowner. In another case, I had a seller client who had been a victim of title fraud on a piece of scrub land. Title insurance is something you hope to never need, and admittedly it mostly involves family esoteric scenarios, but it really is there to protect buyer and seller in their ability to convey property.
One case is titles don’t transfer instantly. If there’s a backlog and something happens during then, insurance can help with that:
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.
The problem in this case is that the seller's agent takes the whole 6%. It's not that they only take 3% (which is the most disgusting part here).
It is customary, at least in some locales (US-AK), that the commission is split evenly between the agents.
I would caution against assuming that anything related to commissions is actually customary, including an even split. All of this really is negotiable, and when I think about the past year, I've seen multiple occasions where different splits were offered. For example - I referred some business to an agent in Tennessee, who in order to pay my referral* convinced seller to offer a lesser split to the buyer's agent. I know of at least one agent in my market who does similar. I know of another agent who charges at least 10% on any land deal, while others are flat-fee.
* 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.
yep, agreed. I know and have talked to some brokers about this in the past, and also closed a few deals as both a buyer and a seller. The commission was split evenly in my experiences but I should have said ‚typical‘ even if only as a starting point in negotiations.
6% and 3% are negotiable figures.
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.
Canadian here too. I only ever bought one house, in 2005, and I'm still living in it. But I seem to recall that the agent - a good one, referred by friends, and referred onward - had a boilerplate contract in which I was responsible for his commission even if I independently bought a FSBO (pronounced "fizzbo" in realtor lingo, i.e. completely off-system For Sale By Owner house) during the contract period. I had that scratched out before signing.
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!
For realtors it's very simple. Why spend time on something they won't get paid for?
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.
It does depend on the agent. I trusted mine and saw no red flags during, or after the transaction. He was referred to me by a colleague who is a serial house ownership addict, and I referred him on to several others, and all were pleased. My own house was listed at $X, so I simply asked him "what's it really worth?" He said $Y, where, at the time, Y<X and houses took time to sell, and we went through a few rounds of the haggling thing with the seller until they counteroffered $Y, and then accepted, easy peasy. And the house I now live in is one he added to a tour of several I had picked, and THAT was the one I instinctively liked and still do. That's really how it's supposed to go, right?
If you were in the US, most likely the Sellers agent then kept the full 6% fee unless you negotiated it down on that first transaction.
In our case, the agent accepted a lower commission because both they and the seller got more money from our offer then they would have from the competing offer which had a buyer's agent. We didn't negotiate that though, because that's entirely between the seller and their agent.
The buyer doesn't bear the cost at all
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 paying the agent in the addition to the sale price.
The buyer is also paying additional taxes for many years afterward on the higher assessed value (as it includes the commission!).
Home assessments are based on property value, not sales prices, in many jurisdictions.
Sales prices (for an arms length sale) are de facto assessments. Every jurisdiction accepts or at least factors them in if you request an assessment to lower your property taxes.
In some jurisdictions where the growth rate is capped (like CA), a 3-6% drop in price will be locked in essentially forever.
Not in my jurisdiction (seattle), and my assessment hasn’t come close to hitting the price I paid yet since they are weighting land more than buildings in property taxes now (so…we never expect it to ever actually match, and that’s by design).
Correct. There’s only one party putting money on the table here. “The seller pays the commission” is real estate agent doublespeak.
Money is only one half of a trade. Giving up some value of an asset when trading it is also form of payment.
Um - for years now real estate agents have been specifically told by their lawyers to not use that language, because it's been well-established that it is not true. If you've heard that language from an agent, it's a good sign they were either new to the business or dropping soundbites to sound knowledgable.
The buyer is paying the agent in the addition to the sale price.
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.
This pisses me off quite a bit. A simple fix could be to have the realtors bill for their services outside the purchase contract (which could still spell out those fees in a legally binding manner). The closing costs we pay to the title company aren't included in the purchase price, so it doesn't make sense that the realtor fees should be either.
Is there not U.S. states where both the buyer and seller pay commission fees? A quick search provided this:
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.
No, the seller pays the 6% commission to their agent and then their agent gives the buyer's agent half of it. That's how it works everywhere in the US.
Except in a for-sale-by-owner scenario, where the seller is not using an agent. In those scenarios, it may be necessary to agree to a fee paid directly by the seller to a buyer's agent. 2-3% is typical. This is not always necessary - some buyers will not be using an agent either, but it is not rare.
The thing that's excessively dumb about even that approach is that the buyer almost certainly would prefer to pay their realtor directly, outside of the purchase price. Since property tax assessments usually just follow the purchase price directly, I'd much rather purchase the house for $485k and give my agent $15k separately, than have my tax assessment be based on a $500k purchase price where the seller immediately turns around and gives $15k of that to my realtor.
Well yeah, of course. I'm talking about the most common scenario, where both parties are using Realtors (TM).
Except it's actually more nuanced than that, and this is important... the client actually has a contract with a brokerage, where their agent is actually a sub-agent. The commission fee goes to the brokerage and in many cases the agent doesn't have the ability to negotiate it with the client (despite being an independent contractor). When the commission is paid, it is paid to the listing brokerage and then split out according to the agreement - some to the listing agent, and then in many cases to the buyer's brokerage who then splits it with the buyer's agent according to their agreement.
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.
>I said "good riddance" to the agents and did an MLS self-list for like $400. [...] So back to my original point -- where is that seller value coming from?
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 thousands in 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.
Agents provide value. They do things that many homeowners can't or don't want to do. My electrician also does that.
Do agents provide tens of thousands of dollars of value?
They can do. If they market your house well you can maybe get another $100,000 (5-10%). At around 1-2% they're generally profitable to the seller.
The data does not support the claim that fsbo homes sell for six figures less than homes sold by agents, and that's with buyer's agents illegally trash talking fsbo.
The data doesn't have to. My claim is that a professional marketer can improve your price. You're then claiming from that not having them will reduce the price you get, which is a logical fallacy.
Also note the percentages I gave, it obviously depends on the price of the house.
The problem is their fee is also that much. So it doesn't benefit you to get 6% higher price if you have to pay it to agents. It's just more tax and fees you have to pay on a higher house price.
No one is arguing against agents, they're arguing against a fixed, non-negotiable 6% fee. The reason people are talking about DIY sales is because that is the only option left to them.
>, they're arguing against a fixed, non-negotiable 6% fee.
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.
So far,
Reminder that Amazon and Salesforce took multiple decades to make a profit
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.
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?
Anecdata to be sure, but I successfully FSBO-sold 2 houses in the Phila. area using Zillow only (no MLS listing). And 18 years before that, before there was a Zillow etc., sold 2 other homes, one in Seattle and one in Phila. with no MLS listing.
Not OP but I think both perspectives are valid. Real estate agents are not incentivized to increase your house price at the margin as much as the owner, they would rather just keep their fee high and sell your house at an ok price.
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
Agents want to close the deal as soon as possible so I assume they will try every trick to persuade the onwer to set the price below the average. Or am I wrong?
Everything you're saying is true to some degree, but I don't think most people would be willing to spend 12k just to be more comfortable, if they understood that's really all they're paying for and understood clearly upfront that's how much they're paying.
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 pay an accountant for the insurance of someone who knows what documents I have and can do whatever s necessary is the event of an audit. if you do have complicated forms, that annual service compounds in value.
I'm sure if I moved up tax brackets, the accountant would start providing specific feedback on minimizing exposure.
For the buyer, the value is clear: someone to go out with you to house after house, let you in, walk around with you, talk about whether you could fit a king-sized bed in that room, etc. It's a lot of work and the buyer gets a lot of value from it.
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.
That system seems very convoluted to me. In the UK, only the seller pays a commission on the sale price (typically ~1.5%) and the seller's estate agent is responsible for showing buyers around the property. The buyer doesn't need their own estate agent unless they're also selling a previous property at the same time.
That seems backwards. Only the buyer should need an agent, as they are the one who is searching. The seller is just sitting around waiting for offers.
Think of this in the context of what happens with the majority of other purchases you are making? How many of those have a "buyers agent" vs a sales person? I've bought houses in both the UK and the US, I preferred the UK approach where I found the houses myself (and in the US it's not that different with tools like Zillow etc.) and paid for a lawyer to handle the paper work for much less than the real estate commission that was paid (and part of the house price I ultimately paid).
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.
if it were just an object, it makes more sense that the seller does the leg work. they know the object, the market, etc. they're the expert.
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.
I don't agree on the buyer side. I've been involved in purchasing three homes, and while I did find my realtor's help valuable, most of the work to narrow down listings fell to me. Even when my agent pro-actively pushed listings at me, most of them I had already found on Redfin or Zillow.
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.
I agree with all of this, I should've said the buyer's value can be significant, in terms of hours spent by the agent. I've had agents that toured dozens of properties with me, around a very large area over several months, and didn't make a cent because I ended up buying in a different county with a different agent. But that isn't so much an example of value-for-money as of a broken market in which agent pay is only tenuously related to job performance.
My realtor was incredibly helpful with my purchase, even knowing some insider details like this HOA is in litigation or that warehouse is becoming a high rise. I would have gladly paid him the $200-300/hour I pay for other professional services. Given the size of the transaction though, his effective hourly rate was well over $1500.
And that's the thing. We should be paying realtors by the hour, or some fixed fee unrelated to the eventual purchase price. The link between purchase price and the effort made by the realtor is weak at best, and often completely nonexistent.
Our agent presumably got $23k for finding our house. But actually, she didn't find our house, we found it. (to be fair, it was outside of our self-avowed search criteria because we had to settle on a 3/1 when we wanted a 3/2).
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.
I have gotten a lot of value from the two I've used as a buyer, and also the one I used as a seller.
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.
The extra value is not there. Anyone can do this job, it's literally filling out boilerplate documents, you can ask gpt 4 vision to do it for you.
I agree and disagree with this.
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.
why would i want a real estate agent to help me with a contract problem instead of a lawyer?
That's my point - I'm saying a real estate lawyer should be the ones handling these things, not agents. But by some kind of weird historical convention, agents are typically the ones that draft up the contracts, and they usually rely on a template.
The bizarre thing is that real estate lawyers are quite cheap since transactions are so standardized. I’ve always used one for home sales. The fee has always been between $500-650 regardless of the home price.
Agents must use a template approved by their broker (who has their own lawyers who drafted that contract, of course). Typically they can't do anything custom.
It varies by state. In IL both sides must have a lawyer. In IN everyone has the agent do boilerplate. I can say the IN way saved me a few thousand bucks…
Yeah I would replace AI in this case with a legal service which is more or less off the shelf. Although a lot of things can certainly go wrong in real estate deals, purchasing a residential home or condo is an extremely common scenario and I'd imagine almost everyone can use a similar contract (in their state at least).
There's a saying in M&A: if you're reading the contract you've already lost. For anything that is not open-and-shut (sure, sue the seller if they literally ran away with the earnest money), your specific wording is not going to be worth litigating.
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.
It was worth it for me when buying cheap land. Since it's percentage based the amount was quite low; cheaper than a lawyer and I had a license to use the realtor association buyer contracts and connections to helpful people in the title office etc without having to hunt down and get these myself. When I calculate all the time I would have spent hunting down the right people, contracts etc it was a bargain against the buyer commission.
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.
Sounds like a business opportunity if I’ve ever heard one
I just sold a house in the US and the thought of listing it ourselves did cross my mind, but in the end we used an agent and they did _everything_ for us while I was out of the country, and got us a great price. In the end the amount of commission we paid to our agent (3%) didn't feel excessive at all since I barely had to lift a finger (besides moving). Now, 3% for the buyer's agent? _that_ felt excessive.
The thing about proportional pricing is that it doesn't scale up or down. Assuming your sale was near the median US home price, the seller's agent would net around $12k for their work. You believe that was worthwhile, let's assume that was money well spent.
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.
It's a fair point. Want to note one thing I found strange: the city I sold in (very hot market) had 3%/3% as standard, and the one I bought in (less hot) had 2.4%/2.4% as standard (at least in the area I bought). I don't know the dynamics of the industry here enough to know why that would be.
Yeah I bought some extremely cheap property through a realtor and felt I made out like a bandit vs through a lawyer or dealing with that shit myself. Realtors want to charge a percentage? Cool story bros, I'll burn out the green labor doing my work for pennies on the cheap shit then use a flat lawyer for anything real money.
The buyer's agent fee is basically subsidizing the hard work of buyer's agents (which is taking their clients to multiple properties, discussions about what they want, using time browsing MLS to find houses that meet criteria and arranging tours of them)
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.
Yes but from the perspective of the seller, the buyer's agent fee feels like you're subsidizing the realtor market to make it viable. Now, don't get me wrong, when I _bought_, I was very happy my agent made money, because she deserved it. I can just understand the attitude to sellers over agent commission (not saying I agree with it)
The buyer's agent fee is basically subsidizing the hard work of buyer's agents (which is taking their clients to multiple properties, discussions about what they want, using time browsing MLS to find houses that meet criteria and arranging tours of them)
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.
Wouldn't you expect to pay a premium over someone who is home and heavily involved in the sale? If your service was worth 3%, maybe a regular one is worth 1%
It’s almost like an out of the country agent deserves 3% and an in agent selling agent deserves $2000. Vs a single fixed price they all get.
I had an agent get halfway through listing my house for sale and tell me his fee was 7%. Noped out of that one.
I don't know how much value agents added over the past few years, navigating bidding wars, pocket listing access, etc. but I've never understood the justification for spending so much money on these fees.
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?
They do exist. When I sold in NYC a few years ago, I paid 2.5% all in. When I bought, I used the same broker and got a 2/3 buyer's commission rebated to me at closing. It was a decent chunk of money and helped me pay the closing costs. I recommended it to all my friends and several got the rebates as well.
There are a bunch of these brokers now.
What do I type into google to find this?
nyc buyer agent commission rebate
This was the Redfin model and it had mixed results, I think they thought their non commissioned agents would upend the market, but that didn't really happen.
The staying power of the Realtor Association may have something to do with it as well
It's not so much staying power as "access to the MLS"
I've been using a flat fee agent since 2012. $500 to list, $500 to close, but still have to pay the conventional 2.5-3% to the buyer's agent. Still a huge improvement.
You encountered a great example of how not only is the fee ridiculous, but also the agents are not incentivized to work for you. They are incentivized to move houses as fast as they can.
After turning-out IBEW, I spent the remainder of my electrician career specialized in residential pre-sale renovations ("make ready").
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."
It truly is a racket. You get several hours to vet a 7-figure purchase in a zero-sum game against a seller with information arbitrage. Nobody is liable for anything short of actual deliberate fraud. For everything you didn't guess to ask, you're doing the repairs after you buy.
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.
I doubt they would even fix dangerous shit like bad circuit panels
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].
The buyer doesn't bear the cost at all
The buyer is the only one bringing money into the deal so they pay for both agents
That's not true, the agent fees come from the seller's money.
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.
I think their view is that money is fungible, and ultimately factored into the price the buyer pays. The agents aren’t getting paid unless there’s a buyer, so everything in a real estate transaction (the commissions and the property) is paid for using the buyer’s liquid assets.
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.
Whether it's "true" or not obviously depends on the point of view of "when in the transaction that the transfer of money ownership takes place", but I definitely agree with the parent comment.
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.
Where I live (Denmark), the real estate guild has captured the market by building the de-facto listing portal and only making it available to registered brokers. Sounds great if the US portal (MLS?) is available to all listings.
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.
The MLSes in the US are all under the Realtor group. The selling agent has to agree to pay the buyer agent's fee in order to list. This is one of the main points of the trial. Sellers cannot list a house in the most popular (only?) listing system without committing to the buyer's-agent fee.
At least there are seller and buyer agents. In Croatia it's one agent that is between buyer and the seller. What could go wrong, right? It's a scam.
Like any sales profession, the median salesperson is a moron. Many of the listing agents just try to sign as many as possible to get the shared commission. They’re easy to find because theirs is a volume game and they market heavily.
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.
Like any profession, the median is a moron.
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.
Fair point. The thing about real estate is that cost doesn’t correlate with anything, and the principal of the brokerage has an incentive that doesn’t align with any other stakeholder.
I found the idea that a salesperson was cultivating people in therapy as sales leads repulsive. But I cashed the check nonetheless.
I had to sell my home while coordinating a cross-country move. The agent handled everything for me and did a good job on the negotiation given the fact that prices were coming down while this happened.
So did mine! But I paid 1.5% total.
The buyer doesn't bear the cost at all, so why not utilize that convenience?
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.)
navigating bidding wars,
A lot of anecdotal evidence they encourage this.
Hell, realtors have not provided anywhere near that much value to me on that buying side, either. Certainly things were easier than without them, but not $20k easier.
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.
The worst part of an agent is that they will not show you a house that is for sale by owner. They are actively limiting your options and you are paying them for that service
My understanding is that in a common American setup, the commission seller paid is split by seller's and buyer's agents half/half.
I got overrun by phone calls when I tried this. 10+ per day with 90% being agents trying to scam me into listing with them.
How did you handle that?
I finally got a traditional agent just to field the phone calls.
The buyer agents are useless in nearly all cases. The useful ones are called real estate attorneys, and only when it's the buyer's market. A standard buyer agent is a kid who finished a 2 week course on how to fool the buyer. His or her core competencies include: subscribing your email to an automated mls search that spams you with irrelevant listings every week, actually reviewing the listings according to your criteria is beneath them because it's real work; on the showings the agent persuades you to write an offer for the listed price, and never bothers to look for possible defects that may ruin the deal, such as foundation cracks; the agent has a inspector buddy who can write a stellar inspection report, after having inspected its lawn only; the agents are gravely offended by the idea of reducing their commission to something more sensible; they show a great resolve at pushing you to sign an exclusive contract for a very long term, and insist on bearing no responsibility.
Closing costs in Germany are quite high... about 12%.
- 3.57% RE commission
- 2.00% notary
- 6% for the land transfer tax
And the seller also pays 3.57% of the RE commission. So over 6% at the end of the day :)
Why is the notary making 2%?!
Is that including all legal fees?
Even still that seems like a much bigger rip off than a buyer's agent in the US.
A nortary makes sure the sale ia properly exevuted and titles properly transferred, he is certifying the transaction and takes on some legal riks dor doing so. This provides legal security for seller and buyer, a service woth paying for in transactions most people only do once in their life (we talk about Germany here). For all others, it is just coat of doing business.
No idea why it is always everybody else who should work for free.
Might be a different meaning of the term notary. In the US, you can become a notary public for $35 and an online course in many instances.
You cannot be elected?
In all seriousness, notaries in Germany are all full lawyers and practices are highly sought after, as the numbers of lisvensed notaries is limited.
In Spain, Notaries and Property Registrars are a weird thing.
You have to pass an exam, same as a public servant, and the number of positions is limited. But you don't have a regular salary like any other public servant: you set up a private office and get the money directly from your clients.
The price for the actions is regulated but it's high, and the number of licenses is limited, so generally they have hefty salaries, specially compared to the rest of the public servants and the mean of the population.
Their salary can be very variable based on location (as you get the money directly from your clients), but it's said to typically be from 100K to 200K€
My eyes popped at that salary for a notary in Spain given most eng positions seem to pay under 60K euro.
It looks like they need a law degree, too, so I'm sure they offer legal services other than property transactions?
Seems like it, the parent poster is almost implying there's an element of underwriting the transaction/house for which 2% is not unreasonable (Title insurance is in the 1% (or a bit less) range in the US I believe)
In the US (and I think most common law jurisdictions), a notary public is basically Certificate Transparency for legal documents. The notary records that so-and-so signed such-and-such on this date in their log, and if you have any doubts about that, they can produce that log for you to prove to that they witnessed it.
By contrast, civil law notaries are generally full-on lawyers who are trained and intended to perform several legal tasks.
In many states, notaries can marry people as the actual legal step of notarizing the marriage license and returning it to the county clerk's office is the actual deed that makes people legally married.
Does the notary provide the title insurance (as in: if it turns out later that the seller didn't actually own the house, the real owner shows up and proves it, the bank and new buyers have their money covered)?
That would make more sense for the 2% but it's not related to the notary in the US; notary literally just does "I checked the id of the person signing and it matches" which is a service that can be had for free at your bank or at most $50 if you have to pay someone, 2% of a house for that service obviously wouldn't make sense.
In Germany you cannot sell real estate thatbisn't yours, ownership is registered. The notary, as part of his job, makes sure this title transfer is done properly. If the seller isn't the owner, the sale is void, as far as I know sales price is to be paid once the title transfer was requested and approved, upon proof of payment the notary finalizes it. So basically no title insurance needed.
By the way, excerpts of the registry for the real estate in question are part of the sales contract (just remembered).
Ownership is registered in the US and part of the sale is a "title search" to check that and then update the registered title when the sale is executed (both handled by an attorney).
The case of title insurance is only where something weirder happens with wills, contracts, or liens. If there was an owner that died in 2016 and his will said "split my house to all surviving children". And at the time one child shows up who believes they are the sole surviving descendant and claims the house and sells it in 2017, then 2018 a second heir finds out their estranged parent died and shows up to say "actually half of this house was mine, that guy didn't legally have the right to sell it even without any fraud occuring".
Title insurance ends up 'fixing' this problem so that the buyer and actual-should-have-been-owner can both be made whole (and they go after the seller for the amount they didn't actually own, but sometimes that won't be possible to recover). If you don't have title insurance you as the buyer just take the liability that you might not actually own the house (or part of the house) if the record was mistaken and needs to be corrected.
In Germany would this just be a case where if the will is executed and you find out too late the inheritor would be screwed with no way to get what you owned instead?
A notary in the UK is a type of lawyer (although not necessarily a solicitor) and requires special certification and training. Their job is to make sure all the paper work is in order and to sign off and legally certify that is in fact so.
Sounds more like a lawyer or several competencies at the same time.
In Spain the notary "just" works through the signature of the contract:
- Checks the identities of the parties and their legal status
- Makes "sure" both parties understand the contract
- Verifies that the property can be sold (checks for legal issues in the national registry)
- Serves as a legal witness to the signature
- Sends a copy of the contract to the national registry (but AFAIK, doesn't follow up)
Then you have to contact a registrar to make all the legal papers to make all the legal papers in the national registry. That's araound 300-400 €, I think.
Aren't most of the checks automated? E.g. you just fill a form in a government services website and get a PDF back?
In the US, this can be done by a title & escrow service. They hold the deposit money (assuming there is some, which is normal), and then at closing they will do all of the above, as well as receiving and distributing funds from the buyer/mortgage company.
This sounds a lot like a ‘title company’ to me.
Validating property rights is a fixed-time operation that seems to be one of the basic services a state should offer. I read the parent poster naturally asking why 2% instead of some lower, fixed amount.
"Free" and "paid $15,000" don't seem to be the only two options.
The 2% is worth it.
It's an expensive, but essential step in Germany.
Because there isn't a default real estate purchase contract, so you need to trust that you'll receive the property. It's like paying a lawyer to mediate an expensive purchase, and they carry some legal risks with it.
They also do the bureaucracy with the government to add your name to the Grundbuch (it's a book from the government about who owns what % of a property), and also clean up the previous debts that it had (they are written there).
That signature is made with a realllllly heavy pen, I guess?
Because they have a captive market: In general the use of a notary is mandated by law, and being a notary can be extremely regulated with limited numbers of notaries/licenses.
They could open this to competition and let lawers do the job as well, but that would go down badly with the notaries who make a fortune.
Germany has high fees when buying a house, but compared to the US it is dirt cheap to actually own the house. „Ground tax“, similar ro „property taxes“ in the US is usually just a few hundred Euro a year. Which, compared to the US, is change money. A German house, when the mortgage is paid, feels like real property.
The tax man gets his one way or another. Imagine the shock of an American living without sales tax when they go to Germany and everything has a 20% government markup...
In Germany, the net average tax rate on a worker is 37.4%, in America it is 24.8%. That's a dramatic difference in taxation!
Anyone living in California or NYC and making mid six figures and up is easily paying more than German tax rates then. You’re paying almost 50% around high six figure range.
I’ve never quite understood why people think the US is a low tax country.
I used "net average tax rate" from the OECD as an apples to apples comparison.
Your reply is "what about the 1%ers who live in two of the most expensive cities in the world? What about THEM?"
What about the 99.9% of Americans who don't make six figures in one of those two cities?
I've never quite understood why people think America is a few million people living in 2 cities. You know there's 320,000,000 more us of right?
There’s 50M-60M people between California and NYC.
At this point making “mid six figures” hardly makes you rich. You don’t have to be the top 1% to see a tax rate higher than the one you stated.
Point is arguing that Americans are low taxed when the highest paying jobs are concentrated in high tax states and cost of living is much higher ignores reality for many Americans who pay as much or more than Europeans.
Oh, my bad, you actually included all of California in your quote. I corrected it to SF because most people understand that California is absolutely massive.
The median household income in California is $80k and of the 40 million in California, very few work in tech.
California actually has extremely progressive tax laws and extremely low property taxes, so while you're right that the actually wealthy folks do pay a European-level of taxation, the working class actually pays a dramatically tax rate than their counterparts in Europe.
Anyone with any knowledge of California knows all of this, so when you made such odd points that seemed to challenge it, I tried to help you by assuming you meant SF.
Point is: the vast majority of Americans pay vastly less taxes than Europeans and no weird focuses on outliers is going to change reality.
Funny side note: I still am the only person who posted OECD apples to apples data, which you have rejected un-critically with no sourcing and nothing but hand waves about your feelings. Hmmm.
You’re paying almost 50% around high six figure range.
That's a gross oversimplification and thus very misleading. While your marginal tax rate on taxable income (not gross income) might be close to 50%, if you are married filing joint, a homeowner, and have children, you are not paying anywhere near 50% effective tax rate[0] on your total income, due to deductions and exemptions, credits, tax-deferred retirement contributions, tax-free health insurance, and progressive tax brackets.
[0] "effective tax rate" does not have a universally agreed single definition, but the statement holds for most reasonable definitions.
Not really. 20-30% effective on income including CA's 9.4% at ~40k, plus 10-20k in property taxes, 10%+ in sales taxes, excise taxes on everything from gasoline to alcohol, and various "fees" that are really taxes including auto registration, building permit fees, DMV charges, ride share fees, motor oil and battery disposal charges. Also, some cities (e.g. NYC) have a personal income tax.
Obviously you're right that marginal != effective, but Americans really do pay a LOT in taxes, when you add it up, for a relatively middling level of services (e.g. no public healthcare, no subsidized daycares, marginal-quality public schools)
Depends on your definition of "mid six figures" and your source, but it at least doesn't appear very misleading. At $450k it looks like the federal effective tax burden is 35% and the New York tax burden is at least ~16% (the data are not broken out by income).
https://smartasset.com/taxes/income-taxes https://taxfoundation.org/data/all/state/tax-burden-by-state...
The US is a very low tax country for the bottom 50% of income earners compared to many countries.
From a quick Google: The US federal income tax rate for low earners is something like 12%. In the UK it's 20%. In Sweden it looks like the municipal tax is 32%. The few other countries I looked up had complicated tax systems that made it hard to compare, not that the above examples (and the US) aren't missing their deductions.
That's a dramatic difference in taxation!
To be fair, we (US) outsource much of our taxation to the private sector, so that basics like healthcare fees/taxes are routed through private companies. If it comes out of your check before you get it, and it's not going into your 401(k), it might as well be a tax.
I was surprised when I went to the US and had to pay taxes on everything I bought. On a logical level, I know I pay sales tax in Europe too, but it’s all integrated into the price tag of items so on a more psychological level it doesn’t really feel like the tax is there. Compare that to the US where you pick up a few items in a store, mentally add up an approximate price you have to pay and the cashier asks for significantly more. I’ve also noticed some products sold internationally will have very similar prices in the US and EU, probably because the company wants to hit some certain price for marketing reasons, but the EU price has the taxes included in it.
I would hate the high US property taxes. It’s like you never really own the property if you are being taxed on it continually. It must play havoc with retirement planning?
In most states, property taxes are what pays for schools, roads, libraries and things like that. When I was modernizing our state's motor vehicle registration system, I had to account for those fees in every vehicle (cars, boats, mobile homes, etc) registration cost. The state constitution states that things can only taxed based on value.
Taxed based on value: https://apps.legislature.ky.gov/Law/Constitution/Constitutio...
Value based on fair market value: https://apps.legislature.ky.gov/Law/Constitution/Constitutio...
In the UK, the market rate 1.5% paid by the seller on completion. Nothing to the buyer and rarely any fees for a failed transaction.
Then approximately £1000 in legal fees when buying or selling.
Then the big one which is stamp duty (a government tax) which is between 0 and 12% of the purchase price. Typically the lower end of that scale though. (https://www.gov.uk/stamp-duty-land-tax/residential-property-...)
It's important to note that (in general) sellers pay the estate agents fee and buyers pay stamp duty. If you are both buying and selling then you'd pay both, but on different properties. However if you're moving to/from rentals, dead or moving abroad then you'd pay only one.
Also it's possible to cut out the estate agent if you really want to save money. There are a bunch of websites that for a minimal flat fee will let you DIY it, but be prepared to make your own for sale sign, photograph your own property, and show prospective buyers around.
Well the estate agent is the agent (i.e. employee) of the seller: They work for the seller. It's quite normal that they are paid by the party who employs them!
Those websites usually include (or at least offer) professional photography, and some also offer various levels of agent assistance for viewings, negotiations etc. an a la carte offering of sorts. A for sale sign is often included as it’s free advertising for them.
In the UK we also have one of the worst systems for buying and selling property which on average takes 3 months or more for a single transaction and everyone can walk away at any point until exchange of contracts for whatever dumb reason. As a buyer you will spend thousands on legal and survey fees before you even know if there is anything wrong with the property.
Legal fees are more like 2k+ these days (source: buying a house)
I hear complaints about it a lot, and I've nearly been burned by that system myself. However, it protects the people in the chain from becoming homeless or obligated to a sale if their buyer/seller falls through for example.
In England you mean. I'm not sure about Wales or NI but the system in Scotland is much better and still has similarly low fee's.
In Scotland sellers are legally required to provide a survey to potential buyer, known as the Home Report, which covers all the basics. While it doesn't go indepth on specific issues it does normally highlight them in the first place so you're far less likely to uncover surprise issues after buying. And if it does find potentially major issues the seller will often pay for a more indepth survey or to just get it fixed themselves as otherwise no one will consider the property. For example the home report for the first property I bought found damp which put most people off so the seller paid for a damp survey and quote to fix which they added to the HR. Even then it put a lot of people off and I got it £3k under valuation despite the quote to fix the damp being only £1.8k.
Also I'm not sure if it's the same down in England but "estate agents" in Scotland are all solicitors and thus regulated. Plus when you sell it's one fee to one company for everything and there's no faff about info going between agents and solicitors.
There are land transfer taxes in Canada too, and I presume our equivalent to notary are lawyers which are about $1,000-$1,500.
The actual in-and-out costs are significantly higher than just the agents, though the agents are the most expensive and of questionable value.
Sounds like a tax problem, not a commission problem.
Wrong.
In Germany the Maklerprovision (comission for the Real State agent) is 7%.
Typically, the seller pays half of it, but there are cases where the buyer pays it all.
You also need to pay a notary, government taxes, making the cost of buying a property over 12%+.
Furthermore, you shouldn't sell that property for around 10 years, otherwise, you'll need to pay Capital gains taxes.
The good part is that you don't pay any taxes if you own it for over 10 years and sell it.
Also property taxes are quite low, so once you get through this, it's usually great. Given that health insurance is public, there's quality public transport and the supermarket bill is cheap enough, it makes worth it!
I don't normally nitpick in this way, but the single line "Wrong." rubbed me up the wrong way. The claim was:
Almost No One Pays a 6% Real-Estate Commission–Except Americans (wsj.com)
and you've cited an example which fits neatly into the word "almost", _right there as the first worth in the sentence_
Except it is wrong. It’s not “except Americans”, it’s “except Germans” and "except Japanese" and hundreds of millions of others. It’s not about the exact number because the whole premise is that it’s too high.
"Almost No One is Poor in the United States–Except Lazy People"
"Almost nobody except X does Y." and "Z does Y, with Z != X" are consistent. Is your disagreement entirely due to the (possibly nil) distinction between "Almost nobody except X does Y" and "Almost nobody does Y -- Except X", which is how the article is worded? If so, at least one native English speaker will disagree.
The poster you're replying to seems to have more of an emphasis in how the "Wrong." parent was worded. There was no need to be that confrontational, when one is adding a point of information ("Z does Y, with Z != X") that is most likely consistent with the thread title, and with the article content.
When I see "almost" I would think of the exception being like, "Estonia", or "Albania", not.... Germany. It's a big place.
After how many counter examples do we go beyond "almost no one"?
It's like opinion articles saying "many people think blabla" where "many" is 3 tweets.
Readers: Here are a dozen examples that refute you
Author: Ha! I used the mighty "ALMOST"! Don't you plebs know the rule of the mighty "ALMOST". I win. I am so smart.
That sounds like some great tax policies in favor of long term home owners.
I was surprised that taxes ended up being over 50% of the total cost of home ownership, at least in New York (not NYC).
Bought my first house in 2021. My mortgage payment is less than my annual school + property taxes. It’s quite insane.
A big problem is my town’s property assessments arent done fairly. Anyone who hasn’t bought or sold their house in the last 10 years are enjoying extremely low assessments (e.g. a house down the street sold for $800k while the assessment was $270k). The tax assessor seems to wait until a specific house is sold before adjusting the assessed value.
Meaning grandma’s $2 million dollar house is still paying taxes based on the value of the house 30 years ago.
In California, if you make improvements to your home you are forced into a reassessment and higher taxes. Many homes in California are not maintained and updated for this very reason, since the taxes are set from when the home was purchased.
https://www.sccassessor.org/faq/understanding-proposition-13
You have mis-stated the situation. It is absolutely not true that "Many homes in California are not maintained and updated for this very reason [reassessment]".
Only the cost of the improvement, such as an addition to the building, is added to the existing assessed value. The entire property is not reassessed. And if the update is just a remodel (such as new flooring and tile in your bathroom, or new cabinets/countertops in your kitchen), there is no reassessement.
Example: a house was purchased 30 years ago for $200K, so that is the base year value (goes up 2% per year per Prop 13). If you build an additional bedroom onto the house for $50K, then only $50K is added to your assessed value.
And maintenance itself is never a cause for reassessment. New roof? No reassessment. New windows? No reassessment.
Just the property taxes were about 30% of the rent I paid at the place I rented before buying our house. Property taxes are paying for local services; renters are paying them as well, but the landlord handles the money in between.
That's why Germany has some of the highest homeownership rates in the world!
Oh wait...
Turns out encouraging illiquidity, high entry costs, and limiting people's options when it comes to selling without paying extortionate amounts of taxes doesn't actually do that.
In Brazil it is 6%, some agents used to charge even 8% or 10% but the trend is towards 5% (since real estate became expensive here as well in the last 12 years).
Brazil is pretty cheap in that regard, what is expensive there are property taxes.
A friend of mine used to live in Brazil and he payed close to half a percent.
Don't be misleading: capital gains tax is on capital gains, not on capital. The sale fees are effectively on capital when it changes hands.
Also, you do not pay them when investing the capital again (within EU I think) within 5 years.
Around 8% total fees in France as well. Property taxes are next to nothing as well compared to the US.
the 7% is by law regulated to be 50/50 for the buyer and seller so what you say is wrong from the perspective of either.
In Spain, not only are that vast majority of properties sold through agents (anywhere from 3 to 10% commission, and there's a transfer tax of 10% on top of it all) but even apartment rentals are almost all done through agents and renters used to pay directly that fee, but the law changed and it has to be absorbed by the owner.
Japan is also ~6% typically, with the buyer paying 3% and the seller paying 3%.
I was about to say the same. I'm currently buying a place in Germany and the fees are 3.57% per broker. So if you just use the seller's agent then it's 3.57, but if you have your own then it's about 7% total.
Wrong.
Almost no one != no one
100 000 times this. Same in neighboring Belgium and AFAICT same in France. 6% fees and up to 12.5% as a gift to the notary and the state in Belgium although to hide the rip off the seller shall be owned by the real estate fees and the buyer by the state fees. But one buy/sell and it s 18% lost. In France it s 44% tax on added value if you sell but then each year passing by this goes down by 2%. Something like that.
People are insane if they think thevhighly socialist EU doesn't screw people gigantic times on real estate.
Buying a house in Italy. All fees are much higher than America. Realtor is still 6% - but with the notary, purchase tax, etc I think I will be 10-15%
If you divide 6% commission by hours spend, how much does an agent earns per hour? Probably more than senior Google AI developer?
Well typically 6% is split between the buyers agent and the sellers agent. And each agent has to kick up a percent to their broker. Most real estate agents I know working in the average market (I.e. not NYC or the Bay Area) are not clearing $100K.
How did you ever get to the situation where two people want to buy and sell one of life’s fundamental commodities, and 3 people get to insert themselves into the middle to the cost of thousands of dollars?
America confuses me sometimes!
It's a hell of a lot more than 3! The list of other agencies and fees I had to pay when buying my house and getting a mortgage were absolutely insane.
Before whole online thing from marketing it really made quite a bit of sense.
At least the seller agent side. You need to advertise somewhere and someone doing it full time is much more efficient, in spreading the marketing. Some level buyer agent gathering what is available if they did that is also logical.
Here not in USA. Buyer agents are more rarely used, but advertisement was taped to my building this week. But for seeing what is available agencies made lot of sense. And still do the paperwork and take somewhat better pictures or are around to show property.
Google thinks 2-10 homes sold per year. Assuming the same on the buy side, at 6%, using the median home price of $416,100, that's $50k (2) to $250k (to 10) per agent per year.
(That accounts for the split. That doesn't account for whomever the agent works for taking whatever cut.)
And yet the stats tell us the average U.S. agent is only making on the order of $60k / year, so… how’s that work?
The commission attracts entrants until it is no longer worth new people taking the job? That's what you'd expect to happen!
What's surprising is that this competition doesn't reduce the fee rate, that's the part I don't understand.
This is a combination of factors:
-- In any market, there are agents with a range of compensation options. It really isn't as straightforward as the "6%" that the public believes.
-- Brokerages more than agents set the commission. So you can have loads of new agents in a market and it won't change the commission.
-- It costs money to represent buyers and sellers. Drones, video, photography, glossy magazine spreads, social media, advertising buys, brokerage, MLS, and other fees, signs, key boxes - I can spend thousands on a property listing or dozens+ hours with a buyer with absolutely no guarantees that I'm going to get paid.
It's generally 6% split between two agents, so 3% per agent. Experienced agents often have something like a 60/40 split with their brokerage (such as ReMax). So, that's 0.9% -- let's round up to 1% to be generous.
My home state (Washington) is the 4th-most expensive state in the country. In the Seattle area, a senior software engineer makes about $275k on average. Meanwhile, the average house price in 2022 was $650k. Easy math here - an experienced agent will make $6.5k on a sale in WA. (Yes, it would be higher in Seattle - but real estate doesn't necessarily concentrate in the same way as engineering talent, so I don't think that's a fair comparison.) Thus, an agent would need to be the buying or selling agent in 42 sales per year to make as much as a senior engineer.
Selling agents probably sell ~30 houses a year in a really strong market, so even in peak COVID relocation times, less than a senior software engineer in a similar location.
On the other side of things, when my wife and I bought in the competitive market of 2021, we probably toured about 30 houses. We put offers in on eight of them. Our agent coordinated inspections and was present for all of them. I'd guess they put in, conservatively, 60 hours of work for our house. We paid $670k, so our agent got around $6.7k for those 60 hours of work - around $110/hr, or a lot less than I was making as a senior engineer at Dropbox at the same time (almost twice that).
tl;dr, no, they probably don't earn more per hour than a senior software engineer at a high-paying company, unless the real estate agent also happens to live in San Francisco.
Thank you for a detailed analysis.
Why do you need two agents though? Isn't one enough to do all the paperwork and inspections? As for advertisement, I guess today it can be totally automated.
40% of 3% is 1.2%, where’d you get 0.9% from?
Real estate agents' job is not so much buying or selling houses but getting clients. There are so many agents ready to grab those insane fees that most agents can only manage an occasional transaction.
Then there are a few that are great at marketing themselves and can make truly insane money.
I think you end up with a similar distribution like in software. A few are making Google AI money, while the majority are not.
I still think 6% is too high, there are just too many RE agents out there right now. It was seen as an easy job to make decent money until the recent slow down.
Question is how many properties they are moving per week or a month on average over a year?
Here (England) people like to complain about the system, mostly because either party can walk away for free until the actual contracts are exchanged, but overall it is simple and cheap.
Technically, estate agents are not required, lawyers are not required, etc. Seller and/or buyer could do everything themselves if they wished (unwise but they could) as long as no mortgage is involved (the lenders are the ones requiring that the buyer uses a lawyer). Lawyers are cheap, estate agents' commissions (paid in full by seller since agent works for them) are low, maybe 3%+VAT max.
Personally I prefer this than the rip off that is going on in many other countries where both sides are taken to the cleaners.
The chain system is absolutely ludicrous, I wouldn't call it "simple and cheap".
IMO the whole system needs reform, I would wager it would go some way in fixing the housing crisis in the country.
Well, it is simple and cheap.
"Chains" are not 'the system' they are a fact of life. Many people sell one property to buy their next one and need the money from the sale to finance the purchase (and also don't want to end up on the street) so they want contracts on both sides to be entered into at the same time. It adds a level of complication but no additional costs.
This is an issue that exists everywhere though solutions perhaps vary a bit. Usually it is a combination of relay loans (not free) and conditional contracts (tricky and pretty much the same result).
If you are a first time buyer it does not matter much apart from adding delays.
I don't see how reforming (how?) a system that is simple and cheap would help solve the "housing crisis". If there is something that needs reforming, well abolishing really, it is leaseholds.
Any new home for the last decade, including "freehold" ones, comes with financial obligations to pay for public areas. Older homes have that as council tax, but new homes have a privatised council tax in addition.
It's known as "fleecehold" due to its similarity to leasehold.
The difference is that there are actually some modicum of protection and rights for leaseholder, not so much for "fleeceholders".
Apparently 1/3 of property chains fall apart before completion - that's a lot of wasted money on searches and solicitors.
I don't see how reforming (how?) a system that is simple and cheap would help solve the "housing crisis".
Is there effective utilisation of the existing housing stock? Encourage people to move to ensure that their home meets their current needs. E.g. retired couple, children have left, so their current house is oversized.
Making property transactions less stressful for people would assist with this. I'm certain that there are people out there who would be open to moving, but CBA with dealing with the stress of being stuck in a property chain.
How? Just look up north to Scotland. Not a perfect system (e.g. "offers over"), but ahead of what England has to deal with when it comes to transactions.
Encourage people to move to ensure that their home meets their current needs. E.g. retired couple, children have left, so their current house is oversized.
I'd wager that no-one has been put off moving house because of the legal procedure or over-stressed about it.
Now, the actual moving day is stressful but that's the way it is...
As a Brit-by-birth but Usonian-by-choice, I'm always amazed whenever I go to visit family in the UK how much "chains" feature in real estate listings there. You almost never see anyone refer to this in US sales listings, other than perhaps a vague alusion to "motivated seller". Wandering around RE agent shops in Bath, it seems that 30-50% of every window-displayed listing mentions something about the chain status.
Odd. Interesting. Both.
They tend to highlight if there is no chain because that's a selling point. Likewise if you're looking to buy and have no chain (e.g. you're renting) it's worth mentioning it to the agent as that also makes you a 'good' buyer.
Also perhaps if the chain is in place apart from finding a buyer for the advertised property (i.e. seller has already found their next property, etc) because, indeed, that means that the seller wants to get on with it ASAP.
This is an issue that exists everywhere though solutions perhaps vary a bit. Usually it is a combination of relay loans (not free) and conditional contracts (tricky and pretty much the same result).
We use both in the US. I’m assuming a “relay loan” is akin to what I’ve seen as a “bridge loan” here—a temporary loan to cover a down payment while waiting for your current house to sell.
More often, we use conditional contracts. This would be classified as a “contingency”—we’ll buy this house on date X for price Y if the money from the sale of our house is in the bank by date X, that kind of thing. Needing one of these tends to make an offer less attractive, though.
Here in England, last time I sold I paid £1k flat fee to my estate agent, and about £1200 to solicitor to handle the sale and purchase (including things like various searches, handling the mortgages, etc), and another £500 for an independent survey.
That's less than half a percent.
I hear the Scottish system has benefits -- rather than the buying doing the searches, survey etc, the seller does. That means it's far faster to make the offer -- rather than "I'll pay £x, but first I need to invest £hunderds in due diligence", it's "I've seen all the stuff I would have to pay for, so due diligence is over, lets move.
Well, there is plenty of insanity still:
- buyer can't walk away after exchange, but your mortgage provider can with impunity, screwing you up
- There is no CGT if you sell your first home, but tax duty (paid by the buyer) can be significant
- buyer (well, buyer solicitor) is responsible for fetching all the documents. This can be a significant time cost.
- let's not talk about the headaches from selling or buying a leasehold.
But yes I agree that solicitor and agent costs are relatively cheap.
This comment is focused on USA. Some people need or want an agent, some people don't. For the majority the checklist for buying a home is fairly straight forward and could be automated with checklists, yelp, Plaid/UWM, and DocuSign. But not all.
The bigger issue that I think almost everyone can agree on is the standardized percentage thing. Being an agent should be a flat negotiated fee or billed like the trades per hour / cost+. The good ones charge more, you pay for what you need, etc...
One other thing. I'm not usually for more government intervention but at least in the USA, the government backstops the vast majority of mortgages (Fannie and Freddie), and collects rent in perpetuity through property taxes. They are so integral to the housing market that they should be providing the standardized forms and checklists that would cover most residential real estate transactions. Not Redfin/Zillow and definitely not NAR/MLS.
The title company is the one who sends and receives wires and executes the nuts-and-bolts transfer of ownership. You could imagine fintechs getting into that space even with traditional agents, and you could imagine title companies catering to for-sale-by-owner.
Title companies are already pretty efficient and relatively cheap... not a lot of margin or process to improve with technology.
Exactly! I’m pretty sure Old Republic’s fee was a couple grand, nowhere near the mid-range luxury car price that the realtors collectively made on the transaction.
Keep in mind this has to include downside protection to cover the very real risk of someone initiating a suit in case they screw up (which I'm sure happens from time to time).
I think overall, what a lot of this entire discussion misses is that 90, maybe 99% of transactions are pretty straightforward, but the 1% where things go haywire, might cost 10, even 100x as much in wasted time, money, etc. Real estate brokerage is a regulated professional service which means by law, there's a minimum standard of care owed to anyone who uses these peoples' services. This costs money to provide which ultimately means a lot of the costs of the problem cases end up socialized/spread out, over everyone.
This feels quite unfair if you've got your act together and everything goes smoothly, but it seems hard to know upfront which ones will be the hard cases, or not.
Am I getting a 5x higher standard of care from a realtor in San Francisco vs. Chicago, simply because the equivalent condos are 5x as expensive?
Good call out. And I am aware of the history and edge cases with residential real estate in the US.
So as to not talk past each other I'm specifically talking about present and future vanilla residential real estate transactions. For example w2 income with history, deed in your name, <10k sqft lot sfh or condo/townhome in a city.
For these things I struggle to imagine a future where the government does not have a clear view as to who owns and can transfer property (property taxes, IRS filings, Fannie/Freddie, recorded deeds, etc). They are backstopping the mortgage, they should understand what they are lending against.
Dude. I appreciate the diligence but did you click on either of those links?
This is the first time I've seen WSJ articles not be given full access from archive.
Its been happening to all their articles for the past day.
in fairness that's a pretty tight window for parent commenter to notice. +1 it's never not worked for me
Yes indeed, and i wasnt blaming them. I now just flag any articles that are stuck behind paywall.
I think something that is partly to blame is the expansive licensure scheme, and how those licenses have become a monopolistic edge to protect and expand. Many professions have required a license, and it is the responsibility of the organization that issue those license to protect an expand their authority, preventing competition, and pushing up prices higher.
The license requirement creates a perpetuating lobby, which I think is partly to blame for real estate agent commission issue.
Do we really need to enshrine into law every professions market corner? A certification law would do just as well, but it would not have the effect of blocking competition, preventing market, disruption, and forcing people who want to practice that particular profession to constantly pay a private association for the right to be licensed.
A real estate license mostly teaches what you need to know about the laws around real estate transactions. It's pretty easy to get. Take the courses, pass the test, and you're in, there's no restricted access. You can set up your own brokerage and everything.
But if you want your brokerage to have access to the MLS system, you have to join the Realtor organization. That's where the monopolistic behavior creeps in.
Your location may be different, but what you are describing is not universal or even common in my experience working in multiple states. Yes, it is absolutely true that there should be a higher barrier to entry and even after "first renewal" (which is normally a second round of education), there isn't enough training before we let new agents loose into the world. That said - in every state I'm aware of, you work under a licensed broker who has additional licensing, training, and legal responsibility. Until you've reached that level of licensing it is not possible to set up your own brokerage. I've seen a work around where a non-licensed business owner paid someone to be their broker, but that regardless there has to be someone with the right licensing running the business.
Also - whether MLS members must also be Realtors is a rule of the MLS and not a universal requirement. The NAR, nor MLSs, do not set commissions. In fact, much of the MLS rule changes in recent years that I've observed have been about making sure non-Realtor licensees have market access. It's right there in our paperwork that I show clients where we ask permission so that the seller knows who will be entering their home.
Except in Oregon you also have to have a minimum number of transactions per year or have a “senior broker” sign off on all your deals (for a price).
Most states require some years of experience before you can become an independent broker, in Florida it's 2 years of active work / 5 years in the system.
We should always have several competing licensing bodies.
1 licensing body: never considers the cost of gatekeeping, only the self-benefit.
2 licensing bodies: they are forced to weigh the cost of gatekeeping against the self-benefit, but you might get a race to the bottom.
3 licensing bodies: they are forced to weigh the cost of gatekeeping against the self-benefit, and if they race to the bottom too hard we can decertify one and retain competition until we can bud off a replacement.
In coastal California the commission situation becomes ludicrously lucrative to the top agents. This week a home in my community sold for $25,0000,000. One of my friends had the buy side, another had the sell side. The buy side agent will be involved in ~200,000,000 in transactions this year, a down year. In this community there are plenty of transactions north of $20,000,000. He just did another and had both sides of the deal for $50,000,000. At this level the commissions are usually 2.5%/2.5%. 5% of 25,000,000 is $1,250,000. The irony? High end home sales require much less work/effort than low end. Far fewer showings. No open houses, ever.
I used to work at a major real estate company and I know very well how intent they are on holding the listing service monopoly together. Redfin, Zillow, etc were all bets on the opening of the listing services that misunderstood the regulatory capture of the National, State and Local Realtor associations. They ended up selling ads to Realtors rather than opening up a new way for owners to sell their homes directly.
The irony? High end home sales require much less work/effort than low end. Far fewer showings. No open houses, ever.
That's true of most work. Software engineering is much less work/effort than a minimum wage job. The higher you go, the easier it is.
Some SE teams solve billion $ worth of problems and create that market cap to only get few % of it. I mean real problems not random saas startup.
AFAIK, there is zero regulatory capture associated with realtor associations. They have no special priviledge under the law, and are not required for real estate transactions.
The one thing they do have is control over access to the MLS, plus social inertia.
People should not be surprised we have realtors when we have companies like turbotax raking in millions for 3 pages of boilerplate tax return form fills. You could tell people all day how they can do it themselves yet they will still gladly pay for someone or a service to hand hold them because thats what they really want. Not the ability to do something but to feel fussed over and to minimally think.
They ended up selling ads to Realtors rather than opening up a new way for owners to sell their homes directly.
Doesn't it always go that way with goals like that?
How many times have we seen "automated recruiting" platforms pop up, only for them to pivot a year later into selling access and ads directly to recruiters.
The market for "middle-men" seems to always be thriving when there's little to do and much to gain.
I think this very much depends on the agent. My wife is an agent and busts her ass. When she's a seller agent, if it's small jobs like painting a room, covering up spots, changing a massively outdated light fixture, she does it her self. She's spent days a time landscaping.
Also when it comes to pricing, it helps to know the market. She will list a house for 8% under market value because she knows it will draw interest and end in a bidding war with escalation clauses.
She also knows other agents and other lenders and that's very important when you have a timeline. One offer may look good but you know the agent and know they will give you an artifically high offer and then ask for 10's of thousands in remedies. Or if you're trying to get a deal done on a timeline so you can get another house and a buyer comes in with a lender that's just notoriously bad at doing things on time. You may take an offer for a few thousand less when you know a deal will end on time.
Like most things, you get what you pay for and there's plenty of people out there willing to take your money and do nothing. There are good realtors and bad ones.
you get what you pay for and there's plenty of people out there willing to take your money and do nothing
So you're saying that sometimes you don't get what you pay for?
Everyone thinks they bust their ass. Maybe your wife does, maybe she’s just like everyone else. Fact of the matter is the average real estate agent provides little to no value. Thats why anyone with a pulse can become licensed to be one.
One offer may look good but you know the agent and know they will give you an artifically high offer and then ask for 10's of thousands in remedies.
True, but it also greats a negative incentive. The realtor is obligated to present to high offer to the seller, but not obligated to tell them “this agent usually tries to bump the price down $30k during inspection”. A less than ethical agent can use this to their advantage to get the seller to accept the offer, then convince the seller to accept the lower offer later after they’ve stopped showing the house.
Good realtors like your wife can definitely add value, but there’s no good way to know which realtors are good and which are terrible other than (maybe) references.
Even with the familial bias, if you say she busts her ass then I believe you. I do try to pay for results rather than effort, even though I appreciate effort. Is it twice as valuable for her to cover up a spot in a 1M home than it is a 500k home, and three times as valuable in a 1.5M home?
This is worth reforming, but almost no one except Americans also gets to get a 30-year fixed-rate mortgage. And this is a major boon for stability and predictability in American homeowners' finances.
Wait till that becomes a 40yr fixed rate. I see two viable ways to unlock the current supply/demand stalemate in the US (please chime in if you can think of other alternatives).
People can't afford the 30yr payment (interest rates), can't drop interest rates (inflation), supply dried up because who is giving up that low rate for a higher one.
So push the payments out over a longer period of time and drop the monthly hit.
That or allow people to carry their mortgage under the current rate to a new property.
That or allow people to carry their mortgage under the current rate to a new property.
This would probably increase the interest rate of new mortgages. Right now, lenders have data that these loans average around ~10 years, and thus have a premium over the 10 year treasury. If they get closed less often, because they can be carried around, we'll see the average as maybe ~15 years, which is a higher interest rate treasury (10-20) and will have higher interest rate costs.
You can only go so far before you defeat the main purpose of the 30-year mortgage, which is to allow retirees to pay the house off and be able to retire on a smaller nest egg because they only have to pay property tax and maintenance.
I thought because I literally haven't seen a single "what do real estate agents even do" post on here, I'd post my positive experience --
We bought a house this year in a competitive, expensive market (DC). Our agent found the listing through word of mouth before it went on MLS, and got us lined up for an early tour so we had the chance to look at it before the open house. We liked it enough to get a pre-inspection on his advice (The market is too hot here for inspection contingencies, which is insane on a 100 year old house!). By the time the open house ended we had seen it twice and walked through with an inspector, which made us confident enough to bid.
The agent talked to the seller's agent at length and figured out what was most important to them (close time over raw cash, because they were carrying two mortgages), and it turned out that the seller's agent knew our mortgage broker (who our agent originally referred us to) and trusted how fast he worked.
We ended up beating over a dozen other offers, some of which were substantially higher. There's zero chance we'd have gotten this house (or anything competitive in DC) without a good agent, unless we were already in the industry and hyper connected, or bidding well into the six figures over ask.
We looked at many places, and bid on two other houses we didn't win (post-covid market), so per hour he probably didn't make a crazy high salary, though in line with a good salesperson or manager.
When we sold our old place, he helped advise us on pricing, set us up with good options for staging, arranged the floor plan maker and photographer, etc etc. For 3% of the sales fee I certainly could've done all that myself, but I know people who would've never gotten all that organized while also moving. We barely did even with the help!
Now all that said, your median realtor in America just forwarding MLS listings and lockbox codes is probably not earning their share, but in competitive markets I think realtors can make a lot of sense.
We bought three houses and sold two through the same agent. The first few transactions were pretty straightforward so he really just acted as a coach. Probably not worth the 6%.
In our latest sell/buy, the house were selling had a significant unaddressed issue and the house we were buying had easement issues and a hard to work with seller/agent. His experience was crucial in getting it all over the finish line, we would never have been able to do it successfully ourselves and I would say he earned his money.
The pro tip is to become an agent yourself. You'll have to become active with a broker whenever you want to buy, which is 50-100/month in fees, but then you'll get the "buyer's agent" 3% at closing (or after closing, depending on how the brokers negotiate payment).
Technology has been able to do 80% of the job of a realtor for about 20 years now. The profession has only become more lucrative in that time. Legal action, not market forces, have finally brought it to a point of change.
Maybe in the age of AI there are some lessons us software devs can take from the real estate agents.
We are trying at https://realagent.ai, issue is the real estate "cartel" is strong.
Here in Spain is from 3% to 7%, usually around 5%.
Who is paying? The buyer or the seller?
FWIW in America you can totally ask for a refund on agent commission when looking for an agent to buy with. Not all agents will do it but it is straightforward for them to credit their commission against the closing costs. With online listings, agents today do so much less than they did when those commissions were set and home prices have obviously ballooned faster than inflation.
The end-state of our startup, Open Listings, was basically a (magnificent) listings site + easy way to connect with vetted buyers agents who had pre-negotiated refunds (50% of their commission).
For anecdata, I bought a home recently in a market our service never supported. We googled and quickly found a great agent who was happy to refund half their commission.
Working on a similar product at https://realagent.ai, check us out.
While caring about what the rest of the world is certainly what Americans do best (j/k), another take would be that this isn't a free market, and there is no reason for it not to be. If 6% is what the market determined to be optimal then fine, but all signs suggest a truly free market would push the rate down a few points.
What do you believe is not free market about it?
-- You as a homeowner have the legal right to sell your home yourself without a lawyer, escrow officer, or real estate agent involved.
-- You as a buyer have the legal right to represent yourself in purchasing a home.
-- You, as buyer or seller, likely have multiple options either lawyers or real estate agents in the place you live who could facilitate a transaction.
-- If you choose to work with a brokerage / agent, you will likely find a range of commission price points as well as levels of service available to you. Want a "listing only" service? I've seen people in my community offer that for a nominal fixed price. Want the full monty or have a unique property? I've seen 10% commissions to both sides.
-- Think it is unfair that you can't list your property directly with an MLS? Become a licensed agent, pay your membership dues, and you too can have direct access to the MLS. Listing services are owned by (read: costs paid by) real estate brokerages, just like any other market, IE: Nasdaq, NYSE, etc.
I'm an American that has bought and sold 3 houses and never once paid the 6% commission. It seems lots of folks don't realize commissions are negotiable, and that discount brokers exist who charge much less for roughly the same end product. If you think the standard full service 6% is providing you adequate value, by all means pay it, but don't feel like you have to.
There are several states in which negotiation with realtors is legally restricted.
The North American middleman is one of the most successful organisms on the planet. Just look at the healthcare system.
And standardized bribes are The American Way™
I thought for sure realtors would get the gig-economy treatment during the rise of Uber and AirBnb; just a person to handle showings while the mega-corp drops prices slightly and collects huge profits. Not sure if I'm happy or sad that they persist.
But to me the craziest part of it, is that in my experience 90% of people don't comparison shop for a realtor, they just go with that person their friend used. Those social referrals are the vast majority of realtors' deal flow. Consider also that when realtors' make referrals among themselves, the receiving agent will typical give a 30% commission split back to the referrer. So what I'm getting at is, there's basically $10k+ value decisions being thrown around essentially at random, and without any metrics or qualifications.
I think they're mostly esoteric social network parasites. the easy part is getting the license but the hard is finding clients and your skills are all intangible unless you can demonstrate those connections (easier I guess with social media).
it's just not a commodity a app can just sweep in and try to corner.
but it has been "disrupted" with companies like Zillow effectively trying to be buyers and sellers of real estate, driving up prices
Is there mention of this recent lawsuit? Should have some impact. (No WSJ subscription)
Americans are taxed $60 billion in real-estate commissions, says attorney who just won a $1.8 billion mega-verdict against National Association of Realtors
https://fortune.com/2023/11/02/national-association-realtors...
Discussed 5 days ago:
Jury Finds Realtors Conspired, Awards Nearly $1.8B in Damages
https://news.ycombinator.com/item?id=38089356 (276 comments)
And from 5 years before (same lawsuit? Began in 2019)
https://news.ycombinator.com/item?id=19431927 (336 comments)
This biggest drawback in my opinion is not the commission percentage, it is the gate keeping that realtors do wrt the inventory in market. Only realtors have access to and complete picture of what is on the market and for what price. I think this is the MLS database? Its weird that the person actually shelling out the money has to go through these middle men to even gain an understanding of what his hard earned money can get him.
Whenever you see a monopoly wealth extraction made possible by Govt, you will see a super rich billionaire owning most of it. Warren Buffet extracts a nice percentage of these commissions.
Berkshire Hathaway HomeServices Fox & Roach, REALTORS® is part of HomeServices of America, the nation’s largest provider of total home services and largest residential brokerage company in the U.S. in sales, according to the 2022 REAL Trends 500 report: https://www.foxroach.com/about-fox-roac
Unpayealled version: https://www.msn.com/en-us/money/other/almost-no-one-pays-a-6...
Almost no one has fixed rate mortgages except Americans, either. Our real-estate market has some unique features.
I guess the argument is that the agent brings more than 6% value to the table so everyone wins. But I’ve always found it odd it’s a fixed percentage on total sale and not a fixed rate + percentage over a threshold.
Saying that, where I live many hones are well over $1,000,000 - that’s more or less the entry level. The agencies do a good job staging them (moving all existing furnishings out and replacing with pieces that flatter the space), taking great photographs, and hosting events at the property - that all costs money.
In Canada, it's usually 5%.
I wonder if I'll ever come to HN one day and find the entire front page will be paywalled links.
Yea, it's time for this whole NAR thing to be disassembled. It's unfortunate how much we undervalue the impact of collusion on the health of a free market. And worse, how out in the open and right in front of everyone this was. There are a lot of shady corners of industries that the mainstream doesn't know about or have regular exposure to, so it's not surprising that monopolies and regulatory capture shenanigans exist like this, but this is something that almost everyone uses multiple times in adulthood.
I thought the recent court case did not receive as much attention as it should. 6% has been usury for awhile, even if you think you had a 'good' agent. Now it can simply be another negotiated deal point. It will also help remove some of the enormous friction in selling/buying a house.
I think AirBNB has the infrastructure to upend the Realtor market. If they just add an “AirBNB listings” buyers can search and scroll through pictures. They’d have to show exact location, but otherwise pretty much the same as what’s there. Seller pays an upfront listing fee, gets referrals for staging and photos if they want to stand out.
Simply add a “30 minute viewing” rental for $25-$50 (AirBNB keeps $10-25), available to registered users (with already-verified ID). Maybe rent the homeowner a bundle of cams for viewings for extra security.
If a buyer is really interested, have an above-market-rate nightly rental—I’d love to spend a night in a house before paying a million+ dollars for it (without the cams, of course). Maybe half refunded with an offer made thru AirBNB Listings; full refund with an accepted offer (again, less AirBNB fees). Maybe partner with Redfin or Zillow to set prices, provide school and property info, and finish the deals. Do it all cheap enough to make it worth sellers forgoing an MLS listing; should be a flat fee, a tiny fraction of 6% in most cases.
A startup couldn’t do it, but AirBNB has the name recognition, and the pieces already there, right? I’m available for consulting, or send me a fruit basket if it all works out, a nice one, without a lot of melon.
Here in Portugal it's 5% + VAT 23% so over 6%. It's like a cartel - they all point blank refuse to negotiate and most insist on exclusivity. Bit of a shock after selling a house for 1% commission in UK.
The real issue to me is that normally the seller pays for the buyer agent as well. This creates a few problems: 1-The buyer will get an agent even if they don't think it's very useful, since they don't pay for it 2-The buyer agent has an incentive to show/promote properties that also have a seller agent, especially if it has the full 3% commission
I think having buyers pay for their own agent (if they want one) would result in lower fees for everyone
5% in Asia so.....
Real Estate agents have a very top secret elite club where nobody defects from the tribe or you're kicked out and shunned. Ultimate collusion experience!
Brazilians pay between 5-8%
The Economist also wrote an article about this last week, spurred by the class action lawsuit. Paywalled as well, but I'm hoping you have some free articles left, unlike the WSJ:
https://www.economist.com/leaders/2023/11/08/time-to-take-a-...
If anyone wonders why housing prices keep going up - maybe because each time we sell we are adding cost to the transaction that makes no sense.
This is one of these cases where I don't see why they collect a % fee except because they could, and they all do.
There's typically very little that they do differently for a more expensive house than for a small condo. Everything is listed on their central system, which serves as an indefferentiated marketing platform - and also informs them pretty well on the state of the market. If they do any staging, repairs, cleaning, it's usually a subcontract that you get charged for.
It's a pretty linear job (not even judging if it's complex or not), so why do they charge a proportional - and typically large - fee? I think that it is one of these psychological caveats where you're already talking about amounts that exceed your day to day understanding, in a stressful context. You only really see that one digit percentage fee, that you can't really negotiate anyway. And the actual amount is displayed in context to the real price tag, so it's looking small in comparison.
The worst consequence, beyond just the relative unfairness of that practice, is the detriment it creates. In Canada (at least where I leave) the commission is split between the agent of both sellers and buyers. Since it's a portion of the selling price, everyone (apart from the buyers themselves) is financially incentivized to maximize the price.
In France it varies between 5 and... 10%
6% sounds like a very good deal.
Of course, anyone can sell their house without an agent, but it's more difficult than it sounds.
On a positive note, 30-year fixed rate mortgages are super common in US.
Not so much in other parts of the world.
For my first home in Canada we (really the seller, but that’s just a shell game) paid 2% and it felt like a lot in terms of actual $, largely given how home prices have inflated.
We walked through three homes I picked out, and then an evening of email counter offers, and then another walk through, and then some paper work. Then I got to pay the lawyers as well as the inspector.
I imagine I subsidize the times in my agent’s job where she does a ton of work and there’s no sale at all. Though maybe a flat fee could still incorporate that reality.
I don't know how much value agents added over the past few years, navigating bidding wars, pocket listing access, etc. but I've never understood the justification for spending so much money on these fees.
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.