Commissions on RE

[legion]

We've talked enought about the RE market itself...what about the fees and commissions?

Antitrust Regulators Hold Hearing on Real Estate Market
WASHINGTON (The Washington Post)--Discount and nontraditional real estate firms vented their frustration and rage at the powerful National Association of Realtors yesterday at an all-day hearing held by federal antitrust regulators.
Many long-standing grievances bubbled to the surface as panelists representing new kinds of real estate businesses spoke about ways they said the trade group had blocked them from full participation in the market. Several derisively called the Realtors group a "club" that excludes members who won't play by their rules, such as adherence to the traditional 6 percent commission charged on home sales.

"Don't be chicken. . . . Let us innovate within the 'club,' " said Steve DelBianco, a financial backer of eRealty, a cut-rate online brokerage that he said had looked like a "slam-dunk success" until traditional brokers "slammed the door" on it.

Industry leaders rebutted the charges, saying the real estate market is highly competitive, with many new people entering the field. They said average real estate commissions have dipped, to a bit above 5 percent nationally, because of new kinds of brokerage services and price negotiation.

"I'm puzzled as to their statement that the real estate industry shuns competition," said Alexander Perriello, president and chief executive of Cendant Real Estate Franchise Group, which includes the chains Century 21 Real Estate LLC, Coldwell Banker Real Estate Corp., ERA Franchise Systems Inc. and Sotheby's International Realty Affiliates Inc.

The forum was the latest volley in a tough match between the trade group and antitrust regulators at the Federal Trade Commission and the Justice Department. In September, the Justice Department filed suit against the National Association of Realtors, alleging the trade group used its online multiple-listing-service policies to restrict competition from discount brokers offering lower prices.

The two federal agencies have also tried to block legislation in several states, sponsored by Realtors associations, to require agents to do more things for consumers than many discount brokers want to do, including delivering purchase offers by hand and making themselves personally available to negotiate deals. In most cases, the local associations of Realtors, who have substantial political clout, have easily won.

A lot of money is at stake: About $60 billion traded hands in real estate commissions in 2004, according to Real Trends Inc., a Denver-based real estate information firm, much of it coming from the traditional 6 percent commission. Consumer advocates and discount brokers say the industry is profiteering off the dramatic rise in housing prices.

"Home prices doubled, but the level of effort to sell a home has not doubled," DelBianco said.

Aaron Farmer, a broker with Texas Discount Realty, whose firm offers home-sales assistance for as little as $595, said traditional brokers told his clients that no one would show their homes if they listed with him. He said the brokers sent him "hateful e-mails" and "ridiculed" his employees at industry events. He said state real estate boards are dominated by traditional agents who try to keep new competitors out of the market.

"I don't call this competition; I call it discrimination and harassment," Farmer said. "They must stop the lies and discrimination against brokers who are different."

Broker Tom Early said he got his "brains beat out for three years" when he tried to develop a business that represented only buyers. Despite what many home buyers believe, in the traditional real estate system, their agent may not be bound to represent their interests exclusively. "We were not welcomed. . . . I'm sorry. It's nice to say we're all playing nice, but we're not playing nice," he said.

Industry executives countered that the traditional system serves consumers best.

"Simply put, the process works and works well," said Thomas R. Kunz, president and chief executive of Century 21. He said buyers who turn to discount or Internet-based real estate services could get hurt if they find themselves stuck with a real estate agent "operating out of a call center two states away."

Geoff Lewis, senior vice president of RE/MAX International Inc., suggested that the firms criticizing the trade group were running to federal regulators for help because they were not doing well in the market.

"We welcome competition . . . from any competition . . . that can stand on its own feet," Lewis said.

His introductory comments added a light moment to the day. Lewis started by thanking the FTC and Justice Department for inviting him. "And thank you for not including us in your lawsuit," he said, drawing a laugh. A voice in the room piped up: "There's still time."

[RallyJon]

Agree and disagree.

The MLS should be public--open information about ALL listings is the primary barrier to FSBOs and alternative arrangements. Once that's open, let the full-service realtors survive (if they can) based on the their true value add.

However, when my wife and I bought our current house, our agent (a seemingly sweet little old lady, who was acting as a true buyer's agent for us) saved us about $40k by exploiting local knowledge, the seller's fears and his agent's inexperience. We would have been greatly disadvantaged without her expertise.

[legion]

I've bought one house in my life. My realtor basically gave me the impression that she was showing up to get her commission. She showed us houses, but she offered no advice. In fact, every house was perfect in her opinion, despite major flaws in some. She wanted us to offer asking price on any house (even I knew this was not standard in this area). I had to basically bully her into even doing a walkthrough.

Was she worth 3%? Not in my opinion. For the level of help she provided, she was worth much less. I would have gotten the same level of service from some cut-rate buyer's agent. Of course, those don't exist in my area as all of the realty people here are politically connected (or are the politicians themselves).

She got close to $4000 in fees. I wouldn't have minded so much if she was in the least bit helpful.

Edit:

BTW, I'm not trying to say that all realtors are not worth 3%, just that mine was not worth 3%. Still, I believe that consumers would be better suited if they had a choice between "full-service" and "discount" realtors. The brokerage industry went through this transformation quite a while ago. Why can't real-estate?

[vash]

i had the opposite experience as legion. i met my full time agent purely by luck. i was with this one guy that did nothing. he would fax me a listing and send me shopping. "call me if you see something interesting" well i did see something, and it cost him. i met a lady at one open house. she had staged the condo, had snacks out. and asked me where i got the list. when i told her, she told me what a real agent should do. i went with her the next day. she drove me around, and really went to bat for me with some crazy seller agents. i ended up buying something and my agent saved me some money and got alot of stuff fixed. we still talk as friends, and i promised her, when/if i sell she will get my business. i know she wont rip me.
story: the house i bought, the selling agent didnt even list on MLS. (yet) what i think her stategy was, is to get walk in buyers. buyers with a better chance of not having an agent. so she could double dip. this really did the poor sellers an injustice. in the end, i was only in a bidding war with 2 others, and not 38 others, like in my first house offer. (in oakland)

[pbs911]

If you consider a home with a sales price of $1m, the $60k commission (3% seller's agent, 3% buyer's agent) is ridiculous for what realtors do.

[notfarnow]

Funny, I was just talking about this stuff the other day. When we bought our (first) house last year, our agent made the whole thing a very, very pleasant experience. I'd go as far as to say that if it wasn't for him, we wouldn't have the house. The sellers were totally unrealistic, and he was able to talk them down... something no other agent had been able to do with these folks. He definately earned his commission.

On the other hand, my brother just bought a house and his RE agent was useless. She didn't want him to offer less than the asking price, and even tried to talk him out of having the house inspectedI looked at a couple house with him, and any time I pointed out issues (old furnace, sub-code wiring) she'd say "Oh that's no big deal". Now she's getting almost $5000. Must be nice.

[notfarnow]

Originally posted by notfarnow
Funny, I was just talking about this stuff the other day. When we bought our (first) house last year, our agent made the whole thing a very, very pleasant experience. I'd go as far as to say that if it wasn't for him, we wouldn't have the house. The sellers were totally unrealistic, and he was able to talk them down... something no other agent had been able to do with these folks. He definately earned his commission.

On the other hand, my brother just bought a house and his RE agent was useless. She didn't want him to offer less than the asking price, and even tried to talk him out of having the house inspected.(!!!) I looked at a couple house with him, and any time I pointed out issues (old furnace, sub-code wiring) she'd say "Oh that's no big deal". Now she's getting almost $5000. Must be nice.

[claptrap]

1.5% seller's agent
1.5% seller's agent's broker
1.5% buyer's agent
1.5% buyer's agent's broker

...is traditional.

If they give you a discount off of 6%, your agent is taking the hit.

Scott

[Dave L]

I sold my house last year using a discount realtor. The standard rate in the Toronto is 5%, 1/2 for the buyers agent, half for the sellers agent. The reduced rate was 3.5% with 2.5% going to the buyers agent so they are happy. Our RE agent who had worked for a large traditional realtor for years took some pictures, put it on MLS and the house was sold 3 days later. Even at 3.5% the amount is ubsurd for the amount of work that was involved

[RANDY P]

Originally posted by notfarnow
Funny, I was just talking about this stuff the other day. When we bought our (first) house last year, our agent made the whole thing a very, very pleasant experience. I'd go as far as to say that if it wasn't for him, we wouldn't have the house. The sellers were totally unrealistic, and he was able to talk them down... something no other agent had been able to do with these folks. He definately earned his commission.

On the other hand, my brother just bought a house and his RE agent was useless. She didn't want him to offer less than the asking price, and even tried to talk him out of having the house inspectedI looked at a couple house with him, and any time I pointed out issues (old furnace, sub-code wiring) she'd say "Oh that's no big deal". Now she's getting almost $5000. Must be nice.

Ugh, never underestimate the greed factor. Thanks to the low rates and easy access to cash the purchase boom has created a market that is definitely to the sellers advantage. As a result, the notion that the buyer's agent watches out for the buyer's best interest goes out the window.

That's the major flaw in the system- that the buyers and sellers agent are paid from the same pot, so it's to both realtor's advantage to bleed the buyer dry. If it was a situation where the commission as a buyer's agent was agreed upon and NOT PAID from the sale proceeds then it would be a different story.

You have NO IDEA how many times this year alone I've seen purchase and sale agreements written with no regard to actual value of the property - meaning, the sales price was so far out of whack the bank wouldn't buy it since the value simply couldn't be justified. You don't hear the buyer's agent complaining about the unrealistc asking price since they're thinking quick close & huge pay. They spend their time trying to convince the buyer to step up and crush the other buyers with high bids, with absolutely no advice to whether or not it's a decent or reasonable buy.

The 6% rule was created in an era when a house could be had for $40K. Ain't so anymore. Frankly, I think once the housing appreciation slows down a bit you'll notice that the commissons will drop, - the equity to pay 'em simply won't be there, and neither will the client willing to sell their property for serious profit.

If you ever have a problem with a realtor, remember that you can call their boss, the broker if there's anything you're displeased about. I do that once in a while when I have an unrealistic realtor - esp if they're asking me to cover something up.

rjp

rjp

[RANDY P]

Originally posted by vash
i was only in a bidding war with 2 others, and not 38 others, like in my first house offer. (in oakland)

Here's a bit of Black Magic from the Pelican masquerading as a Mortgage Guy in Seattle --

Next time, have whomever writes your financing preapproval letter declare that you're gonna put 30% cash down.

Works like a charm


rjp

[GDSOB]

There are other options than the traditional 6%. We just opened a Help-U-Sell office and charge $3450 for most of our listings, full service. Many of our offices sell without listing on the MLS which saves the 3% buyers agent co-op. The set fee or fee-for-service model is becoming more popular as the consumer demands options to keep more of their equity.

Many states are passing bills that define the minimum services required by listing brokers as a defense against limited service brokers or MLS only listings. One of the issues is that a buyers agent may have to do work for both buyer and seller in the FSBo or limited service transaction. There are significant legal issues that need to be resolved as the RE brokerage environment evolves. That said, the NAR carries a big stick and aims to protect the turf of their members, so it won't be easy for anyone looking to change the status quo.

[vash]

Originally posted by RANDY P
Here's a bit of Black Magic from the Pelican masquerading as a Mortgage Guy in Seattle --

Next time, have whomever writes your financing preapproval letter declare that you're gonna put 30% cash down.

Works like a charm


rjp

ok, i am dense. how does this help? the seller gets all the money at once, right? when escrow closes? sorry, i barely understand my end of the deal, what happens behind the scenes is totally lost on me. i wanted that house, i could have swung the 30%. (but glad i didnt get it, even less garage space! didnt have a 911 then)

[GDSOB]

Since so many deals are 100% financing and seller contributing closing costs - risky and financing falls through often -the 30% down gives the seller confidence that the deal will close.

[RANDY P]

Originally posted by garthdexter
Since so many deals are 100% financing and seller contributing closing costs - risky and financing falls through often -the 30% down gives the seller confidence that the deal will close.

assuming it's really 30% down of course. As long as there are docs are at Eskrow the seller usually forgets little details, like the 30% down.

[vash]

thanks. i get it.