After a $1.8B verdict, the clock is ticking on the 6% realtor commission
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Home Sellers Win $1.8B After Jury Finds Conspiracy Among Realtors - https://news.ycombinator.com/item?id=38156557 - Nov 2023 (7 comments)
Jury Finds Realtors Conspired, Awards Nearly $1.8B in Damages - https://news.ycombinator.com/item?id=38089356 - Oct 2023 (273 comments)
Whatever is our cost for this cartel, the cost of the MD cartel is at least 10x higher. So perspective is needed.
Seller's agents will get paid a flat rate, then X% commission for just the amount above some certain price. Basically they'll be rewarded if (and only if) they can successfully create a bidding war that sells the place for more than it's probably worth. If they're just doing their normal job of selling the thing for the appropriate amount, they'll get their flat rate.
Buyer's agents will be paid per hour of work, like lawyers.
Everything my last realtor showed me was worse than what I found on Zillow on my own, and the formatting of the information was so user-unfriendly that it was basically worthless.
Certainly they would not engage is such questionable ethical behaviour ;)
Also - the percent structure has never made sense to me. Why should a realtor make more money just because the house is more expensive? Does a realtor really deserve to make 60k on a 2 million dollar home sale? Did they really bring twice as much value as a 1 million dollar home sale?
I'm not saying that realtors don't have _any_ value. Yes if you are unfamiliar with an area it is nice to have someone who is familiar with the area help you look for a home. But with the internet this is nowhere near worth points of a sale of a home.
And yes, they can negotiate for you - this has value too... But is the delta of their negotiation skills worth 6% of the home value??
When I sold my home I was also frustrated. I remember when I looked for a realtor to sell my home they tried to convince me they have additional avenues they would sell beyond what me listing myself could do. "We will get your home on our LinkedIn page! On our monthly magazine!" Really? Have you ever heard of anyone buying a home from a LinkedIn page?
Used the same realtor buying the next place, it was down to 8 people that put offers in on the only day showing. We got it because she knew a couple of tricks, one not exactly ethical.
She is a family friend and normal people would have got 1/2 the work from her.
A hardworking realtor can absolutely make a difference. Good luck finding one!
There doesn't seem to be any luck available.
Beyond that, 6% is obviously asinine.
Where it gets sketchy is when those agents are friends with each other. A lot of deals get made before the property is even listed online. So, what my parents experienced was that they were quoted valuations of their property that had about a 20% bandwidth. 20% is a lot. Nearly 100K euros in this case They went with the highest valuation in the end. It sold within a week slightly above what they asked. This is normal in the Dutch market currently. Prices briefly dipped last year and then continued growing. Even the increased interest of mortgages has so far not changed that.
So, what was going on with those other agents deliberately low balling the price?
The interests of agents are not always aligned with their clients. They are either working for the buyer or seller. And they do each other favors. Like letting each other know when something hot (i.e. priced below market value) comes up for sale or convincing a seller to agree to a lower valuation. So, there are conflicts of interest. And sometimes they just need the money and getting the property sold quickly is worth more to them than having to put in work to sell at a higher price. Another factor is that when property comes back on the market, the same agents are often involved. So, there's a bit of double dipping happening there. Help a client buy cheap, and a few years later help them sell expensive. In a market with ever growing real estate prices that's the game.
The incidence question (is the fee "paid" by the buyer or seller) is a semantic one, but if the cartel is able to inflate the total fees, that's something else entirely.
You can put your house up on Craigslist, Facebook marketplace, make your own website, put a sign on your front lawn, etc.
But most people predict they will earn per time they invest in selling by going with MLS, where the home buying audience is largest.
I purchased the home without a realtor, and one of the ways I had a much stronger position was because no one else was being shown the property. (As in, realtors weren’t mentioning it to their clients).
I had a friend of mine who is known locally in the area as one of the best realtors look at the mls and listing, and that was the take I got from him.
Most of my realtors said me to look at some sites and get back to them when I liked something.
that's what i hate about realtors. in germany they will gladly invite a hundred interested people for a flat and by that make searching for an appartment a huge waste of time. it's easier for them and probably a nice ego stroke.
That's a win win world for everyone (except the realtor, who are redundant middlemen in the internet eta).
I have no doubt that there is a range of talent for realtors, just like SWEs. The problem is the 6%. Why doesn't your realtor get 10% and everyone else get 1%? The system is rigged.
Neither do you. Am I to believe you know more about one of the houses I owned than I do? Again, I'm all for lifting the fixed commissions. I'm just saying there does exist exceptions that I would still pay 5% for. Although, like I said, her operation isn't just some aspiring salesman acting slick. It's a team of about 4 professionals under her that go over every single angle to prepare it for the market. She's not even that persuasive or talkative. All they do are value-added services, which is how it should be. I wouldn't even know how to update the records to classify it a multi-family, yet they do it all automatically.
Plaintiffs submitted some recordings in either this or a related case of an agent who said she wouldn’t even bother to show a house that didn’t have a guaranteed commission. The NAR is not so stupid as to have a “you must sign here that you will only show houses with a commission” form.
>> the incidence question … is a semantic one
Definitely not semantics. This relates to the elasticity of demand and supply in the market. The incidence can be on the buyer OR the seller OR shared. Depends on the good and the demand.
It’s a huge part of the law that commissions are to be up for negotiation, always. RE agents might forget that but it’s a foundation level principle that there are no set commissions. You could lose your license or at least be fined for even suggesting it to a client
The entire buyer’s agent system is absurd right now. The buyer’s agent supposedly represents the buyer, but they have an extremely strong incentive to get their client to close on a purchase at all, and a secondary incentive to get their client to pay as much as possible. If anything, it seems to me that this is the wrong kind of inclusive — if anything, it pushes people to buy a house even when they shouldn’t.
There should absolutely be agents of a sort who can represent a person or family who is considering buying a house and for whom buying at all is not obviously the right decision, but the current fee structure does not encourage good representation of this sort.
in my home country most ppl sell and buy real estate themselves. agents are used for special situations.
when i tried to call an owner in the bay area to buy from them directly and offered to pay for any lawyer of their choice to have paperwork drafted and reviewed they pooped their pants. i never understood why a well educated person cannot handle this here in CA themselves.
In the UK your estate agent (seller's agent) usually takes 1-2%, and there are cheaper ways to do it like self-listing. You then get a conveyancer (a lawyer) on each side to actually do the work, and they usually work for a fixed fee.
6% is huge.
Unfortunately, they don't get money if they don't sell, even if they spend hours helping a customer. IMHO, this is bad. A buyer will pay for all the deals that weren't closed.
You can list your home and refuse to pay buyers' agents, but it generally takes much longer to sell a home that way. Not uncommon for a home for sale by owner to later be listed by a realtor when the owner loses patience. As you can read elsewhere in this discussion, real estate agents hate homes for sale by owners because those people generally don't want to pay their commission.
UK estate agents do the absolute bare minimum and often less. When it comes to viewings they really are just key holders and nothing else.
Still, 6% is huge
However I have been on the mortgage side of the business as a loan processor and it seemed to me that for the most part realtors were lazy. It seemed crazy to me no matter the work involved they expect that 3% commission. In the end you are having to pay to access MLS, and that access costs 3%, even if the house could sale itself due to the area or market. I have seen realtors advertise that if they don't sell your house in 30 days, then they reduced the commission, which I think is probably the best way to go about it. I would rather get the sale done quickly than what usually happens where the realtor lists the house for what the sellers want and then they have to keep dropping the price because its too expensive.
Closing fees plus realtor fees are a big reason why it takes so long for a home to break even for most people - something like 7 years in NYC. And one reason why there's so much pressure for home prices to keep going up. The cost of selling a home and buying another one also makes the labor market less dynamic - people find it harder to move to where there's better opportunities.
Sure they can, but the entire incentive structure creates a situation where it's in the agent's best interest to get the sale done regardless or the outcome to the buyer/seller.
Why give a complete picture to a seller when they may turn into a non-seller, or a later-seller, if you do?!
Build quality basically had no impact on housing prices because no one could do a proper inspection.
Good agents do get referrals, which is a good incentive to do a good job. But are homeowners even able to tell apart a good agent from a bad one? If someone's slick and kind, the bed-side manner might be enough to be considered a great agent. But they might just be less competent compared to a more gruff one.
There should be waterfall hurdles like in Real Estate investing. Or variable commissions above certain thresholds or rolling sqft averages in that location.
If they can get that last $50k then split it 50/50 with them.
All of their money should be made at the margin.
Also there should be full transparency such that the buyer agent loses money when this happens. So there is an overt battle for the pot between buyer and seller agent incentivizing them to advocate for their client, not just get the deal done.
You've never heard of a short sale in which there was an agent involved? (Technically, a short sale is one below the outstanding mortgage, irrespective of the previous sale price, but usually the former will be less than the latter, so...)
(But he would also offer to try to convince the seller to modify the terms to sell at the same effective received price but without paying a commission and the collect the commission from the buyer. This would usually be favorable from a tax perspective, as including the buyer’s agent fees in the “price” increases the transfer taxes.)
But it benefits the buyer for it to be characterized as an add-on fee rather than part of the basic purchase price, at least in jurisdictions with property tax where an actual sale price is also presumptively the initial property tax assessed value (and even more so in places that have annual limits on tax basis value increase as well.)
I 1000% agree with this. I finally bought a house just under a month ago, but I would have done this years ago if the transaction costs weren't so stupid high (because I was never 100% sure I would be staying in the same area for a while).
The main issue is the listing agent splitting the commission with the buyer's agent, not that the seller has to pay some % of the sale price as a commission.
I know there are many countries with lower fees - but my understanding is that realtors in the US aren't exactly highway robbers, comparatively speaking...
(IANAL)
[1]https://www.bankrate.com/personal-finance/tipping-survey/
If preferring not to give an additional $60k as a tip is considered cheap, then call me Mr. Scrooge.
Hi, can you help me get the lowest price possible on a house? Sure, and the lower I can get your price, the less money I make, how does that sound?
Oh, and add to that, not only will I make more if you make more, but offering a higher amount will close the deal faster so I can move on to the next person.
Mortgage interest rates quite high, housing inventory not moving a lot, and now the National Realtor Association getting disrupted.
I feel like this sets the stage for some serious change, but no idea to what end.
Align the incentives beyond just getting a deal.
Money should fought for at the margin.
In the rural south there are some insane claims of title across families. I've seen title work where they had thousands of pages of paperwork involved with hundreds of possible heirs that had to be located.
Now whether that’s worth .5-1% is debatable.
The core problem of the lien is solved, the only thing left is to ensure the lawyers who seem to always get their cake no matter what aren't bloodthirsty enough.
As someone who has submitted (and failed to collect) on a claim against title insurance for legal fees incurred to correct a mistake in the original title that the title company missed, I'm skeptical of its value, at least for things like erroneous lot lines.
They claimed that the seller misrepresented the property by claiming it came with a parking spot.
"Don't skip the inspection, what if something is wrong" sounds sensible but pre-purchase home inspections are quite surface level, will only find visible, obvious problems, and in the fine print they disclaim responsibility if they miss anything.
It's definitely you get what you pay for. If you have a good home inspector they may be able to tell you something like "Yea, the roof is fucked", or "That crack you didn't notice in the foundation is really bad news".
I don't build homes nor do I troubleshoot them on a daily basis. Someone that does, and has a at least a modicum of experience will still notice more than I.
It's just a very inefficient market, fraught with dark corners. That's why people hate it. A world where an expensive inspector actually meant higher quality would be far better than what we have
This is a consequence of an extreme lack of supply in your area rather than some sort of realtor conspiracy though.
The good inspectors told me about a condo loft that had plumbing issues throughout, probably a $5000 repair, and at a house, a sagging pier and beam foundation causing all sorts of problems.
The problem is inherently that most people are buying a home for the first time. Or they buy maybe 3 to 5 homes in their life.
So it's very easy to build up an information asymmetry / cartel there
It is a fact that many homes are sold when their occupants die, and offering your services to a potential customer when the customer likely needs it does not seem out of bounds.
Be available as a realtor and market well; allow such customers to find you instead of chasing this particular kind of lead.
So in that way, it's not so much kind as it is exploitative.
Yes, people usually work in exchange for money.
>And you're doing this during, presumably, a time of grief when the potential customer already has a lot to deal with physically and emotionally. And you're doing it because of the event that put them in this stat
Exactly, a real estate agent can take some of the load off. Keeping a home secure, traveling to it if you live far away, etc are not necessarily easy. People have jobs to get back to, families to attend to that may not be nearby, and things need to happen, regardless of emotional events.
If you're not borrowing to purchase a home you probably wouldn't need an appraisal. I think lenders just want objective evaluation of the collateral. Who can blame them?
Maybe there’s good reputable inspectors. Ours weren’t
Not only is it functionally useless to ask someone to measure fair market value of an asset that already has someone offering to buy it at a specific price, the appraisals seem to come in ridiculously close to offer price every time.
I've had to deal with around 8 appraisals over the years as buyer or seller, I only had one that didn't come bad within 1% of the sale price. Either markets are impressively efficient and we don't need appraisals, or the appraiser already knows exactly what number to put on it and goes through the motions of finding a few hundred dollars worth of random plumbing and electrical nitpicks and moves on.
If a house would reasonably be sold for $250k, but the buyer is buying at $2 million, there's probably some very good questions that need to be asked about where the money is going.
On the other hand, if an appraiser can demonstrate that:
- properties with similar features have been sold in a similar price range in somewhat recent time frame
- if no close match exists, then identifying the price differential from past sales might justify a good guess
Few people make wild offers unrelated to the market price and even if they do, sellers rarely accept them. So it makes sense that the appraisal usually comes close to the offer price since both the buyer and seller usually do at least some research of looking around at comparable sales.
Though I saved $25K on a house once when the appraisal came in $25K under my offer price. I told the sellers that the bank wouldn't give me a loan at the current terms over the appraised price and I didn't have another $25K in cash to put down on the house, so I'd have to withdraw the offer. The seller made an appraisal appeal that went no where, so they reduced the selling price by $25K.
Of course, there’s tastefully doing it and…not. When I did real estate photography I (almost always) solved that problem by using additional lighting inside to somewhat equalize the interior and exterior brightness. It looks a lot better in the end but it’s also a lot more work and requires more equipment.
I did quite a few homes directly for sellers because their realtor’s photos were absolutely terrible. It looked like they took 2 minutes to zoom around the house, only putting their arm through doorways, taking everything vertically and tilted.
For what it’s worth at least at the time the MLS had a pretty low max resolution.
They also charge lower listing fees.
1. It has an outdoor rooftop patio with a gas fireplace. This was not mentioned anywhere in the listing.
2. They poorly photoshopped furniture into all of the rooms at incorrect sizes. Whoever was doing the photoshopping assumed it was 8 foot ceilings when they were 10. Made everything look cramped and tiny.
3. Misreported the monthly HOA fees by about +30%.
4. It had been on the market for 4 months with almost zero showings, I happened to be touring another unit in the building when I decided on a whim to check out 'the penthouse' with my realtor. Price hadn't dropped at all in that time, even though the market was fairly quick.
Then my agent let me get 90% through a sale before - "surprise" - such and such construction is required prior to closing due to recent statute in this town.
I had to haggle DOWN to 6% to enjoy effectively no representation or understanding of the market I was selling into.
If this industry is disrupted, even if by charlatans, unfortunately it deserves to be - we deserve it - for allowing the status-quo.
Uber has robbed us of crazy taxi driver stories though.
My point is when you are buying, your agent wants you to pay more. This is not what you want generally. It is fundamentally flawed.
I agree, on the sell side it creates an incentive for an agent to not push for marginal price improvements. The incentives are misaligned on both sides of the transaction.
On net you get round-tripped on misaligned incentives with the percentage model.
- Put up with me through several offers that fell through due to issues with the house
- Met me quickly several times to see houses in a very hot market (covid)
- Constantly found me homes that met my criteria
- Was able to "get the dirt" on the homes and give me good advice for the homes that fell through, not pressuring me to buy
And my selling realtor, for a home where they will probably only get 2-3k:
- Took outstanding photos of my home
- Constantly fought for me on a few issues and gave me great advice
- Stuck through some legal issues related to the home
- Received and passed along info from other realtors to help me improve the value of the home and quickly get a sale
For the buying realtor, it is true I had to go through 2-3 realtors before meeting her. There were some SHIT realtors I worked with, for sure. Racists, assholes, lazy fucks. But I don't see the issue paying a realtor for their work - though maybe 6% ends up being quite a bit in this day and age.
I'd love to pay by the hour for service. There aren't many such realtors.
The median home sale price in June was $426k. Or $25.6k of commission.
Typical Sunnyvale prices were about 2.4million, or $144k commission.
Rural area realtors can be pieces of work too, but at least they aren’t claiming to be worth as much money. ;)
Also messy to do halfway through closing. Especially if you don’t want to have to deal with a lawsuit from the realtor.
Easier if you already have the brokers direct line of course. They’re the ones on the hook anyway, the realtors are just the ‘front’.
How many hours did your agent spend with you? How did their hourly rate turn out? One of the totally shitty things about realtor pay is that you are subsidizing the pay for all the people who never closed. I'd be happy to pay an excellent agent $100/h for expert advice and to leave out the filler that I can do myself. But this is rarely much of an option, especially as a buyer.
And nobody's saying don't pay realtors for their work.
They're saying, certainly don't pay them 6%, and preferably not a percentage at all. Just pay them like a contractor or anyone else you hire -- either a flat fee or by the hour, depending on the exact services.
Like, figure the haircut you take bringing your car to a dealership...
My realtor is about saving me time & frustration. I don't have to think about what a title company or MLS is, how many there are, how they work, who to talk to, etc. None of it. I say "I want to look at houses in area XYZ" and next thing I know I have an agenda with route in my inbox and tentative dates for viewing. Even closing feels like it goes warp speed with this person. I've never had it take more than 45 minutes and I'm going on the 4th time. Every part of the experience should feel like cruise control if you are working with good people.
I totally get the arguments on the other side though. If you are looking for something modest/routine & you also don't have a lot of constraints, the 3%+ fees start to look very manipulative. Additionally, if you are willing to spend some of your own time to do legwork on various logistics, then I can understand why you'd rather that money just stay in your pocket.
For me, I'd happily burn thousands of dollars to save half an hour depending on how mentally stressful that 30 minutes is expected to be. Look to tax filing services if you need another example of the same psychology. Turbotax never takes me more than an hour and never comes back weird, but I'd happily cut a check to make the whole notion of doing my own taxes mostly go away.
Realtors really are awesome when you need to get from one house to another quickly and smoothly.
Now do the Collective Refusal to Deal commited by the Texas Apartment Association. They require every apartment complex in Texas to use the same contract. That's a criminal violation of Texas' anti-trust laws, specifically it's a Collective Refusal to Deal.
[1] https://www.ftc.gov/news-events/topics/competition-enforceme...
Fun fact: NAR was the top lobbying spender in 2020 with $84B. Second place was Chamber of Commerce at $82B. Third place was $26B, or less than one third of NAR's spend.
https://infogram.com/1pyy66emdxryq1c3yez9wqvxp2by3p7pgn3
I only saw those stats recently but felt realtors are likely a very vocal and substantial constituency for every representative.
I've spent a large part of my career working on products for insurance agents, real estate agents, and car salesmen.
My experience has left me with one conclusion: we should eliminate most of these jobs. They're about as predatory toward the customer as they come, adding little value in most cases.
There are certainly cases where they do add a lot of value but mostly because of government regulations, cartels, and monopolies they have a much bigger footprint than they should have in anything resembling a just world.
I don't use a travel agent to buy a $250 plane ticket because I know exactly what I want and I know exactly what I'm getting and there's not a third party involved (there's no seller of the seat, just the airline.)
The realtor isn't there because you don't have information, like a travel agent would be. The realtor is there to broker a deal between two parties that really don't like each other and are trying to hose each other.
I paid the full 6% when I sold my house. Worth the money.
I do think you should have someone help broker a deal of this magnitude, but it shouldn’t be a realtor. It should be an attorney.
You can get a real estate attorney to do the same thing for like $1500 or less where I’m located (north east). That’s a lot cheaper than what the commission would be for a realtor.
Anyone can find their own houses on Zillow now, and the inspector is separate from the realtor, so from my perspective, all the buyer’s realtor really does is call the other agent to arrange a time for a showing. That’s all they did in my case and they took 3% of the total value of the house (or their agency did - they didn’t pocket all the $ directly themselves).