Real estate agent-owned homes are on the market longer and sell for more (2005)
nber.org
nber.org
I haven't purchased a home before, but it seems like most things such as discovering homes, securing loans, touring the place, inspection, sending offers, closing and signing the deed - is very much automation-ready. There must be some reason.
Edit: I got a real estate agent to kick off house search from Redfin. We had a zoom call, he looked at what I've added as favorites and basically didn't do anything useful or provided anything more than what's already on Redfin wesbite. We browsed some homes together and had a bit of small talk. I didn't go as far as putting down the offer but why do I need to do this bullshit with a real estate agent? It's frivolous and unnecessary. May be he would be useful later down the process? If you've bought a home, would love to know what parts of that process are ripe for automation.
and I don't even like real estate agents.
Downvote all you want, that just means I hit a nerve.
If you disagree - please pay me 2% of things you buy for providing no useful service.
While they don't usually pass along properties for sale (since it's faster to research yourself) I have found them helpful when talking about the local area (history, schools, etc). They often negotiate tours before properties go on the market. They'll get the keys and follow your schedule. They've been very helpful in scheduling and coordinating things like inspections in repairs--often being the one on site and letting me stay at work.
I don't trust they have 100% of my interest in mind (they want to close and get their cut), but they have an answer for inspections, repairs, mortgage company, etc. I'll usually go with their people to close and change insurance or refinance later when time to close isn't an issue.
Study this. It is more subtle than it sounds, especially in light of the closing statement.
The seller does not bring money to the closing. He brings the house title, figuratively.
Given different facts, the incidence could be on the buyer. The fact that the buyer is supplying the cash doesn’t tell us who the cost falls on. The buyer could pay by adding more cash or the seller could pay by gaining less cash.
I’m cribbing from the concept of tax incidence here: https://en.m.wikipedia.org/wiki/Tax_incidence
Nevertheless, all funds in a real estate transaction COME from buyer. Once you get this, you've learned something.
This is similar because a bank could be providing the money, but the buyer is ultimately on the hook for it.
Tax incidence depends on the elasticity of either buyer vs seller (whether or not it's a seller's market or a buyer's market)
I mean yes the literal money is paid out but the money is just the abstraction over the real thing.
I like to say that the reason you need two agents to sell a house is because you need one agent to convince the seller to sign that contract and another agent to push the buyer.
In an ideal world the seller would hire someone to show the house to potential buyers (e.g. redfin pays a fixed hourly rate to its agents who show the house) and then both seller and buyer hire real estate attorney to close the deal. 3K usd max. This nice plan falls apart when sellers and buyers can't agree where houses will be listed for sale (don't offer craiglist).
We need you know.. Tinder for houses.
Woah. Stop. Great idea.
Rather than hearing about it from the internet, you might spend some time talking with those individuals who do experience it. They're often reluctant to talk about it -- especially if you're likely to respond with some variant of "Oh, that's not really so bad".
Most people are nice in this world, but there are enough non-nice people that everybody in some marginalized group gets subjected to it -- often every single day. Often it's small, but a small thing every day adds up. And being unable to talk about it for fear of being told "it's not so bad" is, itself, just one more small thing. And that means that some people who think they're nice aren't as nice as they think they are.
Here is a page in Norwegian with a checklist for selling a house in Norway without a real estate agent: https://www.forbrukerradet.no/forside/bolig/kjop-og-salg-av-...
The page I link to is written by Forbrukerrådet. They are an independent interest organization that helps consumers.
I'll need to research more to see what the caveats are.
In Scandinavia, at least, only sellers hire real-estate agents, buyers at most hire an attorney (which they probably should anyway).
I am personally on the lookout for a house in Denmark, but have not closed (or come close to) a deal yet, since it's not urgent. But my general perspective is that the housing markets in Scandinavia are very different from those in the US.
There have been lots of attempts. Perhaps agents do more than “shuffle some documents around and pretend to be acting in their principal’s interest.” (Certainly the agent we’ve worked with through two sales—one a short-sale—and a purchase has.)
a) The buyers want to look at multiple properties as quickly as possible; b) The sellers don't want to or don't have the time to be manage all of the requests for viewings. c) If there is no viewing opportunity, then the buyer might miss a good property that matches their needs or the seller might miss a buyer.
The real-estate agents have a pool of properties that they manage and they can provide quick access to the properties. They meet the needs of both the buyer and the seller and increase the probability of a transaction.
Of course, if you can find a way to do that without a real-estate agent, you got a breakthrough innovation. However, it's fairly difficult to crack this problem since the transaction inherently tilts towards human interactions. This is why nobody has figured out an effective way to get rid of the real-estate agents yet.
At least from my very limited experience, the only aspect that's worth paying for are nice pictures for the ads, if you can't do it yourself. The rest is posting on real estate aggregators which at least in Europe are very popular, mostly free, and for sure not 3%.
Paying a percentage of the sale for what is effectively an assistant type work isn't something I recommend.
Surely this could be optimised far beyond what (multiple different competing) real estate agents can offer, with the right tech solution? In my experience, real estate agents can be difficult to contact and schedule with in themselves; a central portal with assisted scheduling would improve things?
> b) The sellers don't want to or don't have the time to be manage all of the requests for viewings.
- very good point - e.g. if a seller works regular hours, viewing opportunities would be greatly limited. I guess this is (a lot of) what you pay the %3 for.
- could be somewhat mitigated by better tech - the industry is slowly adopting (e.g.) 3D online house tours (partly driven by the pandemic lockdown) but there's probably lots more to be done in this area.
This doesn’t match my experience. Every real estate agent I ever dealt was very responsive. This makes sense for someone who is going to make five figures if a sale happens.
I ended up buying and selling a house through that platform. It saved me tons of time on the buy side since it provides a great virtual walk through as well as a floor plan with dimensions. Floor plans were never available if a real estate agent posted the house.
It was far better than the photos normally posted online. Most websites host ~25 photos of the property, and my last house had 8 rooms. It's really tough to assess a house and understand how the rooms flow together with so few pictures.
The floorplans generated by Matterport may be more helpful if you have trouble visualizing it. I would pull up those floorplans and measure the room we were in and say "the living room is 3 feet wider, and the couch would take up about half of this wall" to help put things into perspective.
I wasn't using VR, just looking through on a computer. Not sure if VR would help.
Agents photos are really misleading but with 3d a small room feels like a small room.
Edit: One thing I did notice with matterport was a lot of personal information can leak out about who lives there.
Made the BBC recently: https://www.bbc.com/news/technology-56718046
I went through a recruiter early in my career and I believe they negotiated better than I would have on my own (based on them getting rates I did not realise were possible).
Having an agent as a seller lets you outsource the grubby, sometimes grasping business of getting the best price you can, in a reasonable amount of time.
For people who are naturally good at that, an agent might not be such a good deal.
For some of us, especially the less "hard nosed", an an agent can be a good idea.
Even for those of us who are good at it, we simply don’t have the domain knowledge an agent can bring.
Understanding the history of an area, regulations, costs of getting work done, lead times, liabilities, seller/buyer psychology etc, aren’t things you can acquire overnight.
That seems like there's a huge conflict of interest there. A buyer's agent isn't legally required in the US (and I've heard of people negotiating lower fees if there's no buyer's agent to share with), but I don't think I'd want to be in a situation where I, a layperson, am negotiating with a professional. The buyer's agent provides knowledge of the area (building materials, typical maintenance items and costs, how to make a competitive offer) and a non-emotional set of eyes to look at things.
Yes, they are incentivized to make a sale happen, but they make far more money in the long run with a happy client (who will refer others and ideally use them as a Seller's agent in the future).
But it is also possible to buy directly from owners who just post their offers.
> discovering homes
Done via websites. Some with paid access for contact detail, but price minuscule compared to a real estate cost or fee taken by a real estate agent.
Websites are also funded by paying for positioning of ad by seller.
> securing loans
Can be done via going to a bank (and in Poland real-estate agent is usually not doing it anyway).
> touring the place, inspection, sending offers
Done by seller and buyer
> closing and signing the deed
Done at notary, also would be done at notary in case of a real-estate agent
Wait til you buy a house an realize the title company handles all that.
The last property I sold went for around 15% more than I would have asked for. The agent more than earned their fee there. (He then tried to pad the agreed fee, but that's another story.)
Agents do not act for buyers and they are not interested in selling to you at the lowest possible price. They are interested in selling to you, but obviously they qualify buyers based on market segment and keenness. If you're sort-of-thinking-about-moving you'll get less attention than someone who slaps a huge pile of cash on their desk and says they need something by the end of the day.
All the ones I've dealt with just wanna push trough whatever offer comes first because 3% of whatever figure with zero work is better than 3% of a much better figure...
If you are willing to sell at that price, and thet are relieving you of work you would need to do to achieve that, they’ve provided value.
If you aren’t willing to sell at that price...you should not accept offers at that price.
You can. Buy a home from the owner. If everyone did that, the real-estate agents will actually provide value when they exist.
Consider that this is a very large transaction for an asset that changes in price over time, and no two homes are the same. Even buying cars usually involves a lot of negotiation. I got 15% off after negotiating my car price and a house is 10 to 20x what I paid for the car. The idea of ensuring you get your best price is worth introducing an expert. Sure, ML might solve home pricing eventually, but you still have to communicate, justify and sell it at that price, which is going to be something you want an expert to do. All of this doesn't even touch on the game theory aspect of auctions and bidding. It's a big mess.
If you have a higher risk tolerance you can list your home at a higher price and wait it out.
While looking at other properties, the agent was very helpful in guesstimating how expensive and how long various problems with the homes we saw would be to fix.
The homes we saw were distributed over several neighborhoods. The agent was helpful in explaining that in certain neighborhoods, almost everyone engages in certain not-quite-legal but socially harmless things, while in another, very demographically-uniform neighborhood, your neighbors may report you for it.
TL;DR - a good agent brings up to date domain expertise which you are unlikely to have, and which a general-purpose algorithm might not be able to provide without generating outrage.
The legacy Real Estate industry has a pretty good stranglehold on the status quo. From the MLS (Multiple Listing Service), to laws against rebates, to NAR (National Association of Realators), etc. etc. its hard for these new player to do what they want.
Redfin still needs Realtors to do its thing, so you will never see a FAANGM style hyper-growth quarter. They have said recently that they could capture a larger share of the market, but they are hamstrung by hiring realtors. They don't want to hire too many and end up in a 2006-08 era where they have to then fire a bunch of them.
Until laws and social norms (pay nothing a head of time, realtor does all the work, FSBO = the devil, etc. ) around home selling change I expect the new real estate companies to simply chip around the edges.
But the threshold for "simple" is far lower than you realize. Say you merely buy a plot of land. What if the land is land-locked - is there an easement for access? You probably didn't think of that first but a real estate agent will.
The reason why agents exist for ANYTHING is to save time, money and reduce risk due to lack of knowledge of the law, lack of knowledge of construction or lack of knowledge of financial matters. Humans have finite memory and skills - even if you have an IQ of 200. You can't know or learn everything. And you wouldn't have time even if you could. Enter the concept of "agency" - a proxy person or organization that represents your interests and has more knowledge and time that you do.
I'm guessing you are young and because you have plenty of time, you don't see the value of any type of "agent" relationship. I understand - when I was young I was the same way. And I was 100% wrong in thinking that way.
Today, I see enormous value in using "agents" for just about everything because I have plenty of money but little time and I KNOW what I do not know.
So I keep a lawyer on retainer now (an agent for legal issues) who helps with selecting lawyers for IP, business, real estate, family law, etc.)
I also use doctors (an agent for medical/health issues). I also use a tax lawyer/accountant (an agent for financial issues).
And often people will hire engineers and programmers as "agents" to accomplish things that people with money use as their agents to invest in companies of people who can make things work. These agents are called Angel Investors and VCs. And you as a technical person are an agent of creating technology value that ultimate "uses" the investor's money to best use despite the fact the investors know LITTLE about technology but see creating it as a good investment.
The reason such agents make more money on homes they own is pretty obvious:
1. They know all the details of maximizing selling price ranging from Staging to Negotiation techniques. They have practice at it. The 3% they take is necessary and reasonable because why the hell would they work for free. Would YOU work for free?
2. They have incentives to use every trick and skill because of their experience at the job - a real estate agent knows that Staging can raise the selling price by 10%-20% despite costing $5K-$20K - in many markets that is a trivial positive ROI (my ex wife is both a real estate agent and stager in the SF Bay Area, for instance).
EDIT:
So one thing agents do is handle HUMAN issues. My ex, for example, uses what we in B2B sales call "consultative selling" where you do NOT lead with taking customers out to see homes. Instead you spend time upfront and preselect only the homes that fit what the customer really values and what they can afford. Honestly I don't see a computer program duplicating that kind of thing any time soon. Certainly not in real estate and not in B2B sales. There is far too much nuance, psychology and hand-holding to ever expect a computer to duplicate - and it's all 100% "real time".
It's completely delusional to imagine Redfin achieving that any time in the next 100-200 years even with exponential improvements in technology (which are not going to happen as most people predict - my B2B is selling into semiconductor markets and we know what that's going to look like in 10-20 years because of "continuity").
Note also: Singularity and Transhumanism is not real nor based on any Science. It's a cult based on anti-scientific faith-based assumptions that are trivially proven to be untrue.
It would make much more sense to have a laddered commission, for example: $5k plus 10% of the amount over Threshold1 and an additional 20% of the amount over Threshold2.
That way the agent actually cares about squeezing an extra $20k out of the buyer; under the current system they get so little from the extra $20k that they just push their client to eat the $20k difference and sell the house fast.
Source: recently sold a home in Silicon Valley and was struck by how badly the incentives are misaligned.
If the seller is in charge of the thresholds, they can just set them unreasonably high. I can look at my house which would be reasonably valued at $500,000 and say that Threshold1 should be $750,000 and Threshold2 should be $800,000. The agent will never be able to meet those thresholds.
If the thresholds are with respect to the listing price, it's easy to just list high and then accept a lower offer. If Threshold1 is 5% above listing and Threshold2 is 10% above listing, people will just list their houses higher.
With cars, I believe most places do laddered commissions. However, it's easy to know the value of a bunch of manufactured goods that are all comparable. With housing, you can't go by square footage. Some places are nicer than others. Even within a neighborhood, some areas are more desirable and even different sides of the street might get better light.
The incentives are definitely misaligned, but I think it's hard to align them given that they're selling a good where we don't actually know what the value is and where each sale is pretty unique.
The "algorithm" here is based on "comparables": look for homes in the same or nearby neighborhoods that have sold recently and are as similar to the current home as possible and record what they sold for, making adjustments based on differences between the homes (e.g., if the comparable home is bigger, has another bedroom, comes with newer appliances, etc., adjust its price down; if the home being appraised is the one that's bigger or has the spiffy kitchen or pool or what have you, adjust its price up).
Like the OP said, it's pretty accurate in 99% of cases (reasonably priced single family houses, nothing exotic)
I'll admit that there would be some additional complication on the front end, where agents and homeowners would haggle over the thresholds and percentages, but a pretty simple web app (honestly even an Excel spreadsheet) could show the homeowner what his net would be with various agents at various prices. Given the amount of money at issue (six figures on a Silicon Valley home), it seems worth the hassle to get everyone's incentives aligned. This might be less important in areas with less-astronomical real estate prices.
As to your hypothesis that sellers would set the thresholds too high, agents could just respond with percentages (and the upfront fixed fee) that make sense for them. It's a double opt-in situation — the homeowner can't force the agent to represent him.
However the dynamic suffers from a typical experience level imbalance like we see in Venture rounds, M&A deals, etc.
Edit: one challenge with this is that because sellers sign exclusive agreements for sale, you can get the situation common in IPO lead underwriting banks — tell the client the highest price to win the deal, then start the process of gradually walking back seller expectations.
Plus, relying too much on one sale is not a good business, for some people whole point of getting into business is to reduce their dependence on one particular customer.
I suspect that most homeowners don't understand the time value of money. Selling it quicker for a lower price may be better for the homeowner, as he can then invest the proceeds.
Holding out for a better price means you continue to pay property tax, homeowners insurance, maintenance, repairs, and your money tied up in the house is not making money for you.
When I've sold my house, I would slightly underprice it in order for a quick sale, which worked pretty good. That also worked when the buyer would come back with a bunch of inspection complaints, and I'd reply with "it's underpriced, sale is as is", and it'd sell.
Anything stopping this where you live? I've done this. When they quote a price they will get say sure and your commission halves under this. They have themself cornered as they already told you the price they can sell it (which they generally inflate) so it very hard for them to say 'no' without you countering why would it matter if that is the price that can get.
You have the upper hand pre-contract. Agents really want the contract at the beginning + they actually have 2 jobs according to a agent grind if mine; the first is getting a buyer and the second is lowering the sellers expectation to except offers as if often the case. This reduces the second.
Agents regularly engage in client management. The best agents can manage counterparty agents and get a deal done to close the buyer/seller gap. Clients have a lot of room to perform more stringent agent management in hot (ie liquid) markets.
> In recent years, the Internet has made it easier for sellers to track house prices. In theory, this would decrease the value of the real-estate agent's specialized knowledge. Indeed, the authors find that when the public was beginning to use the Internet, from 1992 to 1995, the premium on agent-owned homes was 4.9 percent. By 1996 to 1999, as Internet usage was becoming widespread, the premium dropped to 3.2 percent.
As the market became more informed, the advantage was going down -- and that was a half a decade before Trulia, Zillow, and Redfin came onto the picture. It's quite likely that if Mr. Freakonomics[1] ran this study now, the "premium" would be lower still. Zillow ain't gonna factor in "this home is owned by a Realtor" into its Zestimate (tm).
[1]: Not being flippant here -- look at the first co-author!
Are physicians morally beyond reproach? Why include them in the first sentence if they’re the only group without a follow up.
Unrelated to the above but an earnest question: why are real estate agents paid percentage based commissions?
Sellers usually have some time limit they want to sell by.
In general you do. The agent can make recommendations but at the end of the day it's your call as the buyer or seller.
by definition a market maker participates in the market.
I should amend my comment though: an agent should not be permitted to practice while he holds property, and he should not be permitted to hold property while he practices.