Realtors Face an Antitrust Reckoning | Hacker News Reader

Realtors Face an Antitrust Reckoning

wsj.com

113 pointslxm136 comments

The whole process is broken in the US. I was really rooting for a company like Redfin to come in and shake things up by treating it like it is for the vast majority of inventory, a commodity. Especially on the sellers side I feel like most of the process is the same. Clean the house up, maybe stage it, bring in your photographer and take pictures. List the property on MLS and then handle the offers/paperwork. Most homes are not $2mln showpieces that require a special touch, they are a commodity item.

>Most homes are not $2mln showpieces that require a special touch, they are a commodity item.

But buyers do not treat the much cheaper homes as undifferentiated commodity items (like paperclips and crude oil) because each house is situationally different.

E.g. One house may be listed for $250k and is on a desirable corner lot but also needs a new roof and kitchen remodel. Another house is $280k and already has a new roof and updated kitchen appliances and is also 10 miles closer to the office to cut down commute times but costs +$30k more. The combination of tradeoffs (location, condition of home, price, etc) to be matched to each buyer's priorities is what makes homes -- even the low end homes -- resist becoming commodities like paperclips. In a box of paperclips, you can randomly pick any one and you don't care. Picking a house doesn't work like that.

Part of the real estate agent's job is to downplay the negatives and highlight the positives of each house they sell. I don't think that work is worth the 6% commission but regardless, houses are not commodities to the point where most buyers & sellers are comfortable with no intermediaries in the transaction.

IMHO, the biggest problem with the US housing transaction market is... home inspectors.

No other required party to a transaction has structural expertise, which by far dominates the cost of owning a home.

And their liability is typically limited to "what would be obvious without detailed inspection." Which is a pretty low bar for diligence.

Afaict, they're all ex-contractors who realized it was easier to fill forms than build (fair!).

But which is terrifying when you realize they're the only check against construction-ignorant people (read: the vast majority of home buyers) buying a nightmare property.

"What about building codes?" Well, you'd better hope the code inspector was doing his or her job the day your potential house was built. Flip a coin.

The mortgage company generally doesn't care, other than the inspection checkbox being checked, because if your home falls down you still owe the loan amount (albeit now unsecured).

Things I've had home inspectors flat out miss, that I caught with a tape measure and flashlight:

   - Undersized joist systems
   - Misframed houses
   - Serious termite damage

If you want a chuckle, ask a realtor what the appropriate joist size for a given span is. Hell, ask your next home inspector. (Hint: the table for common woods is a 5 minute web search away)

Agreed, and unfortunately you as the buyer don't have a good idea of who is a good inspector in your area. People don't buy homes enough. Sure there are google map reviews of inspectors but for such a large purchase thats still less than ideal.

"The laundry hamper was in the way of a thing I check and I don't move stuff."

"I'm an inspector and I dont warranty my work."

Home inspectors are usually optional, and almost always a waste of money... appraisers in my experience are also a waste of money, but banks (and bank regulations) do require those.

I have bought and sold several homes, and never used an inpector on either side. (I have seen inspections, and the homes that were inspected, which is how I come to yhe conclusion they are worthless.)

the whole point of the inspection is to go back to the seller and get the price lowered when the seller can almost see the check in their hands.

And, uh, pass on nightmare homes. It might not happen frequently, but it does happen.

The market has been so hot that any offer with a home inspection condition is usually thrown in the trash bin.

Maybe we just had a great inspector, but they found a ton of issues for us and were the cheapest part of the buying process. Compared to all the other mystery fees, I was happiest paying for the inspection.

Part of the problem is that their liability is typically limited to the cost of the inspection. There is not much recourse for a bad inspector or one who fails to find an issue.

A few years after buying a house, my family discovered the lights in the garage would flicker.

Turns out the wiring in the garage was held together with tape. No junction boxes, no wire nuts, literally just naked wires and tape.

Needless to say, the inspector found nothing.

FWIW this problem is not unique to the US market!

I probably did a poor job on my perspective. I see them as commodities in regards to the agent workflows. Sub $500k (picking a number) homes all have relatively the same workflow for agents, almost like buying/selling commodities. The parallel I would make is how Carmax treats cars closer to a commodity then a unique snowflake. They have a fairly good idea of the use price of a vehicle, there is no haggling, the sales person is there to facilitate the deal but is not the sole determining factor.

In my worldview homes below a price point are very similar. They are all different, condition, location, features etc, but generally you can get an idea of the potential price based on comps. There is still human touch here to get an idea on listing price but outside of that the workflow is pretty mundane and is just facilitating the process. Maybe in other housing markets its different but all the homes I have bought in the last 10 years, nobody was highlighting positives or downplaying negatives. My (buyers) agent shows me the property, lets me look around and does not really do much else.

But not all paperclips are the same and not all crude oil is the same either? We sort of pretend that they are for the purposes of price comparison.

And realtors do the same with houses. Have a home on the noisiest street in your neighborhood? NP, all the realtors will use comps that favor their preferred narrative anyway. Why would you get to pay less for that when that other house is available? Comp sheet doesn't say anything about traffic noise.

Rightly or wrongly, real estate largely gets treated like a commodity.

It is just a commodity where the cost of transactions have been highly optimized in the wrong direction.

This is exactly what I was getting at. Unless you are pricing a unique home in the $1+million (not considering NYC, SF and other expensive markets for this price) they really are a commodity for pricing purposes. Those boutique homes on the other hand have a very limited buyers market and there is much more marketing and presentation involved to create a narrative, both with the seller and the buyers agent.

Paperclips and Crude Oil value, relative to another paperclip or barrel of oil, can be based on well-defined, finite, measurable standards that can be measured indeterminate of their location. That allows pricing to be indexed based on location, time, and quality relative to the standards.

A house's value relative to another house is an almost infinite number of variations of measurable and immeasurable variables. One example-- Traffic noise. Maybe the amount of noise is an issue for you, maybe the time of day of noise is an issue for me, maybe noise in one room vs. another. Moreover, there are very expensive switching costs for me

But in the end it’s the buyer and only the buyer that sets the sale price. The listing agent can downplay all they want or “offer” whatever made up price they want but it’s all meaningless. The buyer committing to a given number, comes out of their head only, and is the only thing that sets the values in real estate. And agents can think they influence that number but it’s minimal at best.

A complete, fungible commodity. Except for size, location, appearance, appliances, insulation, water risk, lead risk, bugs, building codes, bathrooms, an endless list of amenities, a hefty weight of personal preference, HOAs, land, and that other negligible stuff off the top of my head.

For the purposes of pricing and workflows for buyer/sellers agents, the home is very much a commodity.

Homes are reduced to like-buckets at some point by necessity, but they are absolutely not treated like commodities.

If we did, you'd have to have a huge margin - something like 20-30%, or even more, to account for risk.

You're upset you pay like, 6-8% in fees now when selling your home? Well...

By that logic what isn’t a commodity?

Sorry if my line of communication is hard to understand. The selling/buying process can be standardized because for the bottom 90% of homes in a market they are no different from a workflow perspective. Yes, they are all "unique" but the process to buy and sell is exactly the same and they can be mostly treated as a commodity from that perspective.

In this scenario the upper 10% of homes by list price will not be treated as a commodity and probably need a more specific touch in the buying/selling process.

I hope by breaking it down for you its easier to consume.

People are getting way more picky with the current home prices.

If a house costs 3x my yearly salary, I am much more willing to treat it like a commodity than if it costs 6-7x my yearly salary.

And if the RE agent is going to treat a higher price purchase as a commodity, I will make their life a living hell or find another one.

Sellers agent paying the buyers agent is a kickback. Kickbacks aren’t allowed for referring Medicare patients. They aren’t allowed in bribing government agents. They aren’t allowed in corporate contracting. Somehow in real estate, they are required.

I can’t stand realtors, but even I find this argument disingenuous. The difference is that the “kickbacks” in real estate are all publicly known upfront and offered to any buyer agent, rather than used privately for one agent to get ahead of others like in your other examples.

It is my understanding the buyers agent commission is a line item on the MLS entry. So only agents can see it, not the public. Too low? Now your buyers agent will refuse to show that house.

I agree with you, but every agent does know the offer up front.

> Now your buyers agent will refuse to show that house.

By the same token should developers be required to work with clients that pay well below the market rate? Often on this website we talk about telling a client to pound sand when they want to pay next to nothing and they want the moon, how is this any different? The work an agent does is not always constant (sometimes you show a person literally over a hundred houses, sometimes they find their dream house after 2 showings) but there is a baseline of work they have to do. I don't find it so crazy that if another agent doesn't want to pay me for that work that I don't engage with that agent.

It's rational for the buyer's agent to do that, but that doesn't make the system less utterly corrupt.

The buyer's agent represents the buyer. They should be paid by the buyer. The payment from the seller's agent to the buyer's agent, if it affects the buyer's agent's decision, must mean the buyer's agent is no longer acting in the buyer's best interest.

technically they are breaking the law by refusing to show a house because of the low commission.

Laws that you cant prove are jokes of laws.

Buyers agent: "I know the house, and didn't think it met your qualifications of what you verbally described to me."

(in reality, its perfect, but has low commissions)

It's a cartel that uses price fixing, which perversely makes price discovery trivial. So everyone in a market generally can assume the level of the buy-side commission (for ex: here it's 3%). That will be accurate unless the sell-side agent says otherwise.

The buyer's agent's incentive is the same as the seller's, which is to turn houses as fast as possible. That's a huge misalignment on the buy side. If the buyer dislikes the house enough to move after several months, that increased liquidity benefits agents.

I wish the buy side agents' compensation were more like a vesting schedule, that would incentivize them more along the lines of getting buyers into long-term residence.

I can see this point of view for a developer/builder, maybe… but that often comes in the form of a warranty or builder guarantees. You talk about increased liquidity as if homes are a commodity, traded quickly and often. This isn’t the case. I can’t even imagine how this scenario you’ve imagined plays out.

The real estate agent should not be required to guarantee that their clients home will be “liked” for X months or years. This makes no sense.

For 3% of the purchase price on inventory of $100k+ they absolutely should be accountable for their client being satisfied with the purchase.

These are specific lines you’ve drawn. Maybe you can provide a scenario in which this is accountability is required…

A good agent will spend the entire 30-45 day process ensuring their client is getting what they want and what they are paying for. A good agent does not want a buyer to end up in a house that is bad for them in any way. And even then that’s only counting the days between the acceptance of an offer to closing day. Oftentimes an agent will spend months or even a year or more with clients.

It is strange that you claim you cannot imagine how selling a primary residence sooner than expected increases the number of houses being sold, but you do have the imagination to pretend an agent is working full time for single clients in 30-45 day stretches to ensure they get what they want (despite misaligned incentives to do so). And that they "often" spend a year on this.

You’re exaggerating my claims and won’t answer for your own.

There's also a misalignment on the sell side. Since the seller's agent gets paid a percentage of the sale price you'd think they're incentivized to sell at the highest price possible. But they don't make any money at all until the sale actually goes through. They'd much prefer to sell 2 houses at $125,000 than 1 house at $175,000 for roughly the same amount of time and work. Since cost is the only knob they control of the three affecting the time/effort it takes to sell a house (the others being condition and location), they are going to turn it as low as possible.

Agree. A listing agent would much rather that the house sells for 2M than try to eke another 100k out of it and risk the house sitting on the market for months. The 3% of the incremental amount is just not enough to matter. They’re incentivized only by getting the deal done. Full stop.

And if you have bought a couple of houses a decide to buy one without your own realtor it's not like you get the kickback. No. Seller's agent keeps all.

There is no “kickback”. And payment from seller’s agent to buyer’s agent is not “required”.

There are some shady incentives for realtors when buying a home in the US. The seller and buyer agents often know each other and talk to each other in particular areas. They do favors for one another. Sometimes it helps you, sometimes it hurts you.

I consider them very similar to car dealers, but slightly better because good ones have a network to help buyers out. The commission they get is too high though.

The biggest counter-incentive for realtors is that they make more money on volume than added-value-over-replacement.

Both sides are incentivized to move each house ASAP, rather than for the best price, as they make 3% of any marginal price difference, but 3% of the total price of an additional sale.

Consequently, you're really only getting value from a realtor if "getting the deal done ASAP" is your priority.

Perhaps this perspective varies depending on the market but I don’t really expect the agent to do any negotiating on the price? So long as they’re not actively working with the other side to abuse an elevator or something, I think it’s fine. I just want them to help me get the house. Or sell the house. Do I think that’s worth 3% if my home value? Probably not. It’s strange there’s not flat fee agents.

> It’s strange there’s not flat fee agents.

Essentially the cartel prevents this. If you started a flat-fee agency, you would not be allowed access to MLS listings to show your buyers. Homes you represented to sell would not be allowed into MLS, and Realtors would not bring buyers to your home (because you're not prepared to give them 3% of the deal).

This is not an accident of the free market.

This is either ignorant nonsense or an outright lie.

There absolutely are flat-fee agents and there is no “cartel” or anything preventing any agent or brokerage from charging anything they wish.

> there is no “cartel” or anything preventing any agent or brokerage from charging anything they wish.

Redfin literally just removed itself from the NAR for that reason (and also alleged sexual harassment in the organization). https://www.redfin.com/news/redfin-is-leaving-nar/

>> In the many marketplaces governed by its policies, NAR still blocks sellers from listing homes that don’t pay a commission to the buyer’s agent, and it blocks websites like Redfin.com from showing for-sale-by-owner listings alongside agent-listed homes.

>> In about half the U.S., including in cities like Charlotte, Dallas, Houston, Las Vegas, Long Island, Minneapolis, Nashville, Phoenix and Salt Lake City, we can’t quit NAR individually or en masse, because NAR membership is required for agents to access listing databases, lockboxes, and industry-standard contracts. It’s impossible to be an agent if you can’t see which homes are for sale, or unlock the door to those homes, or even write an offer.

The DoJ also alleged exactly that in 2019. https://www.justice.gov/media/1105806/dl?inline

>> These NAR rules, policies, and practices include: (a) prohibiting NAR-affiliated multiple-listing services (“MLSs”) from disclosing to prospective buyers the amount of commission that the buyer broker will earn if the buyer purchases a home listed on the MLS; (b) allowing buyer brokers to misrepresent to buyers that a buyer broker’s services are free; (c) enabling buyer brokers to filter MLS listings based on the level of buyer broker commissions offered and to exclude homes with lower commissions from consideration by potential home buyers; and (d) limiting access to the lockboxes that provide licensed brokers with physical access to a home that is for sale to only brokers who are members of a NAR-affiliated MLS

And then there was People v. National Association of Realtors, 1981 https://law.justia.com/cases/california/court-of-appeal/3d/1...

>> The original three-count complaint alleged: (1) unlawful restrictions of trade under the Cartwright Act through certain restrictive regulations of the multiple listing service (MLS) operated by SDBR, including the fact only board members were entitled to access to that necessary service; (2) restraint of trade because of commission rate price fixing; [...]

>> On the first cause of action the court found a group boycott and issued an injunction guaranteeing access, on conditions, to the residential portion of the MLS to all licensed brokers and their salespersons without regard to SDBR membership. The court found no such boycott as to the MLS investment property portion. All other MLS operating rules were found to be reasonable, including a requirement excluding all listings except exclusive-right-to-sell agreements.

>> [On the second] Based in part on [expert witness] testimony, the trial court found the standard rates prevailing over a long period of time to be evidence of collusive price setting or other artificial influence. It also found four activities attributable to SDBR policies which are useful to maintain such uniformity: publishing and distributing sample literature using 6 percent and 50/50 split as examples; requiring the listing commission to be included in the published MLS, thus aiding those who would bring pressure to bear on price cutters; entertaining complaints against undercutters through its ethics or arbitration machinery brought by persons motivated by the undercutter's deviation from the usual 6 percent rate and 50/50 commission split, and continuing the foregoing practices even after it ceased publicly recommending adherence to the standard rate it had developed and maintained for many years. Each of the above findings is supported by substantial evidence.

What happened in the 2019 action?

Looked into it, and as near as I could tell, DoJ negotiated a consent decree with the NAR and both parties were ready to agree (~2020).

Then DoJ and NAR got into an argument about whether or not the consent decree prevented DoJ from bringing future actions.

As a result of NAR wanting a guarantee they'd be covered, DoJ decided to request dismissal of the case.

https://www.justice.gov/atr/case/us-v-national-association-r...

Reading between the lines, I'd guess either (a) ongoing investigation or (b) chickenshit prosecutor.

So essentially it sounds like the court and NAR agreed that NAR is engaging in anti-competitive behavior, but NAR wanted to push for a future get-out-of-jail-free card?

Given that, it seems facile for anyone else to argue that NAR isn't engaging in behavior prohibited by our antitrust laws. If/when we resume robust enforcement of our antitrust laws, NAR would appear to be a prime target. Certainly, their behavior and marketshare are at least as anticompetitive than most of the primary Big Tech targets of antitrust discussion. And NAR hits the biggest transactions most consumers ever engage in, where e.g. folks spend vastly less at Amazon.

To be fair, in the 2019 case, the courts didn't have a chance to weigh in.

It is kind of curious the DoJ didn't pursue, but I assume most USAs are looking for a flawless record, so maybe didn't want to pursue it at this time.

It would be nice if it was a sliding scale that decreased as the value went up. It is essentially no more work to transact an $800k house than a $400k house yet the commission doubles.

> The biggest counter-incentive for realtors is that they make more money on volume than added-value-over-replacement.

Only if you don't care about your reputation or repeat/referral business (which is the lifeblood of a successful realtor)

I had a listing agent who refused to pass my offer onto the homeowner. That listing agent was representing a competing buyer who had put in an lower offer.

I drove to the property and made my offer in person. I lived there for 7 years.

You were lucky that you were made aware of the agent’s intentions such that you could circumvent them. Quite often this is not the case.

My agent talked to him at length and sussed out enough details to assemble the pieces. IIRC, there was a point where the lister got frustrated and revealed more than he intended.

I had a listing agent that refused to pass my offer onto the buyer because it wasn't on the local Realtor organization's standard purchase agreement form, despite state (Oregon) law requiring that they do so.

Use of the standard form (https://orforms.org/forms/) requires purchasing a license to the form, and licenses are only sold to licensed real estate agents and lawyers. I ended up buying the license to the form and a license for software required to fill out the form. (The website selling licenses didn't actually validate that you entered a valid state license id.)

It cost me a couple hundred bucks, but the seller accepted my offer. I doubt that the seller's agent gave the seller back the 2.5-3% that didn't have to be paid to a buyer's agent.

> The commission they get is too high though.

I concur! The amount of work they need to do has declined significantly since the days of faxing and phone calls (now most tours are scheduled via app, and the MLS database is easily searchable), and yet their commissions are still a percentage. Oh, and they are a percentage of assets that have gone up way faster than inflation!

I disagree with this. My agent basically had to always be on-call to send me listings that we could go see and offer to place calls at odd hours so we get everything scheduled since houses move so fast now.

My agent basically picked up all of that admin for me and I never once questioned his commission. Buying a house is basically a part-time job for the buyer now and being able to respond instantly is so important.

The job has changed, just like all jobs have, but good agents get shit done because the market is so competitive. Real estate is a very high-turnover industry with little long-term stability for those that don’t absolutely kill it.

Ok but you could replace the "Sending notifications about new listings in real time" duty by subscribing to zillow/redfin etc with specific filters... for free. It's hard to make the argument that that's worth 6% of a of half million dollar purchase? I agree it's a part time job to be a buyer in this market, but I don't think the buyer's agent really makes that job much easier in my experience.

"Answers a call at any time of the day" is definitely a great nice to have, but I suspect that puts your particular agent in the top 10% of the field. Most agents I have used will just let all phone calls go to voicemail and then text back or call you back hours or days later. YMMV a lot on this one.

Yeah, but a crucial part of getting those listings from him involved talking through the ways in which the house might have problems that weren’t disclosed, etc. Home listings are ads and it’s great to have someone who knows how to call BS when I don’t. There are so many tricks in home listings that can trip buyers up and that’s not an easily Googleable problem.

As far as agents you’ve worked with, that’s partially on you for choosing to work with bad people. I had several agents and I wasn’t afraid to drop them when I found the one that worked for me. Given that 87% of agents quit in the first 5 years, I definitely suspect my agent was top of his field, which is why he got my business.

I think "bad people" is relative here though. The incentive structure is entirely misaligned. As mentioned elsewhere in the comments here, agents' best strategy for the highest possible payout is trying to close as many deals as possible, not taking the extra time to find each person the ideal perfect fit house (volume over value-add quality). It sounds like you found an agent who went the extra mile to get your business, which is great for you! But I suspect that there are other, less buyer-friendly agents out there out-earning your agent because they just drop the "difficult" customers and work with the easiest-to-close folks to get more overall commission.

Given that, my personal strategy when buying was to just do as much of the legwork as possible myself, rather than risk leaving due diligence to somebody whose financial incentives are not aligned with my own. My agent essentially ended up mostly relegated to docusign-forwarding duties.

Well, I am not saying there is no work. I am saying the work load has decreased substantially. Everything you mention is something they had to do during previous markets too.

This just is not true. The amount of admin work per deal has perhaps come down, but agents work with much higher volume because deals fall through so fast now.

We looked at almost 2 dozen houses compared to my parents that looked at 2 houses in 2004.

I've never spoken to or met the realtor I used to buy the house I live in now. He didn't even come to the closing. He was paid the standard commission for signing some paperwork.

We bought from a builder and they insisted we be represented by a realtor or they wouldn't sell to us.

The issue here is the pricing is consistent, while each transaction is different. You wanted high-touch service in a fast-moving market, great. But another buyer who does not want or need that service still has to pay for it.

An approach used by other service providers is hourly billing. Realtors could even offer distinct service packages like accountants ($XXXX to prepare taxes). A reason they don't is because the line items or hourly rates would be absurdly high to generate the same level of fees they get today.

Realtors And especially real estate brokers, have ripped apart our society with cartel like tactics so they can grab a few percent on each bit of the destruction.

I hope the book is thrown at them as harshly as possible.

Claw back those earnings and put it into funds to clean up the mess that has been made

I’m a home owner and a landlord (we rent out Condo while we are living in Germany) and I despise all the hustle porn millionaires on social media flaunting their real-estate empires. Speculating and amassing homes to what? To become slumlords doing the absolute minimum only to raise rents to the maximum possible? There’s no evidence that these “investors” spur the creation of new homes if anything they speculate up the price of homes for would be buyers.

I also learned recently that the realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else.

Why am I able to use my single rental as a tax shelter? Because of decades of tax lobbying that has made real estate a fantastic investment. But has it helped the average family looking to get a home? To stop being beholden to the whims of the rental market? Has it spurred on builders to build homes? Have these lobbies lobbied local governments against NIMBY policies? F no. By keeping supply high and benefiting from high interest rates they bank — myself included — on renters without the means to buy a home or come up with the down payment to stay renters for even longer.

And don’t get me started on the BS and corruption in the title industry. Why the f does it cost 1500 to 2000 to do a damn title search? And related to that why the f is the seller paying the buyer’s agent a commission? Wtf did the buyers agent do?

Abolish the mortgage interest tax deduction and scale back all the tax breaks that make real estate so speculation friendly. Get rid of 1031 exchanges. Disallow real estate trusts all these tax haven things must go.

As an aside, a big reason existing residential homes are often profitable speculative investments is because of bans on new homes. The lack of competition from new home construction drives up the price of older homes.

It isn't just new homes, it is also replacing old homes. If I cannot tear down a house next to downtown because it is "historical" (because it is old, not because anything historically important happened there), then I can't replace it with an apartment and in turn that forces more people to move out to suburbs.

US realtors seem crazy -- charging tens of thousands for doing what exactly?

The UK system is pretty bad, but you can choose to spend somewhere between about £1500 and £5000 to sell a £500k home, about about £1-2k to buy one (including conveyancing fees)

The US seems to be an order of magnitude more?

Generally, they help with Sales, Marketing, Negotiating, Psychologist, Logistics, etc...

There are a lot of home owners that try to sell their home themselves. It can be done.

So if you don't want to pay a realtor, then don't use them.

Why complain about using a service you aren't being forced to use.

Yes, we call them "Estate Agents" in the UK. Even the most expensive ones (with brick and mortar shop fronts) charge about 1.5%. Legal fees are typically fixed, and another 0.5% for the average house.

The US seem to charge an average 5.4% - over twice the price.

The problem is that its hard to get your house listed on the MLS if you're not using a realtor (you need to use a digital realtor that lists on your behalf), and many realtors won't even show those houses to their customers if they recognize that its being listed by one of those digital realtors.

Realtors ARE a good idea. They should be helping you navigate a process that most people will only do once or twice in their life and is very complicated and full of pitfalls. However they've used their industry lobbying to carve out a very comfortable position and then stopped doing the thing everyone wanted them to do.

MLS also lists the rates the house is paying out. ie, the usual rate for selling a house is 6% and 1/2 goes to the selling agent and 1/2 goes to the buying agent. this is outside any kind of other fees you will pay such as closing costs, etc. If you list lower than like 5% on those rates or decide you don't want to pay the buying agent as much, they just wont show your house, even if its perfect for the client.

Probably need to attack the services then.

MLS is a service company, and Realtors are a trademark group.

Perhaps they have what some might call monopoly on the market.

Technically, you can list your property without MLS or without using a trademarked 'Realtor'. There are other agents that aren't 'Realtor'.

It's like complaining that Google isn't listing your ads for free.

Just like Google owns search, so you have to pay them to get listed.

It can be done without a realtor but it's made harder by MLS and realtors to incentivize sellers to use realtors. There's no incentive to make it easy to sell a home. Just in the same way Intuit and other for-profit tax preparers lobby to make free filing of taxes difficult to accomplish.

Rent seekers and middle-men will always revert to their ways of bottom feeding.

My cat sold my house once. OK, not exactly, but close.

We were planning on moving. My kids had "adopted" this outdoor cat, giving her food and (outdoor) shelter. We were moving in November, and I figured that cutting her off just as the weather turned would be rather hard on her. So I was trying to find a new home for her.

I ran into a neighbor that I had talked to maybe a total of five times. I asked him if he wanted a cat. He said, "No, but I want your house." He had wanted to buy our house when he moved into the neighborhood, but hadn't been able to afford it then.

So we did a private sale, without a realtor. That cat saved me about $20,000 in realtor fees, so I figured we could keep her.

So, yeah. You're not forced to use them. You can find a buyer (or seller) yourself. You can use Homie or something like it, at least in some places. I just normally don't have the time to do that kind of thing, so I normally use a realtor.

> US realtors seem crazy -- charging tens of thousands for doing what exactly?

It's not just the US. In Germany, it can be up to 7.14% of the purchase price (depends on the state [1])... so for a 750k unit you're looking at 53k of realtor fees alone, and anything between 3.5-6.5% of sales tax [2], 1.5% for title fees (notary + land register), and on top of that fees from the bank for the credit line... so for that unit you're paying at least 115k in taxes and fees alone. It's nuts, and yet people complain nobody is buying houses any more.

[1] https://www.immobilienscout24.de/wissen/verkaufen/maklerprov...

[2] https://www.finanztip.de/grunderwerbsteuer/

6% being the going rate for realtors (split between buyer and seller) a £500K home would of course net £30k for the realtors involved (comes out of the seller's haul).

The difference being there aren't 'buying' and 'selling' real estate agents in the UK, just ones representing the sellers. A buyer just approaches a bunch of agents asking what is on their books (or looks on RightMove).

And 6%? Try ~1.5%

And 1.5% is a ridiculously high amount for what they actually do. Strike will list you on rightmove for free, and do photos etc for about £800. Purplebricks in the £1k range (£1300?).

The sellers agent does advertise in various places, including pictures for those ads and writing the ads. Those are arts worth paying for. How much they are worth paying is a valid question though.

Wasn't the article about Realtors?

You are describing people buying real estate. Rental Property owners, buy real estate to rent.

Realtors are in the transaction of buying/selling real estate.

Different Roles.

For small time real estate investors we still use realtors and pay their ridiculous fees.

> I also learned recently that the realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else.

> Why am I able to use my single rental as a tax shelter?

The tax deduction is only available on your primary and secondary residences. (Where secondary here refers to a second home, not a third, etc.) You don't get to claim a primary or secondary residence mortgage interest deduction on your rental properties, because you aren't living there.

This arose out of a previous law that generally allowed for the deduction if interest on all loans because it was administratively unfeasible to differentiate between business and personal interest expense (or so said the wisdom at the time). Even today, business interest expenses are generally deductible. This is wholly separate from the mortgage interest deduction, which is for owner-occupied homes.

You didn't actually address any of the parent concerns about why. Why should anyone get a deduction on a second home when inventory levels are at historic lows? Why should homeowners get a fat tax deduction from their mortgage when I as a renter get nothing?

Going further, why should anyone get to exclude a quarter of a million dollars on capital gains when they sell their home?

You, as a renter, are getting it -- your landlord is deducting their (commercial property) mortgage interest from their income (your rent). Probably in their Schedule E. [0]

Furthermore, for homes purchased after 2017, the personal mortgage interest deduction has been capped on $750,000 of mortgage debt (first and second home only, combined). [1]

Given the boosted standard deduction, thus isn't a major difference.

If you're going to pick a windmill to tilt at, there are much larger structural issues in US housing. As mentioned elsewhere: zoning that precludes new unit construction, SFH zoning for areas that would support denser development, etc.

[0] https://www.irs.gov/businesses/small-businesses-self-employe...

[1] https://www.irs.gov/publications/p936#en_US_2022_publink1000...

Oh, the free market passes this sweetheart deal on to me, the renter. Glad to see how well the system works.

Haha it sure as shit does not. Landlord's keep it. The reasoning that shareholder/landlord savings either via by tax or fiat are shared with tenants or customers is a hilariously wrong fallacy of trickle-down economic thinking that has been debunked.

It's literally impossible to "keep it."

The landlord charges what they believe they can charge.

That's set by market rates in your local area (or cartels like RealPage [0] et al.).

And that's set to homogenize returns with national rental alternatives.

And that's set by alternative options to invest of capital.

If you +5% to the costs of operating rental property, by removing a deduction, rents are going to go up.

And focusing on commercial mortgage interest deductions is ridiculous, as they're accounted for in the exact same way as every other business: expenses deducted from income.

[0] https://www.propublica.org/article/yieldstar-rent-increase-r...

I’m hypothesizing that removing favorable tax incentives for owners will cool real estate speculation and cause demand for homes to fall such that prices fall such that more renters become owners. There’s an eventual equilibrium sure but it’s probably at prices less than they are now.

I’ll concede to you on the costs flowing to renters in the sense that if ownership costs go up for all owners rents would follow.

I still think as a category the asset is far too tax advantaged at the expense of the poor or the non-home owning to the detriment of society as a whole.

I'm with you in that I fundamentally believe everyone who desires it should have access to home autonomy. In the sense they are the sole arbiter of actions involving their primary residence, including stable, predictable financing costs.

To me, the biggest problem is the lack of affordable capacity available for primary residence buyers at desired price points.

Which means increasing inventory.

Which means (1) upzoning for density (as most desired locations are land-constrained) & (2) preventing that new inventory from being constructed-as or repurposed-into rentals.

To (2), I'd love to see more efforts to increase costs on large landlords. E.g. a limited-number token system, effectively capping the % of rental properties in an area, with tokens regularly (re-)auctioned off to the highest bidder.

If a giant corporation wants to be a landlord, they shouldn't be able to corner the market.

Savings are not passed onto the consumer. If they were, we'd all be working 10hr/wk and have free healthcare and insurance.

>>You, as a renter, are getting it -- your landlord is deducting their (commercial property) mortgage interest from their income (your rent). Probably in their Schedule E. [0]

How does a landlord paying less tax require them to pass that benefit to the renter? Is the assumption that absent this money rent would be higher? If the amount returned to the landlord increased would the rent decrease proportionally or is this just the wishful thinking of trickle down?

It's valid that benefits would pass to renters if the market was constrained by limited demand and priced at the marginal cost of ownership. If the market is constrained by limited supply, then benefits are absolutely not passed onto renters, and the market will be priced at renters maximum ability to pay.

I don't think we're either purely supply- or demand- constrained in Houston, TX. But I do think that a massive number of rental properties are using cartel-based pricing in the form of YieldStar software. This distorts the market just enough by preventing price drops in large amounts of properties in less desirable areas, which props up demand in more desirable areas.

This only works if large companies like Greystar and Knightvest and Post own both expensive high-end properties where they need strong ROI, and inexpensive crappy properties where they can take a lower ROI because the capital outlay per unit was a smaller % of their total assets. If both the shitty apartment and expensive apartment rent for $1,400/month, the shitty apartment might go vacant but it didn't cost much in the first place. Meanwhile the expensive apartment costs the same $1,400/mo so people say "that's a bit too much for me to really afford but I can't find anything cheaper and this is the nicest one at that price".

Without YieldStar's price distortion, the expensive apartment might still be $1,400 but the shitty apartment would likely be $800/mo. Enough people would move from the nice apartments to the shitty ones that the nice apartments would eventually have to lower their price a bit to maintain target occupancy rates.

There should not be a deduction for the interest paid. It makes no sense and only helps the relatively affluent who can own/buy homes.

If you have a commercial loan the interest is tax deductible as a business expense. The "tax shelter" many people think of when thinking of becoming a landlord (and is not allowed) is deducting passive losses each year (eg rental income is less than all your rental expenses) when you are not a "real estate professional" as per the IRS guidelines. You can deduct those passive losses when you sell "substantially all" your property. IANAL but I did own, landlord and then sell a commercial property (and would never do it again).

I predict that in the next tax reform - in about 25 years - the mortgage deduction will disappear. It could not in the last round a few years back because so many people use it, but the standard deduction is now so high that most states only the filthy rich can use it and so most voters won't care. (sorry bay area residents, but your property values are something the rest of the country laughs at)

Actually a lot of people can still use it if they pay for points on a mortgage. The upfront cost of the points is treated as mortgage interest for tax purposes.

Sure, but it is much less likely useful and so a lot less people care about it.

> fought hard to keep the mortgage interest tax deduction

I think this tax deduction is insane, but it's notable that this kind of deduction on interest doesn't exist in Canada and other western countries, but we have in many cases far far worse housing price inflation than the US. So it's not really the culprit.

It's really very simple. When people are buying a home, they are really buying a loan, not a home. 9/10 home buyers buy the home to fit the maximum loan the bank will approve them for. 15 years of insanely low interest rates means demand for those loans was crazy high, so the price of the thing that backed the loan -- the property -- also skyrocketed. Yes the tax break in the US likely worsens that, but it's certainly not the explanatory factor on its own. A large percentage of home buyers have no ability or intent to ever fully pay out their mortgages (and standard "financial advice" during low interest times was not to bother). So the commodity you're "buying" is not a house, but the loan itself, a long term rental arrangement with a bank.

Now that rates are returning to normal levels, I hope to see that level out or fall. But there are strong lobbying pressures to prevent that. There's a whole generation that sees interest rates lower than 5% as normal/expected. Which is pretty crazy, really.

Capital gains exemption on primary residence probably also plays a role. I personally think that exemption should only apply on a portion of the resale value below a certain threshold. That would help put a downward pressure on price inflation.

But the core problem is that there is the most powerful voting demographic explicitly does not want this. Most baby boomers and much of the middle class are relying on the $$ in their properties to retire, because western countries have on the whole dismantled the concept of pensions and a financially secure retirement.

> realtor lobby has fought hard to keep the mortgage interest tax deduction which helps home owning persons but hurts everyone else

What you're saying is correct, but it's worth noting that as of 2017 the number of tax returns claiming mortgage interest deduction went from 20% to 8% https://www.brookings.edu/articles/chipping-away-at-the-mort...

The reason being the increase in standard deduction, and more people opting for that vs going the itemized route. It's unclear how the current (or next) administration feels about the mortgage interest deduction, but it could be the last days of it.

> Get rid of 1031 exchanges

An exchange involves a sale followed by a subsequent purchase. Without the 1031 treatment the seller just might hold forever, which is probably the opposite of what you're trying to achieve.

Re the 1031 my original screed aside I concede that you’re probably right.

I also didn’t know that re the standard deduction taking down the amount of folks that take the deduction. Hmmm

If you think it's bad in the US, you should see Canada. Every level of gov't and society is corrupted by the real estate industry. Worst housing price to income ratio in the G7.

Feeding on the young.

In my town realtors are getting over 4x the average salary. (Coeur d'Alene, ID)

There is a job fair this week where 65 local businesses are looking to fill 1600 jobs...just in my county. Hyping the 12.5% average wage increase (most jobs they are talking about were in the $10/hr range).

Everyone is a realtor. Businesses are fleeing. Workers have already left. Commercial vacancies everywhere (but of course the price does not drop, but they are largely shifting from for lease to for sale). Although..We do have 3 hatchet throwing bars currently and a new brewpub every week.

Not sure how long this house of cards will stand...but it in no way seems sustainable. Even at $20/hr I cannot pay workers a living wage.

Edit: for clarity

> We do have 3 hatchet throwing bars currently and a new brewpub every week.

Im seriously not getting the financial metrics of these axe throwing bars. Insurance liability of throwing sharp chunks of metal must be stupid high, and really, how many people are actually interested in this?

There's 2 that popped up locally here. I just dont get it.

Now, alcohol... that's another story. Decent beer is easy to brew, and has good markups. And having a pub is basically printing money. If you have a good location, it's a moneyprinter. At least the metrics for these make sense.

And, well, alcohol does better when the economy is worse. People can drink their sorrows away, for a time.

One of the hatchet throwing bars moved into a $3200/mo unit that had been vacant for almost a year.

I guess there is more to it than I understand.

i'd get into the logistics of axe throwing operations, but it's a bit of a hatchet job :P

For contrast, in the UK we typically don't use buyer brokers at all. Normally the seller pays about 1% to their agent.

Probably because you pay the state the other 6% as stamp duty who is the true broker.

there are bunch off settlement fees that go to the government in the US also.

Nothing close to 6% of the purchase price though.

In what sense is the state "the true broker"?

https://archive.ph/9NFgk

Link no longer seems to work.

It works for me but I've noticed that site has got much less reliable over last few months

I think Americans are finally beginning to wake up to how much of their lives are absolutely sucked dry by rent-seeking middlemen.

Any consumer surplus must be meticulously optimized away, eliminated, and recorded on quarterly profits. Hopefully the anti-trust pendulum will swing back in a big way in the 21st century.

Typical commission is 5% many places. Buyer's agent stipulate they're taking 2.5% to be paid by the seller, you have to come up with any difference (eg, for sale by owner that's not paying agent). Many agents will negotiate their listing fees, they don't want to, but they will, because they know the name of the game is volume, and in many markets the homes sell themselves.

The real scam is the brokers. They are the invisible middle-men taking large chunks of commissions.

there are a lot of brokers that offer desk fees. instead of %. and keeping complainant is no joke.

unless your talking about mortgage brokers in which case you could go to a bank and pay more unless your buying a $1M house and have access to relationship manager.

It's not just realtors but regulations that need to be changed. State regulators are partners who protect and serve the interests of the industry.

Useless as car salesmen. Hire an engineer or lawyer to protect your rights. Do you really need a 6% consultant? No, you very likely don’t.

Before the internet, we were paying realtors for access to the MLS. Not just for sales but for rental properties. My first single-family rental was via a realtor (friend). It was unfindable otherwise.

Beautiful property, near the mountains. Birthed my first son there.

Another discussion on HN about realtors that is full of people thinking agents do nothing but skim off the top. Particularly ironic for a group a of people who talk so much about how much their time is worth.

Yes, if your time is worth $0 then maybe a realtor isn't worth it but even then I disagree. If you go the FISBO route then you should know that other agents /hate/ working with you. Not because of anything relating to money but relating to competence. If they work with a real agent (and not a 1-2 houses a year, "I got my license on the weekends but it's a part-time job", agent), especially one they have worked with before, they know they aren't going to have to hold the other person's hand every step of the way. That or deal with gross incompetence in writing/submitting/etc documents.

My parents are real estate agents and I've heard them talk about (and seen firsthand) the pain of dealing with bad agents and it gets 10x worse dealing with someone who is not an agent. They make mistakes constantly, my parents have to do way more work since the other party doesn't know what they are doing, and it's frustrating for the buyer/seller they are representing as well.

Let me put this in terms more of you will understand: You know how the low paying clients are always the biggest headache? They want the moon but want to pay pennies for your work? Yep, that's what's it like working with someone who is not an agent (or is a bad one). See also "cheaper" agents, you get what you pay for.

Furthermore real estate can get very emotional. Maybe you built the house (aka, paid for it to be build and picked all the finishings/etc), maybe you remodeled it all, maybe you've just lived there for 10+ years and it's "home", maybe one of the spouses doesn't want to sell and is going to dig their heels in, maybe neither spouse wants to downsize but are being forced to since they can't justify the bigger house after all the kids have left, maybe medical bills are forcing them to sell, and the list goes on. In situations like this I _promise_ you that you want an intermediate. You also want someone that can do a little "backchanneling" to see where the other party is, are they just on the edge of accepting the offer? Are you way off in left field? Would they be fine with the offer if you waive your right to remedy?All of these things are made way better by having someone who does this day in and day out in your corner and does not have an emotional attachment to the house. Even with an agent I've seen deals on $1M+ houses fall through over <$5K because someone felt like they didn't "win" the negotiating, I've seen even more deals go through because my parents could smooth things over with the other agent and/or calm down their clients.

That brings us to the article talking about how real estate agents:

> That means there’s little incentive for buyer brokers to negotiate better deals for clients, especially since they earn bigger commissions on higher-priced homes.

Are there unscrupulous, fly-by-night, agents out there? Of course, I challenge you to find any industry without these kinds of vultures, programming is no exception. But you have to understand that if you want to be a successful, long-term real estate agent then you are slitting your throat with this move. The _vast_ majority of your business is going to come from repeat and referral business. That's friends/family of your clients or the same clients again when they want to move 3, 5, 10 years down the line. Just within my friend group we all used the same agent over the span of over a decade since she was great to work with and we liked her (I don't live near my parents or I would have used them). This is where the money is. You don't get repeat business from people you piss off, from people you put in a house outside what they can afford, etc.

Lastly, not only do real estate agents know the market/area better than you (again, excluding scummy/bad agents) and can warn you of things not readily apparent about a house you are interested in but they can have a huge impact on how much your house sells for. They bring in a stager (if they are good agents) to tell you what you should move/remove/change to help your house sell, they can recommend easy/cheap things you can do to improve the value, and all around they know what people are looking for better than you do. Trust me, you are too emotional about your house to make the right decisions when it comes to things like this. I don't care that you like the couch there or that you don't don't use the dining room as a dining room, buyers _do_ care and it can be a turn off. Things like this are very difficult to do on your own and we haven't even gotten into taking good pictures.

I'm going to stop here but I always just laugh at people that want something like Redfin or Zillow to succeed here. 6% is worth it IMHO and as someone who worked for my parents and probably could have bought my house on my own (or with their remote help) I was all too happy to pay an agent to do it, I've seen the work a good agent puts in firsthand and I have no desire to take on a second job.

I don't understand why my comment "pls.com for sale" was flagged?

The article mentions pls.com complaining they are being prevented from competing, and I went to check them out, and the domaon is for sale.

You don't find that interesting or topical?

The name of the actual company is The PLS.com (as it appears in court documents), and thepls.com is working.

https://casetext.com/case/the-plscom-v-the-natl-assn-of-real...

doh! thank you

The use of the word cartel seems inappropriate here, it's pretty loaded and biased. The trial just started, perhaps the media should wait until the verdict before pushing their opinion.

Seems like a cartel to me. In my state commissions are 6% almost universally. Id expect 99.9% of listings and sales with agents charge the same amount.

I think that’s only possible due to cartel behavior.

Of course, we’ll see how the trial goes but it seems like a valid opinion to me.

It is mainly internal to the companies. I have my license and did not use it for a long time because the hypermarketing in the brokerages I was affiliated with was unbearable. I decided to hop back into it because I had the opportunity to start my own brokerage, an important part of which is I am no longer forced to have a minimum commission. My first decision starting back up was to offer all clients 25%+ off, something I could not do because of agent-broker agreements in my past affiliations.

I have to say it is very expensive to be an agent, mainly because you need a huge marketing budget and most people are wasting your time - either because they can't afford a house and don't realize it until you sit down and walk them through the numbers, or are intentionally just using you with no intention to have you even potentially represent them. There is also a lot more work involved in listing a house or representing a buyer than people give credit to, which is often discounted as almost nothing (as I see in this thread as "just do X or Y" - exactly like people do with devs thinking they should have an advanced website for $200. BTW, 90% of FSBO wind up being sold with an agent. It is not as straightforward as it seems.)

I would not be able to operate offering 50% off. So yes, I think fair trade is a bit lower than the typical 5% (2.5% per side) charged in northern California, but it is not 2-3% either. My personal lowest commission is 1.5% for one side, and that is for extremely high value property. I am without a doubt one of the poorer Americans on this site, and have a family to feed, so I cannot be convinced my work has no value but everybody else's work here is worth 10x. There is no doubt a real problem in the industry and I refused to work in it for many, many years until I found a way to sidestep it. But purely monetarily, it is not of the magnitude that is naively assumed. For me, the far bigger problem is in attitude; in marketing at all costs.

> I would not be able to operate offering 50% off.

You might not be, but others might be able to optimize out the costs you describe.

Right now there’s not much incentive because most everyone charged that.

Personally it seems odd to me that everything is percent based. It’s not 10x cost and work to sell a $100k house than a $1M.

It is percent based, like the vast majority of sales in almost all market sectors, because the amount of work is unpredictable. It largely depends on the fickle nature of your clients and those on the other side, as well as for example lenders messing things up, etc, as has happened to me recently. So pricing needs to take into account the law of averages, it can't optimize as much as would be possible if all people were strictly rational actors.

Not one person likes high costs and there are millions of professionals attempting to optimize every day. There is plenty of incentive. It is a lot of money. But maybe walmart will come and make everything ~~better~~ cheaper and unbearable.

Cartel has a precise definition: “an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition”.

It is often the unsavory industries that get hit with this label, but there also exist cartels supported by governments/public. Diamonds and wine are two obvious examples.

This is literally and exactly a cartel! The realtors deserve to lose.

Sincerely,

An antitrust economist.

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