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I'm not a big NAR fan and I don't pay any discretionary money to the lobby arm of the association but I doubt they do anything that any other trade association doesn't do. The truth is that they do some very good things, too, not the least of which is taking the lead on the COE and the means by which they can be enforced. What specific examples are you thinking about?
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.
That's an issue for the industry to iron out. As someone who routinely buys and sells properties, it's not my problem if there's too many of you. Why should I be subsidizing your income for not doing enough volume? Those who sell/buy a couple homes in their lifetime don't notice it.
I feel like the Brits have it better under control. 2%-3% is fine. 5%-6%, outrageous. Most agents should be employees, not subs. Again, over priced paper pushers and doormen.
I met one person in the industry who said their biggest problem is bored house wives joining the industry. There's definitely too many of them. It's way too easy to get licensed. Make them W2 and I'm sure you'll see new applicants crater.
Last edited by LordSquidworth; 01-10-2018 at 11:06 AM..
Most people would have a fit if we went to a fee for service model for buyers' agents.
A sales commission (or other form of compensation for the real estate agent) affects transactions the same way that a tax affects them.
And, one of the fundamental lessons of Economics is that the statutory incidence of a tax (or commission or other form of compensation for the real estate agent) has nothing to do with who bears the ultimate burden of that tax (or commission or other form of compensation for the real estate agent).
It does not matter if the tax (or commission or other realtor compensation) is levied upon the seller of the property or the buyer of the property. It does not affect the ultimate distribution of the burden.
Where does the burden fall? it depends on the price elasticity of demand and the price elasticity of supply. Back in Econ 101, these are the slopes of the supply and demand curve.
In a "seller's market" most of the burden of the realtor compensation falls upon the buyer.
In a "buyer's market" most of the burden of the realtor compensation falls upon the seller.
See the following charts which illustrate the burden of a tax (commission or other realtor compensation) in the special cases of perfectly elastic and perfectly inelastic demand.
For more background on tax incidence (the same thing as commission incidence), see for example:
That's an issue for the industry to iron out. As someone who routinely buys and sells properties, it's not my problem if there's too many of you. Why should I be subsidizing your income for not doing enough volume? Those who sell/buy a couple homes in their lifetime don't notice it.
I feel like the Brits have it better under control. 2%-3% is fine. 5%-6%, outrageous. Most agents should be employees, not subs. Again, over priced paper pushers and doormen.
I met one person in the industry who said their biggest problem is bored house wives joining the industry. There's definitely too many of them. It's way too easy to get licensed.
This example is really concerning NAR policies from more than 13 years ago so I don't view it as a particularly useful example of a constant and pervasive effort by the association to protect its members from competition. Actually, there is competition all over the place (as you highlighted in your statement) and there are several business models out there.
I understand why some commissions seem exorbitant and, frankly, I don't disagree but I'm certainly not getting wealthy doing it and most agents aren't getting wealthy, either. As you pointed out, no one in the country is required to work with an agent. And, if people don't think it is right that an agent does earn a great income, they can always select an agent other than that one. There's just nothing in the model that requires anyone to do anything with anyone and there's plenty of competition out there if a person does want to use an agent. Commissions are subject to negotiation and it simply is not the case that all agents/brokers work for X percent. Now, that doesn't mean that in any given place a seller will be able to find an agent/broker whose rate is equal to what the seller thinks it should be but that is the case for everything. I don't think it should cost what it does for lots of things. Nobody cares.
That's an issue for the industry to iron out. As someone who routinely buys and sells properties, it's not my problem if there's too many of you. Why should I be subsidizing your income for not doing enough volume? Those who sell/buy a couple homes in their lifetime don't notice it.
I feel like the Brits have it better under control. 2%-3% is fine. 5%-6%, outrageous. Most agents should be employees, not subs. Again, over priced paper pushers and doormen.
The economy works on supply and demand. The American consumer, at this point demands that agents carry all of the risk. This is the only reason that it hasn't changed. As soon as consumers decide to pay as they go, you will see if change very quickly.
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?
Same Same stuff that's been said thousands of times before.
But, they did come up with a creative new idea.
"A third theory is that the industry is less competitive than it looks. In most areas a few big brokers handle most transactions. They set high fees, which lure ever more people into the profession: between 1998 and 2005 the number of members of America's National Association of Realtors grew by 67%. These agents waste time competing with each other for the exclusive right to sell each home, sapping productivity."
i.e. more agents lead to less competition....
Theoretically, in a cartel the total commission is fixed (or in RE, a fixed percentage). That said, the actual agent gets less than the owner with more agents.
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