Not all sales agents sell real estate. Some of them sell stuff to real-estate agents.
Flattery will get you everywhere 
We sold a $1.1M house 2 years ago. A buddy was the RE agent. This was in a resort market, so they among other things: have a $3+M office with staff. Did a 3D virtual tour of the house. Listed it for 14 months with showings every other week. Did ads and a glossy brochure. He’s doing well (Telluride!), but I bet his take was about the same as mine hourly in construction. What should a competent but not exceptional RE agent earn? I can build houses but I couldn’t sell them if my life depended on it.
It’s already being disrupted, down to about 5 and 5.5% now in many markets, and I suspect that technology will drive it down further.
You’re paying an agent to save your time, and in theory, they can be a good buffer between you and the other end of the transaction. But nobody absolutely needs an agent.
I don’t know if anyone in the sales office was a Realtor or not; all of the houses were sold long before being finished, so moving them quickly was not an issue. Note that this was one of the largest homebuilders in the country.
The amount of work that goes into selling a $1M house is not just the agent sitting around waiting for the phone to ring and showing the place to a few buyers. That agent has assistants that are researching data about the house and prospecting for buyers, they hire a stager, professional photographer, maintain a web site to post the listing and photos. My daughter is a Realtor working with a broker that handles $1M - $25M properties and I have some visibility to how these get done. And that $50,000 you are talking about is the entire commission, which gets split between the two brokers, then the agents themselves get a percentage of that. So it’s not as obscene as you think. And if that agent can get $1.1M instead of $1M for your house they have more than earned their keep.
Then how do you account for the fact that agent commissions have plummeted and are now 80% lower in the U.K., at a little over 1%? Do you imagine that chorus of buyers and sellers are complaining that they are missing out on a range of wonderful services and added value that agents can no longer afford to provide?
I don’t know–are they getting the same level of service? Are buyers still getting higher prices versus selling it themselves? If an agency got a $11,000 commission on our $1.1m home they would by necessity have to put a LOT less time and effort into it because to keep the doors open they would have to up their volume dramatically. Note that of an $11,000 fee the Agent themselves would probably see $2-2500. So to have a middle class lifestyle each agent would have to sell 20-40 properties a year (at that price point). Maybe the industry could reorganize and streamline, but it would have to be a completely different model.
People keep repeating the fact that the person who is doing the work is only getting a fraction of the fee. That does not justify the fee. That’s like saying it’s okay to pay my butcher $50 for a steak, because he has to pay $30 out of that the local mafia protection racket. If there are people taking some of the fee who are not contributing work to add value for the client, then that’s just another problem with the system.
Since a higher price is worse for the buyer, it is logically impossible that all brokers can add value in this manner. The 6% is just being gouged from every transaction, whatever price the transaction occurs at.
Yes it is a completely different model. In the UK (and every other country I am aware of except Canada and the US) real estate agents do a lot of deals per year.
I find it laughable that people believe that their realtor is getting them a better price. Both the buyer’s agent and the seller’s agent are simultaneously lowering and raising the price their clients would otherwise receive?
That analogy doesn’t work. Say you pay the butcher $20 for a nice steak. Do you think that’s the commodity price of the meat? You’re still paying for profit and overhead. No business operates at a loss very long.
So I would presume there are a lot less real estate agents per capita? Which is fine if it works. I think you’re right that you can’t have buyer and seller’s agents affecting the price at the same time. However, they can provide information about the property, the market and other intangibles. My buddy for instance produces a newsletter that is sent to thousands of out of town visitors. He does tons of research on the market and potential buyers. Depending on the market finding a buyer who might not have otherwise heard of/thought of your property is a major advantage.
It does when you’re claiming that 75% of the fee mysteriously vanishes to other people, implying that we can’t think it terms of whether the total fee is appropriate for the total work involved in selling a house.
Read the thread. This point has been addressed multiple times.
I’m not saying that the fee is 100% perfect by any means. I’m just saying that I watched the amount of work that went into selling my house over 14 months and it was not unreasonable.
BTW beef commodity prices now range from $1.79 for ground to $10 for prime tenderloin. What’s the markup at your butcher? Mine would be 100% or more.
I did read the thread, thank you very much. I was asking what the situation was in the UK specifically due to the recent change in the fee structure. A handwave that there are 80% less agents doing the same amount of work is insufficient. Hearing from a UK RE agent would be interesting.
I haven’t read every post on this thread, but has anybody yet brought up the notion that – unless you get a true Buyer’s Agent (one that you pay directly) – in many states, legally, and in most cases, practically, the real estate agent representing the buyer derives his/her commission by splitting it with the seller’s agent (who has the listing to sell the property).
So there’s an inherent conflict of interest in many/most cases, where the buyer’s agent makes more money when his putative client (ie, the buyer) pays more for the house.
It really is a lovely biz …
Not at all. It’s like saying that you can buy a steak at a grocery store for $10 and you have to pay $25 for the same steak in a restaurant. First of all it’s not the same steak at all because the restaurant can buy better steaks than the grocery store (i.e., an agent can do a better job than For Sale By Owner). You are not paying the waiter $15 for the 5 minutes it takes to bring it to your table. You are paying for the waiter, the cook, the guy who washes the dishes, the guy who mops the floor, the head chef, the hostess, the dining room manager, the interest on the mortgage, the heating bill, the electricity bill, property taxes, business taxes, capital replacement reserves, and a ton of other things. The real estate business works the same way. That commission money is going for a lot of things other than the agent’s time.
I should have said … legally the buyer’s agent is often considered a sub-agent of the seller:
I’m not sure the article adequately addresses the Conflict issue, though.
I can’t disagree with that statement on its face but if the buyer doesn’t buy, the buyer’s agent makes zero. So it is in the agent’s interest to match the buyer to a house at a price the buyer is willing to pay.