The problem isn't just realtors, it is that the whole system is designed to maximize transaction costs. Who cares how much the attorney and loan paperwork cost when they are only 1-2%, you are already paying 5-6% to realtors, ~.5-1% in repair costs, and often a part of the buyer's closing costs too?
But if you think about that wholistically, that means sellers are paying 8-10% of the cost of a house every time they sell!
Surely that means someone could cut the cost in half and make a much more attractive platform, right? Opendoor comes kind of close, but they end up shouldering a lot of the risk of the transaction and therefore tend to lowball.
My problem has always been with the percentages used on certain things; like commissions. Just make it a flat fee. Things that require agent's time like open houses; bill for that. It's the essentially the same effort on a $100K house and a $500K house and a $1M house. Maybe once you get to $5M+ houses the fees need to increase since this is a different class of RE with much smaller pool of buyers. But still should be fixed amount and not percentages.
In my area, since I bought my first house 10 years ago house prices have 4X'd. I don't think the wages of most professions have, the demand for housing makes it easier to sell, so why should agents be making 4X more?
Yeah it also causes the problem of making it a real pain in the ass to buy cheaper plots of land. Realtor often don't give a flying fuck about the sale of stuff under 50k, not worth it for them. Can be hard to get representation.
Maybe we should all learn from real estate agents and price our labor at a % of the median home price within 1 hour commute to our offices?
While I do think RE agents are overpaid in expensive markets, I also kind of think...good for them. Pegging your wages to your most expensive living cost is a supremely intelligent move.
A huge hurdle with trying to cut costs is because of NAR themselves, and local Realtor Associations. Any Realtor is with NAR and a local Association, which heavily restricts what they can do. Not being in a local Association can remove your access to the MLS, reducing your visibility to other agents, and remove your access to the state-specific legal forms.
Add in closing attorneys and home inspectors being brought in-house to reduce costs, it can be a very expensive start-up cost that would require lots of capital to achieve. Zillow/Opendoor got REALLY close, but they stopped (Zillow) or, like you said, lowball offers because they're fronting all of the backend costs that used to be spread across 4 or 5 different services.
Good points. I totally forgot about the whole home inspection process and how ridiculous it tends to be. Even when they aren't in house, you know it will be someone that the realtor has worked with before. It will certainly catch things because it has to demonstrate its value, and those things will be worth at least hundreds of $$s. Unfortunately, it will also offer no real guarantee that those things were worth catching or that other things weren't missed.
You are right, a party trying to fix this will need great funding, large scale, and they can't be someone that will just sell out (ala zillow). With the NAR's ability to block out parties that they don't like, it might not even be practically possible.
Dumb, uninformed question here, but are there not some sort of For Sale By Owner systems that cut into the huge percents in closing costs? Or is the issue that you have to pay the buyers' realtor fees too and that's unavoidable?
I'm trying to figure out why nobody's figured out "DIY MLS listing as a service without having to pay for a realtor". Maybe everyone who does this just gets a realtor's license or something.
I sold a townhouse in DC using a company that listed in the MLS for a flat fee (I think it was about $200). I held my own open house and got my target price from a buyer I met there. He did have an agent but I told them I wasn’t paying any commission. The agent thought I didn’t know what I was doing and tried to sneak a commission onto the sales contract. Typical real estate agent behavior. (I had sold and bought a few houses before, using agents, so I was familiar with the process, and aware that the agents added no value.)
I’m not a realtor but I considered selling my home myself once. Two issues I hit immediately:
1. I could not list the home in MLS as
That system requires annual fees to use and you need to have a realtor license.
2. You still need to pay the purchasing side’s realtor otherwise they will simply not consider your home for their clients. That’s 3% that’s hard to get any lower.
I ended up negotiating my realtor’s selling fee down to 1.5% with the promise of using them for my purchase as well.
It's true that there's scope for an alternate MLS that's just for sale by owner listings. But as someone else mentioned, the buyer often uses an agent (I refuse to use the made-up word "realtor") and you'll have to pay that fee anyway. Unless, that is, your listings site provided handholding to do away with the buying agent. To handle the paperwork, a notary and/or a lawyer is necessary but the site could either provide those services for cheap or detailed instructions on how to proceed if you want to use your own notary/lawyer. It's simple enough. It turns out that the main function of a real estate agent is to simply ferry paperwork back and forth between the clients and the lawyers. You can just as easily do this yourself (we did and saved a lot).
It's almost entirely because entrenched interests (realtors, NAR) sabotage those efforts. The market has never had a chance to support any other approaches.
Paying a percentage to realtors is just theft. They add so little value in my experience. The fact that a fee can be split between two brokers or kept by one just shows they are extracting rents for ambiguous value.
Yep. And a lot of it is of dubious value; I think for many (most?) properties, title insurance is a scam. Most houses, especially those built (or at least having changed hands) in the last, oh, 50 years (or more?) should be fine.
It also just seems kinda dumb that realtors get paid a percentage rather than a flat fee. On the buyer side, it's essentially the same amount of work to help someone find and buy a $200k house as it is for a $1M house. For the two properties I've purchased, things moved so quickly that I don't think the realtors had to do all that much. Conservatively, the first one made at least $2k/hr, and the second at least $1k/hr (and I'm probably underestimating there). I'm not saying their services weren't valuable -- they certainly were -- but I can't see most people agreeing to pay that rate if it were presented to them that way.
And I'm not convinced there's all that much of a difference on the seller side, either. The staging is going to cost more for a larger/nicer house, but the sellers are paying separately for the staging anyway. I was also reading somewhere recently that orgs that control access to the MLS will not even allow you to list if there's no buyer's realtor's commission, and there's a floor, like it has to be at least 2% or something.
From the buyer's perspective, I really liked Redfin's pre-pandemic model, where they'd give you part of the buyer's commission as a "refund", because their realtors are salaried. I assume they figure out from the traditional commission how much they need in order to pay their own operating costs (plus whatever profit margin they've decided to take), and then give you the rest. Of course, they stopped doing that during the pandemic, and now pocket the entire buyer's commission.
Granted, the realtors we've worked with through Redfin were hit-or-miss. One we worked with was fantastic and knowledgeable, and helped a ton, but another (in a different region) let us put an offer on a home that we wouldn't have been able to rent out legally in the way we wanted to, which is something she absolutely should have known (a non-realtor friend alerted us to the issue; fortunately we were able to rescind the offer before it was acted upon). I haven't listed anything on Redfin as a seller, but they charge 1% of the sale price, which is a lot better than the 2.5%-3% traditional realtors take. Still, the percentage model seems unnecessary there too; the amount of work needed to sell houses of different values shouldn't necessarily be directly linked to the eventual sale price.
> But if you think about that wholistically, that means sellers are paying 8-10% of the cost of a house every time they sell!
I can only assume this also is part of our housing affordability issues. Sellers need to see some minimum amount of appreciation (and a fairly large amount at that) in order to break even (without even taking inflation into account), so homes sell for higher than they would otherwise, especially in markets where sellers have the upper hand.
Title insurance is often required by the lender. If I loan you a boatload of money, I want to make sure there isn't any funny business about who owns what when you buy that the borrowed money. If there is funny business, that why I want you to have bought the insurance. Seems as reasonable as home owners insurance on a mortgaged property.
I agree - especially for the last few years, when in order to sell a house all you had to do was put in on the market - and then get 10-15-20 offers at or above listing price - no agent deserves a 6% commission for simply getting something listed on zillow or MLS where in recent years, the houses just sold themselves.
> no agent deserves a 6% commission for simply getting something listed on zillow or MLS
Typically 3% is seller agent commission and 3% is buyer agent commission - although in the paperwork it's most likely 6% to the seller's agent and the seller's agent offers 3% to the buyer's agent.
Although 5% total / 2.5% to each realtor is becoming a bit more popular as of recent, based on the listing I browse.
That’s only true if you are in a competitive market. There is a whole swath of land in flyover country and rural America where it can take awhile to sell a house.
Commissions for the seller's relator are fine, but they shouldn't be based on the full price of the house. This setup encourages quick sales rather than getting the best price. Instead of the realtor earning 3% on a $1,000,000 house, set a base amount at, say, $700,000 and calculate the commission only on the remainder - 10% on $300,000. The same principle should apply to the buyer's agent but in reverse or there should be a flat fee. Their current incentive structure is totally screwed up.
I expect that when it comes time to sell my house, I'll hire a real estate attorney to make sure all the paperwork is in order, and I'll deal with the rest myself. I engaged an attorney when I bought my house, and she was super thorough.
Attorneys are so ridiculously cheap compared to the realtors. In my area there are discount real estate attorneys that will do sales/purchases for $200, and the normal price is like $500 which is nothing compared to the real estate agents getting like $10k on an average home in the area.
I've sold 4 houses "by owner". I didn't even use an attorney for 3 of them - just a title/escrow service who take care of handling the deposit, filing the deeds after the funds transfer is complete etc.
You can. It's just a bit of a racket (hence, conspiracy judgment) and nobody will work with you if you only offer a flat rate. Since MLS is mostly limited to Realtors in most markets, you're basically locked out from posting there.
There's ways around it, and flat fee brokers that exist, but you hamper your sales ability. Not an issue when its a sellers market, but can be rough in a buyers market.
There are flat rate realtors where I live. However they are only 50%, the still give the same 3.5% to the buyers agent, but they take for themselves a fixed rate to get you on MLS. I'm not sure if it is a good deal - they still charge high prices relative for what they do for you. (it is cheaper than a full agent, but they also do much less)
Agreed. Add to the fact if you're a seller agent the money is easy. A buyer's agent struggle. AFAIK usually you start out as a buyer's agent and build up a network/reputation before people trust you to sell.
In a seller's market, seems like a buyer's agent should be compensated more because it's more difficult to win bids now.
I’d be willing to pay a percentage above some predetermined price (e.g. if the realtor produces some sort of above market outcome) - but agree, that the value provided does not equal 3-6% of home value
So why downvote me? We've got this already in our buyer's agency agreements - if you as a buyer want to negotiate compensation with your agent, you have the ability to do that. Similarly, in both states where I work, you as a seller have had the ability to choose what, if any, compensation you want to offer to a buyer's broker. None of this is actually that different from how you negotiate (or not) with any other professional - your lawyer, your accountant, your financial advisor, etc.
> If you're selling a $2M house, you're willing to pay more for someone to get you a good price.
That sounds very last-century... kinda like selling antiques to a pawn shop or consignment store that would take of finding a buyer.
Why does discovery and bidding justify $200k in overhead for the $2MM property? Why does a person need to go out and "find a buyer"?
Without this Realtor conspiracy, surely something like Redfin meets eBay would be more efficient? Posting online is what the cast majority of realtors do anyway, they don't actually "find" buyers... At least until you get to 1%er prices where golf club chats matter
Heck, this racket gates even access to standardized legal forms that states themselves should freely offer.
Real Estate in the US is like a bunch of little MLS fiefdoms still angry you have access to the internet.
Eventually the Real Estate market will adopt like the music industry and others had to. Welcome to the 21st century.
Brokers and agents are mostly sales people that drive around showing places. Its the lawyers, inspectors, insurance underwriters, loan originators, and title companies that do the real and/or legal work.
It's time for broker/agents to take a more fitting role instead of charging 6% for posting cell phone pictures of your house on their regional MLS.
> Its the lawyers, inspectors, insurance underwriters, loan originators, and title companies that do the real/legal work.
And they get paid a flat rate to do that work (hourly or per contract). There should be no reason for commission based compensation for brokers and RE agents in the residential market. I could see an argument in the commercial market for it though.
The music industry didn't have a patch work of local laws protecting it's thiefdom, unwinding Real Estate is a much more difficult challenge. If it was not I think we would have seen some real inroads by now, it's obviously a massive market.
Inspectors maybe since they go on site and climb around etc... but every other profession you listed uses the same documents/software for every single deal so I don't know what you mean by "real" work.
I don't even understand the idea of "showing places". Every time I purchased a home, I scoured Zillow, drove myself to open houses, and when I was ready to make an offer, called my Agent. Sure occasionally there is a property that doesn't have open houses and it on lockbox and you have to have your agent let you in, but honestly the last thing I want it them following me around the house (that's not even their own listing). They were always there just b/c they could open the door.
Good for them. On the list pointless middlemen, they’re definitely at the top.
One of the dumbest parts of the real estate commission scam is purporting the lie that “the seller pays the commission”. Anyone with half a brain knows that if money is coming out of a transaction, it’s a transaction cost being eventually passed onto the buyer.
I think this assumes that the price of real estate is set by the post-fees price that sellers receive. I don't think that is true.
I think the strongest factor in real estate pricing is what buyers are willing to pay. In some cases that is influenced by how much the buyer was able to keep after selling a previous property, but I don't think that is the most significant factor.
Another factor that influences the sale price is the psychology surrounding the pre-fee sale price. Many sellers become fixated on a particular sale price. A common strategy for getting a lower effective sale price is getting sellers to include more in the sale price. One particularly notable example is seller financing.
Not really related to the article but something I've been wondering...
In recent years the housing market has been so competitive that escalation clauses are often written into offers. They typically include a base offer of $X and then an agreement to escalate that value by increments (maybe $1-5k at a time) up to some cap. All the offers are collected by a certain date and then an auction is run behind the scenes by the realtors involved.
What's to stop a seller from having one of their friends enter into one of these escalations? Submit a non-serious offer with a high escalation and include a minimal deposit which would be forfeited if that fake offer happens to win but otherwise hope it comes in 2nd to push everyone else's escalation up.
Very little. When I was younger growing up in Australia, auctions were very common, and it was very much the "traditional" model, everyone stands around in front of the property and puts up their hand to bid.
Regularly auctioneers would get caught taking bids from trees or vehicles to push prices up. They'd get caught when their fake bid was the highest. It became so common it was almost expected, and reforms to the process had to be introduced.
There are also a lot of shenanigans realtors could be pulling.
Example:
Few years ago, we wanted to buy a house, we made a bid for 2.6, the realtor said they would not accept anything less than 2.8 as this was their competing offer. We said no, the house sold for 2.4. I suspected the realtor might have been double dipping, or bluffing, i don't know. But what I do know is they did not present the offer to the seller.
(numbers are not exactly precise, but directionally and somewhat magnitude wise, it should be similar).
I had a similar issue. A put a full price cash offer on a place for 1.9. The seller said they had a competing offer that was higher and asked me to submit a new offer at 2.1. I declined, and said they are welcome to provide a written counter offer at 2.1. The reason they won't counter is that a new higher offer from any buyer (me) will trigger escalation clauses for other buyers offers. Dirty trick that screws over buyers, because sellers can see all offer details.
> But what I do know is they did not present the offer to the buyer.
I believe in most states a real estate agent (I despise 'Realtor(TM)') is obliged to present an offer (at least by the Realtor's Code of Conduct/Membership Agreement).
Edited to add: I'm not sure if this refers to seller agents (who cannot hold back an offer from their client), or to buyer agents, presenting that to the seller side, or both. I think at least the first.
Maybe there was something else unattractive about your offer and the 2.8 fell through? Happens all the time.
When I sold a house recently I took the second highest offer, because the highest offer came from someone out of state who had never set foot in the house
1) If your bid wins then you're on the hook to buy the house. Part of the offer your make includes "earnest money" which is that deposit you're talking about (which you forfeit if you don't actually buy the house). The seller sees all the offers so presumably you putting down $500 earnest money on a $300K house would look suspicious enough to get you ignored by the buyer.
2) However, you've got a bigger issue: it's a secret auction. You put in your bid/offer, and so does everyone else, but _nobody_knows_about_anyone_else's_bid_. Heck, you don't even know how many other people are bidding. You _may_ be able to ask your realtor to nicely ask the seller's realtor for a general description of how hot the listing is (which works in the realtors' favor - the hotter the listing, the more you'll anticipate needing to bid), but beyond that you don't know about the other bids. And you for sure don't know about the specific, bogus bid that the realtor's friend put in to influence all the people that don't know about the bogus bid :)
I might be wrong (realtor's friend puts in a bogus bid so the seller's realtor can lie and say the listing is hot, after your realtor asks them about it), but I don't think this is a strategy that will work in general.
> putting down $500 earnest money on a $300K house would look suspicious enough to get you ignored by the buyer
Assuming you mean the seller here? If I were the seller I too would ignore that kind of offer but first I'd let it push all the other escalation clauses up ;)
I had an escalation clause in my offer, but I adjusted it so it said something to the effect that the clause would only be in effect for comparable offers. Then I defined comparable offers to be offers that were for the same type of loan with a minimum down payment and deposit amount. I wanted to protect against the buyers getting a higher offer that they were likely to reject on some other basis, but using that higher offer to make me pay more for the house. The downside was that I could be beat out by other legitimate buyers whose escalation clause didn't consider the quality of the offer they were beating. I cared more about not feeling like I was being swindled though. I got the house after about a $10k escalation, and the seller's agent presented the competing offer so I could verify it met the conditions of my escalation clause.
This happened to me in 2019. I went into escrow and they didn't give me the offer for about 5 days. When I finally got it, it was lower than it should have been. It rubbed me the wrong way and I bailed out of the deal.
Do you see the deposit amount and all the details of the escalation from the triggering offer in that case?
Say I saw that the triggering offer had a measly deposit and I suspected it of being fake. Would I be on the hook to prove it? Technically if I rescind my offer at this point I lose my own deposit, right?
I think a lot of the escalations involve more than just one other person bidding, so you'd really need to be running a good game to get three or four people involved to run up a price in something like this.
Additionally, in a competitive market, with multiple offers, people aren't doing a bare minimum deposit. More like 30 - 50K is involved based on my experience, but it varies dependending on state.... I'm currently looking in a new market, and we were told our offers should have about 10 to 30K on them between Due Dilligence and Ernest money....
Besides, it's just easier for the seller/buyer agent to have a conversation on which buyer wants it the most.
It doesn't seem unethical, just weird. The seller can just require a higher starting bid, the result would be equivalent. Of course the risk would be that no one would buy the property if the price is too high.
> For several years NAR has been fending off accusations by U.S. antitrust officials and private litigants that it has conspired to keep home-sale costs high in the face of major technological upheavals. This verdict is by far the group’s biggest setback yet.
Buying or selling a home involves paying numerous middlemen thousands of dollars without having a clear idea what value they are providing in the process, except that if you don't pay them, you can't pay the next person in the line. Burn that whole industry to the ground as far as I'm concerned.
my beef with the commissioned agents is that paying them a commission does not actually influence them to work on your behalf; they still work on their own behalf. For example, keeping your house for sale on the market longer (by rejecting offers) tends to eventually bring a higher price. A study or two has shown that real estate agents keep their own houses on the market for longer than average.
But longer on the market is more work for the agent, while the small percentage increase in a higher price doesn't enhance their commission by nearly as much as it does the homeowner's, especially considering there is frequently a substantial mortgage on the house (meaning, the homeowner gets to collect the "bank's share" of any additional sale price)
but what will your realtor recommend? "list it at a low price to generate interest and start a bidding war", pretty much the opposite of what you should do.
In the grand scheme of things, a commission for making a large, complex selling process go smoothly is not a ridiculous notion, but when your agent is participating in plucking your feathers it's pretty annoying.
You’re not forced into taking any deal you don’t want to; your real estate agent can’t accept deals without your consent. I agree, agents are usually more focused on deal flow than particular outcomes, but it’s sort of a fundamental issue with agency in general.
A software consultant is more focused on you signing off on the work than your bottom line, it’s hard to get people to not act in their best interest, and for the average person the home buying/ selling process is probably too complicated for them to navigate without going through some training.
I think the biggest reform that could be passed is to disentangle NAR and MLS.
when I am paying somebody handsomely for their domain expertise, I don't want to become as educated as they are in order to evaluate what they throw in front of me. I want advice that I can trust from a fiduciary.
Readit News
But if you think about that wholistically, that means sellers are paying 8-10% of the cost of a house every time they sell!
Surely that means someone could cut the cost in half and make a much more attractive platform, right? Opendoor comes kind of close, but they end up shouldering a lot of the risk of the transaction and therefore tend to lowball.
In my area, since I bought my first house 10 years ago house prices have 4X'd. I don't think the wages of most professions have, the demand for housing makes it easier to sell, so why should agents be making 4X more?
While I do think RE agents are overpaid in expensive markets, I also kind of think...good for them. Pegging your wages to your most expensive living cost is a supremely intelligent move.
Add in closing attorneys and home inspectors being brought in-house to reduce costs, it can be a very expensive start-up cost that would require lots of capital to achieve. Zillow/Opendoor got REALLY close, but they stopped (Zillow) or, like you said, lowball offers because they're fronting all of the backend costs that used to be spread across 4 or 5 different services.
You are right, a party trying to fix this will need great funding, large scale, and they can't be someone that will just sell out (ala zillow). With the NAR's ability to block out parties that they don't like, it might not even be practically possible.
I'm trying to figure out why nobody's figured out "DIY MLS listing as a service without having to pay for a realtor". Maybe everyone who does this just gets a realtor's license or something.
1. I could not list the home in MLS as That system requires annual fees to use and you need to have a realtor license.
2. You still need to pay the purchasing side’s realtor otherwise they will simply not consider your home for their clients. That’s 3% that’s hard to get any lower.
I ended up negotiating my realtor’s selling fee down to 1.5% with the promise of using them for my purchase as well.
It also just seems kinda dumb that realtors get paid a percentage rather than a flat fee. On the buyer side, it's essentially the same amount of work to help someone find and buy a $200k house as it is for a $1M house. For the two properties I've purchased, things moved so quickly that I don't think the realtors had to do all that much. Conservatively, the first one made at least $2k/hr, and the second at least $1k/hr (and I'm probably underestimating there). I'm not saying their services weren't valuable -- they certainly were -- but I can't see most people agreeing to pay that rate if it were presented to them that way.
And I'm not convinced there's all that much of a difference on the seller side, either. The staging is going to cost more for a larger/nicer house, but the sellers are paying separately for the staging anyway. I was also reading somewhere recently that orgs that control access to the MLS will not even allow you to list if there's no buyer's realtor's commission, and there's a floor, like it has to be at least 2% or something.
From the buyer's perspective, I really liked Redfin's pre-pandemic model, where they'd give you part of the buyer's commission as a "refund", because their realtors are salaried. I assume they figure out from the traditional commission how much they need in order to pay their own operating costs (plus whatever profit margin they've decided to take), and then give you the rest. Of course, they stopped doing that during the pandemic, and now pocket the entire buyer's commission.
Granted, the realtors we've worked with through Redfin were hit-or-miss. One we worked with was fantastic and knowledgeable, and helped a ton, but another (in a different region) let us put an offer on a home that we wouldn't have been able to rent out legally in the way we wanted to, which is something she absolutely should have known (a non-realtor friend alerted us to the issue; fortunately we were able to rescind the offer before it was acted upon). I haven't listed anything on Redfin as a seller, but they charge 1% of the sale price, which is a lot better than the 2.5%-3% traditional realtors take. Still, the percentage model seems unnecessary there too; the amount of work needed to sell houses of different values shouldn't necessarily be directly linked to the eventual sale price.
> But if you think about that wholistically, that means sellers are paying 8-10% of the cost of a house every time they sell!
I can only assume this also is part of our housing affordability issues. Sellers need to see some minimum amount of appreciation (and a fairly large amount at that) in order to break even (without even taking inflation into account), so homes sell for higher than they would otherwise, especially in markets where sellers have the upper hand.
Typically 3% is seller agent commission and 3% is buyer agent commission - although in the paperwork it's most likely 6% to the seller's agent and the seller's agent offers 3% to the buyer's agent.
Although 5% total / 2.5% to each realtor is becoming a bit more popular as of recent, based on the listing I browse.
There's ways around it, and flat fee brokers that exist, but you hamper your sales ability. Not an issue when its a sellers market, but can be rough in a buyers market.
In a seller's market, seems like a buyer's agent should be compensated more because it's more difficult to win bids now.
There are people worth their commission and there are people who are not worth it.
The bigger reason house prices are so high isnt the real estate agent cartel, it is the banking cartel and the capital chasing homes to rent them out.
Don’t use realtors.
On the flip side, no one is going to pay $5k to sell a $30k house.
Flat rates don't make sense. Maybe you think the percentage is too high.
That sounds very last-century... kinda like selling antiques to a pawn shop or consignment store that would take of finding a buyer.
Why does discovery and bidding justify $200k in overhead for the $2MM property? Why does a person need to go out and "find a buyer"?
Without this Realtor conspiracy, surely something like Redfin meets eBay would be more efficient? Posting online is what the cast majority of realtors do anyway, they don't actually "find" buyers... At least until you get to 1%er prices where golf club chats matter
Heck, this racket gates even access to standardized legal forms that states themselves should freely offer.
Eventually the Real Estate market will adopt like the music industry and others had to. Welcome to the 21st century.
Brokers and agents are mostly sales people that drive around showing places. Its the lawyers, inspectors, insurance underwriters, loan originators, and title companies that do the real and/or legal work.
It's time for broker/agents to take a more fitting role instead of charging 6% for posting cell phone pictures of your house on their regional MLS.
And they get paid a flat rate to do that work (hourly or per contract). There should be no reason for commission based compensation for brokers and RE agents in the residential market. I could see an argument in the commercial market for it though.
One of the dumbest parts of the real estate commission scam is purporting the lie that “the seller pays the commission”. Anyone with half a brain knows that if money is coming out of a transaction, it’s a transaction cost being eventually passed onto the buyer.
See: Ticketmaster for buyer side elasticity.
I think the strongest factor in real estate pricing is what buyers are willing to pay. In some cases that is influenced by how much the buyer was able to keep after selling a previous property, but I don't think that is the most significant factor.
Another factor that influences the sale price is the psychology surrounding the pre-fee sale price. Many sellers become fixated on a particular sale price. A common strategy for getting a lower effective sale price is getting sellers to include more in the sale price. One particularly notable example is seller financing.
Deleted Comment
In recent years the housing market has been so competitive that escalation clauses are often written into offers. They typically include a base offer of $X and then an agreement to escalate that value by increments (maybe $1-5k at a time) up to some cap. All the offers are collected by a certain date and then an auction is run behind the scenes by the realtors involved.
What's to stop a seller from having one of their friends enter into one of these escalations? Submit a non-serious offer with a high escalation and include a minimal deposit which would be forfeited if that fake offer happens to win but otherwise hope it comes in 2nd to push everyone else's escalation up.
Regularly auctioneers would get caught taking bids from trees or vehicles to push prices up. They'd get caught when their fake bid was the highest. It became so common it was almost expected, and reforms to the process had to be introduced.
There are also a lot of shenanigans realtors could be pulling.
Example: Few years ago, we wanted to buy a house, we made a bid for 2.6, the realtor said they would not accept anything less than 2.8 as this was their competing offer. We said no, the house sold for 2.4. I suspected the realtor might have been double dipping, or bluffing, i don't know. But what I do know is they did not present the offer to the seller.
(numbers are not exactly precise, but directionally and somewhat magnitude wise, it should be similar).
I believe in most states a real estate agent (I despise 'Realtor(TM)') is obliged to present an offer (at least by the Realtor's Code of Conduct/Membership Agreement).
Edited to add: I'm not sure if this refers to seller agents (who cannot hold back an offer from their client), or to buyer agents, presenting that to the seller side, or both. I think at least the first.
When I sold a house recently I took the second highest offer, because the highest offer came from someone out of state who had never set foot in the house
1) If your bid wins then you're on the hook to buy the house. Part of the offer your make includes "earnest money" which is that deposit you're talking about (which you forfeit if you don't actually buy the house). The seller sees all the offers so presumably you putting down $500 earnest money on a $300K house would look suspicious enough to get you ignored by the buyer.
2) However, you've got a bigger issue: it's a secret auction. You put in your bid/offer, and so does everyone else, but _nobody_knows_about_anyone_else's_bid_. Heck, you don't even know how many other people are bidding. You _may_ be able to ask your realtor to nicely ask the seller's realtor for a general description of how hot the listing is (which works in the realtors' favor - the hotter the listing, the more you'll anticipate needing to bid), but beyond that you don't know about the other bids. And you for sure don't know about the specific, bogus bid that the realtor's friend put in to influence all the people that don't know about the bogus bid :)
I might be wrong (realtor's friend puts in a bogus bid so the seller's realtor can lie and say the listing is hot, after your realtor asks them about it), but I don't think this is a strategy that will work in general.
Legal context: United States
Assuming you mean the seller here? If I were the seller I too would ignore that kind of offer but first I'd let it push all the other escalation clauses up ;)
Say I saw that the triggering offer had a measly deposit and I suspected it of being fake. Would I be on the hook to prove it? Technically if I rescind my offer at this point I lose my own deposit, right?
Additionally, in a competitive market, with multiple offers, people aren't doing a bare minimum deposit. More like 30 - 50K is involved based on my experience, but it varies dependending on state.... I'm currently looking in a new market, and we were told our offers should have about 10 to 30K on them between Due Dilligence and Ernest money....
Besides, it's just easier for the seller/buyer agent to have a conversation on which buyer wants it the most.
Buying or selling a home involves paying numerous middlemen thousands of dollars without having a clear idea what value they are providing in the process, except that if you don't pay them, you can't pay the next person in the line. Burn that whole industry to the ground as far as I'm concerned.
But longer on the market is more work for the agent, while the small percentage increase in a higher price doesn't enhance their commission by nearly as much as it does the homeowner's, especially considering there is frequently a substantial mortgage on the house (meaning, the homeowner gets to collect the "bank's share" of any additional sale price)
but what will your realtor recommend? "list it at a low price to generate interest and start a bidding war", pretty much the opposite of what you should do.
In the grand scheme of things, a commission for making a large, complex selling process go smoothly is not a ridiculous notion, but when your agent is participating in plucking your feathers it's pretty annoying.
A software consultant is more focused on you signing off on the work than your bottom line, it’s hard to get people to not act in their best interest, and for the average person the home buying/ selling process is probably too complicated for them to navigate without going through some training.
I think the biggest reform that could be passed is to disentangle NAR and MLS.