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Comment by a-posteriori | Hacker News Reader

Does anyone know what this actually means for real estate brokerage fees?

There are few markets which have supported 3-5% brokerage fees (even i-banking is <100bps at scale now) so I'm curious where the fees will settle.

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This could change the process to this: 1) Seller gives a portion of their home price to their Agent as a commission (let's say 3%). The seller only paid 3% in commissions. 2) The Buyer negotiated a commission with their Agent (let's say $10,000). Which the buyer pays out-of-pocket, or has paid out of their financing for the home.

This allows the Seller's Agent to maintain their duty to maximizing the value of their client's home by reducing the commission the seller pays. While also ensuring the Seller's Agent doesn't bend to the Buyer's Agent's wishes for a higher commission to secure a deal. This also allows the Buyer's Agent to maintain their duty to their client by negotiating their commission up-front, regardless of the price of the property. They could negotiate a percentage with their client, but that percentage is the Buyer's responsibility, not the seller. It gives the Buyer more power in the commission paid to their Agent.

TLDR: Seller's had more power in pricing and commission payments to Agent's on both sides of the transaction, skewing home values higher to offset their (commonly) 6% commission payments. This segments the Seller's commission to just their Agent, and the Buyer's commission to just the buyer.

These US fees always seem astonishingly high to me. Here, something more like 1.5% would be typical.

Yeah, it is very high. Although, the real estate industry in the US is vastly different.

- Agents do not receive salary, benefits, etc. Their only payment is when they close a deal. - Real Estate Agents are a dime a dozen since the licensing and training is pretty minimal. So lots of competition fighting over small supply, so it can be difficult to consistently get clients. - Agents can pay around $100/month to their Brokerage for E&O insurance, maybe access to legal forms, and a Broker for questions/insight. So they start spending money from the get-go. - Agents, typically, pay all expenses related to the job (advertising, signage, listing fees, etc).

Yeah, it's tough on both sides. Competition is fierce for leads, but the rates have to be sky high to support the enormous mass of realtors. If the fees drop a lot of people are going to need to find new jobs.

If competition is fierce for leads because there is a glut of workers due to nearly zero requirements to become one, one would expect rates to plummet. Which, I suppose, is why we have a collusion situation here.

This reads like the reason why one shouldn't become an agent in the US. It's honestly hard to feel sympathy for people who are basically gambling their professional careers on the real estate market.

For what definition of "Here"?

> maximizing the value of their client's home by reducing the commission the seller pays.

Selling a house quickly (convincing the seller to take a qualified and likely-to-close offer) still dominates as a strategy over eeking out a few extra points of contract price. As an agent, taking 1.25% or 1.5% of a $950K sale quickly is way better than holding out for a $1M offer.

The difference in commission at 1.5% on a $50K delta in sales price is $750. Freeing up your time to work on the next listing is more valuable.

I always thought the right strategy would be to have a sellers agent contract that was tiered, eg agent gets 1-2% of selling price up to average comps, and then 20% of excess selling price over that. Maybe a bonus or penalty for timing, to prevent waiting forever for a good offer.

The main issue with that possibility is many brokerages (at least ones in my area) do not allow a Seller's Agent to reduce their commission without prior Broker authorization. Regardless of what the Seller themselves wants. So while that deal may be advantageous for the Seller (sell quickly) and the Agent (get the deal over with and move on to the next), the Broker is the one getting paid a lower sum and will not allow that contract to be ratified.

Nothing in my comment is about changing the percentage of the commission. (The 1.25% or 1.5% is simply the listing agent's personal split of a 5% or 6% total commission [whichever is customary in the local area]).

Sorry, I didn't explain enough. The total commission remains 6%, but if the Seller's Agent split is only 1.25%, the Seller Agent's Broker (most likely) will deny that as the Broker would receive a reduced cut of the commission.

The Seller and the Seller's Agent may be cool with the reduction, but the Broker would ultimately have the final say since it's, legally, their contract.

Ah. I’ve never seen a percentage-based commission divided unequally into the four parts: agent and brokerage crossed with listing and buying.

I have seen 6% (1.5% x 4) and 5% (1.25% x 4).

Yeah, it's usually unequal in the area I used to work in. The Agent's have their own agreements with their Brokers that are independent of any sale/purchase they work on. I've seen everything from 50/50 all the way to 90/10 (10% to Broker).

We don't really have buyer's agents in New Zealand (the idea exists but used extremely rarely in my experience).

I'm rather suspicious of the US system that creates a place for two agents getting 3% each for little gain (and a lot of scope for collusion against the buyer and/or seller!)

The New Zealand system has its flaws. The major problem is that vendor real estate agents are financially incentivised to turn over sales as quickly as possible and so smart agents do not represent their vendors properly. I've seen lots of house sales where an offer is made and the agent recommends the seller take it. An early sale costs the agent much less time and they make way more money per year. New Zealanders are generally too trusting, so we get screwed over by people that take advantage of that.

Nothing yet. I'd imagine it will go through appeals for a few years before anything actually happens, and U.S. antitrust enforcement has not exactly been a powerful force for the last few decades.

Nothing over 1.5%.

Ever.

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