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Are there any Realtors or real estate agents in this topic who want to switch to the hourly rate? And if so is that for buyers only, sellers only, or both?
Am I the only non-agent who likes the present system? Well maybe not likes it, but thinks it's fine the way it is, and doesn't need fixing.
I've been buying lately, and at least I knew the actual price in advance. Maybe my 4 houses in 3 days would have worked out for me... I did all the driving because I couldn't leave my dog at the hotel, do I get a discount off the hourly?
I know one agent that will charge an hourly rate of $250 an hour plus expenses if pressed... 99.9% opt for the commission contingency because they do not want to put out a penny until the sale's check is cut and only then is commision paid.
In down markets, many leave the business.... whether they earn commissions or not, there are fixed costs plus listing and marketing fees that are totally on the Agent/Broker in hopes of making a sale.
I agree with you that many buyers (particularly at the lower price end and those with less experience) would still want the commission model as they would be less willing to accept risk. However there are plenty of folks that have a good idea of what they want and know that they are going to buy a house, in which case the risk to savings equation is very much in their favor. It also depends how this would mesh with the co-op commission model. Is the seller still offering 3% and you as the buyer gets this full amount, after you have paid your agent their hourly fee?
Using my own recent buying experience, finding and choosing a house was a relatively quick process (maybe 10 showings) however the actual transaction took more work than expected (maybe two solid weeks of work over a month) due to issues with the listing agent and sellers. Even so, if we had used to traditional model, the cost would have been ~$25k (per side) so at $100/hr we would have come out ahead. We used Redfin, so the cost was more like ~$13k, so it would have been a wash with hourly vs commission. However we still would have chosen hourly (if we could) going into this, as our past buying history would indicate the risk of a protracted search/transaction is low.
Quote:
Originally Posted by berniekosar19
The only thing I disagree with here is your assertion that buyers would be pre-disposed to use an hourly fee model. I feel that buyers would be more inclined to stick with the commission-based model; I find it very difficult to envision a scenario wherein a buyer would be willing (not to mention, able) to shell out, say $1500-3000+ to a broker without any guarantee of successfully finding a home.
And, you can hire an employee and be profitable on a smaller margin than you can when selling your own time.
If I want to make $100,000/year, I can either sell my own time or I can hire 10 employees who each contribute $10,000/year to my income after employee expense.
I'm telling you, common industry practice says that it costs twice the hourly wage or salary to hire any employee.
And I'm not willing to work for any less than it would cost to hire somebody to do my same work.
I was in the same situation as a Self Employed Engineer for 10 years...
My hourly was more than double what the inside guys were paid... the offset was I had to cover my self employment costs and they didn't... also, the inside guys had profit sharing, 401 k match, company paid sick time, medical and PTO...
In a moment of weakness, I accepted a position as engineering director which at the time seemed like a good move... not so good in retrospect.
Most of the enticement benefits are no longer offered or greatly reduced... being salaried, I have little control of my time because I am always on...
Not complaining... only saying it has not turned out as envisioned.
Thankfully, I still have my income properties and do buy and sell which continue to do very well...
Last edited by Ultrarunner; 07-12-2014 at 11:33 AM..
I was in the same situation as a Self Employed Engineer for 10 years...
My hourly was more than double what the inside guys were paid... the offset was I had cover my self employment costs and they didn't... also, the inside guys had profit sharing, 401 k match, company paid sick time, medical and PTO...
Doh!!!!!!! Sometimes I wonder if I'm schizophrenic and I'm making both the Lovehound and Ultrarunner posts myself. One thing, my Ultrarunner posts are better than my Lovehound posts!
Well, I was a self employed hardware/software/firmware design engineer for 20+ years... Employed as same 20+ years before going consultant.
However we still would have chosen hourly (if we could) going into this, as our past buying history would indicate the risk of a protracted search/transaction is low.
Even with the inexpensive places that we're buying as investments, we'd come out ahead paying by the hour as opposed to 3%. Frankly, I'd rather just pay the transaction coordinator and leave the buyer's agent out entirely.
I have yet to see what a buyer's agent does for me that I don't already do myself.
I agree with you that many buyers (particularly at the lower price end and those with less experience) would still want the commission model as they would be less willing to accept risk. However there are plenty of folks that have a good idea of what they want and know that they are going to buy a house, in which case the risk to savings equation is very much in their favor. It also depends how this would mesh with the co-op commission model. Is the seller still offering 3% and you as the buyer gets this full amount, after you have paid your agent their hourly fee?
Using my own recent buying experience, finding and choosing a house was a relatively quick process (maybe 10 showings) however the actual transaction took more work than expected (maybe two solid weeks of work over a month) due to issues with the listing agent and sellers. Even so, if we had used to traditional model, the cost would have been ~$25k (per side) so at $100/hr we would have come out ahead. We used Redfin, so the cost was more like ~$13k, so it would have been a wash with hourly vs commission. However we still would have chosen hourly (if we could) going into this, as our past buying history would indicate the risk of a protracted search/transaction is low.
Well, I'll disagree with you somewhat re: buyers knowing what they want. Buyers that are looking to move up from their current house? Sure. But first-time buyers, who make up a significant portion of the purchasing community, generally have no clue what it is they're looking for and/or what they're willing to compromise on in order to close on a home. For them, the paying by hour model is fraught with so much more risk and uncertainty that I can't envision them ever moving away from a commission-based model.
One of the main reasons the commission-based model can work for people is because it moves the prospect of risk and expense all onto the agent; the reason for this is that the current system is pay-for-performance. Since no one gets paid until and unless the deal gets officially closed, there is very little risk to a buyer (as for a seller, their level of risk is more time lost on the market, since if they don't get priced right from the get-go, they'll likely wind up with a much lower sales price; however, neither model addresses how to minimize that risk for the seller, as it's more a matter of the seller conducting their due diligence); as well,currently all expenses incurred on both sides of the transaction are usually borne by the realtor, and the realtor alone.
You raise a good point as to how to mesh such an hourly system with the traditional model. Perhaps the seller still offering the customary 2.5-3%, with the buyer's agent, if they're being paid hourly by their clients, only getting enough to achieve that mark, less what they're paid by the buyer? So the net to the seller would be more, yet the buyer's agent still receives the compensation they've been customarily receiving; that seems fair. The selling side of things is somewhat more difficult. I'm curious if sellers would be willing to bear the marketing costs for their property in exchange for paying an hourly fee?
When I show you 5-10 houses and you decide to stay put where you are, my paying clients will cover my cost and benefit from that activity. And often, the non-paying client gains great benefit at the paying clients' expense.
Please point out what benefits your paying clients are receiving from covering the other person's costs.
You seem to be missing the basic economic principals involved in retail operations when compared to a service operation.
Although this paragraph more or less proved my point. You can't compare the time you spent with a client that doesn't pay to someone that walks into a retail operation and buys nothing. You're broadly trying to classify both as overhead when they're not at all comparable.
A person who walks into a retail store and buys nothing doesn't receive any goods and nothing is exchanged. A person spending hours with a realtor receives services directly to their own benefit and will have to be covered by the next paying client.
I can't see how you can classify services rendered with no payment (in the case of an agent with no closing) to fixed overhead costs that involve business functions designed to provide goods to the customer. A retail customer directly subsidizes the overhead in retail because it's costs incurred in bring the goods to the marketplace. In real estate, customer A could have no direct benefit or relationship to customer B yet one can be forced to subsidize the other. Yet, you keep repeating revenue minus costs is basic business rather than refuting the actual facts regarding why some people dislike the current model.
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