Realtor is a registered trademark. You may be a licensed agent, but if you don’t belong to the National Association of Realtors, you are not a Realtor.
Don’t buy this at all. Reduced, yes. But gone? No way.
First off, people moving to different cities (or inheriting a house 1000 miles away, as happened to us recently), is a huge market in and of itself.
If you’re a busy, successful professional, it can be an absolutely logical choice to subcontract out this kind of work. If you make $50 an hour, taking 100 hours away from your career so you can save $5000 selling a house is only wash. And if that time comes out of your non-work life, that’s a sacrifice some won’t want to make.
An even people who stand to gain on the transaction are going to be nervous about the biggest transaction of their lives and are going to want a pro to teach an advise them. We’re buying for the first time right now, and our realtor has been a big help, and has made me feel a lot more confident in our decisions. I don’t know how many buyers/sellers are first-timers, but given that most people plan stay there for awhile, that market alone has to be huge.
Fifteen years ago, I was thinking along similar lines, at least with the expected functions of the Internet on the rise. But it hasn’t happened (yet).
I don’t collect $20K for 3 days work, and I doubt if a non-real estate education has much relevance to this specialty job. Do you think the same about your doctor or dentist? After all, any smart dude can hand out pills, right?
In the last few years, I have handled sales for two attorneys. Even though much of what I do relates to the legal field, both attorneys thought it was a good idea for them to have a professional on their side. And as we worked thru the transaction, it was obvious to me that general legal knowledge was not up to my level in this specialty. In both cases, I’m pretty sure the transactions would not have closed if an agent hadn’t been involved.
Ok, let’s go the back-of-envelope route.
$300,000 means a commission of $21,000… Or, let’s say you do 7% on the first $100,000 and thereafter - $17,000. Rounding, half to each agent, buyer and seller, half of that to each’s agency, so you make $4,000 or $5,000 on that house.
Who pays for the ads? You give the agency $4,000, is that for ads, fees to MLS, etc. or does Mister Scrooge expect you to cough up for the advertising flyers and donuts for the open house? Do you split it 50-50? How much do you spend on advertising for a house typically? What else does the owner of the agency do that justifies their take?
For $4,000 how much time on average does it take to sell one house (i.e. how many sales does an active, busy, competent full time agent do in a month or year?)
What sort of education and on-the-job experience is necessary to get a realtor/Realtor license? (versus say, Air Traffic Controller or Engineer or Dentist or Lawyer?)
My thought as I said is that there will always be a need for agents for people that want that service. In general, for simple deals - the house is not too old or too different from the norm - the internet will suffice.
There’s also what I call the “accountant attitude”. Henry Ford 9the first) made cars out of metal. He could never understand why there were accountants and why he needed any. Apparently in his grumpy old fart phase, which lasted until the feds tossed him out of Ford for the good of the war effort, he would walk by a room full of guys in green eyeshades and ask his assistant…
“Who are they?”
“Those are your accounting department.”
“We don’t need them. Fire the lot!” And they would… and start over.
By the time he was replaced the company was months and years behind on accounts payable and receivable and their finances were horrible.
Of course, this is the guy who also said “A car doesn’t need any more cylinders than a cow has teats!”, while crushing his son’s experimental 6-cylinder in front of him.
So the danger is that because we don’t deal with the intricancies we assume a job is simpler than it could get in some circumstances. Then… you need a pro.
I am not calling myself a “Realtor<TM>.”
Actually, no. It’s indisputably the case that becoming a doctor or a dentist takes years and years of schooling and training to reach even an introductory level of proficiency. The formal training for becoming a “REALTOR” takes the equivalent of two or three weeks of full time work, and in fact I’ve managed to sell a few houses myself, whereas I sure wouldn’t know how to do a root canal or set a broken arm.
I’m not addressing this to any one poster, but describing a situation that is a fact of life for commissioned agents.
I had a listing for a very modest home, starting at $65,000. The most I could have benefited from a sale was about $2000 gross. The least was $1300.
After six months, here were my out-of-pocket expenses. $300 for ads, $50 for MLS membership (prorated, estimated), $200 for personal computer & office expenses. Total, $550.
I estimate the time spent installing a sign, lockbox, filling out forms, showings, (we didn’t have any open houses in this case), document and ad preparation from public records, photography, phone call and Internet communications could easily have been 50 hours.
The listing expired at a reduced price of $52,000 and the seller decided to rent it instead, at least for a few years.
Had it sold, it might have been a respectable profit for me, if you call $15 to 30/hour respectable. Instead, it didn’t sell. My out-of-pocket expenses are a dead loss, and my time, unrecoverable. How much did I make on this one? Less than zero. I was subsidizing both the seller and the company from other earnings. I could only hope that the next listing would sell and the average profit, acceptable.
Still think all agents’ commissions are gravy? Think again.
Why did you pick such a cheap house for your example? $65,000 is way below the national average, I assume, and thus not representative of what realtors deal with every day.
And how does your argument work in places where most homes sell for close to $1.5 million and the commission comes close to $100,000? Does all that work amount to $100,000’s worth?
ETA: I should have said $100,000 divided between the seller’s and the buyer’s agent
$65K is pretty average in the nearest, largest town in my county. And if I make nothing on it, what difference does it make what the asking price is? A more expensive house would have cost more to market, but generated nothing in commissions if not sold. My point is it’s the non-sales that must be factored into the equation.
And yes, I had a $800K home listed that didn’t sell, after 4 years on the market. I think you can do the math, but it’s not pretty.
In fairness, the difference between one real estate market and another can be unbelievably vast. “National average” is a meaningless term in real estate.
I was recently in Middletown, Ohio, and the customer I was visiting was planning on buying a house there just as a place to stay during the summer (he’s from Ontario.) He bought a 7-bedroom, 7-bath, 7500-square-foot mansion - this was a house described as having “wings” - in suitably move in condition for $280,000, a sum that in my suburban city would not buy you a detached home of any description that would be fit for human habitation.
I could not believe the prices, but that’s what they were. There is effectively nobody there who wants to buy a house, so the prices are ludicrously low.
All I can say is that until you become a Realtor you cannot believe it’s not that sweet of a deal. It’s a job with good parts and bad parts but it’s not easy money and we’re not usually making easy deals that only take up three days of our time. We’re on call all weekends, holidays and vacations. Part of the cost of the commission pays for our personal advertising just like Kmart passes their advertising fees on to the customer. We do a lot of work all the time that never turns into anything. We spend hours and hours on the phone scheduling appointments, arguing with lenders, patching together sales that would otherwise fall apart. I would say the average Realtor is lucky to average 2 deals a month for a whole year. Not only do we have to do our work we have to spend time looking for our next work. Yes, there are the hot shots who have every listing in town, but that’s not the norm.
It might not be. That doesn’t change the fact that the Internet is going to wipe out much of the “Realtor” industry. I mean, I’m sorry it’s a tough job, but lots of tough jobs become irrelevant as technology passes them by.
As I said, and as furt pointed out, there will always be room for real estate agents to help with things like transfers and complicated transactions. But a basic house sale doesn’t require much in the way of professional advice, aside from the stuff done by a lawyer, and that’s because of the Internet.
There’s a reason that Canadian real estate companies were so ferocious in defneidng their monopoly on the MLS site; they knew full well that if it was opened up to everyone else, they’d lose what keeps a lot of the agents in business; a monopoly on the information. Once it’s open, a fiarly large portion of buyers and sellers won’t need the realtor, or at most will need a discount realtor who’ll post the listing on MLS and provide some cheap signage for a modest flat fee.
That same claim has been made for other industries, and sometimes it’s right; newspapers, for example. Sometimes their death is greatly exaggerated.
10 years ago, our local Homes Guide – the freebie you find in supermarket lobbies – was 400 pages each month. This month, it barely made it to 100. Two factors here: the decline in overall sales and the greater use of the Internet for advertising. How much each contributes, I don’t know.
The Internet has improved communication between buyers, sellers, agents, title companies, and everyone else who needs to exchange data cheap and fast. None of these people are going away, but they are communicating better now. Someone wants info on a property, emailing it is the first way to do it. No postage needed and no gas money spent. Agents are not being wiped out, but are more effective than ever.
This, and then some. I have a house that’s over 100 miles (and a 3 hour drive) away from where I live now. No way am I going to drive up there to show the place.
Another reason to use an agent: I intensely dislike dealing with the public. I don’t want to have to be enthusiastic and charming in order to convince someone to buy my house. It’s worth the commission to stick a Realtor with that job.
Now, if only the Realtor that I’ve hired could actually get the damn place *sold *already…
I don’t think all are…but some surely are. As a seller of a higher value/more desirable home I’d feel no obligation to subsidize your other listings.
I trust that nobody is forcing you to work on or spend money on those kinds of listings.
What does “wouldn’t work with a realtor at all” mean? I wouldn’t have any problem working with one who represents and gets paid by the buyer.
I was actually wondering what the realtor does when a buyer says “Hey what about that house?” and the realtor says (to himself) “Oh you don’t want that house because I don’t get paid”.
You may feel the same way about buying anything in any store. A high-priced apple may be subsidizing a low-priced banana. It’s the way it works. Without the subsidy, you may have nothing at all.
Of course not. But unless you have a time machine, it’s difficult to predict the outcome of some property listings, not to mention the real estate market a year hence. Yes, I do turn some down, but it’s a gamble either way. The higher the risk, the greater the reward.
Just bumping this thread to add an anecdote.
My wife and I are buying our first house this summer. We’re both first timers and fairly unfamiliar with the process. Our realtor helped us find a house that made my wife literally skip with glee, so we made an offer, which was then ratified. However – after the offer was ratified but before inspection and appraisal, the seller got a better offer and tried to back out of the deal, claiming that some documents hadn’t been signed properly, claiming we had faxed to the wrong number, etc.
Left to ourselves, the deal might well have fallen through. Instead, our realtor made sure all the docs were in order and went to war with the seller’s agent on our behalf; we don’t have anything like the knowledge of the industry, the process, our legal recourse, etc. to do what she did. I am VERY glad we have a realtor.
(bolding mine) A very good illustration of my point, and thanks for sharing that with us.
Nitpick: “Ratify” is something that happens with a legislative body and a law. The real estate term is “Accepted.” Your offer was accepted, which then became a binding contract.
Still looking for an answer on the above scenario. I suppose the buyer’s agent could tell the buyer that to be involved he has to pay a fee/commission.
For an agent to legally assist a buyer or a seller, he has to have an agency agreement. This can be executed at any time – like before starting a search. In my state, such an agreement must be signed BEFORE negotiation begins, usually defined at the time an offer is written or the terms of an offer discussed.