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Old 01-10-2018, 01:47 PM
 
Location: Columbia, SC
8,852 posts, read 17,453,334 times
Reputation: 6212

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Agents in America carry the cost burden typically - meaning if the buyer doesn't buy or seller doesn't sell the agent receives no compensation. With the agent carrying the risk they charge more. If they agents were paid on a guarantee the cost would be less. It's no different than an attorney charging 30-50% on a case vs. $250/hr for guaranteed payment.

If agents decide to start taking less without guarantees commissions will come down. If buyers and sellers starting paying based on hours or activities pay will come down. However, not many buyers or sellers I've met are willing to put skin in the game to save a few bucks so they prefer to pay more with a reduced risk to them.

It's not the cartel. My opinion, it was a stupid article written by someone lacking business knowledge and they didn't bother to do any research.
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Old 01-10-2018, 01:59 PM
 
Location: Cary, NC
31,628 posts, read 55,362,882 times
Reputation: 30183
Quote:
Originally Posted by JONOV View Post
I'm not so sure...It seems like Agent/Broker choice more than anything. They have to offer something to continue to justify their franchise fees. Agents drive their own success, and consumers choose their agent based on a host of factors, but I don't think any of them look at Century21 vs Berkshire Hathaway and make a decision based on that.

You seem to be unique in your Broker/Owner model. Not to derail, but have you always done that? What risks did you take/what did you give up for that? Why do you think other agents don't go that route?
DOJ says we NEED to be unique in models.
I'm a compliant sort of feller.

For years at KW, I almost never wrote listings at over 5%.
And I had to pay the firm.

Remember, in our local market, listing prices were fixed many years ago, in opposition to Buyers' Agency.
So, with 90% of the listings in Wake County offering a 2.4% cobroke, then the legendary 6% listing agents are taking a 3.6% listing fee.
I am not a price fixer.
I was happy at 5% with a 2.6/2.4 split. And paying a 26000 annual fee and split to KW.

As an independent, I cannot begin to square that a listing job is worth 3.6%, 150% of a Buyers' agent's job.
Not when I have seen agents view 30-40 houses, and get beat out in multiple offers on multiple houses, where the listing agent pockets 3.6% for selling a house in a hot neighborhood.

So, now that I don't financially support a franchise, I list at 2.4%/2.4%, a 50/50 split or less if I am also serving as buyers agent for a new house too, or if I am offering a senior discount.
If one cannot make a solid living in the Raleigh NC market at that rate, one needs to look hard at overhead and see where the money is bleeding away.

Is my model unique? Not so much.
While I think that anyone who says "discount agent" or discount firm" is uneducated or unethical, or possibly both, or maybe even an illegal price-fixer, Bing "discount real estate agent Raleigh NC," and you will see plenty of alternative business models. As desire by DOJ.
And you just need to investigate anyone you would consider engaging, to your satisfaction.
If they say, "You get what you pay for," you are totally being lied to. I have brought buyers to too many 6% deals and seen what they got for their money, or had the sellers tell me how great I was in the transaction.
Sheesh.... "You get what you pay for." LOLOLOL

But, people choose to go big box for convenience and to be spared research.
The agent fee market is strictly consumer choice-driven, and the market well bears 6% commission.

Real Trends, quoted as a source in the Economist Drivel Article in the OP is peppering FaceBook with continuous ads spouting that "Discount Firms" at prospering or something.
Don't trust anyone or any entity that uses the term.
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Old 01-10-2018, 02:17 PM
 
17,281 posts, read 14,844,328 times
Reputation: 32873
I wouldn't say realtors are a rip off, but after buying my fist home (closing is tomorrow) I do believe the entire home buying process seems like a scam. We had several delays, none of which were our fault, the fault was with either FHA or the mortgage company each time, but we had to pay $675 twice to extend the closing date (the mortgage company paid it the 3rd time) and had to pay $600+ twice for 2 appraisals due to the delays. What a great business, when you can make mistakes and the customer has to pay for them! Then the rules themselves are designed to rip people off. We had to have flood insurance, so we used the same agency we used for homeowners, only to be told we have to use a NFIP-approved policy, which we get, but it costs more than twice the cost of the private policy! All to insure a home on a controlled lake...they can lower and raise the water level at will.


Any way, the only thing the realtor did wrong was recommend we use his mortgage company. He was also quite angry at the mess they made of it as it makes him look bad, too. We made our good faith deposit in October and it's taken this long to get to closing. This was the craziest thing I have ever gone through, and I've been through a lot. But the amount of money we wasted due to mistakes not our own really makes me angry and I don't see how the rules/laws allow this. I feel like consumers have little on our side in this process.
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Old 01-10-2018, 02:49 PM
 
Location: Raleigh
7,003 posts, read 5,205,709 times
Reputation: 9459
Quote:
Originally Posted by MikeJaquish View Post
Is my model unique? Not so much.
While I think that anyone who says "discount agent" or discount firm" is uneducated or unethical, or possibly both, or maybe even an illegal price-fixer, Bing "discount real estate agent Raleigh NC," and you will see plenty of alternative business models. As desire by DOJ.
I think people get too hung up on semantics. "flat-fee" or "fee for listing" might be more factual but the only point of doing that is a discount, ergo discount listing...
Quote:
Originally Posted by MikeJaquish View Post
And you just need to investigate anyone you would consider engaging, to your satisfaction.
If they say, "You get what you pay for," you are totally being lied to. I have brought buyers to too many 6% deals and seen what they got for their money, or had the sellers tell me how great I was in the transaction.
Sheesh.... "You get what you pay for." LOLOLOL
That phrase is usually best applied to the bottom end of the market (for anything) than the top, from haircuts to automobiles. The difference between an $8 haircut and an $28 haircut is pretty extreme. $28-$48 (for a guy anyway) will see fewer improvements.
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Old 01-10-2018, 03:14 PM
 
Location: NYC
11,830 posts, read 7,711,618 times
Reputation: 12814
In my opinion, there should be some sort consolidation between all the services that handle the transaction of buying/selling.

The agents are important because they help you get through negociation without the trouble of dealing with problematic sellers or buyers.

The area I think that should be improved are lender fees and titling process. These are very costly and time consuming.

Lender charges you maybe 7-8 line items of fees and the titling services another 4-5 lines of fees just to process paper work. Where is the value? There's a good 4-5% of the cost spent on paperwork right there.
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Old 01-10-2018, 03:14 PM
 
Location: Cary, NC
31,628 posts, read 55,362,882 times
Reputation: 30183
Quote:
Originally Posted by JONOV View Post
I think people get too hung up on semantics. "flat-fee" or "fee for listing" might be more factual but the only point of doing that is a discount, ergo discount listing...

That phrase is usually best applied to the bottom end of the market (for anything) than the top, from haircuts to automobiles. The difference between an $8 haircut and an $28 haircut is pretty extreme. $28-$48 (for a guy anyway) will see fewer improvements.
There is more than semantics at play when considering the connotation of saying "discounter."
One reason to avoid it is because it is price-fixer code for anyone who doesn't charge 6% or more.
Another, it because the stipulation of the existence of a "discount" lends credence to the concept that there is a "standard commission rate" from which to "discount."
There is not.

And, regarding "You get what you pay for?"
I hear it in real estate very often and you see it postulated routinely here from agents who should absolutely know better. Some agents even say they use it as a closing line in selling listing services.
Too often I have done very well when representing clients and working with agents who believe such malarkey.
And, who have done a very poor job of representing their clients.
It is always a good for a chuckle, when I see an agent give up their clients' position or money, and take more money from closing than I do as the buyers' agent. Because their clients "got what they paid for."

Considering those perspectives, and recognizing the professional guidance that all licensees receive, I would reiterate, "Discount agent" or "discount firm" a la RealTrends is a term to be avoided by any licensee, regulator, or reporter to avoid looking uneducated or unethical.
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Old 01-10-2018, 03:41 PM
 
Location: los angeles county
1,081 posts, read 1,107,279 times
Reputation: 1040
TL;DR

But it's ironic that the Economist didn't talk about the Economics 101 concept of opportunity cost.

Sure, you can sell your home yourself. But do you have a regular job?
Are you going to miss all the potential buyer inquiries that come in while you are at work?

If you've been in this business, you know that buyers are impulsive. If they can't see a home right there right now, they skip it and move on to the next one. You've lost a boatload of buyers right there.

We all know that guy who just can't say no and always gets ripped off. He probably shouldn't be doing a fsbo.

A competent agent is worth his fee. The problem is that there are tons of incompetent ones.

No matter what, you're going to have to pay the buyer's broker commission, so you're only saving 2.5% of your sale price doing a FSBO.
For the average $400k house, that's $10,000.
Are your time, labor, and lost buyer prospects worth more or less than $10,000?


Some people are competent enough to DIY. Others hire a contractor. You have a choice.
If you try to build your own cabinets and they look like shart, maybe you should hire a carpenter.
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Old 01-10-2018, 03:41 PM
 
1,528 posts, read 728,033 times
Reputation: 2062
Quote:
Originally Posted by MikeJaquish View Post
Choice.
People CHOOSE to pay agents the rates they seek.
There is fee competition in nearly every US market, including capable agents.
Sort of goofy article with minimal insight.
1. Average commission is 5% or 5.4%, but 6% is "standard?"
Goofy.
2. Blabs the old saw about the average agent closing 7 transactions yearly. Without research or insight.
Goofy, to the point of being a lie.

But, pop goofiness may sell magazines and ads.
Notice that this drivel got shared on CD, as if it is meaningful.

0.5%--1% legal fees?
$7000 legal fee on a $700,000+ sale, + 17.5% VAT on Fees?
Ain't the devil always in the details?
https://www.globalpropertyguide.com/...m/Buying-Guide

No, the article does not say that 6% is 'standard'. Have some integrity in how you argue your points and don't attribute things incorrectly and call people goofy when you got it wrong. It talks about the demise of the 6% commission to mean the demise of the old school model. A statement talking about the demise of the 100k MBA starting salary in banking does not mean that the average starting MBA salary is 100k. That's not how the English language works. Nothing goofy (or pop goofy - whatever that is) there. Do yourself a favor and don't question the precision of writing in the Economist. They aren't perfect but they do not get stuff like this wrong and it's one of the best edited publications in the world and their writing style is second to none. Goofy it is not.

Tip: read the Economist cover to cover every week and you'll be much better informed in life.

The article is old but today the typical commission you can negotiate in England is 1% to 1.25%, certainly not 3% as the Economist article states and not as your link says either. Many agents will just start at 1.25% and easily go to 1%.

Legal fees in the UK are not normally paid by % of the home. That's misinformation. Trust me, a £700k house (US$1m) is £500-£750 in legal fees and you can get this fixed.

VAT has nothing to do with what people make. It's extraneous to the discussion in comparing UK agent costs vs. US.

The article could have talked more about the buyer's agent nonsense. That's a big difference between the UK and the US. UK does not really have a concept of a buyer's agent. Selling agent is for the seller's interest only.

Transaction costs are very high due to stamp duty (paid by buyer). You can pay about US$50k in stamp duty for a fairly modest house.
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Old 01-10-2018, 03:45 PM
 
8,386 posts, read 7,379,700 times
Reputation: 18254
What the average person does not understand about the real estate business is tremendous.

Each person including listing agents, selling agents and both of their brokers, have way more expenses than the public realizes. Realtor monthly dues, expenses to put listing in multiple listing, automobile expenses, wardrobe expenses, telephone expenses, Internet Expenses, advertising expenses, and numerous expenses the average person never even realizes. If the agent puts on an average of 15,000 miles per year showing houses, going to meetings, running here and there involving business on listings and sales, it would be about a minimum for a full time realtor. When in the business, I would often do twice that.

According to AAA who are as knowledgeable about auto costs, has computed the cost per mile to based on type of vehicle, and 15,000 miles per year.

Large Sedan---$0.625 per mile, SUV---$0.708 per mile. Or for 15,000 miles year in a large Sedan $900 per year or $75 per month. And this does not cover the financing. SUV costs is over $1,100 per year plus auto payment. And yes Realtors need to drive a large Sedan or SUV to make their potential buyers comfortable when showing homes, and which they drive depends on the area of the county they are in. Farm and Ranch Realtors will add in 4X4--4 Door Pickups.

Fact: 20% of agents, will sell 80% of all real estate sold. The typical 1st year agent, will earn about $15,000 max, and when you take out expenses they did not really make a living. And there will be a lot of agents, that do not make one cent, but had to still pay their expenses. This is the reason, that about 75% of all people entering the real estate business will go broke, and leave the business.

Lets say there is a $10,000 commission. There will be 4 different parties taking their part of it. The typical split is that each office will get $2,500 or 1/4th. The listing and selling agent will get $2,500 and all will have to pay their expenses out of their share. And the average agent, may only make a sale every few months, and the expenses keep adding up.

Unless an agent is in the top 20%, they are not getting rich in the business.

One reason for all the failures, is that most agents entering the business do not understand what it takes to be a commission outside salesman, which is what real estate agents really are.

One big problem is it is too easy to enter the Real Estate business. Take a quick class that teaches you to take the agents exam. The problem is it does not teach you the business, how to find customers, etc.

I entered the real estate business in 1972, after spending nearly 20 years as a commission salesperson, never drawing a salary after leaving the Navy in 1954. I had been as high as Division Sales Manager for Western half of the United States for a very old and highly respected corporation. I sold furniture for several years before that on commission, earning about $125,000 and up every year in today's dollars. I was a very top salesman, and entered the Real Estate Business to make some real money.

Before entering the business, I spent one year taking real estate and investment classes through a major university. I now had the knowledge the majority of the agents will never have. I specialized in investment real estate.

My first day in the business, I sold a 2 year old all brick apartment house in a very nice location to a former co-worker who was single and needed to start an investment plan. The 4th day I sold the identical one next door. The next week I worked, I went to a Real Estate Exchangers Meeting where specialized exchange agents, meet and present property for exchange and sale. At that meeting I exchanged a 16 unit higher quality apartment house, as down payment on a larger fully irrigated farm. Those 3 transactions did more business dollar wise, than the majority of agents do in a year, and I was then off and running.

I did not sell homes for personal residence, and only sold 6 in all the years in the business to help personal friends. I sold a lot of middle class quality homes less than 10 years old, for rentals to my clients. My best day, was in 2 1/2 hours, I sold out a to be built 13 unit subdivision building to my specs, and one additional home where the owners needed an immediate sale. No one bought less than 2 and one bought 5 homes. I worked more or less like a stock broker, handling the same clients over and over again, buying, selling and exchanging their investment real estate. I also worked a lot of deals as a principal, not taking any commission. I did some development, etc., in my account. I also had major Brokers list apartments owned by their family, etc., that they felt they were not qualified to handle as they were specialists in single family homes. I have had long time brokers come to me with a complicated transaction they did not even know how to write the contract, and gave me half the commission to just write the contract, and explain how it needed closed with the escrow company handling the closing. I consulted on handling real estate problems, for $100 an hour back in the 70s.

As you can see, I was there through the good, bad, and ugly as they say. I often on difficult to sell property, did not charge 6% commission. I charged 10% commission on hard to sell property that other agents had trouble doing anything with, and always moved the property to a new owner.

A couple that were investment clients came to me and asked me to evaluate a drug store out of town. $100 an hour from the time I left home till I got back. I found the problem in less than an hour, and 3 hours drive time. The drug store owner told them it was a gold mine, and he was getting a lot of undisclosed income. He opened a safe, and showed them at least $200,000 and told them they could do the same. He pulled that on me, and I pinned him down as to where the extra money came from. He told me it was his magazine sales, and Indian Moccasins. The magazine rack was small and mostly out of date, and the Moccasins were dusty that said he never sold Moccasins. I advised my clients he was a phony, and not buy it. They bought another one, as they were both licensed Pharmacists.

Two weeks later, the local news was about that druggist was arrested, for being one of the big drug distributors in the area. And those were not legal drugs he was dealing. Some nerve, dealing illegal drugs out of a drug store. No wonder he had a safe full of money, as he was in a cash business.

I did not hire salespeople, except my daughter home on vacations from college. My wife was also a broker, and she did the inside duties, and I was the one that worked with the clients, and did the out of office work. I know a lot of offices where the broker was so busy handling several agents that could not work with clients. And a number of them went broke and closed their office. As I had no salespeople to worry about, I could spend my time handling clients and making money. And as I handled harder to sell property, I very often charged 10% commissions.

I understand why the commissions are as high as they are. I was in the business when the average commission went from 5% to 6%, as no one was making a living with 5% commission. Real Estate is an expensive business to operate. Unless you are in the top tier, you are not getting rich, and the expenses are high, which the outsider does not realize.
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Old 01-10-2018, 03:46 PM
 
Location: los angeles county
1,081 posts, read 1,107,279 times
Reputation: 1040
Quote:
Originally Posted by MinivanDriver View Post
I had to finally break down and write the freaking ad copy. It took six months to sell our house, but it sold at a far higher price than the so-called experts said it would. Had I listened to my realtor, I would have left $100,000 on the table.

It took six months to sell your house.
That's not saying much, except to suggest that you got lucky that someone finally liked your home for the listed price. It's possible you would have had to wait a year or more if that buyer didn't come along.


At the time, what was the average Days on market for houses in your area?


If your agent knew you weren't in a hurry and didn't need to sell, she could have waited 6 months too.
There's always that one sucker with odd tastes who pays full retail price.
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