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> However, I think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to doing things online and want nothing to do with realtor-mediated transactions ... or will scoff at the ridiculously high fees charged by brokers.

No way. Find me the mythical millennial who wants to deal with a first-party negotiation.

In some fantasy land where you ride your unicorn to work and shop for pre-fabricated houses on Amazon.com, sure. The reality is that your bank demands due diligence, houses are always in some state of disrepair, and nobody wants to deal with that.

I get the due diligence part, which is where lawyers and inspectors come in. Not convinced realtors have to be the middleman facilitating those necessary transactions, let alone showing a home, making sure offers get to the seller, generating a list of comps from a database, etc., and charging huge fees to do it.

The buyer doesn't see the cost, although 3% goes to the buyer's agent, it all comes out of the seller's proceeds. As such, there's a lot less incentive for a buyer to go without an agent.

I'm a millennial, just bought my first home this past August. It never even crossed my mind not to use a realtor. Sure I did a lot of communication with my realtor over text and e-mail but I never even considered not using one. I had done a lot of research and looking around before going to our realtor but I trusted our realtor more than I trusted myself to make sure everything was covered. It was more of an ease of mind deal and our realtor wasn't pushy and let us choose homes we were interested in for the most part, only occasionally making suggestions.

Well, until they coordinate to change laws at the state and federal laws, facilitating real estate transactions as a non-realtor will expose such individuals to legal action.

Kinda like Tesla trying to sell in states that require a franchise dealership.

Also, the term commission is ambiguous in the context of the headline.

Do we mean a percentage of sales or an officiating body that controls an MLS or something at the state level, etc?

this is not completely true because a seller can negotiate on behalf of themselves for their own home and a buyer can negotiate for themselves as well. Which I suppose is obvious.

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.

That is still a two-party transaction. It is when a third party is involved, that gets you in trouble.

>I also think realtors have a demographic tidal wave about to hit them, consisting of first-time young home buyers and some slightly older home sellers who are used to online transactions and want nothing to do with realtor-mediated transactions.

What platform will facilitate these transactions?

It’s a essentially a giant network effect.

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.

Not having a realtor as a buyer really helps, because you can add that 3% to the purchase price of the house saving you 3% which can be a huge amount in expensive markets like the bay area.

Frankly, if you're worried about 3% on the purchase price of the house, you can't afford that house, regardless of the amount of money.

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.

I think this is pretty misguided. 3% of $100,000 is $3,000. Many housing purchases will be more than that, but let's just talk over $3k.

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 buying, a realtor will never tell you that you are overpaying -- it would be less commission for them and greater chance the seller will reject or counter the offer which creates more work for them.

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.

>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 disagree a bit as when you’re buying the realtor doesn’t care which home you buy. So the incentive seems to demonstrate max value to you.

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.

A good realtor will tell you if you're overpaying, because they want repeat business and referrals. Same for selling.

There's lots of things like this spoken about real estate agents that kinda make sense if you view humans as 100% money driven logic machines, but these are not the way humans necessarily behave.

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.

When I bought my house my realtor convinced me to make a much lower offer than I had planned. Even after the negotiation was all done I still ended up paying less than I had been planning to offer initially. Cost them some commission, but I'll happily use them for any future transactions and recommend them to others needing a realtor.

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).

In the Bay Area, you're looking at 3% of at least $1 million.

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...

Not in any way a defender of the current real estate system, but I've never understood this mindset. It presupposes completely irrational behavior on the part of the seller- that they will choose to give you a 3% discount for.... no reason at all?

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?

In IRL when I bought my house I factored in 3% to the buyer’s agent. I had offers from normal agents who get 3%, all manner of “kickback” agents who collect 3% and give some back to the buyer, and one agent less buyer that included an explicit 3% calculation in their offer.

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.

3% is what the buying agent asks for. Without a buying agent, that's 3% the seller doesn't have to pay.

in most cases the seller has already agreed to pay 6% to the agent for the sale of their home - then that selling agent agrees to split it with the agent that brings a buyer. If you come in off the sign you're basically handing the seller's agent another 3% commission - even if you "negotiate" 3% off the top of the house the seller is still paying that 3% to the listing agent.

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.

The selling agent getting double the commission if the vendor accepts your offer over anyone else's sounds like it could be a lot more help in negotiating a quick and satisfactory deal than any negotiation prowess having your own agent might offer, especially if your own agent would be financially incentivised not to reduce the price...

No, you're asking the selling agent to give the 3% he would have given to the buyer's agent, and instead give it back to the seller.

Even in the best case of a FSBO home, the seller is not going to give you that 3%. The whole reason they are not using a realtor is so that they can avoid paying a commission. And if you are not using a realtor, they can find another buyer who is not using a realtor so it isn't like they would have to pay it if your deal doesn't work

> 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.

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?

Hidden damage to the house that wasn’t found in an inspection and not disclosed by the seller. Low level water or termite damage that can’t be seen because a layer of wall was built in front of it.

Just as an example.

How often do those issues come up and what is the typical recovery? I’d guess under 1% and maybe $25K, implying a value of $250. The commission on my house was over 200 times that figure, making for incredibly overpriced insurance if that’s the primary value the fee brings.

I guess it depends on the cost of your house. Everything is relative.

You can always negotiate a flat rate with a realtor too.

> sellers aren’t interested in experimenting...they just want their house to sell

Presumably sellers also want to maximize the money they get when selling. Why wouldn't they be willing to experiment on increasing that number?

The rate is negotiable.

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.

Both redfin and Opendoor go through licensed brokers in each state so is agree with what you posit.

I thought Opendoor are themselves agents/brokers, no?

They are, I just opened some junkmail from opendoor and there was something about OpenDoor Brokerage <MYSTATE> LLC.

oops, I realize now that with the way I wrote that post, it reads (inaccurately and unintentionally) to mean that they go through a 3rd party, rather than my intent that one way or another a broker licence is involved.

Redfin itself has a licensed brokerage sub company in many states.