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Well, you're getting the same resounding raspberry you received when you presented this stinker of an idea in the Austin forum. What does that mean to you?
Again, it's the substance of the responses that are most telling. I'm haven't yet seen anybody make a case that 3% * salesPrice is a better formula. Most seem to be arguing that the standard scheme is not that bad, which is a pretty weak argument.
All this says is that people tend to be resistant to change.
Last edited by perfectlyGoodInk; 09-05-2012 at 03:34 PM..
I'm good and ethical and I probably wouldn't agree to it.
Sounds like your main objection is that you can't do rebates in Oregon.
Quote:
Originally Posted by Silverfall
Right now, most buyers think of buyer agents as a "free" service, and as such tend to think more about what kind of toothpaste they want to buy rather than the quality of the service provider they picked.
I totally agree. There are many buyer's agents, unfortunately, that perpetuate that myth. I talked to several of them during our interviews. When I explained about sellers passing on the costs, I often got a blank stare. There are some threads on this forum where agents outright tell buyers that there's no reason not to use a buyer's agent because they are free.
Getting more buyers to think more about the compensation of agents would probably help dispel that myth and also move things towards direct payment. I still don't see the rationale of why the buyer's agent compensation is negotiated between the seller and the listing agent. Exactly what does this accomplish?
In general, economics is not a fan of licensing requirements. The textbook example is taxicab medallions. It's typically a way for suppliers to constrain supply and increase price (kinda like oligopoly or collusion). Properly competitive markets allow competition on price and quality.
Well if that's the case, you should let anyone be a plumber, builder, electrician (we'd kill off all the idiots when they electrocute themselves, right?), doctor (anyone for brain surgery?), attorney...licensing, schmisensing...
So are you ready to let that unlicensed electrician into the home of your 90 year old grandmother that is just a bit hard of hearing and so trusting? Seriously, you can't even trust an agent to not act in your best interest over $500 or so, yet you are advocating for letting there be no licensing requirements?
Oh and there are over 1,000 real estate agents just in the 4 counties covered by my MLS. Even if you raised licensing requirements and 50% dropped away, there would be 500. That isn't enough competition??
Well if that's the case, you should let anyone be a plumber, builder, electrician (we'd kill off all the idiots when they electrocute themselves, right?), doctor (anyone for brain surgery?), attorney...licensing, schmisensing...
If reputation and referrals matter as much as people on this board claim, that should be enough incentive for quality, right?
Quote:
Originally Posted by MikeJaquish
Cutting the "Buyers agency is free" crap would do more people more good than playing games with a commission as now commonly constructed.
Quote:
Originally Posted by Silverfall
Right now, most buyers think of buyer agents as a "free" service
Quote:
Originally Posted by perfectlyGoodInk
I totally agree. There are many buyer's agents, unfortunately, that perpetuate that myth. I talked to several of them during our interviews. When I explained about sellers passing on the costs, I often got a blank stare. There are some threads on this forum where agents outright tell buyers that there's no reason not to use a buyer's agent because they are free.
Case in point:
Quote:
Originally Posted by austin-steve
Most buyers just want someone good to help them find the right house, and they are happy that the service is free to them.
Steve
You might be right that the image problem runs deeper than the commission structure.
Regarding buyer service being "free", it works like this, for my Brokerage in Texas, and for most Texas Realtors I know.
1) Buyer hires a buyer agent.
2) Buyer Rep agreement specifies the compensation arrangement. Mine says that the buyer will pay me x% of the total sales price and that I will first seek to collect the payment from the Seller (via Broker MLS offer of coop commission), and that buyer will pay any shortage and receive any overage.
Let's stop here for a minute. It's at this point where you would look at my simple 1-page buyer rep agreement and ask if we can replace "x% of sales price" with your formula. I would simply say "no", and then we could part ways, no hard feelings.
But the buyer rep agreement does in fact establish that the buyer is agreeing to pay the buyer agent.
3) You spend 3 to 6 months utilizing the services of your buyer agent, then decide to not buy a home, or to "wait". This is actually a common outcome. Other agents can share their buyer closing ratios but I think ours is about 50%.
So, if you are one of the 50% that didn't buy, you paid nothing for the service you received. The agent incurred all of her time and gas costs and earned nothing. You sir, did in fact, utilize the services of a buyer agent, and IT WAS FREE to you. Was it not?
Now, let's say you were one of the 50% who actually did buy a home. You owe your agent x% of the total sales price, but upon examining your HUD1 (settlement statement) you see that the commission expense for both listing and selling agent were charged to the seller's side of the deal, reducing his net proceeds by your agent's commission amount instead of increasing your cash at close amount. I don't know what an "economics educator" would call that, but to me it would look like the buyer incurred no cost for the services of the buyer agent. It was free.
There are those who will argue that the buyer paid an inflated price, and thus, in some sort of hidden way, covered the cost of the buyer commission in the sales price. I call BS on that, and it could be an entire new thread called "Who Actually Pays the Buyer Agent Commission?". It's refutable in a number of ways, so if you want to drag that argument out, let's take it to a new thread and I'll be happy to deconstruct any argument you want to make toward that false assumption.
Thus, your buyer agent service is in fact a free service to you.
If reputation and referrals matter as much as people on this board claim, that should be enough incentive for quality, right?
You are too black and white in your thinking. Reputation and referrals matter to the agents on this forum. Do they matter to every agent? No. So it is an incentive for quality for good agents and it isn't an incentive for quality for agents that just care about money only. Then there are those in-between.
Life functions on a continuum. If you want to try and quantify human behavior into two choices, you can try that but it doesn't work that way.
There are those who will argue that the buyer paid an inflated price, and thus, in some sort of hidden way, covered the cost of the buyer commission in the sales price. I call BS on that
That anything is free is BS. Everything needs to be paid for by somebody. Do you consider government services free? National defense, public parks, freeways. You didn't write the check. Was this free? No, because you are paying for these things with taxes. Where did the seller get the funds to pay the fee? The buyer, the person footing the bill for the whole house.
Now, it's a little bit more complicated than that. The buyer doesn't pay the whole burden. The cost is split between them depending on how sensitive to price (elastic) they are. The situation is identical to that of a sales tax on the exchange. Usually the price paid by the buyer is equal to the price received by the seller: the exchange price. Any fee, whether it be a tax or a commission, essentially drives a wedge between the price paid by the consumer/buyer and the price received by the seller. The buyer pays a little more for the house than they would have, and the seller receives a little less. The only difference is that, instead of the fee going to the government, it goes to the two agents.
I was going to take a crack at really explaining this, but I'm going to punt. It's one of those things students only get if they work through a homework problem to calculate the burden of a fee when the incidence is on the buyer and then calculate it when it's on the seller and realize it doesn't matter. But for more on this, WikiPedia is not bad, and chapter 15.2.3 in this book is alright (you probably want to read chapter 3 first). Or ask MikeJaquish or Silverfall what they meant.
In terms of those who don't buy, one of the costs of selling almost any good is going through all the nos to get that yes, whether it be cold-calling or letting people browse in your air-conditioned store, or driving clients around. Nobody is forcing you to do any of this. You could charge your clients by the hour instead. The reason you do not is because you expect a certain percentage of these people to pay you, and for this to pay off more in the long run. The people who do buy are subsidizing the cost of those who don't buy. This is really just the cost of doing business, because both you and the listing agent are in the service of matching buyers and sellers. Just like with the job market or the dating market, this involves a lot of dates/interviews between non-matches.
To consider this a service, well, if the client's real aim was to be driven around for free, then yes, I suppose this was a service and you should go into the taxicab industry. If the client's aim was to be guided through buying a house, then well, perhaps the reason they didn't pay you was because you failed to do this. They could be equally upset at you for wasting their time.
Now it's certainly possible that they never did want to buy a house in the first place and are wasting your time, but this ignores that there are other things that they could be doing with their time as well. Their time also has an opportunity cost, whether it be a day at the park with the family, watching football or a movie, listening to music, whatever folks do for fun. Being driven around by a real estate agent isn't exactly something folks tweet about to their friends to make them jealous of all the fun they are having. If you suspect you are being taken advantage of, then maybe you need to change the way you try to win business.
Of course, this wasting of your time is partly due to the misconception you are spreading to buyers that this service as free. Buyers will respond to this by considering within their rights to utilize that free service. After all, you're not getting paid by them whether or not they buy a house, right? So why does it matter to you if they buy one or not? The service is free. If you don't want to offer a free service, don't offer it. Nobody's forcing you to.
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