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This thread wouldn't be so painfully long if people stuck to criticizing features of my proposal that are not also present in x% * sales price.
Ink,
If you haven't realized it already, these threads are dominated by the RE profession. If a lay person posts an opinion that threatens their business model, they will circle their wagons, misquote you, try to confuse the issue and blatantly attempt to discredit you. They don't want the public to know that:
1) Commissions and agreements are negotiable
2) Buyers do pay for commissions
3) Attorneys are essential to interpret contracts, including the contract with your agent. BTW I am not an attorney.
Ink,
If you haven't realized it already, these threads are dominated by the RE profession. If a lay person posts an opinion that threatens their business model, they will circle their wagons, misquote you, try to confuse the issue and blatantly attempt to discredit you. They don't want the public to know that:
1) Commissions and agreements are negotiable
2) Buyers do pay for commissions
3) Attorneys are essential to interpret contracts, including the contract with your agent. BTW I am not an attorney.
I certainly agree with those points (it's amusing to see misquoting attempted on a board with such good quoting features that it is so easily refuted). But I'm not one to paint with such a broad brush. There were certainly a couple agents here who admitted #2, albeit not nearly as vigorously as they argued against my proposal. Any proposal for drastic change is going to get a harsh reception. I expected that. However, if I was off base, I would've expected somebody to explain to me, "Well, I understand why it looks backwards, but it actually works better this way because... <such and such reason>." If there was actually a problem in my formula, an entire board throwing everything they had at the thing should have exposed it. Instead, the bulk of the criticisms were for features that already existed in the x% * sales price compensation plan. So I have my answer.
I expected hostile behavior given what I was suggesting, which was akin to suggesting to academics that tenure creates terrible incentives, or suggesting to economists that their field is too politicized. Suggesting somebody is doing something incorrectly is always a touchy deal. Suggesting they are doing something backwards is even worse, and so I expected to trigger some defensive indignation here. I imagine it also might have seemed threatening to those who mistakenly believe the industry has an interest in maximizing home prices.
I've said this before, but I want to reemphasize it. The housing bubble illustrates that overpriced housing is terrible for the real estate industry. Home sales dropped quite a bit for a while there, and the industry suffered tremendously. Now, I attribute the bubble primarily to securitization of mortgages (i.e. ability to resell loans meant banks no longer cared about default rates) and overly loose monetary policy from the Fed (i.e. too many dollars, feeding the bubble), but if buyers agents really acted in the interest of buyers, they would have heavily discouraged any buyer from purchasing an overpriced home (that would be terrible for referrals). If this happened, the number of buyers would have drastically decreased around 2001-2002, and thus the real estate industry could have checked the Wall Street mistake in overinvesting in mortgage derivatives.
If just the listing agents wanted higher prices, and the buyer agents instead wanted lower prices, the industry would seek balanced markets instead of perpetual buyers' markets. And if buyer agents earned higher commissions for lower priced houses, this all could occur with overall commissions staying about the same. So my proposed change does not threaten the industry -- unlike the Internet, which has a way of competing heavily with middlemen and leveling information asymmetry (trying to hide 1-3 above is short-sighted thinking -- better to assume the public will eventually learn it and change things so that they will still want your service). The real estate industry would then shift its aim towards better service and increasing volume, meaning home transactions that are as easy and painless as possible (e.g. simpler paperwork). This would be good for buyers, good for sellers, good for the real estate industry, and it would also make our workforce more mobile that would be good for the economy.
I think this is just about as likely as macroeconomics becoming less politically polarized and focusing more on more accurate modeling, but you gotta try to do what you can no matter what the odds.
Last edited by perfectlyGoodInk; 09-08-2012 at 10:43 PM..
Ink,
If you haven't realized it already, these threads are dominated by the RE profession. If a lay person posts an opinion that threatens their business model, they will circle their wagons, misquote you, try to confuse the issue and blatantly attempt to discredit you. They don't want the public to know that:
1) Commissions and agreements are negotiable
2) Buyers do pay for commissions
3) Attorneys are essential to interpret contracts, including the contract with your agent. BTW I am not an attorney.
I'm not going to comment on the OP scheme, but I do need to comment to correct the misconceptions of the items listed by RE Skeptic above.
1.) It is well known throughout the country that it is ILLEGAL to fix commissions; and that real estate commissions are negotiable. The fact is not hidden. It is published on the Arizona Purchase Contract in two places, and in the Arizona Listing Contract. The field for entering the negotiated commission in the AZ Listing Agreement is blank.
Quote:
Lines 53, 54, and 55 of the Arizona Listing Contract:
COMMISSIONS PAYABLE FOR THE SALE, LEASING OR MANAGEMENT OF PROPERTY ARE NOT SET BY ANY BOARD OF REALTORS® OR MULTIPLE LISTING SERVICE OR IN ANY MANNER OTHER THAN BY NEGOTIATION BETWEEN THE BROKER AND THE CLIENT.
In the Arizona Purchase Contract the same language is in section 8:
Quote:
COMMISSIONS PAYABLE FOR THE SALE, LEASING, OR MANAGEMENT OF PROPERTY ARE NOT SET BY ANY BOARD OR ASSOCIATION OF REALTORS®, OR MULTIPLE LISTING SERVICE, OR IN ANY MANNER OTHER THAN BETWEEN THE BROKER AND CLIENT.
2.) You can argue all you want that the Buyer pays the commission, but that is not correct. The buyer pays for the house; the Seller pays the commission out of the proceeds of the house.
If the buyer paid the commission, then it would be in addition to the purchase price of the home, and would be paid directly from the buyer. That is not the case.
Try to convince any seller that the buyer pays the commission.
3.) Whether it is "essential" for a buyer or seller to seek legal advice is up to the individual to determine. There are states where agents cannot write contracts or clauses, and an attorney is required. In Arizona, agents are trained to write contracts and clauses, and are granted authority to do so, in their own transactions, by the AZ Constitution. Still, every buyer and seller in AZ is advised to seek legal and tax advice if they desire. (All lf the words below were copied and pasted from the contracts, and the bold text is within the contract.
Quote:
Check list sheet for the Arizona Purchase Contract:
ATTENTION BUYER! You are entering into a legally binding agreement. Read the entire contract before you sign it.,,
...You can obtain information through the Buyer's Advisory at http://www.aaronline.com.
Remember, you are urged to consult with an attorney, inspectors, and experts of your choice in any area of interest or concern in the transaction. Be cautious about verbal representations, advertising claims, and information contained in a listing. Verify anything important to you...
Quote:
At the top of the Arizona Purchase Contract:
The pre-printed portion of this form has been drafted by the Arizona Association of REALTORS®. Any change in the pre-printed language of this form must be made in a prominent manner. No representations are made as to the legal validity, adequacy and/or effects of any provision, including tax consequences thereof. If you desire legal, tax or other professional advice, please consult your attorney, tax advisor or professional consultant.
Quote:
Listing contract attorney advisory:
NO REPRESENTATION IS MADE AS TO THE LEGAL VALIDITY OR ADEQUACY OF ANY PROVISION OR THE TAX CONSEQUENCES THEREOF. IF YOU DESIRE LEGAL OR TAX ADVICE, CONSULT YOUR ATTORNEY OR TAX ADVISOR.
If the buyer paid the commission, then it would be in addition to the purchase price of the home, and would be paid directly from the buyer. That is not the case.
This is incorrect. Whenever you purchase anything, whether it be a good or service, its price embodies the cost of a number of inputs and costs. Even though you do not pay for these costs directly (the seller does), you are still bearing the cost of them.
In my previous example, a sandwich shop hires a dude to carry around a sign advertising its shop. Since the shop considers this part of its overhead cost, it picks the price of the sandwich so as to cover this cost. Ditto for the rent it pays to the building, or any advertising it purchases.
This is true of anything bought or sold in our economy. When a farmer sells beef, the price he or she charges takes into account the food he bought to feed the cow. The farmer charges this to the store, the store charges this to the consumer. The consumer doesn't even pay the farmer directly, and you would not be able to convince any consumer that they are paying the farmer, but the directness of the payment isn't the issue. The consumer still bears the cost of feeding the cow. When you buy a car, you are not paying the tire manufacturer directly, but the price includes the cost of the tires.
Similarly, when somebody sells a home, they already know that they will have to pay for the commission for both the listing agent and the buyer agent. Therefore, just like the sandwich shop paying for the sign dude, they take this additional cost of selling the house into account when setting the price.
Similarly, when somebody sells a home, they already know that they will have to pay for the commission for both the listing agent and the buyer agent. Therefore, just like the sandwich shop paying for the sign dude, they take this additional cost of selling the house into account when setting the price.
Let me repeat...
Tell this to the millions of people who are upside down on the values of their homes. The market sets the price not the seller.
. Therefore, just like the sandwich shop paying for the sign dude, they take this additional cost of selling the house into account when setting the price.
I don't agree with this. At least not that they look at it directly. Personally I set my price based on comps in the area. Now I agree that those comps had this built in to the sales price, but I don't think most people look at it in two pieces.
Tell this to the millions of people who are upside down on the values of their homes. The market sets the price not the seller.
The market sets the price by balancing demand against supply. For demand, the factor is willingness to pay. For supply, the factor is cost -- all costs, including ones that the seller pays for instead of the buyer (e.g. sandwich shop paying the sign dude, farmer paying for cow feed, auto dealership paying for tires, home seller paying for buyer agent). Refer to my earlier discussion of elasticities (i.e. how responsive one is to price changes) to see how these are balanced, but in a seller's market, the buyer shoulders more of the burden of any such costs (and vice versa). But note, even in a buyer's market, the buyer is still shouldering a portion of the buyer agent costs unless sellers are perfectly inelastic, which never happens.
Quote:
Originally Posted by perfectlyGoodInk
At the risk of complicating things, I want to note that the buyer doesn't bear the entire cost. Sellers and buyers split third-party costs, and it depends upon how much a price increase turns away buyers (demand elasticity) compared to how much a cost increase dissuades sellers (supply elasticity). The sandwich shop has to balance eating the cost against losing business from a higher price. I tried to explain it here, but probably simpler to just think of it as negotiating strength. The person with more negotiating power bears less of third-party costs (whether it be a tax or a fee or a commission), regardless of who actually writes the check.
Last edited by perfectlyGoodInk; 09-10-2012 at 01:07 PM..
But note, even in a buyer's market, the buyer is still shouldering a portion of the buyer agent costs unless sellers are perfectly inelastic, which never happens.
I've never heard anyone argue that the buyer pays the sales persons commission on a car; because they don't. The buyer buys the car. The dealer pays the sales person commission.
You can use all the analogies you want, but the fact is, no matter what costs of building the home are rolled in to the price, the buyer pays for the home, and the seller pays the commission out of the seller proceeds.
Similarly, when somebody sells a home, they already know that they will have to pay for the commission for both the listing agent and the buyer agent.
You're correct and that's what we've been trying to tell you.
Quote:
perfectlyGoodInk Therefore, just like the sandwich shop paying for the sign dude, they take this additional cost of selling the house into account when setting the price.
They do not add the commission to the sale price of the home. They determine the current market value, and negotiate a commission with the listing agent that will be deducted from their sale proceeds.
They will do a net sheet by inserting the estimated purchase price and subtracting all sale expenses and title costs, repair costs, etc., to arrive at a net. They pay all those expenses out of their proceeds.
If you're going to continue insisting that the buyer pays the commission, then you need add that the buyer pays the seller repair costs, the seller title fees, and the sales commissions. And you would still be wrong.
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