Realtors reach settlement that will change how Americans buy and sell homes
wsj.com
wsj.com
A good sellers agent will know better than you how to prep your home for sale, how to market it, where to find qualified leads, what price to set it to, where to get contractors to make repairs, what kind of repairs are worth making, and when you get to the deal phase, how to negotiate and what paperwork is necessary, and how to deal with contingencies.
A good buyers agent will have deep knowledge of the neighborhood you're looking at (or can take your requirements and find you a good one), will have strong knowledge of the local schools, local demographics, local issues that can affect homeowners, what to look for in a home that could be a problem after purchase, red flags, and can help you negotiate the best deal and extract the most concessions from a seller.
But in both cases, I don't see why the value they provide changes based on the value of the home. Some of them might change based on the size of the home or property, but not the home value.
I don't see why we don't push for fixed fee based services, perhaps with an adjustment for local cost of living and size of the home/property? I know the Realtor cartel doesn't want that, but how can we citizens make that change happen?
In both cases, the value they provide is relative to the value of the house being transacted.
A seller's agent definitely makes sense to take some percentage of the purchase.
The services they render - for say a $20M home in the Beverly Hills - are completely different than when selling a $1M house in San Jose or a $200k condo in Chicago.
I disagree in how valuable buyer's agents are, though. The value they provide is mainly for people who are completely clueless about real estate - which I guess could be a lot of buyers.
If you're selling a $20M home, and you think a good seller's agent is going to get you $20M instead of $15M - most people don't really have a problem paying 3% for the services - otherwise we would've never gotten into this common deal structure.
It's only people on HN who think realtors sit around doing nothing and make $100k selling an expensive home - and then generalize that to all realtors.
SOME realtors are definitely doing that. So are some people in every industry.
No, they do more for more expensive homes because they are harder to sell, but there is no reason "renting staging furniture" and "an extra open house with champagne and cookies" can't be itemized.
When buying a house, I viewed around 100 houses with my agent, and he called in multiple specialists to answer various questions we had on different houses we took a look at. When it came time to buy he demonstrated excellent negotiating ability and after we had purchased he helped us prep our house for move in by recommending trusted people to do the work we wanted done.
He worked with us for over a year and he earned his commission.
Unfortunately, this process is what we have now.
I would think a referral is only really excellent if from a person who had to do many transactions recently, and sampled at least 2+ realtors. And that's something that's quite hard to come by.
Word of mouth, or maybe Yelp reviews?
One of the key things a realtor do is set the asking price. the higher they set it, the more work for them. of course i want it high, so i want them incented to make it as high as possible, and to push me to stage it properly, have knowledge of WHEN to sell and then CRUCIALLY help me evaluate competing offers. Because often the highest offer is a scam.
Its a wild world out there you absolutely need a seasoned professional in your corner, who knows your market, fighting for you.
What they are actually incentivized to do in expensive housing markets, is do the minimal possible effort per house, but sell more volume.
You could of course design a better incentive structure (fixed fee for median sale, tiered incentives for every % over that), and thats what i hope happens from these changes.
If they can get even one extra client per year for the other $9,000, it's much more worth it to do that than to hold out for a better offer.
it didn't make sense to pay the buyer's agent a percent of the home value which is what these lawsuits focused on. buyer's agent fees will most likely move to a fixed fee model.
I don't know where you are, but in Bay Area this is not true. And even for mega-expensive homes that don't sell as fast, the agent can't really accelerate this much -- certainly not commensurate to the giant commission they receive.
With expensive luxury homes you have a smaller buyer pool and more discerning buyers and they will sit on the market longer than cheaper homes. So I still stand by the fact that they are going to be more difficult to sell than a cheaper one for fairly straightforward reasons.
The problem is: the vast majority of agents are useless. As seller agents, they cannot put together a decent portfolio, they know little or nothing about house construction and repair, and they will show the house to literally anyone - not just qualified and suitable buyers.
As buyers agents, they don't listen to your requirements. They show you what they want to sell, not what you want to buy. Plus the lack of knowledge mentioned above.
If commissions fall, maybe at least some of the incompetents will find something else to do...
It is really a big jump from “they add value” to “worth their commission”. When you see the amount of time and effort that goes into them adding value and compare to other parties that add value to a house, like trades building a new washroom or kitchen or garage for ballpark the same dollar values, and the effort required there, it shows how absurd the agent commission really is.
... but under the current system, the buyer's agent is also incentivized to get the buyer to pay as much as possible, to maximize their commission.
I agree we should push for a fixed fee model, including if no sale occurs, because while the buyer agent _could_ add value in a lot of these ways, there is not always reason for them to do so today.
It’s pretty simple, more expensive homes are less liquid and take significantly longer to sell, because there are fewer people with deep enough pockets to buy them. This equates to more effort in actually finding a buyer. A $20 million dollar home may be on the market for years before it gets sold.
I’m guessing that if just one side of the deal was getting a % of the value, there would be a significant imbalance between the sellers and buyers agents, in terms of effort, which is something that you don’t want as a buyer.
Happy to pay them a few $100 for offer writing.
But most have little ideas about neighborhoods, builds etc. you have to do soooooo much of your own diligence.
I'm not sure that is really one of the main reasons why a seller decides to sell a home or not.
Most homeowners are not jumping houses every year or so.
The transactional costs from realtor fees does reduce liquidity, but it is a secondary factor compared to zoning.
The quality of services offered by NYC and SF to the homeless is unparalleled but it simply is not economical/borderline absurd to try to house them in the economic agglomeration centers of the US.
Given the unmet demand for density right now, it will take a lot of building in a lot of metros for there to be a significant decrease in rents in urban centers. Even with really a ton of building in SF, we are talking 25% reduction in rent when these people would have trouble even with a 50% reduction in market rents.
Massachusetts has recognized this problem, which is why most new vouchers are in Fall River, MA rather than Boston - it is much cheaper to house.
"The settlement includes many significant rule changes. It bans N.A.R. from establishing any sort of rules that would allow a seller’s agent to set compensation for a buyer’s agent, a practice that critics say has long led to “steering,” in which buyers’ agents direct their clients to pricier homes in a bid to collect a bigger commission check."
To me this reads that a transaction cost of selling a house will come down drastically from where its at now -- 6%.
It is possible that little changes for consumers in the near term because many sellers are used to including the cost of a buyer’s agent in their sale price. But over time, new brokerage business models could emerge that make it easier for buyers to choose low-cost options
"could" not "should" or will.
Except for a huge payout for the lawyers, I don't see how this ruling is going to affect home buyers, or sellers in the near future. There would have to be a law put in place, so going forward it's still an agreement between private parties to sell or buy a house.
I'm also troubled by what the Wall Street Journal claims is that this might push a lot of young realtors out of the career field. That can't be seen as a positive outcome.
Overall, I'm still unclear exactly how this is going to help anyone. Especially for the overwhelming majority of buyers and sellers who DON'T want to be their own agent, and want to hire the best realtor to do it for them. I remember when this first came out and lots of people on HN said I'll just be my own agent. Well, that's fine, but that's not an option for most people.
I think regardless there will still be plenty of realtors doing business, and they will still make bank.
> I'm also troubled by what the Wall Street Journal claims is that this might push a lot of young realtors out of the career field. That can't be seen as a positive outcome.
I guess that's one way to look at it. This was a service that provided very little value to the people needing the service but there was not really a feasible alternative. Sure some young people who find success in the field may no longer be able to but we shouldn't prop up nefarious businesses just to keep jobs going. Rather, what should be more likely to happen now is that young people will be able to move into this space and start out innovating the old practices, carve out a more impactful and scalable business model for themselves, and still do very well.
> Overall, I'm still unclear exactly how this is going to help anyone. Especially for the overwhelming majority of buyers and sellers who DON'T want to be their own agent, and want to hire the best realtor to do it for them. I remember when this first came out and lots of people on HN said I'll just be my own agent. Well, that's fine, but that's not an option for most people.
This option will almost certainly still be available and will now cost less. If you ever want to hear someone spout of a truckload of B.S., just ask an agent why a 3% commission is justified on either end of the transaction. The value simply isn't there and it's a huge benefit that this initial hurdle has been toppled.
That seems obvious...?
Either the prices will drop, which benefits buyers (and, to some extent, increases the liquidity in the entire market), or they will not, which means the sellers get to keep more of the value of the home they sold (even if it's with the assistance of a seller's agent, it's still their home).
> I'm also troubled by what the Wall Street Journal claims is that this might push a lot of young realtors out of the career field.
The WSJ has a very strong incentive to side with the entrenched wealthy interests here, and paint this as a bad thing.
Frankly, any realtor this pushes out of the field was likely only in it in the first place because they thought it would be easy money.
> Overall, I'm still unclear exactly how this is going to help anyone.
That also seems obvious: home buyers and sellers will get the same agents as before (because it's not like the entire industry is going to dry up and blow away overnight, or be entirely replaced with worse agents), and have to pay less for the privilege of having access to the MLS (plus the other small services an agent offers).
> I think regardless there will still be plenty of realtors doing business, and they will still make bank.
This seems to completely contradict your previous statement about people who want an agent.
the person you are entrusting to get you the best value is compensated on the opposite.
Real estate agent fees are ludicrous for the amount of work they do.
Efficient markets are better markets.
But states have their own rules too, eg MA requires a real-estate attorney to be part of the process.
Some more discussion over here: https://news.ycombinator.com/item?id=39715511
On the one hand, yes, brokering these transaction is limited to a specific group. But getting into that group seems not that hard, and lots of people do it.
- sale by owner without a realtor is a thing (at least many places?)
- all you need to do to be "them" is take a test and get a license, right? I.e. if as a buyer willing to pay 6-7 figures for a home, the cost of getting that license is negligible. If you wanted to recoup the buyer agent commission, you could represent yourself and do so.
Like, you also need a license (or multiple) to operate a restaurant, and it's really hard to do a prepared-meal-for-money transaction without one side of the transaction being such a license holder ... but we wouldn't in general say that restaurants are a "cartel" in virtue of this fact, because there's healthy competition.
Realtors are not allowed to help you buy FSBO properties. If you have a contract with a buying agent (which most will require) then you can't buy an FSBO. So basically you have to choose -- get access to the 97% of listings that are done by Realtors, or the 3% that are FSBO (and get no help with it).
You also can't buy a house listed by a Realtor without your own Realtor.
That is why it is a cartel. Because the monopolize the listings and then refuse to work with anyone not in their system.
And it's not that easy to get a Real Estate license.
To your restaurant analogy, imagine if you could only eat in a restaurant if also owned one and had a restaurant license. It would be similar to that.
Getting in to the bottom floor, sure. Working your way up? Not so easy. Same for any other cartel like the mafia and so on.
NAR was taught as a model case of broker collusion in my economics classes.
Compensation isn’t in line with value, and the cartel nature of the business puts a lot of friction on the pricing.
This isn’t unique to real estate. A lot of sales guys are driving Porsches based on earnings of questionable value. The difference is your Oracle salesman doesn’t have a monopoly backed by state law on blowing hot air.
A good buyers agent won’t pressure you into any purchase and may end up showing you at least a dozen homes and can give you advice on bidding / actual value of the home, and can identify issues with the house before you’ve bid.
The key is that they’re prioritizing the long term network effects of being well recommended. Our buyers agent was great and I’d recommend her in a heartbeat. She definitely saved us from a couple of potential disasters, and from overbidding (likely saved us low six figures all things considered).
But obviously there are a lot of agents that prioritize turnover rather than actually helping you. You definitely have to either judge them carefully or get a positive recommendation from someone trustworthy.
Yes, they both provide value. But $42k of value each? At that price, they only need to sell one house a month to have a $500k gross income. And they definitely aren't doing a month of fulltime labor to close my sale.
I think that $15k is probably fair for the amount of labor that a realtor provides. But the whole realtor system really is a huge predatory monopoly, and they are squeezing too much money out of the market. And now they're starting to get to the "find out" part.
30% goes to the brokerage, 20% goes to taxes. Add NAR fees and team split, and the real estate agent is getting maybe 25-30% of the commission. So at the end of the day they are pocketing ~13K (versus 42K).
It is fair to ask whether the brokerage deserves their 30% cut.
In a sellers market, with competitive bids, over asking, and sometimes sight unseen / waiving inspection, (and in 90% of markets unfurnished) -- staging is the equivalent of lipstick -- and in correlation to this case, much less meaningful than realtors blacklisting FSBO/Redfin/Zillow listings.
A real punishment would be destroying their business, returning money illegally gotten to individuals profited on, and opening up criminal proceedings on cartel and monopolization.
But no, here's your slap on the wrist. And they'll just make a 10x more convoluted plan that does the same.
Why is it allowed? Cause "they're too big to fail".
In the early 2000's the NAR made a bet that they could make MLS listings accessible to the public via the internet and maintain their business model. For decades the bet paid off, and people got the convenience of being able to do their own real estate shopping. But time seems to have run out on the payoff.
The smart move for the NAR at this point would simply be to take the MLS private again. Then buyer's agents would have leverage to contract for a minimum commission regardless of what sellers were offering. If sellers decided to offer little to no buyer's agent commission, then a lot of deals would fall apart when buyers realized how much they'd have to cough up in cash to cover the buyer's commission at closing. The alternative would be either for sellers to offer competitive buyer's commissions, or for the buyer's and seller's agents to make a side deal to roll the buyer's commission into the mortgage financing agreement.
The net result would be the same as the current situation, less buyer's money going to the seller -- but instead of everyone seeing the commission numbers up front, the question of whether the buyers could actually afford the house would be pushed later into the deal process, more money would go to lawyers to sort things out, and more time wasted by all parties in busted deals.
If the DOJ forbids taking the MLS private, then the NAR would simply have no incentive to maintain it. Without it, I expect the market would revert to the previous wild-west status, where it would be much harder to value a house, and financing would be more difficult and time-consuming to arrange, with many deals falling apart amid such difficulties. If this scenario were to come to pass, I expect there would eventually be public clamor for a new deal that would be equivalent to the current arrangement, except for names and who referees.
The most interesting question in that scenario will be whether the new deal happens before or after a real estate market crash.
I have no idea what equivalent system if any there is be in Europe for fair and consistent pricing of houses, and listing of available units, and who pays for MLS equivalents, if they exist. I never hear that discussed in articles on this topic. I'd be interested to know more.
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> Is there an MLS or other database of Paris apartments for sale?
The short answer: No.
The fragmented French market can make that a formidable task. The French real estate market does not operate through a Multiple Listing System, or MLS, with agents sharing all the listings of available properties (this is the system in most US markets). Rather, individual agencies only list their own properties. They can’t and won’t show you properties listed elsewhere, though sometimes properties are listed with more than one agency – which makes for even quicker sale, before you have a chance to make your move.
There are also a number of listing sites in France, each with their own property ads, each with their own search capabilities. Some agencies list on all of them, or one of them, or none of them, depending on how they choose to market the individual property. Many properties change hands without ever being publicly listed; many sellers choose not to work with agents at all.
Buyers intent on doing a comprehensive search must contact one agency after another, leaving their contact information and hoping for the best. Should you happen to walk in at the right time, you might be in luck. Good properties sell quickly, competition among buyers is fierce and agencies have no real incentive to maintain a relationship with you as a buyer.
Furthermore, France has the biggest private seller market in Europe: nearly half of the properties change hands without the use of a real estate agent. So even if you had first access to the properties listed in the 3500 real estate agencies in Paris, you would still not see all the properties on the market.
For a fairly good overview of what’s available on the market, there are a handful of major French-language listing sites worth a look. None of the sites are comprehensive, and in many cases they will have the same listings as the others. Since each site charges to list on their site, each real estate brokerage (or selling owner, if they are not using an agency to list their property) is faced with the decision as to which of the many different sites they should list their properties.
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So as a nation, we're going to have to ask ourselves: is a system like the above preferable to what we have now?
[0] https://parispropertygroup.com/homes-for-sale-in-paris-franc...
https://oikotie.fi (159€ for private seller)
https://www.etuovi.com/ (149€ for private seller)
In addition each agency shows the available units on their sites. Then there are some in newspapers and I think there is some papers from some group of sellers.
Ofc, there are some private sellers on Facebook, and some local craigslist equivalents.
So I’ll pass on this.
Agree.
> gatekeepers are bad
Somebody has to pay to gather, store and present information in usable fashion in order for it to be of value. It doesn't just appear or self-assemble.
The alternative we face may be something like France: buyers pay in time, shoe leather and exclusion from opportunities what they would save in agent commissions.
They pay the MLS maintainers.
If the MLS didn't exist and we relied on private corporate sources of information, then it's likely the experience would be like in France: many competing listing services, none comprehensive.
That allows Zillow, Redfin etc. to offer listings free. If they had to carry the weight of all the expenses themselves, it's likely that access to listings would be far more restricted, and/or much less comprehensive.
MLSes are bound by an antitrust lawsuit (that they lost) to provide access to online services like Zillow. I would assume that there is an appropriate payment involved, just like with the MLS's other clients.
I think you're overestimating the costs of running a listing service like this -- there are several hundred companies in the US doing it! -- and underestimating how prone this industry is to inflating costs by illegal anti-competitive practices.
https://en.wikipedia.org/wiki/National_Association_of_Realto...
If alternate MLS's are easy and cheap to set up and run, and they can provide a much more attractive value proposition than NAR-aligned MLS's, wouldn't the NAR MLS's have been pushed out of existence long ago?
Actually running an MLS is simple.
I don't see that happening in a world with Zillow, Realtor.com, Redfin, ...
The practical effect of the MLS has been to rationalize and normalize real estate information across the market.
The downside is that people have gotten the impression that this information just appears. They may be surprised what effects the disappearance of the MLS may have on the market.
I will hazard a guess that the biggest and most active MLS's are run by NAR-associated groups.
https://www.nar.realtor/handbook-on-multiple-listing-policy/...