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Old 01-10-2018, 03:48 PM
 
1,528 posts, read 670,440 times
Reputation: 2062

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Quote:
Originally Posted by Silverfall View Post
This article has been discussed on here before. There are many issues with the article as they aren't comparing apples to apples.


First of all, real estate agents in England are for the most part employees. Since they are employees, they get paid every single month regardless of sales. As a result, brokerages act like a traditional business and only hire agents when they actually need them. That is NOT the current US model.

The current US model is independent contractors, in an all-or-nothing model. As a result, you have about 60-70% more agents than most markets require. This forces fees UP (yes counter-intuitive) because all of those people need to cover their business costs over fewer transactions. Your base business costs are a certain amount regardless of transasction volume. I'm sure y'all can do the math and if you spread those costs over 7 transactions vs. 50 transactions, you need to charge those 7 people more to get them covered.

The American consumer is very susceptible to spin and "use now pay later" is very popular. Paying nothing up front, but paying a higher amount later is their chosen model. Consumers do indeed choose to pay more money for the privilege of not paying anything. In England, that is not how it works. There is an upfront fee that is paid to initiate services, like a retainer. Since the brokerage won't lose money, they can charge less later.

Consumers can scream all they want about cartels and such, but it really is all about basic math specifically probabilities, risk vs. reward. The reason the all or nothing commissions don't dip very much is because of math. Math is not a forte of our nation, so other theories are thrown out instead that are conspiratorial because heaven forbid we actually crunch some numbers and do some analysis on why the system is the way it is. Consumers do indeed choose to keep it the way it is because they don't want to take the short term risk and pay agents as they go along. They would rather pay more and delay the payment until the last minute paying more.

That is why 80% of the market still uses real estate agents. 20% do some sort of FSBO/limited rep model because they crunch the numbers and they don't like the way the math looks. It really is that simple. No mass conspiracy.
You started off good but I've never, ever seen an upfront fee for agents in England. They work the same way as in the US in that regard. They do their photos (and even very nice floor plans) and a variety of other things on their own risk. You pay at the end when your home is sold. That is not a factor to explain why agents cost more in the US and it's simply not correct information. I'm not saying that no agent has ever got his client to pay a 'retainer' up front but that's simply not the way it works.
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Old 01-10-2018, 03:52 PM
 
Location: los angeles county
1,069 posts, read 1,065,472 times
Reputation: 1023
Quote:
Originally Posted by oldtrader View Post
Unless you are in the top tier, you are not getting rich, and the expenses are high, which the outsider does not realize.
word!

I find it amusing that the same people bishing about high commissions are the same people paying thru the nose for expensive iphones and premium cable TV.

Do people know the profit margins on those things ?!?!?
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Old 01-10-2018, 04:09 PM
 
Location: Raleigh NC
7,381 posts, read 5,792,406 times
Reputation: 6519
Quote:
Originally Posted by MrRational View Post
Nope it's not that simple either.
Most consumers only have an illusion of choice.
---

The first distinction is when the buyer and seller are BOTH from that area.
Out of town buyers (relocating, new to area, etc) simply will not have an objective
basis to choose a broker or an agent. They're stuck with taking the 'advice' of others.

Left on their own they'll choose a Broker name they're familiar with much the same as
they'll do when choosing a muffler shop for their car because it's a name they're familiar with.

This is WHY national brand names (franchises) have been developed.
The specific agent (or muffler mechanic) they end up with? Mostly happenstance.
---
the Buyer Agent fee is highly inelastic - basically the exact same no matter who the Buyer chooses. So, this has nothing to do with the Buyer's cost, nor the overall cost of the transaction.
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Old 01-10-2018, 04:13 PM
 
1,528 posts, read 670,440 times
Reputation: 2062
Quote:
Originally Posted by oldtrader View Post
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.

....
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.
Costs of things and what the market bears are only influenced to a very limited degree by the underlying costs of doing business. In fact, a high cost base often causes the demise of a business or a whole industry rather than keeping prices propped up. In fact, disruption of industries with high costs and fat margins is more likely than lower cost, lower margin businesses.

Travel agents were very costly. You had to hire and train people on all sorts of things. Instead of high costs justifying high prices with travel agent commission built in, it wiped them out. Computers were cheaper. Investing in digital travel facilities was attractive because of the high cost of agents (lots of room to still make a lot of money with a radically lower cost approach).

Photographic film and finishing chemicals contain silver and film requires very expensive machines to make. Very high cost product. Almost gone from consumer use because better value can be had from digital cameras.
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Old 01-10-2018, 05:16 PM
 
2,178 posts, read 910,412 times
Reputation: 1915
Whole system is over price.. I mean come on.. Closing cost just to sign papers of the deed in the thousands? Then you have them tell you that you can demand more in hopes of getting a bigger return for them. After talking to my local agent, i was floored on what all the extra fees are. A typical house of 150k can easy be in the 180s with all the BS fees added on.
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Old 01-10-2018, 05:29 PM
 
Location: Raleigh NC
7,381 posts, read 5,792,406 times
Reputation: 6519
make a mistake selecting a $3,000 vacation, and it's over in a week. Maybe a month if REALLY awful stuff happens.

make a mistake on a $300,000 house, and the problem lasts a lot longer, and is a heckuva lot more than $3,000.

provide the flight schedules, costs, and a system of rating hotels, and travel agents lost all their perceived benefit (though a travel agent can still do all the legwork, and probably wrap their fee/expertise into the same cost we get as consumers).
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Old 01-10-2018, 05:59 PM
 
Location: Raleigh NC
7,381 posts, read 5,792,406 times
Reputation: 6519
Quote:
Originally Posted by hitpausebutton2 View Post
Whole system is over price.. I mean come on.. Closing cost just to sign papers of the deed in the thousands? Then you have them tell you that you can demand more in hopes of getting a bigger return for them. After talking to my local agent, i was floored on what all the extra fees are. A typical house of 150k can easy be in the 180s with all the BS fees added on.
what state is this in, and what does the bold mean?
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Old 01-11-2018, 06:36 AM
 
1,789 posts, read 1,309,347 times
Reputation: 3655
I will say that of the realtors I have dealt with, one was worth the fee. She was extremely knowledgeable about the local market in the areas we wanted to buy. She had been doing it for more than 30 years and could recall an amazing amount of history about nearly any home in the area. She most likely had already been on one side of the sale of that home, or closely knew someone that had owned the home. She could give details about what major work had been done, who had done it, and what quality it was. She was great.

By an large though, the problem with realtors is that....

Most have no clue about homes. They cannot answer basic questions about the quality or condition of a home. Whats worse is that many are clueless about how to properly comp a house.

small story here. I was once getting shown a home by a realtor and her broker was there for some reason, I can't recall why. It was a typical ranch 3 bath 4 bed with pool in a decent area. The yard was slightly larger than most in the area though. I asked a few questions about the home and got the usual, I will have to get back to you on that. I then asked about what price the realtor thought would be good. She said she thought it was a great deal at the current price and that even though it was higher than nearby homes it had a pool and a larger lot. I asked what comps she was using. Blank stare. I pulled out my phone and did it myself and in five minutes determined that the house was priced about 15% or so high, which is a pretty decent starting place. The broker talked for the first time since introducing himself and asked if I was a realtor. I said no. He asked if I would like to become one, I didn't, and he said I should think about it and if I ever did to call him and he would take me on. He said he had been trying to teach his agents how to do what I just did to no avail. On a side note, I didn't really like the way he worded this in front of one of his agents by belittling her, so I left not being impressed with either.

They try to over represent their abilities. Most all have no business writing contracts. Sure you can save on lawyer fees if its a simple transaction. The more complicated it gets the better off you are getting a lawyer to do it. Many people deal with some contingency that includes the seller moving, the buyer selling their own home and etc. Those people should absolutely be using a lawyer. Many tales of woe about getting burned by sloppy contracts drawn up by realtors.

They have an inherent conflict of interest. They get paid for a sale. Their only concern, for a majority, is doing what it takes to close the deal. There is the built in belief that realtors perpetuate that they are there to somehow protect your interest. They aren't and they don't. You walk onto a car lot and you know the salesman is there to get highest price he can and still close the deal. You should approach realtors just like you do car salesmen.

Now of course a big part of this is the low entry req to becoming a realtor. Its a magnet for shady salesmen and clueless people looking for a second job. Sure they get washed out but in the mean time they damage the image of all the realtors out there that do a good job.

Someone mention earlier all the expenses that realtors have. Those come with any type of business. If the realtor is half way smart they have started a company and are taking advantage of all the tax benefits that brings to things like cars and clothes that most do not get to write off.
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Old 01-11-2018, 06:41 AM
 
Location: Columbia, SC
8,799 posts, read 17,213,846 times
Reputation: 6108
Every time I see a thread like this it's a poignant reminder how little most people know about
1-owning and running a business.
2-real estate.

My intent isn't to offend anyone but it's hard, time consuming, and risky to own any sort of business. There is overhead that the public doesn't usually see. If someone owns a business they have to charge enough to make the risk worthwhile or they go do something else. If the public wants lower commissions they need to reduce the risk.

If you want good agents, then interview multiple agents and quit giving business to the bad agents. If the pool of agents is reduced it would be easier to reduce commissions because of volume.
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Old 01-11-2018, 11:24 AM
 
8,188 posts, read 7,136,596 times
Reputation: 17884
Quote:
Originally Posted by justanokie View Post

Someone mention earlier all the expenses that realtors have. Those come with any type of business. If the realtor is half way smart they have started a company and are taking advantage of all the tax benefits that brings to things like cars and clothes that most do not get to write off.
The tax write off of cars, is less than the actual cost to operate the car, so it is only partially covered. Things like clothes, are not items that can be written off for tax purposes.

And only those with the money to set up and operate a brokerage business for a year without any income to the owner, are going to set up a company. The majority of agents, do not make enough money to put themselves in a position to do so. And they will have to act as an agent for on an average of 2 years, before they can even take the brokers exam, unless they have college credits that allow them to take the brokers exam with less experience. My wife took the agents exam, and then the brokers exam a month later due to the education classes she had through a major university. She never listed or sold one property in all the years we were in the business. But as a broker she could do a lot of things like preparing the closing papers, etc. and handle the closings for the office. This allowed me to spend my time with clients, and list property and sell it, and not have to do the other duties. She was also a university trained para legal specializing in real estate.

As to her ability to close the transactions, she belonged to a county wide closers association. Members were from para legals in law offices, title companies closing officers, and a few Realtors. My wife was the training officer for the association that trained the closers that handled real estate closings.

The tax benefits you imagine are not that great, and the cost to set up and operate an office, and the money involved to keep it running, is a lot more than you realize. As I said above, one needs to anticipate how much money it will take to operate the office, and able to survive a year without any personal income and a few months of office expense money in the bank. If as most brokers do, they get some agents working for them, and then working with the agent takes so much of their time, they no longer make personal sales. If the majority of the agents are not making sales immediately they have a tremendous expense base and no income to cover it. The majority of agents, simply cannot afford to open an office.

I ran a one man office, with my front desk being covered by my wife who was also a broker, and could make a lot more money as a one man office handling the sales and listings, than I could with a dozen or more salespeople working for me, having to spend all my time managing them.
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