Commissions are split between buying and selling agent (usually 50/50). The MLS system will display what commission the buyer’s agent is going to receive, so what incentive does the agent working with the buyer have to show properties on which they’re going to receive a lower percentage?
By that logic, no agent should ever sell lower priced houses, since the commission - a percentage of the cost, as has been noted here - will be a lot less than the commission on a more expensive house. And yet, cheaper houses are sold all the time. The answer is that while all else being equal you’re going to prefer to focus on potential sales which offer you a higher commission, it’s better to make less commission than to make no commission at all, and if you think the lower commission house has better prospects, you’ll show it.
Agents, in my experience, tend to stratify: the ones who sell high-end houses don’t handle lower-priced properties, and vice versa. The client whose budget is below the agent’s preferred range simply gets shuffled off to a junior colleague, rather than the agent accepting the lower commission that comes with lower-priced properties. YMMV
Within a given client’s budget range, you’ve got properties on which you’ll earn 6% [or whatever is standard in your area] commission as buying AND selling agent, ones on which you’ll earn 3% as the buying agent only, and ones on which you’ll earn less than 3% because the seller, with whom you have no relationship, made a deal with his/her own agent to give you less. Which ones do you spend the most time and effort showing your client, and which ones do you show only as a last resort?
Sure, if you’ve got nothing else on the books that the client hasn’t already rejected, you’ll probably take them to the low-commission house, but if you think you can sell them something on which you’ll earn more money, the smart move from your perspective is to show the client the higher-paying properties first, in hopes that they’ll find their dream home therein. That means the seller who isn’t paying full commission will likely have to wait longer to find a buyer. In a blazing hot market, waiting an extra day or two isn’t bad. In a slow market, where the median time to sell is already measured in months, being the place that gets shown only after everything else is rejected is not where a seller wants to be.
I hired a buyer’s agent. And she turned out to be worth her fee. In addition to showing me a lot of houses, and knowing about the area, and arranging to get all the information, testing, etc. done… When we actually made an offer on a house there was a longish negotiation. And at one point, i was ready to say, “okay, I’ll buy at that price.” And she counseled me to make one more counter offer.
The seller accepted my counter offer.
The difference between when i had been ready to stop negotiating and the price i ultimately paid was a bit more than her total fee.
Could just be luck. I could have lost the house and had to stay over. But as it worked out, she read the situation correctly. And ultimately, both i and the seller were happy with the transaction.
The fact that she did her job to save you $X does not imply that any fee less than or equal to $X is fair compensation for the work she did. That’s not how you measure fair compensation in a properly functioning marketplace for services.
If I am a high earner and my accountant does a few hours work and uncovers an error that saves me $50,000 in taxes, he deserves to be well compensated for a job well done. But does that imply he deserve $30,000 for a few hours work?
Having just bought a house in the US (we’re under contract but closing is a few weeks away) I long for the Norwegian real estate norms, but one thing to bear in mind when discussing the fairness of the compensation is that when paying someone via provision of a sale you can’t just go “these are the hours they spent helping me, this hourly rate is horrendous”, because you are also paying a share of the hours they spend outside of anyone’s project, and a share of the hours spent on projects that didn’t lead to a contract, for some reason.
With a fixed price or hourly rates you’re still paying a share of those “outside a project”-hours, but if they only do fixed price you’re not paying for hours worked for a commission that never happened.
Read the thread, this has already been discussed.
Commissions are fixed very high by a cartel, and market forces are not functioning - agents are not competing with one another on price by competitively lowering their commissions. What then happens is that far too many agents enter the market, because the egregious fees available make it worthwhile even if they sell only a few houses per year. It is worthwhile for the agents to spend most of their time on client acquisition, and only a small amount of time doing productive work for clients. But that does not mean that it’s “fair” that the clients are paying for all this.
What should happen if the cartel is broken and market forces for prevail is that the fee per house should drop dramatically, 80% of agents should find another job, and the remaining agents should spend most of their time doing productive work for clients - i.e. each agent selling a lot more houses at a much lower fee per house.
I read the thread, but somehow missed that this was already covered. I did notice that everything else you said was already covered and posted nothing that disagreed with that.
I pretty much agree with all this.
My original question was directed at Riemann’s repeated claim that there’s a “cartel” which “fixed prices”. What you’re describing sounds more like the good old “you pay more, you get better service”, which is much less nefarious.
A report (PDF!) by the Consumer Federation of America in 2019 found that 73% of agents interviewed said they would not negotiate commissions. That same report (p. 8) quoted other research on 650,000 residential listings in eastern Massachusetts from 1998-2011 to the effect that properties that paid less to the buyer’s agent were five percent less likely to sell and took twelve percent longer, while apparently exactly one of the 600 or so MLS services in the US publicly displays buyer commission rates on listings, and some of the others have threatened to eject member brokerages that tell buyers what the rates are. (Northwest MLS Breaks The Mold To Allow Public Display Of Agent Commissions - Inman – paywalled).
Perhaps. But it meant that I’ve never regretted signing that contract.
RIght, because it’s a cartel, and you didn’t have any other realistic choice to obtain the same service for a fair price.
I like ice cream, and if it were only available at 5 times the current price, I would still buy it, and I wouldn’t regret it if I had no other choice.
But I’m mystified that so many people seem determined to justify the real estate cartel ripping them off for obscene amounts of money. I guess that’s why they are still getting away with it.
Relevant article about a lawsuit aimed at the realtor cartel.
The realtor that sold my parents home earned her commission. My family lives 160 miles away. The buyer’s offer required an inspection. The inspector recommended a new furnace and roof. The realtor got bids and photos of the roof’s storm damage. Insurance covered most of the roof. She hired the roofing contractor. I’m not sure what was wrong with the furnace. That was $2500. We were thankful the realtor handled these details. House had been on the market 2 years. Several realtors had the listing for awhile.
The buyer knew they had the upper hand. We were glad to be done with that house.
In 2019 I bought a newly constructed home without an agent. I just dealt directly with the sales office of the homebuilder. It was very smooth and I didn’t miss having an agent at all. The sales manager said that some people do use an agent to buy new constructions, but it’s clearly not necessary.
I remember reading about that lawsuit in the past, but don’t recall any resolution. I believe last fall a judge refused to dismiss, so it is still proceeding.
It sure seems to me that the historical system of remunerating realtors is ripe for adjustment in light of changes to the market. Remember when you had to work w/ a realtor to see the MLS listings w/ those tiny black and white photos? Now, I imagine what is expected of the seller’s agent has changed, but I also imagine a good portion of buyers do a greater share of the “legwork” themselves on-line.
I’m not an expert, but I think it is rather unusual to have a pure Buyer’s agent - which ISTR requires a special contract, and creates a fiduciary duty. I’m not sure the run-of-the-mill buyer makes such an arrangement when he looks at a house w/ a realtor and has the realtor draw up an offer. Once the contract gets signed, I’m not sure the agent the buyer worked with really owes a duty solely to the buyer - as opposed to making the sale go through. I repeat, I’m not an expert.
Then there is the issue where a buyer directly contracts the listing agent - who than gets both sides of the deal.
Yes, one does have the option of going w/ a “discount” agent or listing FSBO. My recollection - which may be faulty - is there are some odd aspects of some discount brokers, who might charge fees even if you don’t buy a house, or who might seek fees if you find a house w/ another realtor or on your own.
I would think that a reasonable commission would reflect the efforts involved and time taken, with the commission increasing over time and w/ effort. Make the challenging listings pay more, rather than having the quick sales subsidize them.
It’s not necessary for the buyer, but it’s generally necessary for the seller. Most builders list their properties with RE agents, because they need to move them quickly rather than pay interest on their loans (and fail to qualify for new ones) while waiting to sell them. And if the property is listed with an agent, then that agent is going to get a commission regardless of whether you used them or not.
It’s my understanding that what most people here are calling buyer’s agents are really seller’s agents, but just not the ones listing the properties. (There is such a thing as a buyer’s agent, but it’s relatively rare.) The difference is that the guy listing the property has an obligation to the seller to attempt to find buyers for that property, while another agent has no obligations to the seller at all, and can tell all their potential buyers that the property is junk and to stay away. However, once the buyer is interested in the property and negotiations are underway, then the agent is really representing the seller (who is paying them). That’s my understanding, anyway.
I find myself in a crazy hot market, which is confusing considering the times we are living through. Not a week goes by that I don’t get cold called, or a thing through the mail slot offering to buy my house for cash. No showings, no commissions, no upgrades, no need for repairs, leave your junk behind, no worries!
There are people going door to door, it’s insane. These are NOT realtors, they just drum up leads I think.
I think realtors are going to be displaced by this lot, pretty quickly!
Possibly there are more of such people now, but they exist even in cold markets. They make very low-ball offers for houses, which is a profitable business in any market. If you need cash fast, they’ll provide that, but at the cost of getting a lot less than full value for your property.
[Similarly, I do hard money loans, and I frequently get offers in the mail to buy these loans for cash. I never bother responding - they are also going to be very low-ball offers, and I’m doing this to make money, not to lose money.]
I thought about becoming an agent, once upon a time and took a course. It probably varies from state to state but from what I remember…
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The selling agent still has to have a broker rubber stamp the deal, i.e. agent pays broker something.
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Half goes to the listing agent, and half goes to the selling agent. By putting the listing in MLS lots of realtors could be working to sell it for you.
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Say goodbye to your evenings and weekends because that’s when buyers shop for homes.
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There are many ways for sales to fail. For instance if you don’t prequalify the buyer, you’re showing a house to someone who can’t afford it.
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Agents are independent contractors…employers provide no health insurance or other benefits. You have to make lots of dollars to overcome that.
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I’ve heard that they don’t hold open houses like they once did…too many agents being killed.
https://guardllama.com/blogs/news/the-concerning-rise-of-real-estate-agent-attacks
FSBO, I remember a neighborhood family losing a bunch of jewelry because they didn’t put it away or keep an eye on folks touring their home.
How do you hold money in escrow or make sure you disclosed everything? There are lots of technicalities but maybe you could do it yourself.