Why do we need realtors at this point? Everyone finds houses themselves online nowadays. Why does anyone need to pay a whopper commission to some middle-man?
First, it was very hard to communicate the value prop to customers. We went to market with something like "we refund the buyer's commission minus our flat fee". This brought up all kinds of questions and often buyers thought we were more expensive than realtors. Saying that we're 50% the price of a traditional realtor ended up being a more compelling message even though there's less savings in many cases.
Second, when we're acquiring customers we compete with all of the people charging a much fatter commission. If a realtor is making a 50k commission, they can afford to spend 10k on acquiring a single customer. Assuming an efficient market (which the acquisition side kind of is), a flat fee kind of caps your addressable market because you can only compete with ads at a certain price point (buyers at <400k price points in CA for instance). In some ways this is counteracted by the fact that you can save $1M buyers way more money with the flat fee, but only if you can communicate that message effectively.
That said, it looks like redfin found that there's more price elasticity on the sell side. The seller has likely been through the process before, seen how little work agents do, and feels the full agent fee more viscerally at the time of listing. For the buyer, the agent fee is this murky thing that your agent will tell you is paid for by the seller... first time buyers usually don't find out how much it is until they sign the final closing docs. The other difficulty is that the typical 2.5% being offered to the buyer's agent is essentially an advertising cost... in the existing market agents will often steer clients away from low commission listings (not ethical but it happens).
This is going to sound condescending, but you honestly do not know much about the business you're in.
I'm not by any means saying agents are lazy, I maybe phrased that poorly. Just that if you're looking at the hourly rate the agent is making for the ~10 hours they're spending from offer to close, it's kind of wacky compared to most other types of high skill work (e.g. 10 hours on a 500k home with the typical 2.5% commission is $1,250/hour).
Maybe like Vanguard you could do a sliding scale as the home price goes up? That is, instead of doing 50% off at all points (and I know you're focused on CA, but bear with me) you could increase the discount at higher price points. That way a $2.5M home on OpenListings is suddenly really attractive to the high end, while you'd still be the best option at the lower end (your pricing comparison to Redfin is genius, since I believed they did a 50/50 split).
Did different portions of California respond differently to your pricing? I'm seriously sad that people buying a home wouldn't do the math to see that your flat fee was drastically lower than any percentage.
> Did different portions of California respond differently to your pricing?
As a young startup the sample size was pretty small, but I didn't see a regional difference. I'd say the mentality split was more experienced vs first time homebuyers. Experienced deal seekers understood commissions and were already looking for hacks around using a full-price agent (e.g. getting their own license, going direct to the seller), but the FTHBs often thought it was an additional fee. However, our product naturally attracted more of the latter group and as a team it's just easier to get excited about helping young families become homeowners than helping millionaires save 100k. That said, we didn't really see a dip in the deal seeker audience when we switched the pricing (it's still very competitive).
I realize now that my assumption is likely wrong: selling lots of expensive homes at a lower commission doesn't generate nearly enough additional revenue. That is, there are only X000 units per year that trade hands at that price point, so unless you get a drastic change in behavior that doesn't move the needle. Interesting challenge!
Unless you plan to be in business for the next 7-10 years and instead invest heavily in building a brand around your value proposition. So short term you make less, however long term when you have made the other guys irrelevant you own most of entire market.
I was also going to say that from an economic standpoint, agents tend to make a rather low median income even if the commission is really high, simply because the realtor job is very accessible. (There is a tight correlation, if not simple causality, between home prices variations and the variations of the amount of realtors)
Acquisition becomes proportionally harder the bigger the commission is because of the amount of people it attracts.
Conversely, if you reduced the commission by law to half, you would lose a lot of realtors, which could reduce liquidity and thus the value of the homes.
Why do we even need software engineers at this point? Everyone can find the libraries and open source tools they need online nowadays. Why does anyone need to pay a whopper paycheck to some middle-man?"
You're paying for someone's expertise, like in most industries.
Can you give me a few examples of what kinds of value one gets while buying?
From what I can tell the main service that my realtor offered when I buying my place was access to the MLS. We found the houses we wanted to look at and he gave us access. Dollars per hour he was doing very well working with me, although I might be an exception.
What's your argument against a good realtor who saves you any amount when it's coming out of the seller's fee?
Edit: By the time you've come to visit a home you're buying, the seller has already agreed to the commission percentage with their agent. The money is already spent.
When I was buying my home the loan person I worked with is family so she helped me more than my realtor. Looked into neighborhoods for me etc. It could be that they were looking out for me more than normal.
I am in a market where houses sell instantly, more or less you look at a house and make an offer within out 24 hours or else it's gone. Which is crazy but the realtor didn't even get much of a chance to look into things here for us.
If a buyer is unfamiliar with the area (e.g. job relocation), a competent agent can point out the desirable & the unpublicized undesirable aspects of particular neighborhoods. The agent knows the area intimately and that knowledge can be worth paying for to avoid buying the wrong house.
If I'm living in the same house for 20 years and I see a house right down the street from me go up sale that would be perfect for my elderly parents so I could keep an eye on them, I wouldn't need a buyer's agent since I would already know more about that house/neighborhood than any agent would.
This is just utter rubbish. Buyer's agent has absolutely no incentives to publicize undesirable aspects as the agent is still paid half of the commission on the sale price which means that the agent has all the incentives to inflate the price.
But lets pretend that this is the exclusively buyers agent? Well, the thing is - if this buyer's agent is not working for buyers only brokerage he or she is still going to be not on a right side because the brokerage needs cooperation of the sellers agents. In fact, the customer of a buyers agent is seller's agent, NOT the buyer. Even worse, where a buyer can do 2-3 transaction via agent ( unlikely really but possible ) the agents that represent the other side are likely to do dozens of transactions with him or her.
It is even worse for the buyer only brokerages ( they do exist but they are super rare ).
This entire agent industry needs to be destroyed.
In Japan, I had the opposite experience. Here, realtors worked really hard for me, and most of them are on a meager salary without commissions.
SaaS doesn't make sense every case, just like Redfin doesn't, but it's still valid.
Rarely has that appeared to be the case in the dozens of real estate transactions I've been through, and it might explain why Redfin can't grow faster; people want to have their hand held through the largest transaction of their life, and those who can charge more for those services will.
Rarer, but more valuable, is discovering new work to do, or old work that doesn't need to be done, and then either inserting it or taking it out of an existing market/process/role/job/company, while still managing to get paid for your own contributions.
Zillow and Redfin have attempted to automate just the valuation of properties (with enourmous resources behind them), and still aren't as accurate as traditional appraisers. It's easy?
Edit: Even Zillow agrees. There's a million dollar prize if you can do better.
http://www.marketwatch.com/amp/story/guid/D24B68EC-4090-11E7...
As for the rest, why should the process of selling a house require "expertise"? Apart from inspections, which require domain knowledge of infrastructure.
At a fundamental level, one could say sellers don't require outside expertise to sell a home. Real estate agents are optional. There is a concept called "for sale by owner" which is a strategy some homeowners use. They can list the house on their own (not on MLS though), vet potential buyers, coordinate the showing of the home (appointments and/or open houses), etc. They can also get a real-estate lawyer to draw up contract papers, handle earnest money, etc.
However, most sellers do not want to mess with all the above. They literally do not have the "expertise" to do it all themselves. (Yes, the homeowners can sell a car on Craigslist but selling a home is a step change in complexity.) Hence, you end up with middlemen like real estate agents.
Some people think real-estate agents only exist because they have a monopoly on the MLS computer listings. That's not true. Even if somebody disrupted MLS database with Zillow listings, real estate agents would still exist. Selling a house is a complicated enough affair that intermediaries who specialize in it would always be a natural emergent phenomenon. The real economic question is whether they can keep charging 6% commissions as the internet evolves.
The thing is, a lot of time FSBO houses tend to be overpriced, which is very unfortunate.
That's the point. In pre-internet ages, there was a huge information imbalance that kind of validated that 6% (also, there wasn't such a ridiculous housing bubble).
Someone mentioned a real estate agent making 1250 dollars/hour. I would be willing to jump whatever hoops were needed to make that kind of money if I were in the U.S.
Well, the percentage is only part of the point. Some commenters in this thread are truly perplexed why the agents even _exist_.
They exist because sellers want them to exist. I'm saying it's naive to think that a new revolutionary website with a slick UI/UX would make agents obsolete. Agents may make less money (e.g. forces of free market lowers their median income from $45k to $20k) but the agents won't go away. If you have a population of people that don't want to do something (hassle work of selling) and a segment of population willing to specialize in relieving that hassle, then boom, you inevitably end up with agents. A new website or smartphone app doesn't remove the desires for that business relationship.
>Someone mentioned a real estate agent making 1250 dollars/hour.
Most agents don't make much money[1]. (Median is ~$45k.) There are a handful of superstar agents selling multi-million dollar mansions but most agents are selling more modest properties.
[1] https://www.google.com/search?q=average+real+estate+agent+in...
I'm exhausted by the never ending comments here "it's easy! Anyone can do this!" when it's clearly not. I'm simply countering the disingenuity, whether the source is ignorance or arrogance.
Wow, how on earth do you know that!? That's a pretty bold statement and I don't really see anything to justify it at all. You start with "algorithm aren't as accurate as traditional appraisers" and then conclude from that "real estate agents (who aren't appraisers!) can give a more accurate market analysis than algorithms." There's a big leap there.
Even if this was true that real estate agents do a better job than automatic algorithms it's still kind of irrelevant because an appraiser cost somewhere in the neighborhood of $300-$600 where as an agent costs $5,000-$10,000+. If you need an appraisal you hire an appraiser, not an agent.
Honestly, if you think real estate agents are the only ones capable of managing this process, then I can only assume you've never bought a house.
also, ever wonder why the home appraisal comes in right at the offer price during the loan process? its not a coincidence. the appraised price typically has more to do with conducting a business transaction in the interest of all parties involved and less to do with an actual valuation of the home.
Appraisals are kind of weird anyways, they are only an somewhat educated guess until someone actually buys the property and they are pretty individually subjective. My friend had 3 different appraisers come to her house and do three different appraisals and they all varied by quite a bit and one was absurdly high, much higher than the others, and extremely unrealistic (IMO). Appraisers also have information that algorithms don't because they actually go to the house and view the property with their own eyes. They can take into account better the condition of the property and "soft," more subjective inputs that you can only tell by actually viewing the property. It's not really directly comparable to an algorithm since there's just a subjective bend to the whole process and there's much more information available to appraisers.
Not only that but when the bank does an appraisal for a mortgage the appraiser's job is only to justify the selling price. They start with the agreed upon selling price and they use data to justify it, they don't go into it blind, they consider and analyze the agreement of sale as part of the valuation. Zillow obviously can't take that info account as Zillow doesn't have that information. So you're comparing apples (a market analysis based on public information) to oranges (a justification of a privately agreed upon sale price).
An appraisal is also cheap, especially compared to a real estate agent. Ours was a flat $425.
https://theappraisercoach.com/why-most-purchase-appraisals-s...
Traditional appraisers might be better in certain markets or conditions though (probably Zillow and Redfin are more generic).
I've worked on homeowners insurance and I've seen wildly differing appraisals.
In the context of your comment, what value do you see realtors providing w/r/t appraisals?
Also I love when people decide that the way someone else earns a living makes them overpaid and not worth what the market is paying them.
In the end as I said in another comment most people selling real estate aren't making tremendous money doing it with all the time wasted on people who don't end up buying.
You can compile your own information of houses that may be for sale that aren't for sale and approach the owner directly and try to buy it. You can also approach people who had their houses listed that took them off the market and approach them after the listing expired.
Think I am making this up? That is exactly what I did with one property that I bought. It was listed one year and never sold. I wrote a letter to the owner saying I wanted to buy it, struck a deal, and bought it. Simple common sense.
Let's say you are interested in a condo (as only one example could be houses in a development) in a particular building. Send a postal letter to everyone in the building. Say you are a serious buyer and ask them if they want to sell. In a large enough building you will get people that are thinking about selling and you can strike a deal.
Management offices (at condos) often know who might be selling as well. Contact them.
I have gotten deals for buying real estate from property management companies as well. They send me leads and I don't have to use a realtor at all. They know I am a buyer because I have communicated that to them. Also helps to buy small gifts for the person that holds that info or at least be super nice.
If you're not getting market or below market rate, there isn't much point in bypassing the agent.
In some markets it is not possible due to what is known as "pocket listings".
I actually find the lack of knowledge of most realtors very surprising (not that there arent some really good ones out there). When we were working with one to find a home, we would walk into a place and our realtor would look through the listing sheet and be like "oooh they supposedly have a good quality insulation in their walls", I would then need to explain to him what an R value means and that no they truly didnt have good insulation and what they were using as a marketing point was in fact the minimum required by code. I would then point out a few other items (jump ducts, hollow core doors, etc) that would make me feel like I was walking into a Habitat for Humanity type of home, not a $600,000+ residence.
Buying a home is the largest single investment people are likely to make in their lifetime and they have almost 0 knowledge about what they are buying and do almost no research into it other than the location. They then rely on input from someone regarding what they are buying that has very little additional information other than comparable sales and "knowledge" of the market. I wrote a business plan a little while around this, but never took past just putting some ideas on paper.
Older construction is another area entirely. When flipping houses became popular a lot of people got into the industry who didnt know what they were doing, or they went about trying to do it as quick and cheaply as possible. I have heard that the less you know about a place you are trying to flip the better. AKA if I dont open up any walls to see if the electrical doesnt actually meet code, then I dont have to spend a bunch of money replacing it! Or I didnt get a structural engineer to look at the foundation so I dont know if there are any issues with it and therefore I dont need to disclose anything to a potential buyer.
You just have you shrug your shoulders and fix whatever they misrepresented.
> Welcome Home!!! Take a seat on the PORCH SWING on your COVERED DECK and enjoy the Fall Season! Come inside this cozy home and view it's OPEN FLOOR PLAN [calling this open floor plan is a big stretch], Original HARDWOOD Floors [and they are destroyed as a result. Water damage. literally cut through to put in a furnace in the basement in one place. Covered by a carpet in the living room and destroyed as a result] and FRESH Neutral Paint. Two bedrooms and a LARGE full bath [probably as small as it gets while still being a full bath] on the Main Floor with a SUNNY eat-in Kitchen and Conveniently located MUDROOM, additional bedroom/office in the basement [not legally a bedroom]. This home features Updated ELECTRICAL [in some places sure. Half the house is still crappy old cloth wrapped wire], Updated PLUMBING throughout, Living Room is WIRED for SURROUND SOUND, [broken] SPRINKLER SYSTEM and NEW Roof with a LIFETIME transferrable Warranty! Detached Garage has HEAT & A/C, Wired for Cable and LAN line [a CAT5 cable that terminates in the floor and is not accessible to be hooked up to anything because it's in the floor!], has Electric [electricity to the building no where near code because it is fed from two sources] and a HUGE Attic space to Provide LOTS of EXTRA STORAGE. This home has a Private COVERED PATIO in the back where you can relax and enjoy YOUR NEW HOME!
There was more in the listing than this but that's just the basic bio.
When I was buying my house every time I asked a seller's agent a question about a house their answer was "I don't know." Every single damn time! If it wasn't written on the MLS they don't have a clue. That's even assuming the seller's agent was even physically there for the showing, only a few were.
My loan agent also told us that the taxes listed on the MLS were almost always flat out wrong so he always has to ignore the MLS and call the town when drafting up mortgages. I can't help but wonder if that's not so accidental. The taxes listed on the MLS for the house I ended up buying were wrong, for what its worth. Two municipals tax my house and the MLS only listed the tax for one of them.
They also were really helpful in scheduling walkthroughs before the house would go on the market, and scheduling all of the inspections--they also offered to be on site if I couldn't make it.
I also think they keep the sale rational when either side can get too sentimental. After inspectors found a few, minor things, the seller only offered to address them after adding another 5k onto the price (at no point was 'as-is' mentioned). This was after a few other petty things from the seller and I considered walking away. The house had been in escrow with no backup bids before we showed up. So I wouldn't be surprised if that happened last time, too.
I agree real estate agents are way too trusted. The good ones are great but any moron or scumbag can get a license.
That can be done (and is done) for cookie-cutter projects such as websites.
A company I consulted for offers 600 dollar CMS websites, no extra fees.
I've also paid amazingly low prices for other kind of "bolt-library-together" projects.
A lot of companies do overpay, but there's also a lot of variance between projects.
Someone with more experience may be more able to go it alone obviously, but my realtor was invaluable.
That said, if a buyer and seller agree on a sale independently of any realtor here, we can go to a local realtor and they'll happily facilitate the sale for a flat fee of around $1000. I've done that once, and had a number of friends who also did so. Most of the realtors recognize that the bulk of their commission comes from the listing and marketing process, and the paperwork is just something they know how to do correctly. $1000 is a fair price for knowing that's all being done correctly and fairly.
A lot of the apparent value of realtors disappears when you do the process yourself. source: have FSBO bought, and FSBO sold, and redfin bought, and worked for Coldwell Banker.
Getting on the MLS is cheap/easy now with discount MLS listings--I wouldn't do fsbo without it, even though you usually pay buyer's agents.
You might lose out on a profitable bidding war, or the one customer who might buy the house coming through by doing that, but you might get an extra 2.5% if it works out.
Lawyer prices will obviously be different in different parts of the country, (so maybe a lot cheaper where you are) but I knew someone who arranged a transaction without a realtor and paid a lawyer a lot more than $1,000 to put together all the necessary documents. One thousand seems like a good deal.
>...which you generally need anyway when buying/selling a house.
You've found it necessary to always consult a lawyer when buying/selling even though realtors were involved? Why? What value did they add?
When you are signing your 20th piece of paper, you realize you needed the lawyer. One dirty secret of realtors is that all this work is handled by lawyers, and the impossible-looking parts of a real estate transaction are handled by lawyers who understand it and have it down to a fixed-price cookie-cutter process for their locality. They did "consult" with me a bit and gave some "free" advice, but I just paid the fix price for doc generation mainly.
When I say "you need a lawyer anyway", even if you used a realtor, a lawyer drew up the docs for closing, and you hired the lawyer who put together the closing docs, although you may not realize it. You are paying the lawyer directly as a line item in your closing costs, so they are technically "your lawyer." Most people think the realtor had something net-positive to do with the magic house-transfering documents, but, not really.
This may vary by state/locale.
Yea might be different where I am. Like any signed document, I am sure a lawyer somewhere created the templates for the selling agreement, the purchase agreement, the loan documents and closing documents etc but I don't recall seeing any line item for a lawyer's time on any document nor did I ever talk to a lawyer. (Thank goodness for this as a real estate lawyer I know charges about 400 an hour. Fortunately there is nothing unusual about most loans/purchases/closings and lawyers don't typically have to get involved in each transaction - around here loan processors, escrow officers, etc actually do the work and they are much less expensive than a lawyer would be.)
Title company? Blah, blah. Still goes through lawyer! I'm paying for this at the end.
SRSLY! I hate to be a dick but.... come on...
cooperate lawyer? Who cares?
The best part is that that same $3,200 will transfer a house that costs a lot more. The more expensive the house, the more you should want to use a lawyer over a realtor.
Yes, most brokers use standard forms, there isn't much actual expense there for them - which is a good thing because a real estate attorney I know bills at more than $400 per hour.
A good realtor does a LOT more than just fill out the contracts for you to sign. The realtor will spend lots of time scheduling inspections, helping find contractors, being at the property to watch contractors, scheduling the photographer, putting the ad on MLS, running open houses, answering questions from buyers, negotiating with buyers, working with the title company, arranging to hand the keys off to the buyer, etc, etc. You are paying for their experience to know what needs to be done and for the time it takes to do all those tasks that I mentioned (and others). The standard commission costs are high, but there are brokers like Redfin who are less expensive.
I don't understand the contractors statement, a contractor is not a usual part of a real estate transaction, at least in my experience?
Once again, scheduling photographs is a simple phone call to a photographer.
Putting an ad on the MLS can be done yourself for a small fee - https://fsbo.com/flat-fee-mls
Buyer's questions can be better answered yourself, most sellers agents are unable to answer any questions and they'll have to relay most questions to you anyways, once again, my experience.
Open houses are more about generating leads for the agent then they are about showing your house.
Negotiating with buyers can be done yourself easily.
Working with the title company isn't something real estate agents do, not around here anyways. My lawyer handled all the title stuff. Plus what sort of "work" does an agent need to do with the title company?
Handing off the keys? Seriously? That is done at closing and shouldn't cost $5,000+.
Yes obviously you can do that. But you have to take the time to research the different companies a little to find a good one and you have to be there while the inspection is done.
>...I don't understand the contractors statement, a contractor is not a usual part of a real estate transaction, at least in my experience?
In selling, often there are either things that come up on inspection that need to be fixed or improvements that are done to make the property sell better - new paint, new carpeting, etc. Obviously a seller can do this, but it takes time to get bids and to be at the house to let them in, etc.
>...Putting an ad on the MLS can be done yourself for a small fee - https://fsbo.com/flat-fee-mls
Yes, obviously this can be done, and yes you can also take the time to look at a number of listings and write the ad copy if you choose.
>...Buyer's questions can be better answered yourself, most sellers agents are unable to answer any questions and they'll have to relay most questions to you anyways, once again, my experience.
A good agent can save you time here.
>...Open houses are more about generating leads for the agent then they are about showing your house.
One way or the other, you need someone there during an open house. Either you have to be there or you need to pay someone to be there.
>...Negotiating with buyers can be done yourself easily.
Obviously a seller can negotiate themselves and maybe they are as good at negotiating and know as much about the local market as people who do this everyday and maybe they know the agents to avoid. Though maybe it isn't that uncommon that the seller hasn't sold many properties and is better off having someone else help them.
>...Working with the title company isn't something real estate agents do, not around here anyways. My lawyer handled all the title stuff. Plus what sort of "work" does an agent need to do with the title company?
Different situations in different parts of the country I guess.
>...Handing off the keys? Seriously?
In this part of the country, it is done later - agent meets the person at the house. Again, no reason you couldn't do it, but it is time out of your day.
>...That is done at closing and shouldn't cost $5,000+.
Not sure where the number comes from - there is no need to put words in my mouth. Simply listing some of the the things the agent did when my place was sold. If I had to take time off of work to try and handle all these details, it would have cost me a lot more than the commission the agent got.
You should ALWAYS be there when inspection is done. Always. You're paying for it after all. Research? Yes, you should regardless. I couldn't imagine not being there and/or not researching. Real estate agents are useless in this step. How does this have to do with an agent other than "can use the phone?"
Anything about the contractor, lol, yeah, doesn't happen in real life...
>it takes time to get bids and to be at the house to let them in, etc.
Nothing about a real estate transaction has anything to do with this.
> you can also take the time to look at a number of listings and write the ad copy if you choose
???? !!! ????? Wat!? LOL
How old are you!?!
>A good agent can save you time here.
LOL!!!! Yeah, this doesn't happen. Have you ever talked to a sellers agent??? LOL!!! Asking a basic question of a sellers agent = idk. I would laugh if it wasn't sad... Actually, I laugh anyways. If it isn't on the MLS, they don't have a clue.
>One way or the other, you need someone there during an open house. Either you have to be there or you need to pay someone to be there.
PROTIP - Your agent doesn't schedule an open house for you, she schedules an open house for her. Open houses are a lead generator, nothing more.
>agent meets the person at the house.
Wat!? At closing the keys are hand over. There isn't any other way. You're there anyways. Give me a break that agents try to justify their cost that ways??!!
$5,000+ comes from 3% of 200,000, which is $6,000.
Come on!! Give me a break!! I don't even hate agents but, for Christ sake, try harder!!
What you mean to say is that you can't imagine that things could be done differently than how it was done where you are located. That pretty much sums up every comment you made here...
I thought my RE agent wasn't really worth what I knew I would be paying him until we actually went to make an offer. Their knowledge of our circumstance and the local market let us put together an offer that despite not being the highest offer, nor the most favorable closing (I used a VA loan which takes on average 50% longer to close), we still were able to come out on top. My agent helped us get an inspection on the property the day we saw it so that we could wave inspection contingency, knew that we needed to put up more than the standard earnest money to account for our weak closing position, and they were able to accurately predict what the house would appraise for so that we could ensure that we didn't overbid and waive the under appraisal contingency.
High risk, high reward.
Putting a house on Zillow takes, what, 15 minutes?
Perhaps the exception is very high end real estate, but from what I've seen most of the high end realtors are just really good at networking and schmoozing.
The amount of effort is variable and unknown upfront (high risk, high reward).
Would you be willing to pay an hourly rate or per service rendered UPFRONT fee? I'm sure there are some brokers that offer such things. Most people don't want to part ways with their money before they know they actually sold their home (another nice thing about not having to pay until closing... the seller only pays if and at closing!)
How much do knowledgeable and experienced consultants make per hour?
OK, but why is that? And how many of those "random quagmires" are coming from realtors?
The real estate industry reminds me of the tax preparation industry or car sales in the USA. My opinion is they are all (by design) intentionally annoying, cumbersome, overly complex, overly expensive, and excessively time consuming, seemingly for no reason other than to protect vested interests. These areas are ripe for dramatic disruption.
I have to say that the most insightful article I have ever read about realtors came from the controversial Freakonomics. It clearly outlined the separation of concerns and interests and made it clear to me that if a real estate deal is to work well, the only person responsible is me and me alone.
Wow, this is great advice and something I would never think of doing.
That's why you pay for real estate lawyer to go with you to closing. That's the only person qualified to help you. It is the only person who represents you if you pay them.
I'm a big DIYer and will go to great length to research and do things on my own. My Realtor (Redfin agent) payed for himself and then some during the home buying process. Your paying for their experience and knowledge.
My agent making statements like "I had our lawyer review our signed purchase agreement and because of X,Y,Z we are still ok" helped me understand why I'm paying a big company a lot of money to help me out.
I really have no idea what tens of thousands of dollars extra would have bought me. I don't need someone to hold my hand and look at cars with me either.
Sounds like you don't live in a very competitive market. Here in the Bay Area, you don't even talk to the owner of the house, as they will have a seller's agent. Generally if a house is desirable, there will be anywhere from 5 to 20 offers on a house. The only way to get your foot in the door is to have your buyer's agent go to bat for you. Ideally they will have a prior relationship with the seller's agent, and have insight as to what kind of offer to make to make you competitive with other offers. I can't imagine buying a house around here without having the expertise that an agent can offer.
> I really have no idea what tens of thousands of dollars extra would have bought me.
As a buyer, you are not paying anything extra. The commission comes out of the seller's fees.
> I don't need someone to hold my hand and look at cars with me either.
Buying a house is an order of magnitude more complex and expensive than buying a car. Not really a fair comparison.
For example, the buyer and seller will split commission but in some cases one side can collect all of it.
Also the realtor had contacts of contractors and inspectors that she trusted so that the inspection and repair stages all went way more smoothly than if I was calling random contractors for quotes.
Again this doesnt apply depending on the market and price range that you are in.
A good agent is worth 10x their commission. A bad agent, of which there are many, is a waste of money. And the big rub is that people who could be buying homes probably aren't simply because they don't know the dozens of tricks that can be employed to make an unaffordable situation affordable, or able to identify a good deal.
If you're comfortable buying a home without any background check, then I guess you don't need a realtor, but I wouldn't do it.
Oh, and the laws that protect realtors, toss 'em. What we really need is Yelp for realtors.
You actually think a 'good' realtor deserves a 60% commission? I can tell you're married to a realtor.
Maybe a better wording:
A good agent is worth 10x their (extremely?) reduced commission.
Do not agree. Markets are only collections of people, and brokers know people, some of whom are buyers and a few of whom are the perfect buyers. Reaching those people is the marketing plan. Also, this is not buying airplane tickets, this is the single most costly and complicated process buyers and sellers will likely go through in their whole lives, so time frames of a week are fantasy.
What's a few hundred basis points of exaggeration when trying to make a point, right?
>who doesn't have a college degree
Anecdote time: I know well five brokers, all who have degrees, one with an advanced degree.
>and has been in the industry for 3 years or less.
Now here, you have described Redfin agents almost perfectly. Huge turnover, low compensation, bad broker work and no long term interest in a career that facilitates a race to the bottom.
> Furthermore, notice the incentives if you're a buyer literally everyone in the transaction from real estate agent to mortgage broker wants the price to be as high as possible.
Yes some buyers can avoid involving intermediaries, and that's where Redfin and its ilk can work well. But it is a fact that without negotiation skill and deep experience in the product, all that upward price pressure goes unanswered. Markets aren't magic, they are collections of people, and agents who earn their keep are persons skilled at high touch, high risk transactions between people.
> We're going to fix this.
Redfin's had 12 years and what's more, its flat-rate business model predates the web. Would you like a few more decades?
It will take much longer for the information required to buy or sell to become easily accessible over the Internet but I have no doubt this day will come.
There's a huge monopoly present in real estate data right now. At a very high level: The NAR (National Association of Realtors) licenses real estate agents, they pretty much allow you to do business and you cannot sell houses in the US without their approval. MLSes (Multiple Listing Service) are organizations created for a region/state/city, depending on the size/market. These are exclusively permitted by the NAR. All realtors MUST put their house data on an MLS. These realtors are also forced to pay large amounts to access these feeds. All traditional real estate data only lives in these organizations, with high barriers to extracting and manipulating the data since they want to keep their monopoly.
Basically, the real estate world is very entrenched in these monopolistic practices, and we're only now seeing significant efforts to accumulate and dissipate the data in a way that makes it more accessible. Personally, I wouldn't expect any major overhaul as the NAR is a HUGE lobbying group and have gotten a good amount of legislation around real estate on their side.
Hope that helps!
The need for realtors comes mostly from the sellers not the buyers. (Yes, some buyers also contract a "buyer's agent" but the point remains that realtors are still desirable to help market and show a home.)
Unlike the "dis-intermediation" that happened to travel agents (online flight/hotel booking), and librarians (google searches), or video rental clerks (Netflix), the elimination of realtors to represent the most expensive component in an owner's net worth is not going to happen because of a slick point & click housing website.
Consider that the vast majority of people don't even post their garage items on ebay for sale. Compared to that, selling a house is a much more complicated transaction. There's a categorization in sales called "low touch" and "high touch" transactions. A "low touch" transaction would be buying a loaf of bread from the grocery store. For the forseeable future (at least decades), selling homes will be a "high touch" transaction and sellers will want the reassurance and "warm & fuzzies" from another human middleman to help them fetch the best price. (E.g., the owner would presumably hire the appropriate realtor with the reputation and track record to quickly sell homes similar to his/her property.)
However, that doesn't mean more efficiencies can't be wrung from the system. Many think the typical realtor's commission of ~6% is way too high so it seems inevitable that entrepreneurs will revolutionize the market. Regardless of the new landscape (e.g. maybe no more MLS), the human intermediaries will still be there.
Flat fee, and for "all the related details" - they represent you as lawyers. I had an exceedingly positive experience buying with them in 2012. I wish their model would become dominant.
I can't see how that could not been replaced by a system of some sort.
Brokers (and salespeople) are only paid on successfully selling the property. The truth is not many people want to pay someone per hour or per showing to see houses. You can certainly sell or buy a home without a broker. You are bearing the risks in that case. If you buy and sell a home on your own and the deal falls apart, if the contract was not valid or not enforceable you could owe or lose thousands of dollars. Yes, you can have a lawyer draft the contract but a lawyer can't (in many states) show the property (ADD: and a lawyer is going to charge for each and every offer you written up. You pay regardless of if the sell happens or not).
With time I see brokers fees approaching a flat fee for facilitation services only (so long as they don't represent the seller or buyer in the transaction).
Why do we still have sports agents? Can't players and teams negotiate on their own?
Next, there are established network effects in the real estate industry. Companies that have tried to offer a flat-fee house brokerage service at scale have been met by massive resistance from existing realtors, who then dissuade their many buyers and sellers from even considering those services. I think this has been a brick wall for a long time.
I don't think the time horizon of the mortgage is relevant. 3-month's income is 3-month's income.
I think that view is less prevalent than it might seem. Many people look at this as one large purchase which they intend to use for decades, which involves a number of other upfront expenses but almost always also assumes significant tax savings and appreciation over that same time period.
I've heard plenty of people talk about that as just the price to pay for getting in on that long-term gain and clearly it hasn't caused that many people to not buy houses or bail to an alternative so far. One of the reasons for that seems to be that some people value having what they perceive as an expert representing them. I like RedFin – and had a great experience using them when I bought my current house – but it was interesting seeing how some people thought it was great when we mentioned that but others — generally but not exclusively older — were really scared that there was going to be some sort of unnoticed problem with the house[1] or a technicality which would cause the deal to fall through.
1. Yes, they knew this was replacing the realtor and not the inspector. No, that did not end the concern.
It lasts 6 months or so...after it fails to sell, you should be good assuming they don't switch to another one immediately.
Some buyer agents might not want to deal with FSO though.
I'm not sure how good redfin is to work with on the sell side of things, but I have a hard time imagining that a flat fee gets you the personal attention needed to be able to sell a home for 10% above what you were hoping to get.
About $1000. Initial couple hundred to take pictures, put up a nice sign, and list your house. The balance is paid when you close. Scheduling viewings and offer submission is done through their site. They also offer legal advice.
The only really nice feature they lack is HelloSign/similar integration for the paperwork.
I live in Utah.
I'm sure Homie or similar will be very common within 5 years in most places.
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There are also "flat-fee listing services" that have been around for a long time. They usually only satisfy any legal requirements and get you onto the offical listing sites, but you may want to search for that.
I don't think most people expect the realtor to recommend random homes based on the buyers preferences, as most people use services, such as RedFin, to narrow down the homes that match their best fit.
I don't know if they deserve a % of the purchase price, but they definitely ought to at least charge by the hour.
(just one tiny hint: you have to dismantle the MLS network in the process.)
yes, it's inefficient, but it's not a valueless middleman. yes, there is additional value that could be unlocked through greater efficiency. but there is a huge contingent of professionals vested in the continuation of the current regime. there are systemic and regulatory hurdles. which politician wants to dismantle an industry that still provides determined but not necessarily highly educated individuals the chance to break into the upper middle class?
The reason it's not cheaper is that few brokers compete on price.
He walked me through a contract to buy and sell, since I'd never seen one before. He helped me figure out a competitive offer for the house I wanted. He was able to spend time on things like searching for houses or setting up tours while I was working, it was great.
Just looking at houses online only scratches the surface of the homebuying process, IMO, and frankly with my full-time job it would have taken me much longer to find a house... assuming I would have even known how to get to closing, which I didn't.
Not just a whopper commission, but a commission that causes the buyer's broker to be absolutely incentivized against your interest as a buyer.
What a throwback to earlier economic times.