Typically 3% is seller agent commission and 3% is buyer agent commission - although in the paperwork it's most likely 6% to the seller's agent and the seller's agent offers 3% to the buyer's agent.
Although 5% total / 2.5% to each realtor is becoming a bit more popular as of recent, based on the listing I browse.
There's ways around it, and flat fee brokers that exist, but you hamper your sales ability. Not an issue when its a sellers market, but can be rough in a buyers market.
In a seller's market, seems like a buyer's agent should be compensated more because it's more difficult to win bids now.
There are people worth their commission and there are people who are not worth it.
The bigger reason house prices are so high isnt the real estate agent cartel, it is the banking cartel and the capital chasing homes to rent them out.
Don’t use realtors.
On the flip side, no one is going to pay $5k to sell a $30k house.
Flat rates don't make sense. Maybe you think the percentage is too high.
That sounds very last-century... kinda like selling antiques to a pawn shop or consignment store that would take of finding a buyer.
Why does discovery and bidding justify $200k in overhead for the $2MM property? Why does a person need to go out and "find a buyer"?
Without this Realtor conspiracy, surely something like Redfin meets eBay would be more efficient? Posting online is what the cast majority of realtors do anyway, they don't actually "find" buyers... At least until you get to 1%er prices where golf club chats matter
Heck, this racket gates even access to standardized legal forms that states themselves should freely offer.
min(5000, House.price * 0.03)But if you think about that wholistically, that means sellers are paying 8-10% of the cost of a house every time they sell!
Surely that means someone could cut the cost in half and make a much more attractive platform, right? Opendoor comes kind of close, but they end up shouldering a lot of the risk of the transaction and therefore tend to lowball.
In my area, since I bought my first house 10 years ago house prices have 4X'd. I don't think the wages of most professions have, the demand for housing makes it easier to sell, so why should agents be making 4X more?
While I do think RE agents are overpaid in expensive markets, I also kind of think...good for them. Pegging your wages to your most expensive living cost is a supremely intelligent move.
Add in closing attorneys and home inspectors being brought in-house to reduce costs, it can be a very expensive start-up cost that would require lots of capital to achieve. Zillow/Opendoor got REALLY close, but they stopped (Zillow) or, like you said, lowball offers because they're fronting all of the backend costs that used to be spread across 4 or 5 different services.
You are right, a party trying to fix this will need great funding, large scale, and they can't be someone that will just sell out (ala zillow). With the NAR's ability to block out parties that they don't like, it might not even be practically possible.
I'm trying to figure out why nobody's figured out "DIY MLS listing as a service without having to pay for a realtor". Maybe everyone who does this just gets a realtor's license or something.
1. I could not list the home in MLS as That system requires annual fees to use and you need to have a realtor license.
2. You still need to pay the purchasing side’s realtor otherwise they will simply not consider your home for their clients. That’s 3% that’s hard to get any lower.
I ended up negotiating my realtor’s selling fee down to 1.5% with the promise of using them for my purchase as well.
It also just seems kinda dumb that realtors get paid a percentage rather than a flat fee. On the buyer side, it's essentially the same amount of work to help someone find and buy a $200k house as it is for a $1M house. For the two properties I've purchased, things moved so quickly that I don't think the realtors had to do all that much. Conservatively, the first one made at least $2k/hr, and the second at least $1k/hr (and I'm probably underestimating there). I'm not saying their services weren't valuable -- they certainly were -- but I can't see most people agreeing to pay that rate if it were presented to them that way.
And I'm not convinced there's all that much of a difference on the seller side, either. The staging is going to cost more for a larger/nicer house, but the sellers are paying separately for the staging anyway. I was also reading somewhere recently that orgs that control access to the MLS will not even allow you to list if there's no buyer's realtor's commission, and there's a floor, like it has to be at least 2% or something.
From the buyer's perspective, I really liked Redfin's pre-pandemic model, where they'd give you part of the buyer's commission as a "refund", because their realtors are salaried. I assume they figure out from the traditional commission how much they need in order to pay their own operating costs (plus whatever profit margin they've decided to take), and then give you the rest. Of course, they stopped doing that during the pandemic, and now pocket the entire buyer's commission.
Granted, the realtors we've worked with through Redfin were hit-or-miss. One we worked with was fantastic and knowledgeable, and helped a ton, but another (in a different region) let us put an offer on a home that we wouldn't have been able to rent out legally in the way we wanted to, which is something she absolutely should have known (a non-realtor friend alerted us to the issue; fortunately we were able to rescind the offer before it was acted upon). I haven't listed anything on Redfin as a seller, but they charge 1% of the sale price, which is a lot better than the 2.5%-3% traditional realtors take. Still, the percentage model seems unnecessary there too; the amount of work needed to sell houses of different values shouldn't necessarily be directly linked to the eventual sale price.
> But if you think about that wholistically, that means sellers are paying 8-10% of the cost of a house every time they sell!
I can only assume this also is part of our housing affordability issues. Sellers need to see some minimum amount of appreciation (and a fairly large amount at that) in order to break even (without even taking inflation into account), so homes sell for higher than they would otherwise, especially in markets where sellers have the upper hand.
> KANSAS CITY, Mo.—A federal jury on Tuesday found the National Association of Realtors and large residential brokerages liable for about $1.8 billion in damages after determining they conspired to keep commissions for home sales artificially high.
> The verdict comes in the first of two major antitrust lawsuits that target decades-old industry practices and seek to drive down commissions and change the way agents are compensated. The two-week trial involved claims by home sellers in several Midwestern states. The jury issued its verdict after just hours of deliberations.
> Under antitrust rules, the presiding judge could triple the damages verdict, which would total more than $5 billion. The plaintiffs also have asked the judge to order changes to how the industry operates.
> For several years NAR has been fending off accusations by U.S. antitrust officials and private litigants that it has conspired to keep home-sale costs high in the face of major technological upheavals. This verdict is by far the group’s biggest setback yet.
> An NAR spokesman said, “This matter is not close to being final as we will appeal the jury’s verdict.”
I would love for there to be some sort of competition injected into real estate commissions. I've bought and sold twice now and you get the same rate from everyone (within 1%) regardless of what they end up doing.
So anyways, we wound up bringing in an agent to help us out with the last bits, because we had to pay the money anyways, it might as well go to someone that helped us in some way.
The real estate process is fairly broken, as far as I'm concerned.
There are agents for your situation. They'll collect the 3% (or whatever it is) and rebate it back to you at or after closing; less some fixed fee ($600 in my experience). They are not going to do much for you, but if you already found the house yourself and are familiar with the buying contracts/process. It's an option that can save you a lot.
This may differ by state of course. My experience is limited to Texas. But I've bought and sold property using these type of agents. When selling, you just do all the work (hire a photographer $200-500, write the description $0+, and they load it to the MLS for you as the listing agent). I'm of the opinion that for most properties, the only value added marketing is the MLS. When they talk about their websites and portals and ads they run in print media I roll my eyes.
- You can't build a septic system, you have to use sewer because you're in city limits (later rescinded when they realized they would have to pump my sewage up to the city sewer.
- You need to hire an engineer to make sure your lumber is ok (we milled our own lumber)
- You need to hire an architect to make sure your plans are ok
- You didn't finish in 6 months? Buy a new permit please.
I know there were a million more things like this, but it's been over ten years and some things you don't want to remember... Contractors act like I'm taking food out of their kids' mouths by wanting to do the work myself, and the municipality is on their side.
I'll never know if that broker got 6% from the seller or took 3% to close the deal, but our strategy worked: I paid 5 figures less for the home than what was being asked for at a time when houses were selling for over asking price in this area.
It's worth a shot I guess. 2 warnings: Some seller's agents will get very pissed at you (b/c this and other things like Redfin's 1% is disrupting their cash cow and they're not stoked about it). It might be difficult to find an attorney since most RE attorneys focus on commercial deals.
In hot markets this is a way people often get an advantage as a buyer: tell the selling agent you want to use them as your agent too, so they get the whole 6% if the seller picks your offer. So if the bids end up being close, the agent ends up lobbying for you (or lobbying you to make your offer closer).
Some selling agents refuse to do this because it's pretty shady, but definitely not all.
I've also heard of similar things including negotiating down the selling agent's cut as part of it but haven't seen as much of that firsthand.
But seriously, imagine you and I are both bidding $1,000,000 on a house. You have an agent, so if your bid is accepted, your agent and the sellers agent each get $30,000.
I don't have an agent. In my offer, I write "the sellers agent gets the usual 3%, and I am allocating the 3% that the buyer's agent would get towards the seller instead." That means for the seller's agent there's no difference whether I use an agent or not, but to the seller themselves, my offer looks $30,000 better than yours because I am sweetening the deal using that $ I'd otherwise give my realtor.
All that said, I used a realtor on my house purchase despite being financially savvy and a good negotiator because they actually helped us find the right house, and they were well worth the fee.
Having commission be a percent of sales has some theoretical advantages. For example you might think the agent is motivated to get you the highest selling price. But in reality they are much more interested in making a sale at any price, because that lets them get paid and lets them move on from marketing your property.
Residential real-estate transactions with a mortgage are about as regulated and standardized as it gets. The listing agent actually does very little beyond getting the property listed in the MLS. The difference in the amount of work they do in selling a $100K house vs. a $900K house is small (in fact the $100K house might take a lot more work because at that price it's probably got some serious drawbacks), so why should the higher sale price pay them much more?
However, if you say "it isn't hard by any stretch", I invite you to take a look at listings in your area and compare for-sale-by-owner listings with those listed by an agent. Half the time it looks like the photos on FSBO listings were taken by a flip phone from the early 00s, often times the pictures look like the person didn't even clean or there are garbage cans in curbside pics, the descriptions have glaring typos, etc. My point being that I believe it shouldn't be hard, but I am often dumbfounded about how the average quality of FSBO listings (at least where I live) is abysmal. These people are easily losing out on a lot of money by not putting a minimal amount of effort into selling the biggest asset they own.
Any way around that issue?
If the buyers have a real estate agent and the seller does not, the seller pays the buyer's real estate agent double their usual payment - at least in the 3 states where I've sold properties.
In recent years the housing market has been so competitive that escalation clauses are often written into offers. They typically include a base offer of $X and then an agreement to escalate that value by increments (maybe $1-5k at a time) up to some cap. All the offers are collected by a certain date and then an auction is run behind the scenes by the realtors involved.
What's to stop a seller from having one of their friends enter into one of these escalations? Submit a non-serious offer with a high escalation and include a minimal deposit which would be forfeited if that fake offer happens to win but otherwise hope it comes in 2nd to push everyone else's escalation up.
Regularly auctioneers would get caught taking bids from trees or vehicles to push prices up. They'd get caught when their fake bid was the highest. It became so common it was almost expected, and reforms to the process had to be introduced.
There are also a lot of shenanigans realtors could be pulling.
Example: Few years ago, we wanted to buy a house, we made a bid for 2.6, the realtor said they would not accept anything less than 2.8 as this was their competing offer. We said no, the house sold for 2.4. I suspected the realtor might have been double dipping, or bluffing, i don't know. But what I do know is they did not present the offer to the seller.
(numbers are not exactly precise, but directionally and somewhat magnitude wise, it should be similar).
I believe in most states a real estate agent (I despise 'Realtor(TM)') is obliged to present an offer (at least by the Realtor's Code of Conduct/Membership Agreement).
Edited to add: I'm not sure if this refers to seller agents (who cannot hold back an offer from their client), or to buyer agents, presenting that to the seller side, or both. I think at least the first.
When I sold a house recently I took the second highest offer, because the highest offer came from someone out of state who had never set foot in the house
1) If your bid wins then you're on the hook to buy the house. Part of the offer your make includes "earnest money" which is that deposit you're talking about (which you forfeit if you don't actually buy the house). The seller sees all the offers so presumably you putting down $500 earnest money on a $300K house would look suspicious enough to get you ignored by the buyer.
2) However, you've got a bigger issue: it's a secret auction. You put in your bid/offer, and so does everyone else, but _nobody_knows_about_anyone_else's_bid_. Heck, you don't even know how many other people are bidding. You _may_ be able to ask your realtor to nicely ask the seller's realtor for a general description of how hot the listing is (which works in the realtors' favor - the hotter the listing, the more you'll anticipate needing to bid), but beyond that you don't know about the other bids. And you for sure don't know about the specific, bogus bid that the realtor's friend put in to influence all the people that don't know about the bogus bid :)
I might be wrong (realtor's friend puts in a bogus bid so the seller's realtor can lie and say the listing is hot, after your realtor asks them about it), but I don't think this is a strategy that will work in general.
Legal context: United States
Assuming you mean the seller here? If I were the seller I too would ignore that kind of offer but first I'd let it push all the other escalation clauses up ;)
Say I saw that the triggering offer had a measly deposit and I suspected it of being fake. Would I be on the hook to prove it? Technically if I rescind my offer at this point I lose my own deposit, right?
Additionally, in a competitive market, with multiple offers, people aren't doing a bare minimum deposit. More like 30 - 50K is involved based on my experience, but it varies dependending on state.... I'm currently looking in a new market, and we were told our offers should have about 10 to 30K on them between Due Dilligence and Ernest money....
Besides, it's just easier for the seller/buyer agent to have a conversation on which buyer wants it the most.
I don’t really expect significant changes. We are in a more balanced market today than when these lawsuits were first filed. Many sellers will find it advantageous to offer buyer agent compensation. If/when we return to a seller-advantaged market, some buyers may need to pay their agents directly, which could involve rolling those costs into their financing. Lenders are more of an expert than myself on any issues in doing that, but it appears to happen in other states already. One of the problems of these lawsuits is the conflation of agency with payment. States - both WA and OR, for example - are working to fix the agency problem that wasn’t made explicit to buyers post-subagency. But, I don’t think there’s any question that buyer’s having to directly pay buyer’s agent compensation will be a higher cost to buyers.
So, when you were looking online, you had no idea if the houses you found where offering 3% or 1.5% buyers agent commission, but your agent was, and could steer you to the higher paying homes.
so, now conspired realtors charge seller and not buyer. Still looks broken.
Why will it be a higher cost to buyers? At the macro level, aren’t the transaction costs effectively priced in? Is the idea that the home has some absolute value that exists independently of the cost structure of the market it trades in (so the buyer paying commission directly is doing so “on top of” this amount as it’s valued under the status quo)?
Is it mainly a question of categorizing the commission as “a cost” rather than “hidden in the seller’s asking price therefore part of the value of the home”?
Otherwise, why wouldn’t the buyer who now says “I have $100,000, so I’ll buy a $100,000 house” instead say “I have $100,000, and I know my agent is going to charge me around $3,000, so I’ve got to buy a $97,000 house instead”? If that becomes the new norm, wouldn’t all sellers find that people who could buy at $100,000 before can only buy at $97,000 now, and have to price their homes accordingly, making it a wash?
If it were me, I feel like I’d want to hire my agent at a flat rate if I could, to reward them for finding me a better deal rather than incentivize them to make more by selling me more. But then again maybe that’s part of the higher cost to buyers that you mention: maybe there’s no question that buyers’ agents will be able to squeeze the buyers for more commission directly than they presently get out of the sellers?
I think the biggest impediment to driving down costs to the consumer is the momentum of social convention.
Even for agents at fixed-cost brokerages, they know they can charge 2-3% so they do, and most people don’t know that it’s negotiable.
At least some selling agents do a lot more than data entry. They generally pay for photos, staging, and landscaping while the house is on the market. They also research similar houses to position the property in the market and talk to buying agents. A lot of the negotiation can happen before the offer.
You can do most if not all of that yourself and you may do a better job than the real estate agent you would have hired. Doing a good job is a fair amount of work. Most real estate agents cost the same amount, so there generally isn't a price different between a good and a bad agent (unless you count the commission on a higher sale price). If you can find a good one, it is likely worth the cost. A bad one might even decrease your sale price though.
Do you think you can do a better job selling your own house than you can do at hiring a real estate agent?
What the jury said was that the national association of realtors colludes to keep agent fees high in a way that violates anti-trust rules.
(edited for grammar)
There are few markets which have supported 3-5% brokerage fees (even i-banking is <100bps at scale now) so I'm curious where the fees will settle.
This allows the Seller's Agent to maintain their duty to maximizing the value of their client's home by reducing the commission the seller pays. While also ensuring the Seller's Agent doesn't bend to the Buyer's Agent's wishes for a higher commission to secure a deal. This also allows the Buyer's Agent to maintain their duty to their client by negotiating their commission up-front, regardless of the price of the property. They could negotiate a percentage with their client, but that percentage is the Buyer's responsibility, not the seller. It gives the Buyer more power in the commission paid to their Agent.
TLDR: Seller's had more power in pricing and commission payments to Agent's on both sides of the transaction, skewing home values higher to offset their (commonly) 6% commission payments. This segments the Seller's commission to just their Agent, and the Buyer's commission to just the buyer.
I'm rather suspicious of the US system that creates a place for two agents getting 3% each for little gain (and a lot of scope for collusion against the buyer and/or seller!)
The New Zealand system has its flaws. The major problem is that vendor real estate agents are financially incentivised to turn over sales as quickly as possible and so smart agents do not represent their vendors properly. I've seen lots of house sales where an offer is made and the agent recommends the seller take it. An early sale costs the agent much less time and they make way more money per year. New Zealanders are generally too trusting, so we get screwed over by people that take advantage of that.
Selling a house quickly (convincing the seller to take a qualified and likely-to-close offer) still dominates as a strategy over eeking out a few extra points of contract price. As an agent, taking 1.25% or 1.5% of a $950K sale quickly is way better than holding out for a $1M offer.
The difference in commission at 1.5% on a $50K delta in sales price is $750. Freeing up your time to work on the next listing is more valuable.
Ever.
Eventually the Real Estate market will adopt like the music industry and others had to. Welcome to the 21st century.
Brokers and agents are mostly sales people that drive around showing places. Its the lawyers, inspectors, insurance underwriters, loan originators, and title companies that do the real and/or legal work.
It's time for broker/agents to take a more fitting role instead of charging 6% for posting cell phone pictures of your house on their regional MLS.
And they get paid a flat rate to do that work (hourly or per contract). There should be no reason for commission based compensation for brokers and RE agents in the residential market. I could see an argument in the commercial market for it though.
One of the dumbest parts of the real estate commission scam is purporting the lie that “the seller pays the commission”. Anyone with half a brain knows that if money is coming out of a transaction, it’s a transaction cost being eventually passed onto the buyer.
I think the strongest factor in real estate pricing is what buyers are willing to pay. In some cases that is influenced by how much the buyer was able to keep after selling a previous property, but I don't think that is the most significant factor.
Another factor that influences the sale price is the psychology surrounding the pre-fee sale price. Many sellers become fixated on a particular sale price. A common strategy for getting a lower effective sale price is getting sellers to include more in the sale price. One particularly notable example is seller financing.
But longer on the market is more work for the agent, while the small percentage increase in a higher price doesn't enhance their commission by nearly as much as it does the homeowner's, especially considering there is frequently a substantial mortgage on the house (meaning, the homeowner gets to collect the "bank's share" of any additional sale price)
but what will your realtor recommend? "list it at a low price to generate interest and start a bidding war", pretty much the opposite of what you should do.
In the grand scheme of things, a commission for making a large, complex selling process go smoothly is not a ridiculous notion, but when your agent is participating in plucking your feathers it's pretty annoying.
A software consultant is more focused on you signing off on the work than your bottom line, it’s hard to get people to not act in their best interest, and for the average person the home buying/ selling process is probably too complicated for them to navigate without going through some training.
I think the biggest reform that could be passed is to disentangle NAR and MLS.
As a buyer, I should be able to make an offer and work with the lender to schedule all the due diligence required. Some people need more help and they should be willing to pay for it.
However, the way it is structured today, I can’t make an offer without a realtor and have to pay some percentage of the value.
I was lucky in that I had an agent in the family and they charged a nominal fee.
I’ve heard about realtors being blacklisted for offering flat fee services.
Consider normies who don't understand why all this "tech stuff" costs so much money.
Buying or selling a home involves paying numerous middlemen thousands of dollars without having a clear idea what value they are providing in the process, except that if you don't pay them, you can't pay the next person in the line. Burn that whole industry to the ground as far as I'm concerned.
Use brokers, fixed 1.5% from both sides to the same person.
https://www.propublica.org/article/yieldstar-rent-increase-r...
Seller problems: 1) Maximize selling price 2) Minimize damage to property / theft 3) Minimize cleaning / preparation for showings
Buyer problems: 1) Minimize purchase price 2) Minimize number of hidden problems with house
One would think that realtors might help to maximize selling price but their incentives are much more aligned with selling a property quickly as it is less work that way. For the most part, they solve seller problem #2 by acting as a kind of well dressed (and likely not very tough) security guard.
The pricing problem could arguably be solved by having something along the lines of a Dutch auction. Many of the uncertainties (largely not addressed with the current system) could be solved via insurance.
I've negotiated lower commissions with real estate agents. They always say it's non-negotiable, and always cave.