Zillow CEO: startups trying to disrupt real estate commissions will fail (2012)
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That being said, the National Association of Realtors (NAR) and their local branches are the definition of a cartel. My parents owned a real estate agency when I was growing up in the 80s and 90s. Back then, the cost of selling and marketing real estate was much higher. Most real estate advertising was done in print which the broker paid for out of pocket. Cameras used film back then which meant multiple trips to the property to take nice pictures. Someone had to always be manning the telephone because there were no mobile phones. The listing broker would have to arrange a showing with interested buyers and their broker. MLS was a huge printed catalog you would flip through to look for houses your clients may be interested in.
Nowadays, the cost of listing a house is nominal for a brokerage. Advertising is free because all of the real estate sites that consumers visit (realtor.com, zillow) pull directly from MLS. All cameras are digital so you can take that perfect picture the first time. There are now phone apps that automate broker access to houses to show their clients.
There are all of these productivity improvements for real estate agents on both sides of the negotiating table but the commission structure is almost identical to what it was 30 years ago. I believe the standard commission structure has gone from 7% to 6% in thirty years.
NAR was actually investigated by the federal government (FTC i think?), who concluded much the same, but lobbying buried the report and nothing came of it.
MLS's maintain power by strictly controlling access to information. they have the most up-to-date and the most detailed information about properties, buyers/sellers and sales transactions, among other things. this allows them to be the arbitors of deal flow, giving their members the advantage.
and this is the linchpin that props up the 6% commission rate. it's classic rent-seeking, since marketing costs have been dropping, as you mention. a truly competitive market would probably put the commission in the 1-2% range.
(i did my MBA thesis on disrupting the real estate industry)
edit: here's one, but i don't think it's the one i was thinking of: https://www.justice.gov/atr/competition-real-estate-brokerag...
If you are buying a house, the MLS is the place you need to go. And that is mediated by a Realtor or Broker in most cases.
The part I've never understood is, as a seller, why wouldn't I want my property to have the largest exposure and the most interested buyers. Presumably, having people getting into bidding wars for something i'm selling is a benefit.
In a given market area there are literally thousands of real estate agents. Even with a 1% discount off the top, what do you think the odds are that the best offer on the market just so happens to be a listing that your real estate agent just so happens to be the listing agent for?
Real estate is a racket.
absolutely. the cartel doesn't help the top 2% of agents, because they're good enough to earn the 6% (or higher) anyway, but the monopoly works because the overwhelming majority of interested stakeholders benefit.
(that's not to imply that most agents are lazy though. a stat i dimly recall is that only about 10% of agents make enough to be full time.)
Given some luck/skill and a lot of hard work, maybe they become large enough to start hiring agents themselves, and the cycle repeats.
Source: On the fence about dropping my license right now.
but if you promote free and fair markets, you'd discourage/dismantle this kind of protectionism.
I worked for a real estate company building an online real estate service since before the creation of VOW/IDX. Prior to that, the way we got access was through my boss's own real estate brokerage account with the state's main MLS. We expanded to support more MLS's in the area and each one was a huge pain in the ass. We had to have customers who were members of that MLS BEFORE they would give us access to their data. They would limit the data we had access to as much as they possibly could, and had absurd rules about what could/could not be displayed publicly, as well as privately when members of our customers' sites were logged in. It became much easier to get access to the data after the VOW/IDX implementations rolled out at each MLS.
Realtors are among the most sued profession out there... I'm not sure why you don't think they carry any liability.
This depends a lot on the price of the house. Selling a million dollar home isn't 10 times more work than selling a $100,000 condo.
You're right, that the majority of the work of a 10 million dollar house is customer acquisition. And this isn't true of a 100k condo.
But this was my point, 3% of a 100k home is close to the competitive market price. But 3% of a 10 million dollar home is pretty far away from the competitive market price.
100x the comission might have 100x the competition. As a seller of the house, you pay more but you also get better agents.
The most successful agents I know close houses twice as fast as other agents. But they close them twice as fast as other agents because they're listing them under market value.
My wife was a real estate agent for 5 years but she got out of it because all of the most successful agents she met were more successful in ways that hurt the client not helped them.
Examples - convincing their clients to settle for homes quickly, convincing clients to list their house less than market value, weeding out easy clients.
It is what it is. RE is not a perfect market because goods really cant be commoditized.
I reiterate my point with one more argument: the average income of a realtor is very low: they make very little money. The number of active realtors is almost perfectly correlated with house prices: that means a highly competitive , and thus relatively efficient, system.
There's a brokerage in Canada now called "1% Realty" which pretty much serves the purpose of getting your home onto the MLS, and doing some very basic sellers agent services. Its whole shtick is that its fee is literally one percent.
In my opinion that level of sellers-agent fee is much better aligned with the actual hours of effort, and operating costs on the part of the listing agent.
Of course it's because of all the efficiencies you mention. Their job is significantly easier than it used to be. They can afford to charge less; they just forgot to tell the general public about that.
Source: I used to be a real estate agent. I left the industry because of BS economic incentives like that and others that incentivize you to not put your client's best interests ahead. That and the ripoff racket that is most brokerage licensing requirements and the arrangements enforced by law (that is heavily influenced by the NAR).
Not to mention housing prices have greatly outpaced inflation and real wages over that same period.
if you have the time have you attempted hosting/selling yourself? I know it sounds ridiculous at mentioning but I purchased my current home without any real estate agents, we did work through lawyers and there were fees there... but likely minimal (I paid under $1500) and I actually enjoyed working directly with lawyers rather than having real estate agents inbetween, this would be my prefered method if I were to sell/purchase again.
In the US the title company does _all_ the actual work in a sale. And takes _all_ the liability. Everyone else is a middle man.
I'm guessing it might be very similar in actual dollars, as there are a number of cities in the US where you can buy a house for $150,000. 3% would be $4,500 USD for a real estate commission. Then the broker would keep a good part. The agent might get $3,000 of it.
1. Real estate agents aren't often "experts" at real estate valuation, inspection or execution; They have dependencies on appraisers, inspectors, and lawyers. The work an average agent does is more or less cookie-cutter from my anecdotal experience, though I think there is a proportion of rockstar agents that do much more.
2. Not every buyer wants homebuying to be a client-services relationship. I'd rather have a trusted intelligent ratings system based on criteria like location, price and so on. I would hypothesize that there is a divide here with boomers and millenials / gen z. If I sell my house, it will be on a technology platform that takes 1%, not through an agent.
3. The vig an agent takes is insane in urban centers - 3% might make sense in areas where the avg. home costs 200-250K, and is harder to sell. In dramatic sellers markets where homes are in the 600K - $2M range, the take should be much much lower.
"Good" real estate agents from the buyers perspective would be slowing down sales, reducing the overall price they make a percentage on anyway (which is why fixed rate for a "class" of real estate would work better) as a disincentive.
Why would a real estate agent dissuade someone from buying something? They can compartmentalize/offload the moral responsibility to the inspector (which are pretty hit or miss too).
No more.
I think you've really hit the nail on the head here. There's a built-in conflict of interest for the agent in every transaction.
They are rewarded by moving inventory, not serving their client.
And gets more business the more time he stamps yes for the realtor.
(also true of the broker and appraiser)
And of course, while they might be able to tell you if they find termites, or foundation problems, they aren't actually doing a deep analysis, so they will themselves tell you to get an engineer or termite inspector if your concerned about those things. AC/mechanical problems are in the same boat. The inspector will tell you something like "the AC is 15 years old, but has a 15 degree drop" (something you can discover yourself in 30 seconds with a picture of the nameplate) and a thermometer. Actually measuring the subcool/superheat, no way. The latter will actually give you a good idea about the state of the machine.
Making the seller pay for a home guarantee for the first year is probably a far more effective way to spend money. Although again, don't use them until you know whats going on. Your AC gets warm, they are just as likely to send a guy that looks the other way, pumps a 1/2 lb in the system and kicks the problem down the road a few months.
Story time!
When I was looking at buying my (now current) house, I had a realtor on my side, and my wife actually found the listing (no knock on the realtor there - my wife was just that on top of things) and the house was actually for sale from a realtor at the same company as my realtor.
As we were doing the inspection, I had questions about the pipes (lots of trees, and I knew of some horror stories). I was told the required inspection only covered the house itself, and the pipes would be someone else. My realtor was careful (IMHO) to not dissuade me in any way, but neither did she encourage me. I could tell she wasn't excited about me getting the pipes inspected - in part, I would later find out, because anything bad I discovered would then legally have to be disclosed to future prospects, whereas ignorance was a shield. So she was not a very useful source of guidance for getting this thing done.
But I did get it done, and when the result was a clean bill of health (the inspector showed me the video and was remarking that the pipes were basically pristine, which was amazing for 30+ year old concrete pipes) she was suddenly much more enthusiastic about the inspection. All smiles and congrats and saying what a good decision it had been.
It was a revelation into the incentives involved. To think what might happen to someone else with an agent who would cross the ethical line instead of just being unenthused.
That's also not just hypothetical either, we've been sued a couple times as a brokerage because one of our agents recommended a particular inspector who missed major termite damage.
indeed majority are uneducated, there is a low/no barrier of entry with a similar shark mindset as it exists in recruiting - a lot of promises by your employer (profit sharing etc) but the competition is fierce. I doubt it's an industry that can easily be disrupted. at least to date I've seen no tech proposals/ideas that can compete with this setup because it's already a race to the bottom (and unlike recruiting) requires interfacing with old-school bureaucratic notaries, legal advise etc. In the end you still need a human making an appointment with another human to view the property and a robot doesn't cut it.
The reality is the real estate person usually drives the process. Good ones know which appraisers to call and which inspectors to avoid. There's no real professional ethics involved, so most of them have arrangements with preferred folks whom they get referral fees from. (It's one of the reasons why home inspectors are almost completely useless.)
Real estate is ultimately a shady business that is about who you know.
I think this is more accurately "home inspectors recommended by the realtor". Home inspections are extremely useful, so long as they are working in your best interest.
Is that a reasonable metric, or is time on market?
I ask because there are a number of studies, that indicate that real-estate agent's houses themselves frequently sit for sale for much longer than the ones they are selling. The idea being that the agents are pushing the market and willing to absorb the longer time-frame in exchange for a much higher selling price.
OTOH, it seems sometimes the strategy is the reverse if the market is really hot. Under-pricing and getting a half dozen people into a bidding war which ends up being double digit percentages above ask seems a frequent strategy to get maximal returns and fast sales.
The low price attracting a bidding war doesn't really work in our market. My brother had something like a dozen showings and half that many offers on listing day, but only got a couple thousand over list. My house had 4 offers, but everyone stuck to their initial numbers when we asked for best and final offers.
Since the market has been hot, there is a stigma of "something must be wrong with that house" if it's been on the market 90+ days. Our strategy has been to price at the top of the comps and reduce quickly if we're not getting good leads.
AKA, much of what you think your real-estate agent was doing was likely the title company. Even more so from the perspective of the seller.
https://smallbusiness.chron.com/duties-roles-title-company-2...
1% sounds crazy expensive to me.
- selling your house, at the end of the day, is quite the undertaking. A lot goes into it, it can get emotional, messy, and sometimes quite complicated. Having someone that does it on a daily basis can be nice and really smooth things out.
- people are too attached to their homes emotionally. More often than not, when trying to sell on their home without a realtor they will not have it in a saleable condition and price it too high for the marketplace. It will sit and not sell, or they will get an offer that is appropriate and be offended and not sell it. A GOOD broker will bring facts, data, and logic to the table so that a person that is actually committed to selling their home will get the job done.
If people saw their homes for what they were when they decided to sell them, a product or a piece of property and nothing more, the real estate industry would die in no time at all.
Then again, there are a lot of swindlers out there too, so it's nice to have someone as back-up to watch out for those types of things as well.
I am using numbers for the Bay Area that I have heard of. Maybe other markets are different.
https://www.zillow.com/agent-resources/blog/commission-refer...
They do end up not being too rich on an annual pay basis where I live because the number of realtors actively working adjusts to the volume and pricing.
A new agent might not get a listing in an entire first year. In places like SF, its all about how good you are about generating leads, the house sells itself.
If you think about what an efficient use of realtor labor would look like it would be ~2 houses a month or more with agents spending all their time on showings and contracts. In a market with $1M houses this would yield roughly 24M * 0.025 = $600K/yr and up.
Hence the market becomes flooded with people that would like to make $600K/yr on a educational investment period of 6 months or less (plus an apprenticeship-like paying job for a few years).
The industry is weird because the price of agent service is resistant to supply&demand forces for various reasons but the main reason is that it's impossible to know what the selling agent's contribution to the house price is, since you can't sell the same house twice under the same conditions.
In principle, a good agent can easily recoup their commission by adding a few percent to the house price, but in practice agents have a counter-incentive to this because the homeowner will never know what the added amount was and raising the house price a small amount adds less to the agent's bottom line than moving on to the next house more quickly. In most cases the agent is simply setting the price that will sell the house quickly for the local market. As a seller, you'd probably prefer to make an extra 20K on that 1M house by showing for a month instead of a week, but this makes the agent do 4x the showings to make 2% more commission.
Ironically, the buyers' mortgage lender will have an impartial professional estimate done after they've already agreed on a price with you. In a perfect world, the seller would get this estimate done up front and then the seller's agent would be be paid on a structure that incentivizes beating that estimate. But wait - if the mortgaged portion of the price is greater than the estimate then the buyer's lender will back out ($collateral < $loan). So if your market is mostly buyers doing 20% down then the price is soft-capped at no more than 125% of the estimate even for the best agents.
Quite the free market, eh?
When I sell my house, it'll be 100% with a realtor. Is it expensive? Yes. But my home is quite sentimental to me. I don't know enough to break down that barrier. I'd rather pay someone else to do it for me. I look at comparable homes in my area and I think, "my house is $50k better than that." But I honestly don't know. :)
The current situation exist due to a slow long-term evolution of events but seems like won't change any time soon. Sort of like how wage controls during WWII encouraged businesses to pay for your health care and it is not taxed, but you don't get that tax break when you pay for it yourself. An insane situation, but next to impossible to change.
Freakonomics talks about this all of the time.
http://freakonomics.com/2008/02/26/real-estate-agents-revisi...
In some markets, like the Bay area, rents are much less than the cost of owning the property, and in others, like Kent, Ohio, they are higher.
Plus: If there is a willing buyer for something you own at price X and then someone takes 6% of that when the seller pays, true the sell pays it all, but the buyer also pays it in getting less money.
I'm from the UK, but in Finland these days, and the way that both of these countries work is very similar.
In America a lot of things are very odd with regard for property, even common things like tenants paying rent by posting/delivering cheques!
Or it may be that buyer's agents actively steer their clients away from FSBO properties which one person revealed to me during a showing even though the listing states I'll pay 2.5% to the buyer. I requested and now have that in writing from this buyer in case I feel like filing a complaint. You should have seen the agent's face when I said my email was in the listing and she could ask me any questions directly if she liked. An agent mortified by the thought of direct communication between buyer and the person who knows the property best.
Actual potential buyers send emails. Agents seem to only communicate via phone, probably because they believe they can charm you.
It's like saying if I trained hard enough I could be in the NFL. Well - "training hard enough" is actually hard to do.
I purchased a home recently and my buddy tried to sell his FSBO. I told him to use the same title company, because we had a painless closing. The title company told him that they do not do title work for FSBO's because "not enough of them actually disperse funds, so we don't get end up getting paid on the title searches and work we do before the closings. We prefer working with clients that have a much higher probability of closing".
That's a title companies perspective. They are getting paid either way and don't get paid more if it's with a real estate agent or FSBO. That's about as unbiased as you can get in that market, one would think.
If the house would not sell at $900000, would sell in 15 months at $800000, or would sell in 3 months at $700000, or would sell in 2 weeks at $600000, what do you do?
You try to sell it for $600000. You tell the owner that that is what the home is worth, even if the owner is not in a hurry. Getting your share of the 6% (likely 1.5%) of $600000 in 2 weeks is better than any of the other alternatives FOR YOU.
A better way to align the incentives would be to give the seller's agent a percentage of the amount by which the sale price exceeds the price determined by an independent appraiser. The buyer's agent gets the opposite, getting paid only if the price is lower than the appraisal, and you don't get to be both agents at the same time.
1) If everyone else in the market is priced to move, and you aren't doing it, there is always going to be new housing stock that undercuts you. 2) A seller has to maintain insurance and the property, and typically maintains utilities (a house without water/electricity doesn't show as well). They sometimes have to pay a mortgage. And often people who are selling a house are also buying a house, and intend to use the proceeds from the sale to finance the down payment on their next house. Most people cannot treat the extra money from waiting on a better offer as 100% profit. 3) The primary purpose of an appraisal is to ensure that the underlying asset is sufficient collateral for the loan. If you manage to sell a house for significantly over the appraise value... guess what, the loan falls through.
I used to think that real estate agents were a waste of time until I lived through several difficult transactions. Each real estate transaction involves negotiations for loans, inspection objections, and various legal details. For example, a good real estate agent will make sure the title commitment documents are in hand early enough that you have time to review them, because they often have a lot of mistakes. This can kill a closing and/or require post-transaction work to correct.
I bought a house in the middle of a flood (Boulder 2013). The inspection objection had already been negotiated before the flood occurred. Getting the deal done was a huge task, because the seller was lying about the house being affected by the flood. I still wanted the house, but I needed proper compensation for the remediation. My real estate agent did an amazing job of bringing the deal together by tossing in some money and getting the other broker and seller to contribute a bit.
I'm now living with the above real estate agent, and she's on the phone right now at 7:45p working on a deal. I have watched her pull together deals, and the important thing is that all her clients are happy. I have met many of them, and they are very grateful for her work. I know there are many other agents out there like her (maybe not quite as good :-).
The market clearing price is not set in stone. It is determined partly by the actions of the agents.
The appraiser's estimate of the market clearing price would set a measuring point from which the agent's performance can be measured. Agents are then paid according to how their performance exceeds the expectation.
Without the appraiser's estimate, the performance of the agents can not be measured. There is no way to reward good performance or punish bad performance. The agents are simply collecting their cut of the transaction.
87% of buyers purchased their home through a real estate agent or broker—a share that has steadily increased from 69 percent in 2001.
Source: National Association of Realtors (https://www.nar.realtor/research-and-statistics/quick-real-e...)
... But I'm curious if the definition of "broker" includes online marketplaces or other digital services.
It's true that realtors (and other players, including real estate lawyers) do have expertise that can help buyers and sellers deal with the unique issues that come up with each home, not to mention the mandated paperwork. Streamlining those requirements may be extremely difficult.
However, I think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to doing things online and want nothing to do with realtor-mediated transactions ... or will scoff at the ridiculously high fees charged by brokers.
What platform will facilitate these transactions?
Practically, the #1 reason to use a realtor is that if there is an issue with the home that should have been known ahead of time, there is a chain of insured entities that provides legal recourse.
The shop and decide part is secondary to their value, but that is how they are so entrenched. The local MLS in any given area has the ability to cut off access to anyone. Some are even privately owned. In order to disrupt an area, you have to get a slice of listing larger than what’s available in the local MLS and then get more people’s eyeballs on those listings than the combined circulation that the existing MLS feeds were getting...and then still have some means of showing the houses in person.
And you have to do that for EVERY single market you enter.
A young buyer is welcome to shop for a home without using a buying realtor...but there are still very high odds that the seller used a realtor on their end. The only difference in that situation is that the selling realtor doesn’t have to split the commission and pockets more of it.
This is ironic too, because realtors are more valuable to a buyer in most cases and there is more work involved for buyer representative realtors with no guarantee of a payoff.
The entrenchment remains because realtors will often avoid FSBO showings and sellers aren’t interested in experimenting...they just want their house to sell.
Particularly in expensive markets in the Bay Area, the real estate agent is there to tell you when you're being stupid - unrealistic with your demands (under or _over_ paying) and keeping you from stomping away in a huff during the stressful negotiations.
This is buying and selling the most expensive asset most people will ever own. People hire in help to buy and sell their business, this is equivalent.
Some people will be very comfortable with dealing with negotiations, pricing their house (the quasi-ethical can even talk to a few realtors before hand to get their opinion), and doing the paper legwork.
Just because someone chooses to use their time and effort rather than forking out what could amount to several months salary doesn't mean they're stupid.
With that said, we've tried to sell a home by owner, with a good realtor, and a bad realtor (same home, different time periods with renting in between). The bad realtor was worse than doing it by myself (got 2 more offers doing it ourselves...we just felt it was worth more to us renting it than selling it at that time). The good realtor was fantastic and easily earned their commission by pitting buyers against each other and creating a bidding frenzy (it was a good market, but we got way more than we expected).
I would wholeheartedly recommend a good realtor, and say absolutely avoid bad ones. But how do you know?
When you're selling, they will always tell you that you are priced too high. They want a quick sale with minimal work.
I've used realtors on the buy and sell side of the first house I owned. I was disappointed both times in that they seemed to do almost nothing except show up at the closing for their take.
I've bought and sold two other homes FSBO since then, and the process was much easier.
Respectfully, I'm curious... How would doing it yourself be easier?
I think a realtor is not incentived to get you the best price once you select a home and are in negotiation because a few thousand doesn’t matter if the deal is skunked.
I’ve bought 3 properties and every time my realtor was really good about showing value and basis for valuation on tons of houses before we visited or offered.
I think it’s very different for selling because you only have one house to sell.
Our real estate agent certainly told us if she thought a house was overpriced. And she told us when she thought we should avoid a house and why - e.g. one was a questionable "flip", another had a huge tree a bit close to the house that we didn't notice (think of the foundation).
We ultimately went for the cheapest house we saw. We had 20% more in our budget but the real estate agent was fine showing us houses that fit our parameters but were less expensive than what we could afford. I did some looking for houses to see too, and when I asked her about those she would say why she didn't show them to us.
Not all realtors are out to maximize the commission on a single transaction. Many are like lawyers and are working for the best interests of their client (which is also in their long term interest).
Your annual property taxes (In San Jose) on that USD$1m will be on the order of $14,000. Your mortgage payment with a 10% mortgage will be another $4,255/month. That's $65,000/yr just to hold the house, with insurance adding another $3k (earthquake insurance!). Don't forget a maintenance budget of 1%/yr!
Additionally, you're going to be spending ~$8,500 in tax and fees just to close.
To repeat, if 3% is going to make or break your ability to buy the house, you can not afford that house. Imagine what happens when it drops 10% in value? What happens if it drops 10% in value, you need to move and market rents don't cover your mortgage[1]? The Bay Area has 30% swings from peak to trough, 10% is (slightly exaggerating) the peak to trough swing in a single year.
I never said that people who chose to go without an agent were stupid. I said agents were there to keep you from making stupid mistakes - but that was my experience. I had no concept of what the prices were in the area, or how to deal with selling agents who didn't want to close. The agent talked my partner down off the ledge a couple of times.
However, that doesn't mean that other people shouldn't consider managing their own purchase or sale. My comment was purely around the statement that saving 3% would allow you to buy a home.
[1] SF rent - https://medium.com/@mccannatron/1979-to-2015-average-rent-in...
Rational agents want to get as much money as they can for their homes, and begrudgingly pay any fees that they are forced to. If the seller gave you a 3% discount here for no reason, it would be the same as if they'd hired an agent- except, they wouldn't be getting anything for it? So why would they discount you the 3%? It's a zero sum transaction where your gain of 3% (very significant money in the Bay Area, as you note!) is the seller's loss.
IRL, real sellers will charge as much as they can. They are not giving out 4 or 5 figure discounts randomly or because they're nice. Do you randomly give strangers 4 figures of money for no reason?
While, sure, I would love to get more and pay less commission, I don’t care how that 3% is distributed. It’s fixed part of the transaction and is in the MLS listing because I was afraid of missing some buyers.
When I bought a house, my contract with my buying agent said that 50% of the buying commission came back to me at closing as a prepaid closing cost.
In the eyes of the buyer it might not matter if you got your 3% off... but that seller probably isn't saving any money on his/her end.
Other than title insurance (which is separate from and in addition to the 5-7% commission), what's the insured risk that could possibly be worth that percentage?
Just as an example.
You can always negotiate a flat rate with a realtor too.
Presumably sellers also want to maximize the money they get when selling. Why wouldn't they be willing to experiment on increasing that number?
But usually it’s because people need their house to sell while they are still making payments. If there isn’t any urgency to sell, experimentation is fine.
In extremely high demand markets, you’re clearly better off experimenting too.
Kinda like Tesla trying to sell in states that require a franchise dealership.
Also, the term commission is ambiguous in the context of the headline.
Do we mean a percentage of sales or an officiating body that controls an MLS or something at the state level, etc?
You can also have an attorney negotiate for you, at least in my state, and attorneys only charge a flat fee for handling a transaction in my area. A small percentage of what it costs to use an actual realtor.
No way. Find me the mythical millennial who wants to deal with a first-party negotiation.
In some fantasy land where you ride your unicorn to work and shop for pre-fabricated houses on Amazon.com, sure. The reality is that your bank demands due diligence, houses are always in some state of disrepair, and nobody wants to deal with that.
We had our house listed with a REALTOR for about 2 years prior to that (keep in mind this is during the market crash). But within about 2 months on our own, the house sold.
In my experience most are honest and hard working, but the few with less scruples tend to be the highest volume agents. If someone were looking for an agent, if I knew nothing about anyone involved, I would recommend to start looking with agents with a number of years of experience but just average sales. A large reason for their average sales might just be integrity. Newer agents can be great as well because they will work three times as hard, but they are newer for better and for worse.
Pay that instead.
Also this is a PR move for Zillow to tell agents that they're on their side.
And more likely that they have something in the pipeline intended to do that exact type of disruption.
Also note that a lot of agents, at least in our area, HATE Zillow. I guess I haven't been to a Realtor conference in a couple years, but there were well-attended talks about "how to keep your property out of Zillow". Some Realtors wanted to work with Zillow, but quite a few were trying to keep Zillow out.
Honestly, I've rarely been impressed by the real estate knowledge of either type of agent. Their general incentive is to make a deal happen - "seller's" agents will often try to talk up a below market offer if it gets them a commission faster. Likewise, I've only met one realtor who I felt was really trying to get me the best deal as a buyer.
This article was written before Opendoor and before a record breaking $10B was pumped into proptech in 2018.
The consensus now is that this industry is undergoing rapid change. At the bottom end of the market (maybe 10%), iBuyers like Opendoor will likely completely disrupt the traditional brokerage model. Next, you will see discount brokerages (Redfin, Purplebricks, et al) take more and more of the market. Full commission brokerages will still be the mainstream for the foreseeable future, but commissions will come down modestly, even for them.
As purchasing or selling a home is one of the most expensive, most emotional, and most intimidating transactions you will ever do, seeking the help of a real estate agent is generally a good idea. Increasing competition will create more options and more value for consumers than we've ever seen before and that's a good thing.
I posit a different theory, which may well be controversial here, and that is that realtors continue to exist--and charge large commissions doing so--because they provide a service that most people want.
I think of it like advertising. "I never watch ads" is a common catchphrase when decrying ads but again, ads exist because they work.
The job of a realtor, and what they are incentivized to do, is to facilitate a transaction. People might point out that a selling realtor isn't incentivized directly to get the best sales price. They are correct. Why show a house 100 times in the hopes of getting $550k when you can flip it tomorrow for $520k and your work is done?
Thing is: that's what most sellers actually want, even though they might say they want the best price. Most of them are selling for a reason and they just need to sell it and move on with their lives.
Likewise, when it comes to buyers, they too are buying for a reason, typically because they need somewhere to live or they want to establish (more) permanent roots in a given community. The best thing for most of them is to pull the trigger, move in and get on with their lives. It's not to get the best deal. It's not to wait 2 years for the perfect property.
Realtors facilitate both sides of this equation.
Have you ever deal with a For Sale By Owner? I have. I refuse. I won't even go and look at a listing FSBO. It's a nightmare. Those owners tend to be cheap (hence not paying commission), have unrealistic expectations of their property's value, overvalue whatever "improvements" they've done and, worst of all, are emotionally invested so they re more likely to take a lower offer personally rather than as a negotiating tactic.
It's worth noting too that with negotiating in general, it's often better to have someone else do it for you. If you're the guy who can say yes or no you have no fallback. If you represent that guy you now have the position of "my client won't accept that". Think about the psychological difference of rejecting someone personally or just being the messenger.
So add fixed-fee home sales to the other startup traps like dating sites, travel sites and anything to do with "fixing recruitment" (you'd be surprised how many cold call emails I get about this one in particular). Hell, let's add blockchain to that list too, but I digress.
In fact, in the long-term, as jobs are automated, I'd expect people to spend more time, not less, on taste clarification. Then the pattern is to think about how all guiding roles in society will form to tools that automate the simple bits and let humans spend time doing what they do best. Imagine how much better it would be as a realtor to spend time in conversations inside virtual homes rather than sitting in traffic, navigating database searches, or fiddling calendars.
I have still left the 10k buyers agent fee because you will DEFINITELY be blacklisted by the buyer side agents if you don't pay their fee. So basically I'm paying 10k in cartel bribes to get my house shown to people who could have easily found it on their own on zillow or redfin.
The only reason people are going through agents is out of fair of being screwed over by agents who will push them out.
But I'm not as convinced that brokers are necessary when buying; at least to me, it seems like selling a house will often be more work than buying one. When selling, you need to advertise the house, show prospective buyers around, research the market to better understand pricing, etc whereas for buying it seems less time intensive overall, and easier to find some reasonable options, meet with sellers or listing brokers directly, and write a persuasive offer letter.
I recently bought a condo in NYC without a broker, and if you're interested, I left a comment with more info about my experience: https://news.ycombinator.com/item?id=18927393
[1] https://www.opensecrets.org/orgs/summary.php?id=d000000062
There may be real estate agents that are not good enough to be doing the job, but a competent one is absolutely worth it for a person who does maybe 1 or 2 house transactions in their lifetime, just for the chance that they might make a really bad decision if they don't have someone experienced to help them think through it.
Point being, an increase in home prices, and the resulting increase in commissions (in dollar terms) doesn't necessarily result in any benefit to clients.
Later in life though spending larger amounts of money on a home I would always recommend finding a good realtor. Someone friends/family can recommend. There are just hundreds(if not thousands) of pitfalls to buying or selling a home.
On a different note I did have the opportunity to build several data driven local realtor sites a few years ago. They were deceptively simple looking on the surface, I mean all you do is sort and filter house results right? The process of syncing to the RETS system proved to be really clunky and complex. Imagine building a site on top of a database you have to query to discover the tables, fields, and datatypes, and oh by the way it could CHANGE SCHEMA at any time. If your broker was part of multiple MLS (Multiple Listing Services) then you could have to deal with completely different structured DBs. I handled these issues by building a normalized table for listings I could map the data into. MLS data was pulled into a 1:1 mapping table of the same name upon querying the schema. I had to build a Sql Script generator to create the tables. It was very frustrating dealing with schema updates.
The whole process was interesting to me though as to how your listing data is handled when you list a house for sale and how others can gain access to it. Long story short you have to pay to play. Zillow for example is paying (or should be) to access your for sale listing data once entered in the a regional MLS. This is likely several thousand a year conservatively (per MLS). This gains them the right to access the data, however, many times these agreements are 20-30 page legal documents. My first time seeing one of these was extremely uneasy (I nearly didn't sign it). Again fascinating in the case of Zillow I know for a fact they are violating this agreement in our particular region when they hold onto listing data and images past the duration of a listing (sold or removed). They simply just keep it indefinitely it appears. On the other hand keeping up with 100+ MLS agreements across the US would be impossible as well.
So, realtors at least for buyers, not such a great value, other than getting you access to lock box to view a property.
In fact, I think, the right term for those kind of agents is whole-sellers, who scout around for kind of deals you mention.
Sellers here don't tend to be sentimental. Just because you attach a nicely written letter with a photo of your family and your dog doesn't mean the seller will turn down an extra $20k.
Thus, a buyers agent really won't be able to negotiate a better deal for you than you can get for yourself. It's highest bid wins, and buyers' agents will always tell you to bid more so you have a better chance to win the house (something obviously self-evident).
Also in the bay area, especially the south bay, housing prices are at the $1.5 - 2.5m range. Tell me how whatever service for the buyer can possibly worth $45k - $75k for putting together an offer for maximum amount with no contingencies. Realtors are entrenched but there's a reason why these real estate startups are proliferating.
Then they face a basic blackout from the entrenched real estate mafia. No selling agents want to work with buyers from Homie because the buyers agents are supposed to show the house. But when you have no agent, it falls on the seller, and they flat out told me no several times unless I agreed to buy it through them. I can sympathize with this, but it sucks as the consumer. This is a problem they will need to overcome.
I love the idea of Homie, but if you're going to push the software/automation angle, you better have software that works. You also gotta figure out how to twist the arm of that cartel. I believe in their mission enough that I actually looked into applying there so I could fix those bugs, but I get the impression that they don't hire in-house engineers and possibly use contractors. I'm a senior engineer who worked as a real estate agent for a couple years, so I think I would have been pretty valuable hire for them. I'm also super passionate about disrupting that industry because I feel they've taken advantage of me in the past much. But, alas, what can you do.
They claim to charge sellers $1,500 to list and no more. Sounds good so far. How do they get buyers?
They claim to give buyers $5,000 back at closing. Cool, but where does that money come from you might ask?
The FAQ's imply by only buying listings currently available with a traditional real estate agent.
Exact wording from their FAQ's: "If a non-Homie seller has listed their home on the MLS, they’ve agreed to pay a buyer agent commission (BAC), usually around 3% of the price of the home."
The more sellers choose them, the less successful they will be at attracting buyers.
That's why so many of these "Billion dollar disrupters" go under. They need the existing system to succeed.
There's also the agent's access to their rolodex, which new agents will not necessarily have, they'll depend on leads from zillow, trulia, knocking on doors, etc.
It's also "free" to buy with an agent.
For most higher end listings, it is expected that you do participate in the monthly mailer real estate magazines, that's just the cost of doing business. Brokerages do buy these in bulk, and can offer the discounts to an agent to participate in this sort of marketing.
All of this is pretty tough to do, you can't just wrap the MLS in a skin, make some signs and be in business. Real estate isn't just a tech problem, though there are some things you can do with tech to make the buying, researching and selling process easier.
You have to have distinctions for your specific market, some of these don't make sense nationwide, but are very important locally. For example, a "deep water canal for sailboat" is a term that comes up pretty often in Florida, an Ohana Suite is something that is often requested in Hawaii. Local knowledge matters unless you're in suburbia where literally every house fits into a formula consisting of: ++school - commute time + square footage - age of house +++in monthly payment. The formula would be different for every buyer.
Disclaimer: these opinions are my own, not of the company i work for.
I can't remember the exact historical reasoning, but it starts with the Ottomans. The Ottomans controlled the Greeks since about 1453, and when they were finally overthrown after the Greek War of Independence, there began about 120 years of political turmoil until the end of the Greek Civil War.
So, post-civil war time. Tons of people are in exile, the country is torn by rival factions, and everything is in an even worse state than when the Germans occupied it. After hundreds of years of being occupied by foreign powers, there isn't really a clear indication of who owns what piece of property. Most of what you went by was "Well, somebody in my family used to own it." Cool.
When it comes time to buying or selling property, there aren't really well defined "properties" per-se, or even a market for them. Somebody might just come up to you and tell you somebody else wants to buy your land, and if you just give them some cash up front, they'll get you a really good deal. So you give them some cash, and either they never return, or they come back with a really horrible deal. If they claim they're going to help you with the legal paperwork, they'll almost definitely sabotage it.
Today, if somebody tries to help buy or sell a home in Greece, the average Greek will think they're a grifter trying to make a quick buck. To make matters more difficult, apparently there's been multiple confusing ways of legally registering and searching properties, and the red tape involved with completing the title transfer is crazy.
So there's very few registered realtors in Greece, and basically nobody uses or trusts them. Meanwhile, the country is fucking stunning and there's abandoned property all over the place that nobody can shift. An ocean front property in the Peloponnese can go for a hundred grand. But good luck finding it or having any help in acquiring it, because they're all FSBOs that pin an advertisement on a telephone pole in the nearest city.
https://www.theguardian.com/world/2014/feb/28/home-ownership...
There are many segments in real estate that are ripe for disruption, Zillow is not the end all be all of real estate. Take cap rate calculation for instance, this is something very important to real estate investors, but Zillow hardly has a product that addresses it and tries to predict it accurately. Their strategy seems to be let's go after mom-and-pop buyers who just learnt how the internet works. If Zillow could bring in a fraction of tech you see in a product like Facebook or Github for instance to the broken industry of real estate instead of just showing pictures of properties with a few other metrics next them then the industry could be disrupted.
Granted this service could be performed by a real estate website and they simply employ a cheaper access work force, but again you run into pro-guild red tape at the state and local levels.
Disrupt the corrupt and fraudulent bidding process. It's not the MLS that's the guild/barrier it's that only the brokers know what the actual bids were.
Not accurate at all. For one, Zillow could do about 1000 things to promote competition among realtors, but it doesn't do that.
It could remind people that in 1950, the Supreme Court ruled that putting a hard-coded "6 %" on a real estate contract is, in fact, illegal price fixing.
It could remind people that "6 percent" of a sales price often equates to a much larger number when it comes to equity lost (e.g. if you have 250K equity in a house worth 750K, the commission amounts to ~ 21.3333 % of your equity.
It could remind Realtors that attempting to get people to sign contracts that they refuse to negotiate on is coercion, and it could help people sue Realtors who participate in cartel-like practices.
But it doesn't do that.
For those interested: The Supreme Court case from 1950: UNITED STATES v. REAL ESTATE BOARDS https://caselaw.findlaw.com/us-supreme-court/339/485.html
Factual findings of the Court
Enough has been said to show that under our decisions an illegal price-fixing scheme has
been proved, unless the [339 U.S. 485, 489] fixing of real estate commissions is not included
in the prohibitions of 3 of the Act. Price-fixing is per se an unreasonable restraint of trade.
It is not for the courts to determine whether in particular settings price-fixing serves an
honorable or worthy end. An agreement, shown either by adherence to a price schedule or by
proof of consensual action fixing the uniform or minimum price, is itself illegal under the
Sherman Act, no matter what end it was designed to serve.With their data advantage, they could kill or hobble OpenDoor the way AMC killed MoviePass.
I don't feel excited about suggesting this, as I love the OpenDoor model and hope they win.
Opendoor operates a brokerage in every market it is live in, so they're not competing with NAR in any real sense. They're a part of the RE community, with same rights as any other agents
Yes, some of a realtors transactions are probably cookie cutter, simple, and mundane work that a buyer or seller could have carried out themselves. The challenge is you don’t know when that isn’t going to be the case. We ended up in more than a few situations where having someone in our corner who had “seen some s#+?” was hugely valuable.
The argument that “hey, we live in this society where people like to do stuff online and therefore real estate agents are on the chopping block!” just doesn’t hold true. In some cases a human being is the most effective way to deliver the kind of tailored, personal, convenient service that people seem to also want more of.
I don't mind paying a commission to the buyer broker - they are the ones that do most of the work in most markets.
This is Canada, so the rules are slightly different. However, I do not find it unreasonable to expect an agent to know that you can't get a CMHC backed mortgage for 1) homes with a fixed-term renter tenant in them 2) homes with age restrictions 3) homes on leased land.
Our agent repeatedly found us "perfect homes", just to learn after writing the offer that no bank is willing to fund the transaction.
I think the general public refuses to admit that good agents exist, and the RE industry refuses to admit that absolutely garbage agents also exist.
The idea was let sales people offer a discount on their fee in exchange for limiting the number of houses you look at.
So, if you make an offer on this house your shown you get 1-2 % discount.
And since the system would know how many houses you've looked at it the realtors may decide to offer less and less of a discount.
You would only need to work with one real estate broker per state and 2-3 agents per local area. So, that there's enough volume for each agent to show 2-3 house per day and 2-5 closing's week.
Not sure if it would have worked just don't have time to pursue it.
Plus I hate to think what would be wrong with a house or its starting price for vendors to offer a 2% discount (that's ~2% of their net worth for a lot of homeowners) for people not to consider any alternatives.
With a showing, you physically show up to a house to look at a house. I'm not talking about virtual or anything.
Anything else and they have too much of an incentive to produce an inspection report that will result in a quickly closed sale.
It's a bit extreme outright dismiss an inspector just because they are recommended by your own agent (there is no reason whatsoever to even ask the selling agent for such advice). After all, you've hired them for their expertise and advice, and they see and know a lot more home inspectors than you. Of course, look at the recommended inspectors and do your own homework, like anything else. But if you can't trust your agent to recommend an inspection I question why you are working with them in the first place.
The recommending agent is a marketing arm for the inspector; if the wrong deal falls apart because of the inspection, the inspector knows the agent isn't going to get their commission, whether or not that means they'll recommend them with as much fervor the next time can be largely dependent on how badly the agent needed the money that time.
But, by hiring without an agent referral; the inspector has no incentive to approve a house that shouldn't be approved; you're not going to be the new marketing arm. Indeed, absent a relationship with an agent, the inspector has an interest in inspecting as many properties for you as possible, and therefore finding as many deal breakers as possible.
She recommends that you always ask your agent for a home inspector recommendation.
"We pick the best home inspectors by the ones that performed the best in previous deals. We don't get $1 for recommendations. We wouldn't want to incase there was ever a problem down the road. Getting a high quality home inspector is much harder than it looks.".
Shadow-flipping, assignments, double dealing have become the norm here.
https://www.google.com/search?q=vancouver+real+estate+corrup...
I appreciate your point. But by the same token, you are extending a reality that might be in Vancouver to all of real estate markets.
This is one of the issue that I think makes Real Estate so complexed is that it's super easy to group it together as if 200 cities are one market.
I wouldn't even know if you could group large areas together (like all agents in.... 'The South" "The west coast" "The East Coast"...do it this way.)
This is a myth perpetuated by buyer's agents. Just because you aren't writing a check doesn't mean it doesn't come out of your pocket.
It's like sales tax. It's collected and paid to the government by stores, but it makes everything you buy more expensive.
I found our house entirely myself, but brought in an agent on "my" side with whom I'd negotiated a 75bpp refund if I bought a specific property. I did and they cut me a check (out of my own money) at closing. In retrospect, I perhaps should have held out for a full point. (1 for the agent, 1 for the agent's brokerage, 1 for me)
Certainly this would have been possible.
Which market/city are you referencing?
I guess I'm saying I don't see any reason it shouldn't have been possible.
For some builders I would guess you would be right, though I'm not confident that all/most would though. New construction "seemingly" should allow that. Totally agree.
IOW, I don't think it would have been possible, as it wouldn't have been possible in my listing contract. If I thought it was possible, I'd definitely have gone that route (since 300 >> 75).
TBH, "my" agent added extremely little (it was her first closing) and may not have even been a net positive towards getting the deal to happen.
Edit: This was an existing house, not new construction.
Whether it sells to Abel who has a traditional agent, Baker who has a buyer's agent, Charlie who uses an agent who happens to be at the listing agent's agency, or Dave who doesn't have any agent at all, doesn't change the seller's commission charge, which seems roughly reasonable and aligned with the value the seller received.
Not anti-competitive, at all...
Turbotax has kept me from paying an accountant a commission to do my taxes for years. Someone will figure out how to streamline the process online.
A virtual tax accountant is still a tax accountant.
If someone makes a virtual real estate agent to replace real ones, I don’t doubt they’ll still charge a fee.
Yes, but the cost is significantly less. When I first moved to the US I used a tax accountant because I didn't know any better and it cost me ~$500 a year (this was in New York). I now file using either TurboTax or TaxAct and my costs are typically in the $60-70 range depending on which tier of service I select.
Is it more work? Arguably yes, but I enjoy the freedom of being able to do it all from the comfort of my sofa and the tools have improved to such an extent that it rarely takes me more than half an hour start-to-finish.
Real estate is obviously a very different proposition to tax filing, but if disruptors can cut out some of the fat/overhead to bring the costs down I think it would be appealing to a wide range of people.
When I moved to the US I used them, once. I had just arrived, was working from home, had bought a hybrid vehicle, my spouse was a student.
I/we literally sat there with someone entirely clueless as she read questions off a screen.
"Okay, for Item X, how much do you want to claim?"
"What can I claim?"
"What do you mean?"
"As in, what is claimable, what isn't?"
"I'm not sure."
"So why am I paying you to prepare my taxes?"
https://www.propublica.org/article/filing-taxes-could-be-fre...
I. pretty sure I can do a better job that some underpaid dude at H&R Block.
Assuming that physical inspection leg work+analysis is part of a full 3% commission realtor's responsibilities, I can see that full 3% being valuable to certain time constrained buyers.
However given how rare a house purchase is, I would bet that a large number of full commission buyers arn't aware nor getting the full attention of their realtor.
On the sell side, I really don't see the benefit of a full commission realtor. I did a FSBO before, which is on the opposite extreme. Again I think a discount listing agent like Redfin makes a lot of sense.
I actually wonder why Redfin isn't as popular. I assume due to the aggressive social marketing realators do, and the hand-holding they do during the the high stakes process.
>Purplebricks has already become the number one Real Estate Brokerage in the UK in only three years, and is the fastest growing brand in Australia since launching there in 2016.
They've now launched in the US. Not sure how that'll go. They've got good trustpilot feedback https://www.trustpilot.com/review/www.purplebricks.com
The model seems slightly different in the US. In LA it seems to be a fixed $3,600 fee https://www.purplebricks.com/sell?lreeZipcode=90210
I certainly could have gotten that for the 6% commission we ended up paying!
Compass discovers how lucrative opaque real estate markets are.
One common argument for buyer's brokers is that they don't cost the buyer anything: the seller pays for their commission. If I were buying a $1M apartment, the seller would pay $30,000 (3%) of that to my broker.
Alternatively, I could not use a broker and instead negotiate the price I pay to $970k (basically what I ended up doing, though it's hard to definitively say what I would've paid had I used a broker).
One could argue that a broker's experience could more than pay for the fee, but I have a hard time believing this is true 90%+ of the time (which is how often buyers hire brokers).
It was pretty easy (and enjoyable, at least for me) to research what was on the market thanks to aggregators like StreetEasy and major brokers' own websites (I'll also concede that I may have missed out on some off-market listings, but was able to find a place I love in spite of that; this may be somewhat different in a seller's market, but I don't know). I arranged showings directly with the listing broker, researched what to look for in an apartment and what questions to ask, and often brought experienced friends and family to these apartments.
My particular experience was perhaps unique because I ended up buying a condo in a new development with an experienced developer (but I don't think it would've been particularly costly or hard to hire a home inspector myself), but I was still able to provide comps, write a persuasive offer letter, research the developer, and negotiate closing costs. I ended up paying 7% under ask and paying no transfer taxes, and I really doubt I'd have gotten more than 4.5% under ask had I used a broker.
My strategy may be too risky for many others -- this was my first home purchase, after all -- but I did a bunch of research, reached out to friends and family for advice, and consulted an attorney before submitting any offers.
I ended up spending a bunch of my own time doing work that someone more experienced could have done for me, but it was a great learning experience and seems to have had a huge return on investment.
If you're not willing to try this strategy, I recommend looking for brokers who will agree to some sort of commission rebate. In NYC in particular, a company called [Prevu](https://www.wework.com/creator/personal-profiles/real-estate...) offers a two-thirds rebate (note: I have no affiliation with this company and never used their service, but some of their [blog posts](https://www.prevu.com/blog) were quite helpful to me).