The Realtor commission on a sale of a house is typically 6% which is split evenly between the two brokers who typically take a cut of the commission before they share it with their agent. If an agent belongs to a team then that reduced commission is further cut in a typical 70/30 split with the supervising agent. So your average realtor out there is making no where near even 3% commission. It’s a lot of effort for sometimes a piddly payout.
We just bought a house, and now are selling our old house. In both transactions we’re using the real estate agent I used to buy our old house. I’ve known him for 15+ years. During our house hunting (which lasted almost a full year) he’s visited probably 30 houses with us, advised us on 20 more without going to look at them, and knows our wants and needs as well as we do. During the open houses and appointments, he’d advise us on what to look for in basements, furnaces, water systems, drainage, roofs, plumbing, and potential renovations. He’s in our old house as I type this, staging the place and doing a few simple repairs getting us ready for photos on Tuesday.
So, we’re pretty happy with all he’s done for us and we feel that he’s earned his money. Yes, it’s possible to do things yourself and I suspect that we’d be able to do so in this market. But I think we’ll get a higher sale price with his advice and staging, and there’s lots of stuff we wouldn’t know how to do that we’d have to learn on the spot. We’re paying for a service, and we think we’re getting our money’s worth.
I don’t doubt that the scenario you describe is a typical one. However, there are other scenarios and potential mitigating circumstances. In every case except one where I have sold my house, it was in a hot market where it was sold within days, and in one case, literally within hours of going on the market – for well above asking price. That hardly constitutes “a lot of effort”. Another mitigating factor, as I mentioned earlier, is that in many areas house prices have soared to astronomical levels, yet commission rates haven’t changed. And finally, some of the most successful agents have gone out on their own, so that they are simultaneously the business owner, broker, and agent. The “sharing” is only with themselves and with the agent on the other side of the transaction, and often the same agent will represent both the selling and the buying side, especially in hot markets.
So it’s really a mixed bag that depends on the real estate market at any given time and place. Some agents do have to work hard to make a living, but others are pretty much rolling in money with relatively little effort. To be fair, as my own very successful agent that I’ve used multiple times once explained to me, yes, they (husband and wife) are very dominant in several high-profile neighbourhoods and now own their own brokerage, but this was the result of a great many years of dedicated hard work. I believe it.
And incidentally, on the matter of agents being financially incentivized to screw their clients, one of the reasons this couple is so successful is that they have always maintained a high standard of ethics, and therefore an excellent reputation passed on by word of mouth. They are also hard-nosed business people, but that’s perfectly consistent with being highly ethical. Undoubtedly there are unethical agents who are mainly in it for a fast buck, but anyone who is in it for a long-term career is best served by building a reputation as someone you can trust.
True dat when you’re the sellers agent in a hot market. A buyers agent otoh in a hot sellers market will have to be ready to pounce on new listings and may end up writing dozens of offers on dozens of houses all to no avail. The sellers agent may not even respond to your multiple inquiries about a submitted offer.
That’s a valid point. In fact the agent I mentioned did spend nearly a year with me when I insisted on a house in a very specific neighbourhood that was hot at the time (and subsequently got even hotter). I remember the many failed bidding wars, and two deals that looked like they went through but ultimately did not. In one case the building inspector found signs of water leakage in the basement. To her credit (and one of many examples of what I mean by “ethics”) my agent had recommended this inspector, who turned out to be very competent, and on getting the report, she impartially reviewed the options I had, such as reduce the offer, or walk away. I walked away. In another case, an offer was accepted on a lovely house on an exceptionally nice street in that neighbourhood. I believe it was conditionally accepted based on the successful conclusion of a deal the sellers were making with a new-home builder, which ultimately fell through.
It was all frustrating as hell, for me and for the agent. But she persisted, and ultimately worked a deal by convincing one of her new sellers to let me make an offer before the house went on the market, in return for a reduced commission. It worked out well for both sides, and I was very happy there for many years. She may not have made a huge bundle on that sale (but probably did quite well because of representing both sides) but her good work got me to hire her again when I eventually sold the place, at which point the price had more than doubled. Incidentally, the buyer chose to demolish the place (despite the good condition and recent renovations) and build a huge modern house on the property. He chose to sell again only about six or seven years later, when skyrocketing prices now had this property valued at something over $3 million. And guess who he chose as his agent? Not his original buying agent, but my girl again. Reputation is everything.
Furthermore, when I originally sold the place, that same brokerage owned by the couple represented me in the purchase of my new place. It wasn’t that same agent personally, as by this time she was limiting her practice to only being the selling agent, but one of her minions. So she got commission on the sale, and her firm’s cut on the new purchase.
So in short, although agents can spend a lot of frustrating hours, weeks, and even months acting for their client, competence, patience, and a high standard of ethics often brings repeat business and great incomes for those with the talent and patience to work for the long term.
So if you (agent) sell a $250,000 house, $15K is the 6% commission. But you divide by 2 (listing and selling agents) and then if it’s 70/30 with broker. So you get $5250. Say you showed them 20 places, devoted 40 hours to them, driving them around or consulting or showing the house to clients or closing or whatever. $130 an hour is good but not insane. The higher the value of the property and commission, the more every MLS agent under the sun is gunning for it. And again, they’re independent contractors who get no benefits.
Maybe you spent your time writing an offer on a house, only to lose it to someone else. No pay. And you have to factor in other duds. Some clients look for a house for three or four months and decide to rent instead. Or one of them lost a job and they no longer qualify. All your work led to no payoff.
To an extent, you also have to look at the brick and mortar etc. They have costs. It’s a bit like expecting a restaurant to bill for the same amount of money it costs for you to prepare something similar at home. That’s complicated—they buy in quantities we don’t so they get a break, but paying staff and renting a place, advertising, all that? You relax, they wait on you, their place has ambiance and there’s a see and be seen thing sometimes. But you can stay home if you want to save money.
If it’s a hot market, the work probably looks easy. Mrs. L and I had an old but quality campervan we decided to sell. We put it on Facebook marketplace for $40K. We got people wanting us to finance it, trade us for other things, lowball us, etc. We ended up consigning it. They marketed it, sold it for $45K, and less their commission we were still $1000 ahead.
If you’re an agent, how do you weather the long run though? Remember when mortgage interest rates were through the roof in the Carter admin? McDonald’s make make a dime a burger but those guys selling grand pianos wait on that one really big score. And that has to last while.
Ultimately, I just put my faith in free enterprise. If that 6% figure is truly so high, some company will come in and find a way to deliver the product for cheaper. Nobody could defeat KMart until Wal-Mart did. And nobody challenged them until Amazon did (thankfully we still have Sears, Montgomery Ward, etc.). Mrs. L and I plan to sell in the future so we’ve been looking at options. We may very well go the 6% route.
I thought that the way to make money as an agent would be to list list list. But people expect you to sell it…you pitched how you were going to market it etc., convinced them to go with you. But how much does it matter who brings the winning offer?
As @wolfpup says, maybe good agents inspire loyalty and that goes toward the aforementioned long term. If the agent survives, I mean.
You know, upon review, I don’t know why I was being such a snarky dick about this. I still think your arguments are not really responding the reality of what has been posted, but that’s no reason to be a jerk. Sorry about that.
The entire thrust of this thread is that the free market hasn’t worked in the real estate market due to blatant monopolistic cartel behavior of the National Association of Realtors. This isn’t just the opinion of a bunch of internet randos, it’s the opinion of the US DOJ which started an investigation into the matter in 2005, filed and settled a suit with the NAR in 2020 and then took the unprecedented step of withdrawing from suit in July this year because the current DOJ believes it didn’t go far enough.
Did I miss this upthread? I think you are the first to mention an actual government investigation into it. That’s news to me…thanks for posting it. Unfortunately it’s paywalled, but I can read the first paragraph and a half or so to get an idea.
It blurs out just at the point of stating that in the US, we pay two to three times what the rest of the modern world pays. Hmm, how does that compare to other costs everyone incurs, like health care or transportation or taxes? I’ve heard that in some countries they tax really hard, but health care is assured as a result, for instance. I’ve heard that France really supports people who have kids by subsidizing day care, while in the US those costs eat some people alive. When I lived on the border, we’d cross into Mexico for quality dental work at maybe a quarter of what we’d pay in the US. Comparing costs from one country to another isn’t totally straightforward IMO.
Oops, it showed the full article for me not logged in. There was plenty of other reporting about it but the WSJ one had the most concise description of the issues. Here’s another article that seems to do a good job covering the basics.
Redfin does that but they have not displaced all the 6% brokers. People still go to the traditional route.
Our broker friend tells my wife that Redfin has you sign some agreement, then they come in and recommend changes—paint this, change that. If you don’t do them they deduct it or something. Basically they nickel and dime you to make up the difference. But that opinion is coming from a competitor, so of course you may wish to apply sodium chloride.
Thanks! Interesting. Anti Trust, Anti Competition are serious.
Sorry, I thought this was common knowledge to anyone who was following the real estate agency market for the last 30 years or so.
The term “cartel” was used many many times in the original run of this thread, as well as a few times since the semi-zombie resurrection.
A search for “cartel” mention yields this.
Riemann: posts 2, 21, 26, 29, 47, 52, 75, 88 refer to it that way.
Fotheringay-Phipps challenges if it’s a cartel 31, 39
Crawlspace 52 is the post I missed but of course the legal issue wasn’t concluded when it went to press.
So yes, it was mentioned many times by Riemann. It could be just Riemann’s opinion. The article states:
As MarketWatch has previously reported, many housing observers call Realtors a “cartel” for the way they purposely steer clients to transactions in which traditional ways of doing business are observed.
“Many?” Not sure what to make of that. Most? Numerous but a small percentage? What will the courts say? I didn’t know if they had reached a conclusion.
I may be responsible for resurrecting the thread. I mentioned to the OP of another that this information might be of interest, linked to it to show issues that had been raised. After five months, it’s on the radar again.
Post 107 marks the resurrection, maybe 24 hours ago? Since then the term has came up seven times and it’s approaching 50 new posts.
By the way, Mrs L has been watching the local real estate market for many years. She had no idea about this.
A lot of people have been describing the NAR as a cartel but I don’t think anyone has described in detail how NAR is a cartel.
Under standard auction theory, a house gets sold at the price the 2nd most valued buyer is willing to assign to it. Thus, while the staging and marketing copy and whatever might have some marginal impact on the value of a house, the biggest determinant on price is simply how many qualified buyers view the property.
Buyers agents intentionally steer their clients first to houses that are listed in the MLS from a full service seller’s agent and the NAR colludes in this process by listing the commission paid in the MLS listing.
The WSJ article states:
A training manual from one of the nation’s largest brokers lays it all out. It advises agents representing sellers to tell their clients to offer 2.5% to 3% to buyer agents. After all, “if an agent has 10 different houses, nine of which come with a 3% commission, one of which comes with a 2.5% commission, which one do you think they’re going to show?
Buyers, for the most part, are indifferent because the money doesn’t come out of their end (visibly) and tend to buy houses once a decade or so vs buyers agents that have to deal with sellers agents on a weekly basis.
If you don’t pay the 6% vig, you’re cutting out a huge proportion of prospective home buyers and probably cutting off more than 6% from the sales price from your home, thus making it economically rational for sellers to go with a full service seller’s agent. This advantage is eroding as more and more discovery is happening beyond the agent’s ability to steer, hence why the traditional 6% is eroding down to 5.5 or 5%. But there’s still a significant chunk of the market that’s always going to be cut off from you if you don’t go with a full service agent and that pricing power is maintained entirely via collusion between agents to maintain their monopoly pricing structure.
This has been obvious to anyone looking at the US housing market for decades now which is why nobody has bothered typing this out in the thread but it bears being explicit about exactly what’s going on. Absent this collusion, the natural market price for such services is around 1 - 1.5%, as evidenced by other countries across the globe.
I am not convinced the natural market price would be a percentage at all. I suspect it would end up being either partially or entirely fixed; as @wolfpup has noted, the effect of fluctuations in housing prices is to wildly jack up or severely depress the price of a real estate agent’s services for reasons totally independent of the market for real estate agent services.
Seems to me the problem is the listings service monopoly behind the realtor racket.
In the UK most properties are advertised on one of a handful of large sites (eg rightmove).
There fees are opaque but its seems to be in the region of “£50/property/month” or “£1,000 per agency per year” . Rightmove make a killing on this because the cost of hosting an advert is fuck all. Of course the network effect is key.
Interesting addendum to this thread. As I implied upthread, many real estate agents are hardworking and ethical and often well worth their commission, but I guess the point of the story below is that lack of ethics is rampant in this industry, with a lot of fast-buck artists around …
The thing is that a service isn’t worth what it’s worth because people work hard or are honest. Lots of people work hard.
Even the honest real estate agents benefit from the monopolistic practices of the realtor cartel. That’s the thing with systems.
I don’t dispute the general point about a cartel, and I applaud efforts to legislate greater fairness in this industry as long as it doesn’t negatively impact the housing market. As for “hardworking”, you’re right that that in itself doesn’t constitute value; perhaps a better phrase would have been that a lot of real estate agents are very productive and beneficial for their clients. I know that in the last place I lived, the same agent that I trusted so much was both my original buying agent and later the selling agent, and I did very well on both transactions. The reason the word “hardworking” came to mind is that in my frequent interactions with the agent that I’ve used multiple times, I’ve been impressed with how incredibly busy she is. Honestly, I don’t know where she gets the energy!