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Comment by pradn | Hacker News Reader

A good realtor can guide you through the market, inspections, and negotiation - all of which hugely affect the largest investment most people make. But that's no reason for them to demand a PERCENTAGE off the sale of the home!

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.

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> A good realtor can guide you through the market

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.

Yes.

Why give a complete picture to a seller when they may turn into a non-seller, or a later-seller, if you do?!

Especially in competitive markets where everyone waves inspections and stuff to even get a deal considered.

Build quality basically had no impact on housing prices because no one could do a proper inspection.

There's also the Principal Agent problem here. If the seller's agent gets the home sold for an extra $50,000, the agent only makes an extra $1500. If this takes an extra month of work, it may not be worth it. And what guarantee does the agent have that their extra work will actually pay off?

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 is no incentive at the margin. And only the margin matters in real estate transactions. The first 80% is usually a given based on location. Total racket.

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.

I've never seen or heard of a real estate agent negotiating to transact a property below its previous sale price, even from the buy side. That says a lot.

> I've never seen or heard of a real estate agent negotiating to transact a property below its previous sale price

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...)

They exist. I knew a fantastic agent (now retired, sadly), with a highly unusual business model. His clients would find a house on their own, via Zillow or whatever. Then they would negotiate a fee structure with the agent. The agent would help them inspect the house, help them negotiate effectively, and did not push for a purchase or a high price at all. If the deal closed, he would take his fee and write the client a check for any commissions from the seller in excess of the fee.

(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.)

Still doesn't explain or justify why you're paying for the realtor on the other side.

Market monopoly.

In any sale, the buyer is paying for everything on both sides, even if it is characterized as the seller paying for it.

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.)

That isn't what this lawsuit was about though.

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.

> 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.

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).

in my experience buy side realtors are really on the selling side team. each time i wanted to offer below asking they refused and never presented my offer. there was no negotiation and i had to arm wrestle to see documents before making an offer. one realtor wanted a BLANKET SIGNED offer form. “i’ll fill it out for you”. no thanks.

Maybe there should be a corresponding lawsuit of home buyers vs NAR and buyer’s agents. I bet the damages are far in excess of $1.8B, and there might be juicier legal grounds for a suit.

(IANAL)

Aren't fees in most countries higher than they are in the US?

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...

No, and this was evidence used in the trial I believe. Commissions in peer countries have gone way down since the introduction of the internet to the process. Not so in the US.

The realtor I used to buy my last house does it as a hobby. She also did one of the most ethical things I have ever seen, and only took her commission at our initial offer, she wouldn't take commission on any of the escalation clause raises.

Why is that ethical? It seems neutral.

Ethical for a realtor. To be fair, that's a different standard than most professions.

It at least makes it so that the buying agent doesn't profit from any additional upward movement in price. I guess it's about as good as you can do with such a screwed up incentive structure.

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.

well theres that, and compound interest. also compound interest.

People who routinely paid 20% to tip a waitress for a meal but don't want to pay a tip for someone who hugely affect the largest investment people make, This is just being cheap and rather foolish.

fine, but let's not compare meal cost to a house. that 6% is very arbitrary. i never got how selling a home in a major metropolitan area would require 10 times as much work for a realtor than a house in the middle of nowhere midwest for 200k. the flat percent doesn't make sense.

The same argument goes for buying steak versus buying a chicken meal. The costs are wildly different but the work is the same, why should I pay the waitress more for one versus the other?

You wouldn't be a realtor by chance?

well maybe you personally shouldn't? like i said, not fair to compare a $20 meal where you're probably not going to die on a hill over 50 cents of perceived labor vs. a $1M house. You're also free to buck societal conventions and tip nothing and "only" be seen as an asshole, you can't do that with realtors.

Most people are against tipping [1], but we are forced to because of societal pressure.

[1]https://www.bankrate.com/personal-finance/tipping-survey/

> This is just being cheap and rather foolish.

If preferring not to give an additional $60k as a tip is considered cheap, then call me Mr. Scrooge.

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