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Commissions would actually depress prices. Anything that adds to the price does.
Loans is what caused the bubble. Think...people cant afford 200k cash, but they can borrow the 200k. The more and more loans are extended, the lower the rates, the higher the demand for housing, the higher the prices.
If you had to buy a home by paying cash, home prices would crash.
You bet those commissions factored into it, big time. In many markets, houses were selling 2 and 3 times a year, same house. There were "Realtors" and/or real estate agents there the whole time, making money off the transactions and every time the house sold, it had to increase in price to cover the commissions. At the rate houses went up in price (not up in value, there was no value) the real estate professionals were raking it on without regard to what was going on.
Say you buy a house for $106,000 today. How much did you pay for that house? Most likely, $100,000, the 6 grand went into the pockets of the real estate pros but the price was the $106k. Yeah yeah yeah, seller pays the commissions, heard it all. In some cases there might be a shortfall on proceeds and the seller pays the commissions but almost all the time, buyer pays seller, money then flows to agent commissions.
A year goes by an you want to upgrade. Now you have to price the house at $112 and change not to make a profit but to break even. In a slow market did the value go up? Nope, the commissions did but nevertheless, the price went up. This is where the elephant in the room is never discussed; the difference and effect of rising value vs rising prices.
Going back to the bubble, commissions blinded the real estate pros so much that they might as well have playing pin the tail on the donkey, forgot that people were paying insane prices for houses with no significant value, cash that commission check. Of course, agents are always going to say different, that what sales people do and they'll sell you all the way to foreclosure (no, not all but a lot of them and we have a housing economy to prove it).
When you buy a house you are automatically locked into raising the price of that house by 6% (more or less standard commission) and not one penny of that is value, it is extracted value from the transaction.
It sounds like I begrudge commissions when I really don't. I do think the way in which they are paid needs to change and that we are in for another and worse housing market bubble in the future. The next bubble will make this one look like a vacation in comparison. All the markers are there, we already see the typical used car sales tactics of announcing a recovery where it has barely started and could fail, broadcasts about hurry before prices go up, buy now, we've reached the bottom and the only way is up up up. Yeah, what they all said before the crash but never talk about.
Finally, when the housing bubble burst, 6% of the total value of housing was not value, but commissions. When people started to see prices drop, those people with $500,000 houses (and higher) couldn't afford to bail out because there was no way they could come up with $30,000 to pay commissions to sell.
You'll notice that rarely does anyone ever mention the dollar amounts of the commissions, it is usually the percentage? Why? Because something like 6% doesn't impact one's perspective as much as say $30,000 does. Remember that when someone tells you about all the work that goes into selling a house.
Your posts can be quite entertaining, completely useless but entertaining.
Commission has almost nothing to do with housing value/prices. If homes in a development, being sold by a builder, are selling for $200,000 through that builder and an agent brings a buyer in do you think that the buyer is going to pay $206,000 for the home? Do you think the home would appraise? Not to mention you forgot to factor in the 25-30% of homes that are sold by owner, flat fee, etc.
Your statement about homes selling multiple times in a year or people wanting to upgrade after one year also fails to take into account the over 50% of single family home owners that have been in the same home over 10 years.
Do yourself a favor and do some research. There is a lot more behind the housing prices and your blind hate of real estate agents, yes it is obvious, does not allow you to see it. Look up the HMDA and CRA from the mid 70's and see how government interference pushed prices up, every time you see big jumps in prices there is generally a new government program or removal of oversight which caused the jump. To say commissions, which have been around for many decades factored into the housing bubble, how do you then explain the housing crash and commissions?
Also think that agents were eager to help people over extend themselves in mortgages that they could not afford. During the go go days of the early to mid 2000's agents talked like it was a given that homes would appreciate at an exponential pace. The typical line would be:
"It may be more than you can afford, but just get an interest only loan (will be happy to set you up with my lender who gives me a kickback). In a few years the home will dramatically increase in price. You can either cash out and make a fortune or refinance and have some nice equity in the home"
99% of real estate agents would never come close to saying what you came up with in your imaginary world so calling it a typical line is just ridiculous.
99.99% of real estate agents would never take a kick back from a lender since it is illegal.
Yes, there are some bad agents, yes there are some that did illegal things, to act as if the whole industry does things that a minute fraction might do is, once again, ridiculous.
I agree with several perspectives on this post about real estate commissions causing the housing bubble. I personally believe that compared with all that wall happening at the time when the housing market collapsed and other major industries as well, real estate commissions was definitely a power player. Example, Homes in California that went for $100k rose to $250k in roughly 7-8 years; average realtor's commissions also increased 2 1/2 times. The economy didn't have enough time to adjust itself with that kind of rapid increase. Also the Feds knew what was going on. But everyone shares the idea of free enterprise and capitalism.
I agree with several perspectives on this post about real estate commissions causing the housing bubble. I personally believe that compared with all that wall happening at the time when the housing market collapsed and other major industries as well, real estate commissions was definitely a power player. Example, Homes in California that went for $100k rose to $250k in roughly 7-8 years; average realtor's commissions also increased 2 1/2 times. The economy didn't have enough time to adjust itself with that kind of rapid increase. Also the Feds knew what was going on. But everyone shares the idea of free enterprise and capitalism.
Then, on the other hand, would you say that Realtors commissions contributed to the crash because during the crash Realtors commissions "decreased" by more than they increased; because price levels fell to pre year 2000?
Certainly any commission, if it is a percentage of the sale price, is going to be higher on higher priced homes. However, the reason for the higher price has nothing to do with the commission. It has to do with the price the buyer is willing to pay when the inventory is low and the demand is high.
I have always thought that one of the reasons housing snow-balled in "appreciation" so expotencially over the decades was due to the added costs of commissions that kept raising prices. With people moving every few years, cha-ching.. tack that commission cost on to the price that the buyer eventually pays.
Any thoughts?
What attributed to the bubble was lax banking regulation brought on by 90's housing policies, funded by the knee jerk reaction to 9/11 with the suppression and control of our interests rates.
We experienced a jump in housing value because everyone enjoyed a 15 to 20% increase in personal equity.
We were all taught to put money to work and that land was the safest investment. The problem was, when the anomaly trickled down to the Everyman, the gig was up, the values were topped out. When everyone was rushing in, it was the big guys who were selling off.
Later we found out the Big Guys were then making bets as to whether the people buying would be able to keep paying.
No one wanted to get left behind, so everyone who had the credit jumped in. There was no common sense.
If you ask anyone who was foreclosed if they would do it again, they say "Heck No".
If you ask them what would you do with an extra 150k, they say buy a nice property. Where is the lesson here.
As for realtors, they benefited from the madness, quite a few of them drank the cool aide and ended up in the same boat. Why would you buy 10 houses with a 5 year ARM? You had sharks getting RE License in order to be the first on a deal, not represent people.
The reality is, we all need diversified income streams, property rental at the right price is a great vehicle for that. As long as we are all reading the same play book, there will be bubbles and parasites there to take our money and inflate values based on perceived demand.
Rule of thumb, if the purchase makes you stretch a little, do it. If the purchase makes you hurt financially, stay away. Yes I understand Risk/Reward. But I don't agree with unmitigated risk. Most of the people hurt in this mess blew their retirement and are now banking on SSI.
What attributed to the bubble was lax banking regulation brought on by 90's housing policies, funded by the knee jerk reaction to 9/11 with the suppression and control of our interests rates.
We experienced a jump in housing value because everyone enjoyed a 15 to 20% increase in personal equity.
We were all taught to put money to work and that land was the safest investment. The problem was, when the anomaly trickled down to the Everyman, the gig was up, the values were topped out. When everyone was rushing in, it was the big guys who were selling off.
Later we found out the Big Guys were then making bets as to whether the people buying would be able to keep paying.
No one wanted to get left behind, so everyone who had the credit jumped in. There was no common sense.
If you ask anyone who was foreclosed if they would do it again, they say "Heck No".
If you ask them what would you do with an extra 150k, they say buy a nice property. Where is the lesson here.
As for realtors, they benefited from the madness, quite a few of them drank the cool aide and ended up in the same boat. Why would you buy 10 houses with a 5 year ARM? You had sharks getting RE License in order to be the first on a deal, not represent people.
The reality is, we all need diversified income streams, property rental at the right price is a great vehicle for that. As long as we are all reading the same play book, there will be bubbles and parasites there to take our money and inflate values based on perceived demand.
Rule of thumb, if the purchase makes you stretch a little, do it. If the purchase makes you hurt financially, stay away. Yes I understand Risk/Reward. But I don't agree with unmitigated risk. Most of the people hurt in this mess blew their retirement and are now banking on SSI.
We are able to get property sold when owner's can't. Buyers will pay what they are willing to pay regardless of what the listed price is. We have actually been able to get higher prices for seller's than what they were trying to sell their property for themselves and quicker results, there is a reason for it. We can reach more people and a lot of buyers are not local, they are moving in from all over the US. I can't tell you the number of times we listed what was a FSBO to begin with and after month's of them trying unsuccessfully, we can come in and get it sold in record time. It's all about what you want. If you can manage the FSBO situation and the legal issues, then by all means do it yourself, if not, getting a Realtor is the answer, but get one that's willing to go to work not just put up a sign and hope someone else brings in the buyer. Not all Realtors are created equal just like any thing else. Some work, some play, some do neither.
It is the interaction between those two parties that determines prices/values. If you've ever been involved in a real estate transaction as a broker while you watch both parties negotiate you'd appreciate it.
Yes but I've never known price negotiations drive a price up.
The #1 culprit to the housing collapse was government meddling, plain and simple, as well as Alan Greenspan's incompetence.
Realtor commissions had nothing to do with either the boom or the bust; that can all be laid at the feet of Uncle Sam.
I could get into more detail but if you just want to know why, this the short answer. Agent commission has actually gone down over the years.
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