That’s not quite the right question. It should be, do houses costing $150k have more interested buyers than houses costing $500k? That cheap-ass house I bought didn’t exactly have a line out the door of people looking to buy it, despite the fact that it cost less than many people spend on cars. People who can afford a $500k house aren’t even looking at houses that cost $150k.
In a perverse way, it may be easier, if we are talking about the exact same house at two different points of time.
If the house sold at $150k just after the bubble burst, the price was artificially lower because there were fewer buyers. Before the burst, it may have gone for 300k. The sellers may have taken a loss just to get it off of their hands. The broker had to work hard to make the house attractive and to find a buyer.
Fast forward 15 years. The real estate market is booming. People are regularly paying over asking price. The $500k is already artificially high - 5 years ago, it may have gone for 350k, but there’s people out there looking and able to pay for it. The broker can list it and wait for an offer.
I wasn’t saying that it wasn’t and pointed out other factors to be considered. That doesn’t mean that all individual realtors have benefited from the commission rates. It does mean home buyers are being detrimentally affected. An effective change in this system would not allow as many realtors to operate as now. I think that large realty companies are taking a piece of a large percentage of sales by making it difficult for realtors to operate independently now and changes to the commission structure will just make that worse.
There can’t be as many people who can pay the higher amount as there were before. It’s that simple. The increase in home prices exceeds the inflation rate.
To be clear, you’re agreeing that this is a necessary and desirable outcome, right? If market forces are allowed to operate and commissions drop to 1% as they should, then the market will obviously only support a small fraction of the current number of realtors.
I have no problem with it. But I doubt the market will support realtors on a 1% margin alone and home buyers and sellers will end up paying for their services in some other way. Hopefully it will be more fair, but I wouldn’t expect a 5% plunge in home prices.
Based on what? That’s where the market is in other countries. Right now there isn’t a functioning market for services, there’s a cartel. Let’s break the cartel, get the marketing functioning and allow market forces to dictate whether the realtor work involved in marketing a $1 million dollar house is worth a lot more than a $10,000. That’s 100 hours at $100 an hour.
You’d be surprised.
I’ll admit, I haven’t had much interaction with the real estate market. We bought our first house when we got married 30+ years ago. We bought our second (and current) house 17 years ago when my father died - we bought my old family home from the estate.
After the bubble burst, our house dropped in assessed value by about 15%. It’s been slowly gaining value, and is now assessed at about 25% above when we bought it. The house across the street, which is smaller and is definitely a fixer-upper, just sold at another 10% above our worth. So, if we bought at $170, it dropped to $150, and rose to $210. We probably would have had a hard time selling after the bust ($150), but I have a feeling that we wouldn’t have a hard time selling today at $250 or more. Not exactly the same numbers as our above hypothetical, but similar.
If we change the scenario a little bit, I can still fit it into reality here. There’s a new house a few blocks away - new construction; similar number of rooms / bedrooms; one more bath; 3 car attached garage (instead of our small 1-car). On the market for less than a month; sold for $500k. The realtor had an easier time selling that one than they would have a $150k house 15 years ago.
Yeah, I have a hard time thinking of something worth $150 inflating to $500 in 15 years, but it wouldn’t surprise me if someone had an example of exactly that happening.
Very few realtors sell houses for $1,000,000. It can take just as much work to sell a house for $150,000. Do you think realtors can survive on the same rate of sales at $1,500 per? The average price is a lot higher than $150,000 now but declining rapidly for a number of a reasons, as are the numbers of sales. I don’t know how home sales are done in other countries but I will stick to the basics here, the number of realtors we have can’t survive on 20% of the commissions they’re currently receiving. Average income for US realtors is only around $60,000. And that average includes the ones that make far more than that with just one sale.
But why are you repeating this again as though it justifies current commission levels? It doesn’t. There are 5 times the number of realtors there should be, getting paid 5 times what their services are worth per house, and each with the useful productivity of one fifth of a person.
Is a world with fewer realtors a bad thing?
The jury award, subject to review, is 1.78 billion dollars.
I didn’t say it justified current commissions. You seem to want to argue about something you wish I’d said so you can make your points. If there are 5 times the number of realtors there should be then there will be a lot less if commissions are cut to 1%, or they’ll just make their money some other way. The same points would be true if contingency fees for lawyers were slashed in the same manner. I have no problem with fewer realtors or lawyers in this world but simply slashing rates won’t create a seismic change in the market.
My experience with real estate agents in the UK is that they spend 80% of their time and effort actually showing houses and doing paperwork in support of selling and buying houses. And 20% seeking listings or buyers.
My experience with US real estate agents (I’m married to one) is that the percentages are at least flipped. The overwhelming effort is expended on seeking clients, not servicing them.
“Slashing rates” isn’t something that happens by decree. It is something that WILL happen by allowing competition to operate. And breaking the cartel to allow market forces to set commission rates certainly IS a seismic change in the market. Something that the industry will obviously continue to fight tooth and nail.
Whatever you are calling a cartel doesn’t prevent negotiating commission rates currently so I don’t know what you think breaking this cartel will accomplish. The lawsuit involves the National Association of Realtors Clear Cooperation Policy which requires participants to submit new listings to multiple listing services at standard commission rates. Do you have any information supporting the idea that eliminating this practice would result in lower commissions? As far as I know those rates are still negotiable, though if it creates a situation where the commissions must be split between buyer’s and seller’s realtors it’s more difficult for the buyer to negotiate for the sellers portion. OTOH multiple listings are advantageous for both home buyers and sellers and not realtors without some assurance that they stand to gain from sharing their listings.
What difference does that make to the commission rate if selling a house requires the same amount of time from a realtor in either market?
If you’re going to circle back to claiming that there isn’t a cartel I have no interest in rehashing the entire thread. There is very obviously a cartel when commissions are 5 times higher than other countries and when brokers are taking a completely egregious $50,000 out of the sale of a million dollar property.
I’m not circling back to anything because I never addressed it previously. According to this lawsuit what you call a cartel would be the National Association of Realtors and some guy named Keller Williams. I’m sure they see the policy as beneficial to their businesses and it is possibly illegal in some states but that doesn’t mean eliminating the Clear Cooperation Policy will result in 1% commissions. It will definitely result in fewer multiple listings which could just as easily create higher real estate prices. It certainly won’t be the end of the NAR which may overall have a detrimental impact on real estate prices and commissions, but as I have said they’ll find another way to make the money after this lawsuit.
Noted. Thanks.
Small note, Keller-Williams is a realty company formed by two guys named Keller and Williams.