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So you experienced realtors' collusion first hand. Realtors collude with each other to increase commissions and therefore house prices. You saw increasing the amount of commission you'd pay as a positive?
I've successfully used a flat fee listing service and would definitely do so again. I found few- if any- realtors who would do more than just list the house on the MLS and take crappy photos.
This is so true, the type of collusion that aka Realtors(TM) engage in should be illegal. I understand why they do it, but that doesn't make it right.
These days, the buyer does most of the work, the internet does most of the selling and much of the paperwork that Realtors(TM) and real estate agents do is automated and thus the workload is far less than it use to be.
Realtors(TM) will go on and on about "how much work" they do, but in reality, you could hire a RE lawyer and have an even more professional prep and review of all documents done for less than the standard 6%. Most sellers, nor buyers understand this.
Things are changing and there are a number of fixed priced brokerages popping up that sell for a very reasonable fixed rate popping up that greatly benefit the seller and ultimately the buyer. In a hot real estate market, homes practically sell themselves, you don't need an agent when bidding wars are going on. I would agree, you may need an agent in a slow market to really market the home and try to get a sale, but as soon as the market is "hot" these wild percentage based commissions are a complete fleecing of both the seller and buyer.
I've had friends use decent fixed prices brokers and they have been happy, particularly in this market. Percentage based Realtors don't like them, and tantrum endlessly and collude to fleece both buyer and seller, but fortunately, the strength of the housing market right now forces their hand. Since they can price a bit more competitively because they are not automatically losing 6% off the top, their homes are priced better than the competition and sales have taken place quickly with both buyer and seller saving money.
Because remember, the buyer in reality effectively pay the commissions because sellers set their price assuming they are taking a 6% haircut to give to a Realtor(TM).
If you could cut that commission, it would provide another point of price negotiation. However Realtors(TM) will defend the commission percentage above all other things.
When salespeople are smug, you know you are getting fleeced, and right now, house salespeople are more smug than they've been in years.
Last edited by GoldenZephyr; 12-23-2013 at 08:15 AM..
Someone is going to have to explain to me how the last two posts are related to the topic at hand.
Of course, only with biased assumptions, can they be related to the OP's situation.
I don't care if you offer a $1.00 co-broke, or no co-broke even. Seller's decision, IMO, although MLS's typically require some amount of co-broke to be offered.
However, Buyers who know they will make up the difference between the offered co-broke and the amount they have agreed their agent will receive typically decide not to see homes that indicate they will incur additional expense.
Let's proceed from another set of assumptions:
Two houses, for all intents and purposes are the "same."
One priced at $200,000
Offering 1%/$2000 to a buyers' agent.
Another priced at $202,000.
Offering 2.5%/$5000 to a buyers' agent.
If the buyer has agreed that the agent will receive $2.5% of a gross sales price, and to make up out of pocket any co-broke shortfall, which home is at a more affordable list price?
I have had buyers decline to see homes with shortfalls in co-broke. Buyers' choice. They either cannot or will not reach into their pockets to pay a commission in addition to the purchase price.
No collusion involved, of course.
Several years ago we listed with a discount realtor. Never again. Turned out many buyers' agents wouldn't even show our house because of the reduced commission they would earn. We had maybe two showings the first month. As soon as our contract was up, we switched to a "regular" realtor, and lo and behold, our showings increased right away. We went under contract within a month. Sometimes you really do get what you pay for.
Mike, looks like it started here from what I can tell paging back.
It would appear lovemaine didn't want to pay a 'standard' commission to the agent who sold the house and the agent wasn't getting it from the buyer either. But that isn't the discount realtor's fault.
Seems like this must have been in an area so big and so overrun with similar homes for buyers that an agent could even afford to skip one.
I think the point about how real estate agents look at the world has just been proven again by the last post by a broker.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
What brokers willingly refuse to understand (including the obvious from the brokers own post) is that the commission structure is over inflated, particularly on pricier properties. They also refuse to accept that the buyer always pays the commission as pointed out by both GoldenZephyr and by MikeJaquish's posts. Mike even points out that they buyer always pays the commission in his example. Yet brokers always make it sound like the buyer incurs no cost.
They also defend a percentage even though the amount of paperwork and effort is virtually the same for a $250K home and a 500K home, yet the commission is double. Just another outmoded fee model that rips off buyers and seller.
Fixed price brokers are where the future is, the workload has shifted to the buyer via the internet and automation takes up most of the slack. The process of disintermediation will do to real estate what it did to travel agents and the like.
Especially in a hot market, when homes are flying off the market with multiple offers, why pay a huge marketing fee to a broker who does little marketing work. Brokers own arrogant admissions boasting about how its a "sellers market", "bidding wars", "limited supply", "buy now or be priced out forever" mean that their "selling skills" are not really needed, so why pay for it.
In a hot market, you'd be a fool to use a percentage based broker, use a fixed fee full service brokerage, there are a number of them now and they are growing. I predict this rebound of the market will finally break the brokers cartel. The last downturn forestalled their end because you really did need some salesmanship to move property, but in today's hot market, with buyers coming in with all cash and broken glass desperation, you don't need to pay a broker fat cat to purrr his/her way to an overinflated percentage based commission.
To the OP, I've seen sales with FULL SERVICE fixed fee brokerages, they usually still do a 2.5% to the buyers agent and a fixed $800-1200 fee to the seller. In a hot market, this works great.
I think the point about how real estate agents look at the world has just been proven again by the last post by a broker.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
What brokers willingly refuse to understand (including the obvious from the brokers own post) is that the commission structure is over inflated, particularly on pricier properties. They also refuse to accept that the buyer always pays the commission as pointed out by both GoldenZephyr and by MikeJaquish's posts. Mike even points out that they buyer always pays the commission in his example. Yet brokers always make it sound like the buyer incurs no cost.
They also defend a percentage even though the amount of paperwork and effort is virtually the same for a $250K home and a 500K home, yet the commission is double. Just another outmoded fee model that rips off buyers and seller.
Fixed price brokers are where the future is, the workload has shifted to the buyer via the internet and automation takes up most of the slack. The process of disintermediation will do to real estate what it did to travel agents and the like.
Especially in a hot market, when homes are flying off the market with multiple offers, why pay a huge marketing fee to a broker who does little marketing work. Brokers own arrogant admissions talking about how its a "sellers market" mean that their "selling skills" are not really needed, so why pay for it.
In a hot market, you'd be a fool to use a percentage based broker, use a fixed fee full service brokerage, there are a number of them now and they are growing. I predict this rebound of the market will finally break the brokers cartel. The last downturn forestalled their end because you really did need some salesmanship to move property, but in today's hot market, with buyers coming in with all cash and broken glass desperation, you don't need to pay a broker fat cat to purrr his/her way to an overinflated percentage based commission.
To the OP, I've seen sales with FULL SERVICE fixed fee brokerages, they usually still do a 2.5% to the buyers agent and a fixed $800-1200 fee to the seller. In a hot market, this works great.
Discount brokers have not proven to be a viable model. In general virtually all in the LV market went belly up when the bubble drove the sales down. The basic problem is that it takes something close to 2.5% to make the overhead when things get slow. There are people (may include Jaquish) who use a smorgasbord approach that includes discounting and conventional. I think though they end up mostly conventionally priced.
And all the new models in the industry in general have failed. Rebates, salaried agents, high efficiency...all fail when stressed.
I believe the commission achieved has actually increased on the last few years.
None of this of course is relevant in this thread. OP offered 3%.
I think the point about how real estate agents look at the world has just been proven again by the last post by a broker.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
What brokers willingly refuse to understand (including the obvious from the brokers own post) is that the commission structure is over inflated, particularly on pricier properties. They also refuse to accept that the buyer always pays the commission as pointed out by both GoldenZephyr and by MikeJaquish's posts. Mike even points out that they buyer always pays the commission in his example. Yet brokers always make it sound like the buyer incurs no cost.
They also defend a percentage even though the amount of paperwork and effort is virtually the same for a $250K home and a 500K home, yet the commission is double. Just another outmoded fee model that rips off buyers and seller.
Fixed price brokers are where the future is, the workload has shifted to the buyer via the internet and automation takes up most of the slack. The process of disintermediation will do to real estate what it did to travel agents and the like.
Especially in a hot market, when homes are flying off the market with multiple offers, why pay a huge marketing fee to a broker who does little marketing work. Brokers own arrogant admissions boasting about how its a "sellers market", "bidding wars", "limited supply", "buy now or be priced out forever" mean that their "selling skills" are not really needed, so why pay for it.
In a hot market, you'd be a fool to use a percentage based broker, use a fixed fee full service brokerage, there are a number of them now and they are growing. I predict this rebound of the market will finally break the brokers cartel. The last downturn forestalled their end because you really did need some salesmanship to move property, but in today's hot market, with buyers coming in with all cash and broken glass desperation, you don't need to pay a broker fat cat to purrr his/her way to an overinflated percentage based commission.
To the OP, I've seen sales with FULL SERVICE fixed fee brokerages, they usually still do a 2.5% to the buyers agent and a fixed $800-1200 fee to the seller. In a hot market, this works great.
Your post is completely misguided.
My post was very clear, and very good, in terms of explaining the probable absence of collusion. That was all I was attempting.
I might have included a flat fee such as $800 or $1500, as some agents do. Percentages are just one method of co-broke, and flat rates are accepted in our MLS input fields.
As I have mentioned here many times, I do not care about a broker's business model, as long as the broker deports themselves with skill, integrity, and legal behavior. That works for me, and also threatens no consumer in any way.
Mike, looks like it started here from what I can tell paging back.
It would appear lovemaine didn't want to pay a 'standard' commission to the agent who sold the house and the agent wasn't getting it from the buyer either. But that isn't the discount realtor's fault.
Seems like this must have been in an area so big and so overrun with similar homes for buyers that an agent could even afford to skip one.
Unfortunate choice of words by the poster.
Of course, there is no such thing as a "discount broker."
Discount brokers have not proven to be a viable model. In general virtually all in the LV market went belly up when the bubble drove the sales down. The basic problem is that it takes something close to 2.5% to make the overhead when things get slow. There are people (may include Jaquish) who use a smorgasbord approach that includes discounting and conventional. I think though they end up mostly conventionally priced.
And all the new models in the industry in general have failed. Rebates, salaried agents, high efficiency...all fail when stressed.
I believe the commission achieved has actually increased on the last few years.
None of this of course is relevant in this thread. OP offered 3%.
I see, so if your listings are all around $300,000, your overhead is covered is $7500 per house, but if you list a $600,000 house your overhead somehow rises to $15,000? Very interesting, is that because you have to lease a Lexus LS series as opposed to an ES or GS? Is that because all your costs double on a $600,000 listing as opposed to a $300,000 listing?
We know of friends who used a flat fee service in Denver they were very happy. They went under contract in about 3 weeks, they had about 40 showings. The market is hot. They saved about $12,000, that was real money to them. They got their asking price, which was actually a bit higher than the were told from a traditional broker. From the flat fee brokers website:
We require a $500 deposit before we begin work. This deposit is non-refundable because we will be performing a great deal of work to get your listing ready to go. The remaining $1,200 is paid at the closing for your property. For $1,700, you get:
Industry-best photography services showcasing every aspect of your property.
Analysis of comparable properties in your neighborhood, recommendations on pricing, and assistance with identifying key cosmetic fixes to better prepare the property for market.
Placement of your property’s listing in multiple locations, including our website, MLS, periodicals, home search websites and others.
Showing service including scheduling and reporting.
Assistance in the title, appraisal, inspection, insurance and closing process.
A team of experts with extensive knowledge about every aspect of selling homes to assist you in any way you might need.
Our listing rate was strategically developed after carefully researching the way we manage home sales. We understand that it takes the same amount of time and process to list every home – whether it is a $1 million property or a $100,000 property. If that process is the same, why do traditional realtors deserve a percentage-based commission? We don’t believe they do. Our flat-fee realty service approach is the future of real estate. Paying out the nose on your real estate transaction will soon be a thing of the past because modern technology is making the process easier than ever.
They pay the standard commission to the buyers agent.
To me it makes sense, salespeople will always tell you about how much work they are doing and "deserve every penny!"
Contrary to your point, I've actually seen discount brokers increase, especially in the last year as the hot market has made it easier to sell property.
Last edited by GoldenZephyr; 12-23-2013 at 10:06 AM..
I think the point about how real estate agents look at the world has just been proven again by the last post by a broker.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
They also defend a percentage even though the amount of paperwork and effort is virtually the same for a $250K home and a 500K home, yet the commission is double. Just another outmoded fee model that rips off buyers and seller.
You have a very narrow perspective of how a business works. So here is the real deal and why commissions dominate. I am a fee-for-service brokerage. I do hourly rates, flat rates and commissions. The commissions aren't as inflated as you deem they are, and here is why you are wrong. I hope you can agree that a real estate brokerage is a business with the goal of making profit. As long as you agree that this is a true statement, the rest should make sense. If you think brokerages are non-profit businesses, then ignore the rest.
Profit is simply your income minus your expenses. With the commission model, the costs are higher due to risk. This is a business gambling model, if you will. The agent does an all or nothing. If they sell your home, they get paid. If they don't sell it, they get nothing. Business expenses happen every month regardless of this all or nothing approach. The agents risk going out of business. The risk is HIGH for a business, as such the reward has to be HIGH. It is that simple. The reason higher priced homes cost more in commission dollars is because they are harder to sell. There is more inventory, which makes the risk higher. If I sign a 6 month listing agreement to sell an $800,000 home that has a 4 year inventory in my area, I think you can agree that the probability for selling it in 6 months is low, right? I can reduce that risk by being good at what I do, but the risk is elevated. Agents can get less commission dollars for a $150,000 home because that price range hits a lot of buyers and inventory is lower. If I sign a 6 month listing agreement to sell a $150,000 home with a 4.5 month inventory, it is highly likely I will get paid. Lower inventory is less risk. Higher inventory is high risk. The commission structure is based on a business gamble.
The reason why flat rates haven't taken off is simple. There is only one way to make it profitable and that is guaranteed fees. Flat rates should be at actual business costs with no increased costs for loss due to not getting paid. Unfortunately, many of the people that have done flat rates in the past don't seem to understand business risk and they make their low flat rates/percentages, all or nothing. This is a good way to go out of business as many, many have. So with my flat rates, sellers pay 50% upfront and 50% at closing, termination, or expiration of the contract. I don't do limited rep contracts, but what is interesting is that there was a survey done that showed that the most sellers were willing to pay upfront for services was $499. When I give my sellers the choice between my risk or theirs, they willingly pay more for me to take it. Now, you might be willing to take the risk, but you need to understand that the vast majority of people are not risk takers. As such, the commission model dominates.
The real issue is that consumers want reduced fees with an all or nothing approach and that isn't going to happen. That is business suicide. Consumers are unwilling to pay for services upfront (other than limited rep), and agents that provide services without getting payment won't be in business long. Really. It is that simple.
There is only one way to have the commissions reduced and that is to cut the number of real estate agents in half...at least. All of the competition actually drives up commissions because agents have to spread their business overhead costs over fewer clients. If the average agent did 20 transactions vs. the current 3.7 in my MLS, their business risk would be reduced because they would have the opportunity to close more transactions. Rather than having to spread their business overhead over 4 clients, they could do so over 20 clients.
Large brokerages contribute to this problem because they are in the business of agents, not consumers, so they hire bad people because they will pay desk fees and such. This is how brokerages make money. Consumers contribute to this problem by hiring bad agents and not firing them, which allows them to make money and stay in business. There is no collusion, just dysfunction.
I see, so if your listings are all around $300,000, your overhead is covered is $7500 per house, but if you list a $600,000 house your overhead somehow rises to $15,000? Very interesting, is that because you have to lease a Lexus LS series as opposed to an ES or GS? Is that because all your costs double on a $600,000 listing as opposed to a $300,000 listing?
We know of friends who used a flat fee service in Denver they were very happy. From the flat fee brokers website:
We require a $500 deposit before we begin work. This deposit is non-refundable because we will be performing a great deal of work to get your listing ready to go. The remaining $1,200 is paid at the closing for your property. For $1,700, you get:
Industry-best photography services showcasing every aspect of your property.
Analysis of comparable properties in your neighborhood, recommendations on pricing, and assistance with identifying key cosmetic fixes to better prepare the property for market.
Placement of your property’s listing in multiple locations, including our website, MLS, periodicals, home search websites and others.
Showing service including scheduling and reporting.
Assistance in the title, appraisal, inspection, insurance and closing process.
A team of experts with extensive knowledge about every aspect of selling homes to assist you in any way you might need.
Our listing rate was strategically developed after carefully researching the way we manage home sales. We understand that it takes the same amount of time and process to list every home – whether it is a $1 million property or a $100,000 property. If that process is the same, why do traditional realtors deserve a percentage-based commission? We don’t believe they do. Our flat-fee realty service approach is the future of real estate. Paying out the nose on your real estate transaction will soon be a thing of the past because modern technology is making the process easier than ever.
They pay the standard commission to the buyers agent.
To me it makes sense, salespeople will always tell you about how much work they are doing and "deserve every penny!"
I'm sure to a broker with Lexus LS500 lease payments due, its sort of true. I just don't think that buyers and sellers should be fleeced to cover it.
First off the RE Brokerage is driven by velocity...that is the price per house times the number of homes. Unfortunately when price doubles the volume tends to decrease perhaps by as much as half...So increasing price has little limited effect on the brokerage income. Basically the herd expands or contracts until the average agent makes 45 grand.
I expect some fixed price models may work particularly when times are good. But note that the client is putting out money up front. That is very distasteful to most sellers. However when times go bad and volume falls the discounter has trouble making his nut. That is actually why there are so few discounters. If it was a good business there would be lots more of them. Over the last couple of years Las Vegas has seen a vast increase in the number of brokerages...maybe tripled. But few are adopting an open discount model. It appears that the people striking out on their own don't believe discount to be the best approach.
The every property costs the same is simply untrue. Bigger properties cost more simply because they stay on the books longer and therefore eat more overhead. They are also more expensive in other ways when you get to how they are marketed. And there are fewer of them.
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