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Comment by iisan7 | Hacker News Reader

Silicon valley has if anything made real estate more of an investment, look at fractional ownership schemes. The costs of transacting business through an agent is a holdover from another time when those costs weren't that significant given how infrequently a home would transact (and lower real prices). I agree realtors generally don't provide value for the money anymore. However, all else being equal, removing realtors will itself make it more profitable to invest in real estate.

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>I agree realtors generally don't provide value for the money anymore. However, all else being equal, removing realtors will itself make it more profitable to invest in real estate.

I'm a Realtor, but I'm not here to turn this into a pissing match - if you believe that representation doesn't benefit you, then don't use a Realtor. In the same way, if you believe you can represent yourself successfully in court don't use a lawyer or if you can adequately assess your financial future, don't use a financial advisor. Expertise exists for a reason - because I can tell you a lot about water rights, land use, zoning, negotiations, market and pricing, and I can connect you with other professionals to meet your needs. Many people find those professional services to be worth their time and money.

All that said - yes, I think we will see changes to the cost (commissions et al) of real estate services. But when I hear people talk about "normal" real estate transactions or comments like "you don't need an agent for residential" I know this person is either very new to real estate or very experienced. The newbie doesn't know what they don't know, and the experienced person likely has sufficient knowledge that they will only bring in an agent to supplement that knowledge. The majority of people do not transact enough real estate such that they may think they know more than they do.

Many of my friends are real estate agents, and my observation is that most of them are not particularly educated in land use/zoning issues. Which is not to say that they don't add a lot of value in other ways, but there's no substitute for reading the zoning rules personally if you are thinking about construction.

As an outside observer my impression is that the sell-side realtor provides a lot of value (especially if he/she has a small construction crew on standby) but the buy-side realtor contributes less. Also, the incentives are misaligned for the buy-side realtor - they get paid more the higher price you pay.

Every market is going to be different in terms of skill and standard of practice... in urban markets, people only selling residential, they may not need to know much about land use, but you are paying them for their market analytics and negotiating skills. In my market, to actually serve clients well, I need to know an absurd number of things as my people are dealing in land use, water rights, fencing, development, etc...

Regarding being on sell vs buy side - the buy-side should be helping you make sure you don't use a foot gun. They should be helping identify any material issues with the property and/or sourcing experts who can help with risk mitigation. And, they should have savvy to help negotiate the strongest possible offer to your favor. Because of several national lawsuits, it is very likely that consumers will be negotiating a price for a buyer's agent's services and paying for it directly in the near future. That's a whole other topic and probably requires frosty beverages.

Sorry, the IQ/brain capacity/"insert a term that you are comfortable" with here required to be a lawyer is much higher than to be a real estate agent. It is much more accessible to the avg person to do at least 80% of the work an agent does, especially on the buy side. And count on AI doing 100% of it, on both buy and sell sides, much better and cheaper than real estate agents, in a matter of a couple of years, if not months.

The main reason RE agents play a significant role is the artificial stronghold around the MLS. It's not their Nobel prize winning brains providing irreplaceable services.

Good sir, I've met some fucking dumb lawyers in my day, so I'm not sure why you are holding them up as a pillar of intelligence. Nobody said anything about intelligence here anyway - what I said was, real estate agents, like lawyers, financial planners, librarians, and pretty much every career on the planet exist because they have specialized knowledge and skills. You think you can replace what I do with AI? Why don't you come on over and do a ride along with me on a typical day - I bet you'll change your mind. Zillow, Redfin, and plenty of others have been trying for more than a decade to replace us and they aren't making much progress.

The MLSs? Do you have any idea what it was like prior to their existence and how much the public has benefited from the improvement in information asychronicity? Zillow et al stand on their shoulders. You don't like it, you try replicating what the MLSs do.

I don't think fractional ownership is a silicon valley creation? What makes you say that?

Similarly, how are real estate agents a guard on investing?

I'm not convinced they are bad, mind you. Curious on your angle, though.

This company has been extending fractional ownership to a lot of communities in California.

https://en.m.wikipedia.org/wiki/Pacaso

> Pacaso is a property broker that buys single-family homes and sells them to consortiums of buyers.

Why not just buy a REIT?

Why not just buy fractional shares of a property?

Your comment doesn't really answer my question... you just typed the same observation from the other side. You've added nothing. Zero value.

I contributed the same value as you. Owning property and owning a REIT have very little in common other than a correlation in market value.

> Why not just buy fractional shares of a property?

Transaction costs for diversification. The same reason it makes sense to buy ETFs versus directly balance your own portfolio for anything below your first million.

But owning a REIT is nothing like owning property. Sure, REITs and investment properties both derive cash flows from rent, but the similarities stop there.

In general, asking “why not X instead of Y” without giving reasons why X is preferable over Y is just a waste of everyone’s time.

Owning fractional shares in property is also nothing like owning property. You’re not going anywhere profound with this line of argument.

Really? Most people own fractional shares of real estate, e.g. when the property is part of a marital estate.

Investing in a REIT is just investing in a company that happens to derive cash flows from real estate. You’re not buying fractional ownership of real estate when investing in a REIT. You’re investing in a management team and a capital allocation strategy. It’s much more similar to a mutual fund or PE fund. The only difference between a normal business and a REIT is that you have to pay income tax on your dividends. Owning a fractional share of a property is taking an ownership stake in a real asset. The two aren’t related at all.

Why do you keep saying "fractional share"? All shares are fractions. You sound like a moron.

Typically, fractional ownership of real estate assets is typically done via a tenancy in common title, not via a share mechanism, so your “share” (literally “portion”, which can be partial or whole) is a fraction of the whole.

> When disagreeing, please reply to the argument instead of calling names. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3."

https://news.ycombinator.com/newsguidelines.html

Because a REIT gives you a fractional share of hundreds of properties.

REITs don't pay capital gains the way you and I would if we bought a house together.

If you and I bought a house together, no capital gains would be "paid". We would own an asset, which could go up in value and we could sell. Exactly the same with REITs.

This is, of course, incorrect. If you and I bought a house together, took ownership, enjoyed appreciation, and consummated a sale, and realized income, we would owe capital gains tax on the income.

There are some ways we could avoid some or all of it, but I was not considering a situation where you and I shared a primary residence, because we’d spend too much time arguing about taxation basics.

On the other hand, a REIT with more than the required number of members that distributes the required share of profits will pay no income taxes. Investors in the REIT, on the other hand, pay taxes on the dividends.

One little known fact about REITs is that the capital gains are taxed as income not as capital gains. On the other hand, you can use depreciation and a 1031 exchange to avoid paying any taxes on real estate you own / sell.

But they didn't invent time shares?

That comment didn't claim it was an SV creation, it can be read as SV made it easier and more popular so it made real estate more of an investment in general.

Perhaps fractional ownership was used in limited circumstances before, but some tech co thought they can make it mainstream and didn't stop to think if they should. Cue unforeseen consequences.

I mean... sure, a silicon valley company is offering fractional ownership. I don't see how that supports silicon valley making housing more of an investment. But, sure, dunk on a common boogie man.

Kinda like ClosedAI. Let's do this because we can and it's profitable (shareholders) and cool (software engineers). People lose jobs? That's just life man, I mean we do get to keep ours so...

Not a problem as long as it stays _other_ people.

let them all retrain as baristas while we are figuring that one out... /s

Other commenters mostly made the points I had in mind about companies in the fractional ownership space. Regarding agents dampening investment in housing, I had on mind the fact that the transaction costs of 6% or so when selling makes housing an unattractive short term investment. If that wasn't there I think there'd be more incentive to speculate in housing markets.

I doubt that, personally. Especially back when people could dream of larger returns as illustrated on many TV shows, I seriously doubt 6% even registered on most people. Seems the main thing holding back more folks was lack of capital. Not fear of 6%.

Would be interesting to see data on this. Didn't Redfin have a reduced commission path? Any evidence that led to more speculation?

If you look at it as an investment and profits, it's not 6% anymore, but a much larger percentage of your profits.

I buy a house for 100,000, incur about 5k in government, administrative fees. Sell it for 125k, netting 20k - less if you consider insurance and property taxes. So let's say 18k. But I've paid the realtor 6% on 125k. That's 7.5k. That's a whopping 41.67% of profits

Most people seem to just ignore the costs of transacting a house. They'll say they bought a a 100,000 house and sold it for 125,000 and say they made 25,000 in profits.

Neglecting the fees, commissions, insurance, loan points, repairs, time, taxes, the cost of the house sitting there vacant, etc.

Houses are historically lousy investments.

  > Houses are historically lousy investments.

Yes, but land is an historically safe investment. However very often in well-developed areas, it is difficult to acquire one without the other.

Yes, but most people aren't speculating on real estate, they're just occasionally buying a new place to live.

What you are missing is that a home purchase is typically leveraged. You buy the house for 100K and put 20K down. The house increases to 125K and you more than doubled your money. Now take out those fees and etc. Problem is you still need a place to live and those houses have gone up in value too, so you need all of that profit for the new down payment.

Not saying this makes houses good investments, but it is something to consider. I think that this is the cheapest leverage a typically person in the US could obtain.

There's nothing special about borrowing money to invest in things. The ROI is based on the amount invested, including borrowed money.

I think the only special thing, here, is that home purchases are the most common thing bought on leverage that can almost be seen as an investment? Only other leveraged loan that most people will do is a vehicle, and those laughably lose half their value as soon as you close the loan.

At least the US government heavily subsidizes leverage for real estate investment specifically, with institutions such as Fannie Mae for example. Absent that, no bank would offer a middle class individual a 30 year fixed rate loan for 80 - 95% of the value of a home. A loan to buy stocks on the other hand will typically be floating rate and the brokerage will retain the ability to liquidate your position AND require additional margin if your investments don't perform.

Fannie Mae has a short history page here for those interested: https://www.fanniemae.com/about-us/who-we-are/history

First, I want to be clear that I'm not saying you are wrong. I don't know. I personally doubt the fees enter most people's speculations, though.

Specifically, my intuition is that most people don't speculate in housing because they don't have the capital to do so. More, most of the people I have known that had the capital to do so, did, in fact, speculate in real estate. Similarly, most people I know that have purchased homes could only do so on highly leveraged loans. Again, they didn't have the capital to do speculation. They still stretched for as large of a loan as they could, at large. Which is its own form of speculation.

I'd be curious to know how much the fee for day trading can be. I know it isn't directly comparable, due to volume differences, but I'm assuming you weren't thinking real estate would get to day trader levels of speculation?

I am not disagreeing with you either on most people not speculating.

Every transaction has overheads. But I'm just talking about house flipping, or even when upgrading from one house to another, 41% of any money I, as an individual could use towards the new house, kids education or whatever, going as a transaction overhead is simply crazy, and almost extortionist given how monopolistic this is in the US

Re: Day trading - That would be REIT and related instruments.

> I'm just talking about house flipping

Realtor here - if you are house flipping, you are in a unique category and not really a member of the general public. You should either get your real estate license (if you believe you are able and willing to market property yourself) or you should find a dedicated agent partner with whom you have a negotiated rate. But also consider that as an agent, my out of pocket costs to market your example property could easily be $1000, plus my brokerage (assuming I'm affiliated and it isn't my own brokerage) also is taking their 40%+ cut of my commission, so I'm not making nearly as much as you think -- which is why especially on a house priced at the lower end of the spectrum I need to keep my commission % higher.

Commissions are fine, they are transaction overheads. This doesn't still justify taking a 40% cut on any upside I have when I upgrade my house. This is not necessarily targeting an individual broker, but the system as it is set up right now, with no real innovations happening.

As my sibling post says, if you are house flipping, you almost certainly work out a way to not have a full realtor fee. Either by being said realtor, or otherwise working out a deal. I've known several people that would do this. And I'm still fairly confident in my claim that you would really only do this if you had the capital otherwise.

Upgrading a house is another odd one. Most of the upgrades you would do that go with "get a new house" are all size and location related. You might give some pause to the fees involved, but probably not much.

My point on day trading is that transaction fees don't seem to stop people with excess cash to go off and speculate in the market. They won't be as high as realtor fees, of course, but the overall stakes are also not nearly as high.

That said HELOC and similar tools also really highlight just how bad most people's financial considerations are with home values. Refinancing to get a lower rate is a laughable idea when you consider the fees that went into that effort. And that doesn't stop many people at all from doing it. (Not to mention the ones that reset their timelines...)

All of that is to say, I still have my doubts that any of the myriad of fees involved in the process are what stops speculation.

Check out https://lofty.ai. Fractional, income-generating real estate, including the tax benefits (which you can't get with REIT).

lofty is simultaneously horrifying and attractive. Rent seeking is an abomination it is the only way to build a financial future. Work doesn't pay enough.

I've often felt that trading stocks and real estate investing like this is benefiting from other people's debt. which raises the interesting question. If you were to live according to Dave Ramsey's debt is evil philosophy and everybody got rid of debt, where would you put your money to build for the future?

My question is more of why this is seen as SV making this more common. That there are starting to be some SV companies that are doing this is evidence, I suppose. They still seem to be in the vast minority of the companies that offer it, though. Feels like saying SV encourages payday loans, because there are some that exist there.

Fwiw, this is using USDC as a currency. Your deposits are automatically converted.

> removing realtors will itself make it more profitable to invest in real estate

Perhaps this statement should be restricted to just say the costs of investing in real estate would be reduced. Small difference I know, but I think it’s an important distinction.

They seem like equivalent statements. What was the point of rephrasing?

I suspect it’s because profits only exist in an “up” market while reduced costs provide benefits whether the market is up or down.

Profit is up to other factors. Lower costs means you need less revenue to make a profit, but of course it does not guarantee it

Lower transaction costs lead to a more liquid market as the cost of entry and exit are both reduced. Every body wins except the middle men.

Agreed, but that doesn’t translate to profit universally.

> Perhaps this statement should be restricted to just say the costs of investing in real estate would be reduced. Small difference I know, but I think it’s an important distinction.

It's especially important in this case because of the implications: One of the parties who "invest" in real estate is construction companies, who hold the real estate while they're building it. Lowering their costs makes them more profitable, so you get more construction -- which lowers housing costs by removing the realtor's vig and by the increase in the housing supply.

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