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You seem to have a fairly good grasp of economics. Its not really that hard to find houses and negotiate on your own. If a realtor can negotiate a price then you can too. Perhaps a realtor might have a better idea of what the market will dictate, but if you can look at some comps its not too tough.
So why pay a realtor $10,000 to do what you could do on your own. As you have seen from this thread about 75% of realtors will insist that you are not even paying for them. Are they really providing much service to you? realtors are meant for people who think they are free. If you can see past that and devise a different compensation scheme it seems to me you are quite capable without one.
I considered it, but the reasons I didn't go that route are because 1) I have a one-year old 2) I hate paperwork and 3) I am a terrible negotiator.
My comparative advantage is not in buying real estate. My listing agent sold my condo for over 13% more than I thought it was worth, but as I've said, I think the compensation plan for listing agents works just fine the way it is.
More buyers and buyer agents implementing a compensation scheme negotiated between them independent of the terms specified by the listing agent will get more buyers and agents to want direct payment so they don't have to jump through hoops like rebates to achieve this.
No, the scheme is a definite diversion from the best path. Buyers will get hooked on rebates, which undermines the equity provided by a downpayment and increases debt load. Yet, they will think they are getting "free money."
Once people get something for 'free," they don't want to give it up. It becomes an "entitlement."
Quote:
Originally Posted by perfectlyGoodInk
Do you disagree that this applies equally to the classic plan? Buyer still picks the home, which "unilaterally determines agent compensation." Buyer choosing lower priced home will lower agent commission. Under my proposal, buyer is better off buying lower price home, thus increasing commission. The money saved from the home is much higher than the increase in commission. Also, both agent and buyer must agree upon compensation plan no matter which one is picked, so "unilaterally determining" is really not accurate for any compensation scheme agreed upon. When a buyer buys at the top of their range, the difference is only a small percentage of the extra amount they will need to pay for the house itself, so there is nothing they can pocket.
So exactly how is my proposal more prone to deception than 3% * salesPrice? This still sounds to me more like an argument in favor of flat or hourly rate than an argument against my proposal.
I am arguing in favor of little.
Your scheme creates the opportunity for the buyer to negotiate a midpoint that is artificially low, where the buyer never even considers homes in that price range. Knowing that they are going to buy at the top of their range, the buyer can then buy with minimal buyer agency payment and a larger low interest loan embedded in the mortgage.
That is so obvious, it cannot be a mistake in the scheme conception.
I would agree with this in general. Some houses are way overpriced. Its not really possible though to evaluate every house and then base the realtor's pay on that.
So I guess you can just pay flat fee hourly or use the best estimation of realtor success which I would still guess is percentage off list. Or maybe a better approach would be percentage off appraisal.
Much closer to the mark.
In my example, of course, all three clients received exemplary service and representation. Of course.
Arguably #3 got a great deal, due to some add-on improvements included in the contract, along with closing costs, and coming in well inside the budget in a tough segment.
#2 got the "best" deal, with an appraisal that came in 8% over purchase price.
#1 got a very cool, unique property in a very desirable location. There is merit to that, too. And it was highly overpriced when we got there.
Last edited by MikeJaquish; 09-06-2012 at 06:16 PM..
I would agree with this in general. Some houses are way overpriced. Its not really possible though to evaluate every house and then base the realtor's pay on that.
So I guess you can just pay flat fee hourly or use the best estimation of realtor success which I would still guess is percentage off list. Or maybe a better approach would be percentage off appraisal.
95% of homes that my buyers have purchased were appraised at contract price. This is so, so not a good measure of anything.
perfectlyGoodInk, why do you think every other business Brokerage model that tries to carve out what everyone perceives to be excess commissions fails? It's because there is no excess. The system works as it is.
And some very well funded and "brilliantly designed" concepts have failed.
Let's see, we've seen over the years:
Salaried Realtors - doesn't work. For obvious reasons. Only attracts lousy agents who want a job and no risk.
Discount Brokers - works temporarily in a hot seller's market, but they all go out of business in a buyer's market. No staying power.
Rebate Brokers - The biggest name purveyor of this (color+fishpart) slowly, but surely, morphed into what is now closer to a traditional brokerage than what they started out as. Oh, and they have a flat minimum $6K commission in my market. So much for helping the little guy buyer and slaying the evil real estate industry.
I'm not even sure what label we would assign to your goofy math equations. It's not even a business model. It's just a suggestion that you think will give buyers an advantage of some kind over what you perceive to be the "misaligned" interests of the typical buyer agent. Like I said, your assumption is false to begin with, which helps explain why the idea is a non-starter.
In reality, your formula will run off the most qualified agents and leave you with someone who missed the red flags that the more experienced of us would see when you make your compensation proposal at the initial consultation.
95% of homes that my buyers have purchased were appraised at contract price. This is so, so not a good measure of anything.
I did notice this with my house. It specified the value of my house based on each comp of which there were 5. If you took the average of those values it was about $320K but then they appraised the house at 307K which was contract price.
There is all this talk about how appraisers should be unbiased. Seems to me like it would make far more sense if they were not told the contract price and just came back with the value of the home.
Seems to me like it would make far more sense if they were not told the contract price and just came back with the value of the home.
I would love it if appraisers weren't allow to see contract price and were able to be totally unbiased. It would mean a lot more negotiating for agents, which I'm fine with, but the uproar in the real estate community would be thunderous.
No, the scheme is a definite diversion from the best path. Buyers will get hooked on rebates, which undermines the equity provided by a downpayment and increases debt load. Yet, they will think they are getting "free money."
Once people get something for 'free," they don't want to give it up. It becomes an "entitlement."
As you've noted yourself, many buyers already think they are getting something for free (which is why some buyers treat it like doughnuts at an auto shop and help themselves to as much as they want). Anything different from the standard x% of salesPrice means that the buyers agent has to spell out the amount for the buyer (in order to do the jumping through hoops to disentangle it from the listing agent's pre-negotiated arrangement). When the price is spelled out and presented as a price (and negotiated as such -- see below), I would think buyers would be less likely to make the mistake of thinking it's free.
It also creates a group of folks with an interest in making this disentanglement less painful and wanting direct payment of buyers to buyers agents.
Quote:
Originally Posted by MikeJaquish
Your scheme creates the opportunity for the buyer to negotiate a midpoint that is artificially low, where the buyer never even considers homes in that price range.
The buyer and agent should negotiate on maxPrice and minPrice with each other with the full knowledge that minPrice effectively determines the agent's base commission. This is no different than any two parties negotiating a price for a good or service. An agent that is bad at negotiating with a buyer over their commission (where they can be armed with market data not available to most buyers) probably wouldn't be very good at negotiating with listing agents over a house price.
Last edited by perfectlyGoodInk; 09-06-2012 at 09:02 PM..
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