The “rent vs. buy” dilemma (2018) | Hacker News Reader

The “rent vs. buy” dilemma (2018)

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> However, most people don’t think this through, especially if they want to buy, in which case ~10% of your home value is spent on the transaction

This is really not true, at least not in high-demand areas. First of all the seller pays the fees typically, and they are much lower. Redfin for example costs you 1% in the Bay Area. If your agent is telling you it will be 10% then you’re being taken for a ride.

It's generally true for most people. You're right though that it's not true in certain special cases.

6% seems to be the norm down here in Central Florida. Paid by the seller, or baked into the selling price, and split between the listing and buying agents.

10% in rural America doesn't sound too strange to me.

Total closing costs include much more than just agent fees, and can approach 10%. The majority is covered by the seller, but things like title insurance and transfer tax are paid for by the buyer. Anyways even if the seller pays for something they've undoubtably priced it into the sale price, so the buyer pays for it one way or another.

You're leaving out closing costs which are paid by the buyer. They are typically 2-5%. The buyer is also the only one bringing money to the table, so they are effectively paying the agent fees as well. Those are generally 2.5-3.5%. So you are looking at 7-12% in total spent on the transaction.

If both the buyer and seller are using Redfin instead of a traditional agent, the buyer is paying all cash (some of the closing costs are a result of needing to get a mortgage) and the buyer is willing to take some risks like not getting the house inspected and not paying for title insurance, you might get that down to 3%. That's still a big chunk of money being spent on the transaction.

I've spoken with tens of real estate experts in 2017 and 2018, and everybody pretty much agreed that the transaction costs generally approach or even surpass 10%.

There's much more than just agent fees to include in these costs. Title insurance. Closing. Mortgage origination fees. Etc.

Just bought a home half a year ago, fees came out to nowhere near 10%. It was just around 2% that came from my pocket, and the seller paid the rest, but even then I doubt they paid 8% to get that 10% figure they're suggesting.

I negotiated the purchase of my condo from our landlord. The first thing we did was shave 6% off from the avg price in the area due to not using real estate agents. That fee is an indirect amount you paid through an increased price.

> First of all the seller pays the fees typically,

As others noted, you're only referring to the agent commission. This isn't the entire transaction cost.

And saying the seller pays it is like saying corporations pay tax ... all costs are passed on to the buyer in the form of higher prices (than would be otherwise).

A big factor people miss is that many real estate markets and labor markets are heavily correlated. There's often a few major employers or a few productive sectors that write paychecks in the area, which then drives rental and housing prices in the area. So, housing is often an asset with a large positive correlation with your future wages. There's good historical examples here - Detroit around 2008 had simultaneous drops in real estate prices and automotive sector employment.

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