Realtors, Prepare to Lose Your 6 Percent

The monopolistic hold big real estate agents have had on information — on access to use multiple listings services — has been blown open at last thanks to the Justice Department’s antitrust settlement with the National Association of Realtors.

Kiss your 6 percent commission good-bye, Ms. Agent! Competition is on the way.

The only reason — only reason — that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient. To quote Umair Haque (sorry, no link; I’m pulling this from my manuscript):

Competitive advantage is fundamentally about making markets work less efficiently. One catastrophically effective way to do that is to hide and obscure information – to gain bargaining power relative to the guy on the other side of the table. . . .

A world of cheap, abundant, always-on interaction, where value is shifting to the edges, demands a fresh understanding of what’s truly strategic and what’s not.

Here’s a quick example. Where orthodox strategy advises hiding information and making things less liquid, what does edge strategy advise? Exactly the opposite: release information bottlenecks and make things more liquid.

What Craig Newmark realized is that listings — for sale, for rent, for hire — are the property of the market. By making that efficient and extracting the minimum value from it, craigslist grew huge. When Craig spoke with our students at CUNY recently, telling them about some of his other activities, the students asked him why he wouldn’t maximize the value of craigslist, then sell it for billions, then use that fortune for his philanthropic investment. Craig said that he believes he is doing more good leaving the internet dividend he created in the economy. Buyer and seller, directly connected by Craig or by Google, keep more money from transactions. The middlemen — agents and newspapers — suffer but more people benefit.

This new economy can now come to real estate sales as information become freer. Oh, it’s not fully freed yet. But I do believe that the combination of this settlement and what it does to empower discount players and the depressed real estate market will combine to finally shove dynamite up Realtors’ rears.

Couldn’t happen to a nicer bunch. A 2008 survey by the British Journalism Review found that estate agents in the UK are the least-trusted profession, worse even than tabloid reporters; only 10 percent of Britons trust them.

Freakonomics demonstrated how real estate agents’ interests are not aligned with their clients. “A real-estate agent may see you not so much as an ally but as a mark,” wrote Steven D. Levitt and Stephen J. Dubner. They cited a study that found that real-estate agents keep their own homes on the market an average of 10 days longer than homes they represent and sell them at prices 3 percent higher. Levitt and Dubner explained that it’s more efficient for agents if they can get you to sell quickly, even though, from your perspective, that is clearly a less efficient marketplace because it doesn’t get you maximum and true value. “Here,” they wrote, “is the agent’s main weapon: the conversion of information into fear.” That is to say, the control of information leads to inefficient marketplaces. But in the long run, Zillow is becoming far smarter than the smartest agent because it knows more thanks to the aggregation of our data about sales. On the internet, more information equals more value.

The Times said:

Real estate agents earned $93 billion in commissions in 2006, with a median commission of about $11,600, Justice Department officials said. Internet brokers, offering pared-down services, provided average rebates of 1 percent on commissions that normally ran 5 or 6 percent, translating into thousands of dollars per sale. . . .

The National Association of Realtors, with more than 1.2 million members, said that the settlement was “a win-win” for both the real estate industry and consumers. It noted that the association admitted no wrongdoing and paid no fines or damages as part of the deal.

Laurie Janik, the [National Association of Realtors] general counsel, said in a telephone interview that the settlement would have no real impact on home buyers or sellers.

“I don’t think they’ll see anything different,” she said. “This lawsuit never had anything to do with commission rates, or discount brokerages.”

Bullshit. Competition is coming. Information will get freer. Rates will decline. Homes will be worth more. A more efficient marketplace is good for buyer and seller but not middleman. We’re finally headed in the right direction. The Times concludes:

Norman Hawker, a business professor at Western Michigan University who organized a symposium on the Justice Department litigation as a senior fellow for the American Antitrust Institute, predicted that the settlement would ultimately mean a drop in sales commissions of 25 percent to 50 percent as a result of increased competition.

“It’s pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models,” including discounted fees and virtual offices on the Internet, he said. “There are lots of entrepreneurs who have been looking for a green light in the form of this order to begin offering discounted rates. It has the potential to be a big step forward for consumers.”

When I write posts decrying the wasteful sloth of real estate agent commissions, I invariably get a cadre of agents - more often, actually, their defensive husbands - saying I just don’t understand the value they bring. I say that if they have to explain their value, then it is empty. They do not deserve 6 percent commissions and soon they won’t get them. Heh.

Comments

[billb]

It's a bit interesting that at a time when the commission rates will likely fall that real estate agents have had to work harder than they've ever had in the last 10 years. We hired an agent last year to fill a commercial property vacancy and he actually had to do a lot of leg work. I started to feel like he was actually earning his commission (which was not 6%).

[User 200946]

Licenses are gov't promises to limit competition, not to protect consumers. As a Monopoly protection racket, maybe the worst case is Under the Louisiana Department of Agriculture, you'll find Floral Licenses. the board that certifies the license is made up of individuals who have a vested interest in designers NOT getting a license. It really only adds up to their preventing you from becoming their competition. And while I'm on lic.laws, why do people need marriage licenses? Why do people ask permission from the govt for holy matrimony? Peace Out

[lasdc9]

There is no such thing as a six percent commission unless the consumer agrees to one, all commissions are negotiable and always have been negotiable. Other options have always been available to any consumer such as for sale by owner or using a lawyer. My second point is that the only information realtors keep from the public is for security reasons things like alarm codes. Any other information is available to the public and can be found and has been available to anyone who wanted to take the time to look it up or ask for it. Local real estate boards take the time to compile this information and present it to their members in a single web site for which realtors pay a fee. I am a broker who is not a realtor and I am able to perform my business in any manor that I choose as long as I follow the state laws. This ruling will do nothing and will not change anything.

[ValueInvestor]

billb,

I agree that a commercial agent will have to work harder than a residential one simply because the number of buyers for a property like that is significantly lower. I imagine they earn their commission.

As for residential agents, I think nowadays the buyers (not buyers agent) tend to do a lot of the leg work themselves. Having online MLS listings makes it easily accessible to buyers, so they can view houses and prices without having the agent do the work for them.

I recently sold my place with a discount agent and everything worked smoothly, saving thousands on commissions. I never understood how an agent can take 6% +3% for the little bit of work they do. I mean, if they sell only 2 houses a month they're still well off.

[DarrellCatmull]

The 6% commission is actually a 3/3 a commission. 3% goes to the listing agent and 3% goes to the selling agent representing the buyer. On a rare occasion the listing agent sells the home and keeps the full 6%, but it is rare. The commissions have been under attack for over a decade. Our board and MLS in Utah have never prohibited discount brokers from setting their price nor has the NAR. Discount brokers have been around forever. I know of two discount brokers who could not make it in the business because: 1) their revenue stunk 2) People end doing business with a professional who charges what their worth, most likely 6-7% split 50/50. Some even add transaction fees on top of that.
Jeff, your article is not researched well and is more of a tirade than informational. The truth as to why it costs 6% to list your home with a competent broker is because there are too many large brokerages with in expensive office buildings. Furthermore they need more agents in the house to subsidize the high expenses. As a broker I know the game of the big brokerages. They go to the specialty schools hire an eager newbie. That newbie predictably will do 1-6 deals with family and friends in the first 6 months. The big brokerages know that the newbie will be out of the business in 4-12 months, in debt up to their eyeballs, if not bankrupt. NEXT!
The solution which the NAR will vehemently fight against is to make it harder to get a license; The NAR likes their 1.2 million dues ($104). The states need to require: 1) at least an associate’s degrees to enter the field or 2) require that all new agents operate under an apprentice for a period of time or until certain points have been achieved. Under this model, similar to appraisers after the S&L scandal, the industry would then attract people with a sense of direction, commitment and understanding of patience and discipline. Right now we get 18-year olds to retirees who just want to earn a buck or two, “part-timers.”
I personally have a punch-list that includes 180 items from: to-do’s, calls, meetings etc. that I do for a client and this is just a starting point, it’s customized for each client. PLUS I have to prospect for new business at some point in the week.
Jeff, I assure you the commissions are huge but your tirade is focused on the symptom vs. the cause. Perhaps your right, the commissions will come down. But consider this: If I average more than 2 clients a month, with my system, I would have to hire one assistant for every 12 additional clients (1 averaged). This is exactly why you see the trend of “teams” in big brokerages. That 6% gets cut up like a pie. The real disservice to consumers would be cutting the commission for the sake of cutting the commission. The right thing to do is to make it harder to become an agent. Then watch the commissions go down naturally or watch the service and reputation of agents do a 180. I’ve been financially broke many a months because I truly have the clients’ best interests at heart, and didn’t sell a property even though I easily could have. I know many who fall in the same category of ethics but like all things the bad guy ruins it for the good guys.

[User 201184]

What an idiot.

Because everyone knows that all agents do is post properties on a website.

Hey, I'm getting sued - I think I'll go to court without a lawyer since all he wants is a fee to fill out paperwork.

[drmalaka]

I never understood 3% commission each way, so you have to cover 6% of the price just to go to the agent. What a rip off. The value add was and never will be there. The only reason that this is not lower is that competition is not allowed. This is the same as stock brokers who used to charge $150 to buy 100 shares and then the discount brokers came in and fixed that.

I always thought paying your 6% was like paying the mob a vig. Lets be serious, that percentage is more of a mob racket than a legitimate business.

It will be nice to see real estate brokers take the hit. Their value add to the equation is not anywhere near the vig they charge. And the author is spot on, they do not provide to efficiency in the market, they hurt it.

Plus brokers also had a nice hand in the current housing crisis. How much did they cash in during the last five years?

As the judge says in Caddyshack, "the world needs ditch diggers." I am sure it will take a little while but we will have more ditch diggers available soon.

[Can'tSpotABubble?]

"3% goes to the listing agent and 3% goes to the selling agent representing the buyer."

WRONG at least in my state. Unless you have entered into a specific buyer agent relationship, both sides of the transactions fiduciary responsibility is to the seller. The buyer has no representation in the transaction unless it is explicitly spelled out.

BTW It's easy to determine the posters who are agents, trying to justify their existence.

[Hal JLikakik]

The sacrosanct 6% commission has not been sacrosanct for a long time. As an earlier poster correctly noted, commissions have always been negotiable. What he didn't say is that, for a long time, brokers and agents simply refused to budge. That's changed, and this ruling will only accelerate the trend.

As to the broker who posted about the "agent mill" approach to the business that has served "big brokerages" so well and concludes that raising the bar is the answer for the industry -- Amen, brother!

Forget locationX3, the real mantra is Recruit, Recruit, Recruit! Brokers will need to re-discover that the business is about serving Homebuyers and Sellers, not flogging a handful of deals out of some poor schmuck who was stupid enough to believe that Real Estate = Easy Money, because the information monopoly that made that system work for so long is finally, legally dead.

This will not be the end of the industry for the simple reason that, for most people, there is real value in the help a good real estate agent provides throughout the process. What will change is their attitude of "You need me" -- No, we don't, but we might choose to use you because its just easier.

I could do my own taxes, but I don't because it stresses me out and I would wind up paying more than I do when my accountant does them. Of course, if my accountant wanted 6% of my income in exchange for his services, I'd laugh in his face. I feel that what I pay is commensurate with the service he provides.

That's where the Real Estate industry is headed: Fewer, better qualified agents serving clients from a menu of services using technology to more efficiently handle a larger number of transactions. Perhaps those who remain standing will earn the same, or even better, money than good agents do now. We will see. We will also see what will become of all the less-than-stellar candidates that, until now, brokers were happy to run through the Agent Mill. I bet the Time Share guys, Telemarketers, and "Make Millions from Home on the Internets" folks are are about to see an influx of suckers, sad as that is.

My guess is that some of the current crop of Real Estate ladies and gents will make the transition. The good ones are smart and (God knows) motivated enough. But over time, the new face of real estate will be younger, better educated, tech savvy, and lacking that certain MLM motivational speaker quality that clings to the industry like cigarette smoke in cloth upholstery. Over time, they might even make the profession more respectable than "British Tabloid writer"...

[DarrellCatmull]

The brokers only used the means given to them. NINJA loans were and are stupid. Banks, Wall Street and hedge funds, not real estate brokers, caused the crisis. Plus Fannie Mae has great solutions to curb the crisis. Where are the hedge funds solutions? Clearly the brokers had no hand in the crisis other than they profited like buyers, sellers, investors and REITS alike. Did you know that there are areas of America (Iowa) that have enjoyed a steady increase in values on an average of 2.7% per year with no huge market swings? The elitist caused this crisis by handing out stupid loans allowing 54% appreciation in just 29 months (Salt Lake City).

Real Estate Brokers might take a hit but I'm not sure what you all think is going to lower the commissions? As I stated discount brokers have been around forever. Why do you all think this is new? If Google and Zillow now have a right to our MLS data then yes that's a problem for REALTORS. Short of being forced to sell our data, nothing is stopping Google or any other entity from competing at a discounted commission or comparable commission. Folks you’re focused on the money not the problem. Bad service at any price is bad service.

This is about the value an agent provides and whether you agree or not. You get to choose the agent! Would you like me to find you three discount brokers to interview? RIGHT NOW! There in every state, every county and every city! A good agent provides value, whether it’s worth a percentage is arguable and nothing is stopping competition. It’s like lambasting the athlete that gets 20 million a year. I bet once that pie is cut up he really takes home half the face value of the contract if that.

Oh ya, the forms we fill in are only there because attorney generals deem most agents incompetent to pen out a clause or addenda on their own. Why not make it harder to become an agent? The NAR won't have it! Those forms were all created and paid for by agent’s dues and fees. They were NOT created by government for us or For Sale By Owners. Office Max, the internet all have fill in the blank forms. What’s stopping anyone from selling or buying a home without paid help? Why are you blaming brokers for high commissions? I see nothing in the way of competition! There's fixed fee, discounted commission and Pay for performance brokerages all over, why aren't they more successful? Oh I know it's because Big Brother needs to step into this fight because the consumers are too apathetic and scared. They can’t organize and make a difference without government? Phewy! I can create a business plan on $3000, 2%, 3%, $995 or any other amount but why would I choose $995 when over 80% of the property sold averages over 2.74% each side? Would you tell your boss, no don’t give me a raise, that’s idiotic.

[bigdog1]

Why not make real estate commissions like the rest of the business world; i.e. 6% fee on property up to $100,000, then a declining scale as the value of the sale increases, 5% up to $150,000, then 4% at %200,000 and 3% at 400,000 and continue to fall as the value of the sale increases. This is how the rest of the business world works, decreasing prices as the value of your purchase increases.

[User 151885]

Okay all you nay sayers! Go ahead... youve always had the choice to sell your own homes yourselves. No one is forced to use a realtor! The choice to use a professional is both the buyers and sellers. So go ahead and do it! Don't try to blame realtors for your inability to perform the transaction. And it has been like this since the concept of representation was invented. The choice is ALL YOURS!! GOOD LUCK WITH IT!

[October19]

It's about time!!!

[lasdc9]

Another poster wrote,

"I always thought paying your 6% was like paying the mob a vig. Let’s be serious, that percentage is more of a mob racket than a legitimate business. "

I have seen so many consumers post similar sentiment. I interpret this as "I have to use a realtor or my house won't sell and paying them is a rip off". You do not need to use a realtor if you think it’s a rip off then sell your house on your own.

I am a broker and the first thing I tell someone considering selling a house is if you are reasonably intelligent,
have the time to answer 25 to thirty phone calls a day (most of them similar to junk mail), can drop what your doing to show the property at a moments notice, can follow up with escrow officers, lawyers, lenders, home inspectors, and be a psychologist when the buyer has remorse in the middle of the night and calls to discuss their concerns at 3am then you do not need me to help you sell your house.

[John Wake]

Jeff, How can you be so reasonable about online journalism and such a wacko on real estate?

If you don't want to pay X% don't! Stop whining and take control of your life.

Jeff, How come the discount brokerages are not thriving? Because they and you have total miscalculated the costs of running a real estate business.

You missed the real story of that case. The NAR came up with an incredibly stupid policy because at the time many main stream players like the owner of RE/MAX were all freaked out about a certain type of internet real estate website, in particular, two companies were talked about.

Both of those companies were bought out for their very valuable internet technology years ago by large main stream brokerages.

Also I believe that NAR changed that stupid policy years ago as well.

[gbsnh]

All compeling comments dependent on what side of the equation your on. I've been a broker for 27+ years and 7% in the day was great. The seller doesn't care about splits, who gets what and all that. All they see is it costs me WHAT to sell my house.

Instead of trying to protect our turf we should be asking what we need to do for the benefit of our clients.

We need to adapt to survive. The world is flatter than ever.
Bottom line is it's what the consumer wants, it's about them not us.
It's about competition and choice.

[joyfulalternative]

I sold my last house myself. Easier than using an agent, not to mention more profitable.

[Tom Lindmark]

The writer of this post did go a little overboard. It seems as if he has a bone to pick with realtors. Take a look at his background and you will see that he has no real estate expertise at all. Nevertheless, he is right in the central thesis that this is going to bring changes and lower commissions to the industry. Here's my take on the decision-blog.metro-real-estate...

[AlanBennington]

lasdc9...almost sounds like LASIK eye surgery. You may not need this procedure but some corrective thinking lessons for you might help.
Your assertion that "there is no such thing as a six percent commission" is specious at best. The average man on the street knows that agent commissions are 6%. As Americans, we are not prone to haggling over prices as many other cultures do. That the 6% can be lowered simply by negotiation is just not considered by most people...the untutored...less sophisticated great un-washed masses, as you might call them, tend to pay what is asked.

Your second point is equally misleading, in saying..."the only information realtors keep from the public is for security reasons..." belies the fact that the MLS purports to contain proprietary information. This MLS info is really public information albeit reported sooner than at your local recorder's office.

As an investor who buys foreclosure properties, I need up to date immediate information about a particular house, neighborhood sales...along with other information.
I need to know the market value today,not three months from now.

Because I'm not an agent I cannot get MLS access, I'm willing to pay but my money isn't good enough. As a result the NAR ( Nat'l Assn. of Restriction) is "steering" me to "Mr. Local Agent...thereby hoping to get a bigger piece of my wallet.
Don't fret...I get my MLS access from friendly agents...quid pro quo for us both.

[User 151885]

Commissions may decline. There will be a lot of agents "out of a job" because of the sales decline. The best of agents will still remain in demand and perhaps even charge more now.
One more point... The prices of gasoline in my neighbourhood are virtually the same at every gas station as are the prices of homes unless under duress.
So what's your point about 6% charged by a realtor? Whatever the rate, under normal conditions, yet allowing a reasonable profit, will soon be adopted by all offering similar in a competitive marketplace.

[bill d]

I sold a house in 1978 for 64,000 and paid a 5 or 6 % commission.
I sold a house in 2006 for 450,000 myself and paid no commission.
If I had paid 6% do you think the 30,000 would have required more work than the 4,000 paid in 78 ? Absolutely ludicrous especially when an agent was basically an order taker.
Think things are tough now ????
I am a CASH buyer and wait a week to get calls returned if at all. When I do get an agent to show a house they rarely even ask if I want to make an offer. I tell them I am interested in the area and I have had ONE email me to ask if I was still interested - I replied - yes - and haven't heard back for 3 weeks.
Now you tell me are things so tough that I can't even get an agent to try to sell me a house ??????
Bullshit. Even 3% on a $100,000 is $3000 - not bad for just showing me a house and taking a deposit.
Something is smelling really bad here.

[Mod]

I sold a $1.35M house in 2003 and ponied up 5.5% commission, or $74,250 in commissions. For what? It sold in ONE day. Literally. It also sold at $100k more than what the realtor wanted to list it at. The price was full-freight, and I chose it. My 'realtor' whined she really didn't make that much money on the sale? WHAT? It sold thru the same office as the listing. She had to split with her part-time partner. Even if all she got was 1% of the sales price, that was still almost $14k for a ONE day sale. Later, when I had her show me properties a little (5 miles) out of our original area, she acted all put out that I actually made her travel a bit. So I got another agent for that area, and kept the first one in my home area. The second agent started sending me listings in my home area. At 8AM every morning. The first agent didn't get them to me for two or more days after they hit the market. WTF?! When agent one got my wife on the phone, and my wife let drop I had seen the house being called on two days earlier thru another agent already, agent one called me and had the gall to tell me I "owed" her. I fixed that notion rather bluntly and quickly. I told her I owed her nothing -- she owed ME. She made good buck ont he sale, but treated my purchase like a part-time event around her lifestyle, and that wasn;t gonna fly with me. SO either get moving and give me listings every morning at 8AM, or bow out. But don't ever THINK I owe you. She bowed out. I guess it was too much work to actually provide a service to me.

[Yoski]

I see a lot of angry 6%ters are chiming in. Time to get a real job. A Real Estate Agent is about as obsolete as a travel agent or a used car sales agent. I always avoided those leeches like the plague but I have to admit it is difficult doing so because 90% of all properties are listed with agents. So you are usually out of at least 3% of the purchase price.

[give me abreak]

............"Hey, I'm getting sued - I think I'll go to court without a lawyer since all he wants is a fee to fill out paperwork."

So are you saying that realtards have the same education and expertise as a lawyer? Maybe you think you could do brain surgery to with you G.E.D.. That's right, people go to school for 8 years to sell homes. Your the idiot. You make me sick you lying, maggot. I remember the days when I had to pay $150 to buy and $150 to sell a few shares of stock because the brokerages had the same monopolies. I can't wait till realtors make so little money that teenagers and illegals are doing the work. Now go flogg yourself.

[You can'tbe serious]

"......Because everyone knows that all agents do is post properties on a website.

Hey, I'm getting sued - I think I'll go to court without a lawyer since all he wants is a fee to fill out paperwork."

Also, the seller pays the realtards fees so it doesn't come out of the buyers pocket.

[lasdc9]

Alan wrote

"The average man on the street knows that agent commissions are 6%. As Americans, we are not prone to haggling over prices as many other cultures do. That the 6% can be lowered simply by negotiation is just not considered by most people...the untutored...less sophisticated great un-washed masses, as you might call them, tend to pay what is asked."

Why will the majority of real estate buyers haggle over the sales price but sellers will not haggle over the commission rate I have never understood this.

Second if you have the time and can network with your assessor, title company sales reps, a local realtor or two you can get all of the information you need to make an informed decision on your own.

My third point is , as another poster stated there is a very low barrier to entry to become a realtor, if you do not like being excluded go out take the time get your license any broker will hire you and you can get all the information you need.

I will say it again if you are reasonably intelligent and have the time to spend doing the research you should sell your house on your own. If you do not have the time to do the research and the time to do the selling and follow up after the sale, which depending on the complexity of the transaction can involves a lot of time, then hire a realtor but negotiate the commission just like you would negotiate the sales price of the home you are selling or the purchase price of your new home. If the first realtor will not budge then interview the next if none will budge then sell the house by owner and let the agents in town that you will pay x commission if they bring you a buyer. Real Estate not rocket science each transaction takes time and effort to bring to a closed transaction that is what you pay or should be willing to pay a realtor for, their time.

[Pent updemand]

"A good agent provides value, whether it’s worth a percentage is arguable and nothing is stopping competition"

BS. How about "minimum service" laws? or cartel behavior like freezing discount brokers out of the MLS?

Most agents are a joke. When I sold my last house I had to figure out the market myself. My house sat for 6 months longer than necessary because I had it listed too high. Maybe my dipwad agent thought he was protecting my feelings by not telling me to lower my price. I would much rather have had hurt feelings and 6 months of mortgage payments/taxes.

And for the money they charge they don't even show the house! It's some clueless buyer's agent who doesn't know the property and can't sell its advantages. A total ripoff.

[biscaynebay]

This article or the posters failed to answer one biggest question on my mind.

Will this ruling make the MLS available to non real estate people like me? My only recourse is now to post on the Craigs list and it gets inundated with hundreds of posts. I always wished, I could post my for sale sign on the MLS with out listing with a broker.
Please someone anwser my question, once again, I repeat:
WILL THIS RULING MAKE THE MLS SYSTEM AVAILABLE TO THOSE OUTSIDE NAR (national association of realtors) to post properties for sale?

THANKS
AJ

[ChrisM]

Iasdc9:

6% of the average price of a house in my area is around $25,000. The problem people have is agreeing that the monetary value for the services you mentioned in your post are worth anywhere near this price. If someone came up to me and said here's 25,000 to sell your house, you BET I would deal with phone calls, learning paperwork procedures, scheduling viewings, etc... It's 2008, people have access to any information they desire at their fingertips. I'd figure it out. (I'd also argue that 25-30 calls a day on a house is probably optimistic in todays market anyway! There's also something called email. If the potential buyer doesn't use it, then I probably don't want to deal with them anyway.)

I agree, there is a place for realtors, but that place is shrinking by the year.. and their business model is quickly becoming antiquated.

[BPC]

Realtors are a complete joke, for most of them it's a part-time endeavor. Any wanker with a week of free time can obtain a license, hell, it's far more difficult to become a cosmetologist!

A family member has been licensed for 30+ years and I've bought and sold countless properties, handling virtually everything on my own and having her sign on the dotted line.

It's *really* not that much work. List and show the property, negotiate a final contract, send it to escrow. If you can sell a car you can sell a house, period.

Most add little to no value, they're a pathetic bunch.

[EA2323]

AJ,

The MLS data is more or less already available to you, minus things like the agent remarks which will and never should be available to the public (personal information like security codes and so on go in here).

This ruling was more about allowing access to heavy discount brokers who were previously being denied access, but my understanding is that they are still requiring a brokers license (or appraisers license) to get on the MLS system, so joe homeowner will not be getting access to the MLS system. It does mean that you will likely be able to access the MLS information, you were for the most part already getting, on these discount broker sites.

As far as listing your home on the MLS, you won't be able to do it yourself, however, many of these discount brokerages will do it for you for next to nothing. I've seen a bunch of places that will put your home up on the MLS for a couple hundred bucks, but you have to do all the work beyond that. They just put your phone number and contact info on the listing for interested parties, so they literally do nothing beyond placing your home on the MLS. This is comparable to what you would have to pay to run a series of ads in the newspaper, and even if the MLS was open to non licensees they would still charge you for the privilege of listing your home.

The bottom line is if home buyers or sellers don't want to pay high commissions, they don't have to. There are plenty of discount houses out there that will help you as needed for a lower cost. If you go to one of the discount houses don't expect great service or anything, but if you are planning to do the work anyway then it only makes sense. Hope that helps.

[42773]

It certainly is easy to see which posters are Realtors & which are real people.

From what I saw on the news awhile back, Utah passed a law that said that if a Realtor lists a home, it must provide full service. In other words, the discount brokers like help-u-sell must provide negotiating, etc which drives their costs up.

I saved $35,000 by listing and selling my home myself a few years ago. I answered the phone calls (no where near 25 per day, although about half were from realtors calling to tell me that I was dumb to sell my home myself and begging for business), assisted the buyer in completing the offer and dealt with the title company, the buyer's mortgage company and the inspector on my own. The ad cost $600 for three months, during which I received multiple offers and sold my home at a price I thought was very fair.

Realtors are helpful if the owner lives out of town or the person feels incapable of selling on their own. But most of the time they are overpaid; the only time you see them is when you list the home, if you get an offer you'll see them. If not, you'll see them again or one of their many competitors when their listing is ready to expire. Their value is nowhere near the thousands that are paid out from closings. Between the housing bust and the internet, hopefully the "profession" will go away altogether.

The realtor who compared himself/herself to an attorney is wayyyyy too full of him/herself. Anyone can get a realtor license if they take a short course & can sign their name. I would rather have my dog represent me than a realtor, at least a dog is loyal.

[PeteBikerMan]

In California the Broker charges 6% which is usually split 3-ways: Brokering agency - 3%...Listing agent, 1.5%...selling agent...1.5%; In the event that the listing and selling agent are one, then agent gets 3%.........These percentages are all negotiable, but are usually not modified unless buyer is aware of this possibility and insists on a discount.

It would be interesting to determine how many hours an average home sale takes of an selling agents time and divide that by the average percent of profit earned on a sale. Then we would know if the hourly rate is within the realm of a realistic expectation of wages/hours.

When you consider that working for a commision is a dicey game of knowing your product, a winning personality and determination, you must expect the rewards to be much greater.

[tucsoncollapsedances onthe NARgrave]

All this shit about sellers and buyers having a choice other than r.e. agent is aggravating. Well, I fought for 5% with my agent when I sold, and as a result most of the bitches in the profession refused even to show the home (which, by the way, sold for 15% more than any of the 4 I interviewed suggested as a top end, in SIX days, in a crappy market, because I did my own comps and insisted on a higher asking price). When we did get a buyer, HER agent moaned about half of 5% non-stop, and threatened to suggest the potential buyer walk away until I threatened to present her office, and the nat'l Century 21 with a lawsuit. Anti-trust litigation has been a long time coming, and I applaud the courts for busting up this b.s. cosa nostra 'profession'. In my case, admittedly anecdotal, but I suspect not unusual, realtors brought very little to the table, caused me big headaches, and cost me half my annual take-home pay. Could I have done it without a realtor? Not easily, because of their girls' club monopoly.

[biscaynebay]

EA2323,
Thanks. That helps. Very clear answer.
AJ

[RE Agent]

If so many of you are complaining about what you paid an agent to sell your home why didn't you sell it yourself? If agent's are such idiots then what does that make you for paying them and not selling your home on your own?

What most of the non-real estate posters are not accounting for are the hard costs involved in selling real estate. These are all out-of-pocket expenses for the agent. The big commissions, which by the way, have averaged 5% over the past few years. Most recently the average commission charged is 4-5% which is split between the brokerages. After deducting all the brokerage fees, e&o insurances, MLS dues, printing, advertising, gas, etc it is not nearly as much money as most people imagine.

One other thought, for all of you that are not real estate agents: What do you get paid annually? How is your pay justified? Where is that cost past along for your six figure salaries PLUS bonuses and benefits? I would like someone to guarantee me that every two weeks I will have a direct deposit hit my checking account, I won't have to pay through the nose for health benefits and a paid vacation would be nice too. Don't think your big salaries with bonuses, stock options, health care and paid vacations aren't paid without someone getting raped (probably me). And, by all means, sell your home on your own, and don't call me crying when you can't get it done or don't want to pay for your own advertising or don't know what the value of your home is because I don't want to donate my time, experience and expertise to tell you what you don't already know.

[chicagoburbsMom]

I live in Illinois and have worked with bad, good and great realtors. Just like ANY profession, you need to seek out the great ones to do business with.

I've tried selling my home on my own thinking that I would be saving lots of money. After a couple of weeks, I quickly changed my mind. It was stressful and I did not like showing our house. It was not as easy as I had thought. We decided to use a Realtor and negotiated a lower rate. (byw - I don't know anyone who has paid 6%)

Our Realtor happen to do an excellent job. He was a true professional and made the entire transaction a pleasant experience for us. He handled everything and worked very hard. He earned his commission.

I'm surprised that all the people that think it's so easy... haven't become realtors to cash in... ;)

I agree with previous posters.... There are many things people can do on their own if they wish to. But most people want to hire a person that can and will do a better job than they can because it's what they know. I'm confident I would use a Realtor on my next transaction. No Thanks Buy Owner!

[missouribroker]

Interesting comments, all...I've been in the business for 12 plus years in the midwest, our median sales price is $130k. We too have had discount brokers for 5 years or more and they are active in the local board and associate freely with the other brokerages, big and small, franchise and non-franchise. Like with any business (yes, even journalism) there are good and there are bad (people) the good prove their worth and stay in business, even thrive. The bad constantly blow through those they can con to stay in business until the cycle turns. It is turning. For those of you who hate us - your refer to us as the 6 percenters - you have always had the ability and freedom to sell on your own or buy without representation. Don't get pissed because the house you want is listed with a REALTOR...that particular seller trusts and has agreed to the NEGOTIATED fee. If you don't want to play with us, find another house. Buy from the For Sale By Owner who has no seller's disclosure, office store contracts and tells you he's passing on the REALTOR fee to you in savings. If you buy that, you deserve what you get. If you are buying or selling and CHOOSE to use a REALTOR, do your homework! There are idiots out there! They are licensed by the state and a free market will take care of them! If you use them and don't complain or file a greviance due to misrepresentation or violation of ethics, then you only propogate the problem. I work by referral only, my clients know me, trust me and don't argue with my fees. I can't tell you how many times I've told a buyer not to buy or a seller not to list because of their situation at the time. I give discounts for return customers and I negotiate freely as any good business would. I know what it costs to do business, I know what I need my profits to be to stay in the business and to succeed and I will know who I want to work with and who I tell to seek out someone else. Most of you in this post would fall into the later catagory. I would guess my average commission (total) per sales is 2.2%. Calculate that times our median sales price and then rethink your nasty remarks. Yes, I too as a seller would gasp at paying 5-6 or 7% of anything above a $400,000 sales price. If you own (have mortgaged) a property at that value and don't have the skills or knowledge to negotiate a better listing commission than I can only say "you are stupid". There will be change coming....but good, basic, ethical business practices will prevail and those who appreciate them will do business with those people. I'm not worried.

[Sarah P]

There are a handful of good agents out there that I beleive truly deserve to be compensated. However, about the other 90% of all real estate agents I've encountered are incompetent. I am a real estate investor and I buy and sell quite often(well over 100 transactions over the years). I swear to God almost every time I used a real estate agent (with a few exceptions), all they did was get in the way. (and I was paying them tens of thousands to do so?!?!). So I decided to get my brokers license to at least circumvent one side of the deal. I am glad I did, no I only have one real estate agent in the way and I get paid half of the commision. Sorry all you Realtors out there, but I am just being truthful!

[RE Agent]

You are correct Real Estate Broker, there are a lot of agents that should not be allowed to participate in a real estate transaction. You will find incompetence in any profession/business but when dealing with the sale or purchase of what is typically the most valuable asset the average person has, they deserve proper representation. This said, there are a lot of us that are have great product knowledge and bring value to the transaction. I'm sure you feel you could bring value to a transaction if representing a seller/buyer because of your experience, product knowledge, savvy, etc. I am hoping the real estate crunch flushes out the weak and only the strong survive. It would be good for the industry and the consumers.

[Kimon]

I was screwed by my realtor four years ago. It was a hot market but I agreed to sell low because he convinced me that the market was tanking. We started at 570k and we sold it for 475k. This realtor was so slimy. I now realize as I look back that he swindled me in the following ways:
1. He got me to sign with him by promising an exaggerated amount.
2. He never did an open house by himself, instead he sent other people from his office to do it. I stupidly agreed to a 6% commission and he probably kicked down a point to the other realtors. Also, the other realtors would hustle potential buyers in case they were interested in something else.
3. He told me this BS story that the market was tanking but never provided any evidence. I stupidly believed him. He told me again and again that he is ethically bound to represent my best interests. It tanked...but two years later.

I hope people learn from my mistakes.
NExt time I will sell myself..there are so many great resources on the internet, you don't need a realtor.

By the way, the realtor who represented me on the purchase of my first property was a became a good friend of mine... or so I thought until I sold that property with another realtor...then he blew me off.
What a seedy business, when the hardest part of the business is getting the clients by befriending them.
YUK!@ It's a form of prostitution.

[Eliza]

The commissions need to change. 6% of a modest California bungalow comes to around $40K. That is too much money for the work even the best real estate agent performs.

The realtors might have to institute fees, as commissions alone do not work for anyone. The $40K I would pay to get my house sold covers every would-be buyer who never bought, every house that did not sell or changed to another realtor. Even bad realtors go into the office, answer phones, follow up leads, take classes, and they aren't paid for any of that work. So when I pay $40K to sell my house, I am actually paying to have that realtor to do a lot of work that has nothing to do with me. Why should I do that? And, then again, why should the realtor work for free for those clients who don't end up paying them?

What if you had to pay realtors a reasonable fee for their time and expenses? A fee that would come into play only if no transaction occurred? For example, Jill and John think they might like to buy a house, so they get Bob the Realtor to drive them around the city every Saturday afternoon for a month before deciding they would like to keep renting. Maybe they should pay Bob something to cover Bob's time. Maybe Bob should write up an agreement stating that anything over 4 hours of face time must be paid at a fair hourly rate which would be superseded by a reasonable (well under 3%) commission in the event of a sale.

Then Bob would not have to charge me 6% of $700K just for putting up a sign and doing some paperwork. Nor would there need to be so many realtors, as people would think twice before asking for their time.

[DanH]

Lots of braying here. The kind you hear in the stockyard at slaughter.

[Ca Bounty]

Eliza, you hit the nail on the head. Realtors should be paid for services rendered. I'm a Realtor who charges by the hour and for all services (advertisements etc.) with a cap in the amount of a full commission. I also ask for a $2,500 retainer up front and bill at $75 per hour. Once that $2,500 is eaten away it's time to pony up another $2,500.

I find this covers the costs of doing business and insures that I get paid for my time and effort in selling the home. A lot of my colleagues can't believe that I do business this way nor do they understand the business model.

I can tell you that Sellers love this business model and Buyers hate it. I have never understood why the Seller eats the full cost of the transaction.

[Pent updemand]

I love that a realtor called me stupid for using a realtor's services. Thanks, I will definitely remember that!

Hey realtors, if you're so ready to admit that there are incompetents in your midst, why isn't your beloved NAR doing anything to shore up "the brand". How am I supposed to know a good realtor from a bad one? I don't buy and sell real estate very frequently. I found one agent that I know not to do business with again. I guess that leaves another couple hundred thousand that I need to keep looking out for.

[getlost]

I have long warned (since 2003) of the danger of the housing bubble and I am not related to the housing industry in any way. It does not take a rocket scientist to know that houses can not increase (anywhere) at 20/30/50 percent a year when salaries don't increase by the same amount. Those business people who say 'that they thought housing prices would always continue to increase' are either morons or liars. While most salaries have been stagnant the last number of years, realtors salaries have doubled and tripled bases on their 6% commission of home prices which have doubled and tripled. Why hasn't someone challanged the NAR on this before now? I don't believe that the housing bubble would have ever happened if there was an ounce of honesty or integrity in the real estate professsion. They manipulated buyers with their marketing ploys to continually drive housing prices to unsustainable levels - knowing that a lot of young couples (those buying at the peak in 2005 and 2006) were going to lose a lot of money when the crash came. They didn't care then and won't admit or apologize for it now. Shame on them! I live in a nice home (almost paid for) and will never use the services of a real estate agent to sell it. Never! I will reduce the price by the 6% if necessary to make it a good deal to a buyer. I would rather some nice young couple have the money than an arrogent agent.

[jj8a]

One of the big problems, in my opinion is the custom that the seller pays BOTH the selling AND the buying agent. This, I believe, is the main reason for the 6% commission remaining the same.

Why do I think this? The buying agents control the size of the market that sees a home that is for sale. If a seller is not willing to pay at least the 3% commission to a buying agent, then those agents will not show the homes to their clients. Sellers at some level know this, and so they decide that 3% to the buying agent is something they need to provide in order to reach a maximum audience. Most, if not all, agents will not take listings for less than 2% due to possible costs they incur. Therefore, even in very slow markets, like the current one, commissions don't really drop much below 5%.

The thing that needs to change is for the buyer to be responsible for paying the buying agent. Out of their pocket. Buyer and seller responsible for paying ONLY their agent is a key fix that needs to be made. The custom will not go away on its own. It needs to be mandated.

[missouribroker]

To negative carry: I called anyone who couldn't negotiate a commission on a listing over $400k stupid. Shows how much you pay attention, might be why you can't tell a bad REALTOR from a good one. Our beloved NAR depends upon the public to file complaints against "those who screw" the public. Accept some responsibility for your life and do the homework...you would interview an attorney, a doctor, for Christ's sake, even a lawn care person. If they don't give you the right answer...Next! Pay attention America!

[golfer75]

I am a Realtor. I am constantly amazed by those who think that they should have full rights and access to a proprietary system (MLS) that Realtors developed and pay for. And besides that, because of the MLS the public now has access to all the listings that all participating brokers carry. Plus, since Al Gore invented the internet all these listings are easily accessed and viewed online at anytime. Realtors and their associations have actually done more than anyone to make access to available homes for sale easier than ever. What more do you want?

[Pent updemand]

I have never said that MLS should be open to any member of the public. The behavior that is anti-competitive are the minimum service laws, and the collusion to freeze out discount brokers. I agree completely that the trend of buyers' agents is a big part of the problem. If buyers want to have a tour guide then they should pay for that out of their own pocket.

Missouri broker, I did do the homework, which is how I finally got my house sold. And yet there was my useless agent at the closing table with his hand out.

[Tharsis]

PeteBikerMan wrote:
"It would be interesting to determine how many hours an average home sale takes of an selling agents time and divide that by the average percent of profit earned on a sale. Then we would know if the hourly rate is within the realm of a realistic expectation of wages/hours".

PBM: A few years ago I recall reading an article in the Twin Cities newspaper that an "average" $300K suburban home took a realtor
about 2 hours of prep work (listing on MLS, for sale sign on lawn, etc ) and given the "frenzy" over properties at this price point, they averaged $3000/hr commission income at the time of an accepted offer. What a racket!

[Aquapura]

I'm all about arguing that real estate agents are overpaid for what they do. Especially on higer priced homes where the transaction is no different than a more modest home. That said, I'm not opposed to paying for their services if there's real value there. Unfortunately from my experience there is a glut of licensed agents out there. No real standards, i.e. required college education or internship/apprentice program. Even the continuing ed is a joke as confided to me by a broker friend of mine. I work in the architecture/engineeri... world where real standards are required like 4+ year college educations and license exams that by the nature of their difficulty require real world experience working under professionals. And as professionals we take on something called liability, something real estate agents are deathly afraid of. Most RE offices I've been in look like car sales lots. Sleezy people trying to make a lot of money fast. It's quite a turn off.

[DarrellCatmull]

Aquapura, now you're making sense, stop it! Everyone is much more comfortable complaining about and defending the symptoms not the cause. Education Education Education is to a professional as is Location Location Location is to real estate.

[Bicklehoff]

Here is why we used a realtor to buy our homes (not selling)

1. A ticket to the party: without a realtor sellers and agents don't take you as seriously.

2: Access to get inside properties: it's nice to get that listing at 8am and be inside the home the same day checking it out.

3: A barrier between seller and buyer. A lot of money is at stake and feelings can get hurt. Agents allow it to be less personal so that parties can come to a deal.

4: The seller pays the realtor fee directly (although I'm sure it was reflected in the overall price in an indirect way)

Here is what a good realtor should add:

5: Negotiating price and concessions
6: Protecting the buyer: Contracts, inspections, appraisals, loans. Realtors should have a handle on what to look for in all cases.
7: Market recommendations. Your realtor should have the best idea of the local market; what you should offer, what will affect resale, your quality of life, average conditions of homes, what general items may affect that area's homes.

When we bought our condo we looked at about 30 properties. Yep, it took about 6 months. When we bought our SFR we took about 8 months. This is where our realtors earned their $. We went through multiple contract offers that fell through.

*We did the hard contract negotiating and sent it through our realtor.
*We did the due diligence to make sure we weren't getting burned e.g., had the sewer line to the street scoped with video.
*We analyzed our market and determined the important factors in our area (2 car garage vs. 1, proximity to downtown).

I was lucky enough to gain access to the MLS in our area during our purchases. Power, power, power. Information is power. The seller will disclose as little as possible and the more info. available the better. The MLS is the jackpot for buyers. This information is very difficult to get elsewhere, one example is Zillow. Yes they publish the sales price, but not any concessions or seller credits.

I will continue to buy through an agent as long as there is no direct cost to the buyer, there is not really a downside as long as you are willing to do a lot of your own homework.

[msaghirmd]

Hey! My blog is about the miami condo crash. I feature anti-Realtor articles and "Real Home Buyers of Genius". One guy bought a miami condo for 5.1 million dollars and is renting it out at a $1,000/day loss, every day for 30 years!!! miamicondoforum.com

[truthbealady]

I just want to tell you what is going on in Minnesota, commissions are going up. Yeah, go ahead and drop your jaw. Thats what happens when you can not sell a home by "putting a post in the ground". Its more difficult today to sell a house, more time, more money, more savvy, and I do not think I ever read a comment on short sales and REO or bankowned properties. They require much more work and phone calls. There fore to make a living and help people sell there homes, we have to charge a little more to cover things like (gas). Did you forget. Do all the plebes in the post think that the realtors are immune to gas? They are possibly the most affected.

As far as the article goes, its complete jibberish, its almost like he was at a comedy club trying to be funny. No, its not changing and commission has rose a little even.

[LisaV20120]

Having bought and sold many homes in Virginia, I can tell you that there is a cabal on any seller who tries to use a discount broker/realtor or sell by owner program, etc. The big firm realtors will NOT bring buyers to your home- realtors have told me that they steer clear away from these listings. They will not support them. And who is the largest lobbying organization in the United States? The lawyers, you say? Not at all- it's the National Association of Realtors. The way that they have a hold on the buying and selling or real estate in this country is nothing but fraud -- someone should write a book exposing the practices of the various MLS companies in the country too!