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Old 07-22-2014, 08:26 AM   #41
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Originally Posted by daylatedollarshort View Post
The Freakonomics guys showed that realtors left their own houses on the market longer than client houses, because with client houses they made more money on high volumes rather than spending something like an extra month on open houses to get only 3% of an additional $10K. However when the whole $10K is their money, the extra month is worth their time.
Love Freakonomics and listen to their podcast regularly.

That said, not all Realtors do this. Sold my house 2 years ago. Did comp and knew exactly what I wanted to get. Priced it $10k above target price. Got 6 showings in first 4 days. Received offer at day 2 but waited to day 4 to see if there were any more offers. Since none more came in I negotiated to my target price which I was confident was the fair market value. Done.

I believe houses mostly sell at fair market value when fully exposed to the pool of existing buyers based on condition and comparing against alternatives. Agent doesn't set the price - the market does.

You're paying Realtor for help in getting home into best condition (the 1 main thing to influence sale price ahead of time), market pricing advice, marketing home broadly, negotiations and handling the process. If you don't think that's a value then don't buy it. There are always alternatives. There's just no guarantee that you'll actually save money since there's never really a way to verify whether you'd have been better off.
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Old 07-22-2014, 09:31 AM   #42
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Standard real estate commission is 5-6%. But it's worse, you pay interest on the commission on a home because it's rolled into your loan!!
It's even worse... you pay property tax on the commission because appraisal districts refuse to accept the economic reality that your "sales price" was not just for real property... 5-6% was for real estate agent services.

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I've sometimes wondered if there might be a different commission structure that could be a win-win. For example, let's say there is a property that a trained seal could sell for $200k and $250k would be a real good price and an expected price is $220k.

I'm not really willing to pay a realtor anything if they sell the house for $200k, I'm willing to pay a market commission for a sale at $220k and would be willing to pay an even higher commission if the property could be sold for $250k or more.

So I might be willing to pay 0% on the first $200k and 66% of the sales price in excess of $200k if the sale price is between $200-220k and 40% of any excess over $220k. If the house sells for its expected value the seller gets a market commission $13.2k on a $220k sale is 6% and if they sell it for $250k they get a nice juicy commission of $25.2k (10.1%). But as the owner, my net proceeds are more stable; $200k on the low side, $206.8k on an expected basis and $224.8k if the property sells towards the high end of the range. Both the seller and the agent have good incentives to sell the house for more than its expected fair value and each win if they are successful.
Last time we sold a house, we negotiated a matrix rate structure with the listing agent that was based on price and time to sell. Closing within 30 days at full list price or above was 5%. It went down from there, bottoming at 2.5%, which was enough to pay the buyer's agent only. We ended up paying about 3.75%. We had no problem getting the agent to agree, and she was the highest volume agent in the area.
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Old 07-22-2014, 09:38 AM   #43
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One other practice I hate.

You pay commissions on the full sale price, even if seller concessions are included.

If you sell a house for $300,000 - $10,000 in seller paid closing costs (very common practice) the seller only nets $290k but the commission is based on $300k. You can try and negotiate it out at the time of an offer but I feel like my commission should be based on the net price. MLS won't even let us try to mandate that as a standard practice - has to be done on a case by case basis and then only if the buyer's agent will agree to it during the negotiations.
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Old 07-22-2014, 09:42 AM   #44
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You're paying Realtor for help in getting home into best condition (the 1 main thing to influence sale price ahead of time), market pricing advice, marketing home broadly, negotiations and handling the process. If you don't think that's a value then don't buy it.
STRAW MAN ARGUMENT: Where did anyone say there is no value in what the realtor does? I have not seen anyone make that argument. I certainly have not. No one is questioning whether realtors add value (a distinction from financial advisors, who in many cases could seriously subtract value by what they do).

The questions about realtors center on how do we RATIONALLY tie their compensation to their work? Clearly the value they add cannot possibly really be related to a flat percentage of the value of my home. Real estate values vary widely by location, but the work of a realtor cannot possibly be that different or likely even directly correlated to location. Does the Silicon Valley agent earning 3% on a $2,000,000 house really add 10x more value than the agent in Cedar Rapids, IA on a $200,000 home? As someone else noted, the realtor in Iowa may have a much more difficult job in a cooler market...
And yet the realtor in California will charge 10x more.

The Freakonomics observation and the obvious disconnect between effort and value suggests reform is needed. The question is how to do it...not by government- by us - the market. But let's start by acknowledging that the current model is flawed.

The sliding scale of percentage commission is only likely to exacerbate the "Freakonomics" problem as each incremental increase in price is worth less effort by the realtor earning a smaller commission.

Why can't we just pay them like accountants or plumbers or interior designers or any other professional?




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Old 07-22-2014, 10:30 AM   #45
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Doing a little research brought up this interesting article about a broker in Chicago who is (or was in 2012) offering an hourly model to buyer's. The exchange in the comments section is also worth reading - Should Realtors Charge Buyers For Working With Them? Koenig & Strey’s Announcement | Getting Real
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Old 07-22-2014, 10:35 AM   #46
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Half of millionaires have lived in the same house for more than 20 years. "The Millionaire next door"

I guess this makes us non suckers for realtors.... even if we use them.
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Old 07-22-2014, 10:51 AM   #47
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We looked at the price history of one of our neighbors' houses that sold recently and it had hardly gone up in price since they bought at close to market peak 10 years ago, plus it was really fixed up so they poured a lot of money into it.

What little gain they did have is going to go largely to realtor fees. If we downsize and stay local we are thinking it might make more sense to just rent than re-buy in a seller's market.
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Old 07-22-2014, 10:57 AM   #48
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One of the many sites...

Official For Sale by Owner site: Homes for Sale, Sell a House, Buy Real Estate | ForSaleByOwner.com - FSBO

There are many other locally owned/operated similar operations.

Since we expect that our last move will be to an apartment in our full-service retirement community, our plan is to make the move... take what we'll need, sell or give away the rest... and reduce the price until it sells. Currently no homes for sale in our community, and when one comes up for sale, usually for a very short time. When next door neighbor passed away two months ago, the home sold the day it was placed on the market... at asking price.

Too old to go through the "fix-up-for-sale" thing... will be as is, and we'll trade the aggravation for cash on the other end... All part of the plan.
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Old 07-22-2014, 12:48 PM   #49
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Sold our house w/out the aid of a realtor 5 years ago. Paid a few hundred to get it listed, and paid a few hundred for lawyer at the closing.

Had to pay 3% to the buyers' realtor, but still came out thousands ahead.

ETA - also used lawyer for reviewing purchase/sales documents
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Old 07-22-2014, 01:31 PM   #50
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One other practice I hate.

You pay commissions on the full sale price, even if seller concessions are included.

If you sell a house for $300,000 - $10,000 in seller paid closing costs (very common practice) the seller only nets $290k but the commission is based on $300k. You can try and negotiate it out at the time of an offer but I feel like my commission should be based on the net price. MLS won't even let us try to mandate that as a standard practice - has to be done on a case by case basis and then only if the buyer's agent will agree to it during the negotiations.
Our home is currently under contract. The real estate commission in our case (6%) is based on Realtor obtaining a full price offer. Anything less than full price leaves the commission open to negotiation.
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Old 07-22-2014, 01:51 PM   #51
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Our home is currently under contract. The real estate commission in our case (6%) is based on Realtor obtaining a full price offer. Anything less than full price leaves the commission open to negotiation.
Sounds like a good plan to ensure getting the full price. I'm interested in how you plan to negotiate.
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Old 07-22-2014, 01:56 PM   #52
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Ever been in a real estate law suit? Dude, get a realtor.
Indeed, what he said. I will NEVER try to sell another house without a realtor. They earn their money, and then some.
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Old 07-22-2014, 01:58 PM   #53
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Indeed, what he said. I will NEVER try to sell another house without a realtor. They earn their money, and then some.
The legal aspects of the transaction can be handled by a lawyer. No realtor necessary.
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Old 07-22-2014, 02:27 PM   #54
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I've never bought a house from a realtor who worked "for" us. We just use the seller's realtor, negotiate some money off the price of the house and paid a real estate attorney by the hour to review the contracts and help work our any sticking points. I guess we used mrfehs methodology on the buy side.

I am not sure what we will do when we sell. I think at minimum I'd at least use Redfin or some kind of flat rate or discount realtor. With everything about a house and all the crime and school district info listed I don't think in expensive housing markets what full price realtors do is worth ~$40+K for a median priced tract home that will sell in a week or so after a single open house, especially when MLS listings only cost a few hundred dollars.

Do non-investors buyers these days really home shop from any place other than sites like Zillow and Trulia anyway? Can realtors really bring in more sellers or for higher amounts than the Internet alone can provide?

Just like the Internet diminished the use of mortgage brokers I am surprised there isn't more downward pressure on realtor fees for home selling and buying. It seems like the Internet should be able to cut out middle man fees more than it has to date.
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Old 07-22-2014, 02:36 PM   #55
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Do non-investors buyers these days really home shop from any place other than sites like Zillow and Trulia anyway? Can realtors really bring in more sellers or for higher amounts than the Internet alone can provide?

Just like the Internet diminished the use of mortgage brokers I am surprised there isn't more downward pressure on realtor fees for home selling and buying. It seems like the Internet should be able to cut out middle man fees more than it has to date.
I agree. I see real estate being one of those industries where the middle man is gonna get squeezed out. They just aren't worth the cost.

Anybody been to a record store lately?
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Old 07-22-2014, 05:06 PM   #56
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If you live in a place like Mountain View or Palo Alto CA I don't think you will have any problem selling via zillow.com. I don't see why you would waste money on realtor's commission in such location....

Things may be tougher for FSBO in Lincoln NE.
Agree. This is my area. Homes sell in a couple of days with multiple offers. Average homes, in Palo Alto, 2-3 million. Homes in neighboring
cities, Santa Clara, Cupertino, easy 1+ million.

This is Silicon Valley, home to Facebook, Twitter, Google, etc.
Also, Stanford, Berkley, San Jose State, Santa Clara University, etc.

Back to the point, I can't see paying 6% on a 2 million sale. (120K). When
the house sells within a week of listing.

Being a Landlord in the Bay Area, I've used a Realtor in the Past. Lots of
paperwork, but really not that complicated.

In the past, home prices were in the low, 100K's, so 6%, no big deal.

Today, especially in this area, I would consider doing a FSBO, next time.

Again, You have to live in a "hot" spot, to make it worth while....
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Old 07-22-2014, 07:10 PM   #57
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I bought my house without a realtor. But then again I was buying from my father. We did hire a title/escrow service to make sure it was all done right (and to handle the escrow/funding from my mortgage company.)

I would love to see a fee-for-service model (similar to fee-only financial advisors). You could pick and choose the realtor and what services to take. If you wanted full service, the fee would be higher. The fees would not be based on AUM/home value - they'd be based on the actual value of the services.

I live in a pricey neighborhood. My home in one of the San Diego inland counties would be worth 1/3 of the current value. My home in a non-urban mid-west setting would be worth 1/5 of the current value. But it takes the same tasks to get it sold... Why does the pricey neighborhood warrant a higher commission?
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Old 07-22-2014, 07:37 PM   #58
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Wisconsin, the Milwaukee area, has a choice of programs. The one I like, was a flat rate for the listing Realtor based on a menu of services. This is paid if you sell the house or not but if I remember the high end program is $1,000. The minimum about $500. The seller sets the commission for the selling broker. This can be anything but the recommendation is to set a percentage, high enough to compete in the 3% commission range. I think I set 2.5%. You still market the house yourself as home buyers and Realtors call you for showings. If you sell the house yourself, then no seller commission. However, since buyers pay no commissions in WI, they often get a Realtor to help them with their search and do not call you directly. So a commission will be paid. The key to me was the MLS listing which came with the the listing fee and the encouragement of Realtors; Offering them the lowest level commission which would gain their interest.
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Old 07-22-2014, 08:13 PM   #59
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Thinking of the Freakonomics incentive models, I was thinking about paying the fee to get in MLS, pay an hourly real estate attorney to do the paperwork, setting the price fairly high yet within the standard deviation of price ranges and offering 3.5% to the "buyers" realtors.

Which house are the realtors going to tell their customers is the better house for them to purchase? The one offering 3% or the one selling for $50K more offering 3.5%?
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Old 07-22-2014, 08:35 PM   #60
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Thinking of the Freakonomics incentive models, I was thinking about paying the fee to get in MLS, pay an hourly real estate attorney to do the paperwork, setting the price fairly high yet within the standard deviation of price ranges and offering 3.5% to the "buyers" realtors.

Which house are the realtors going to tell their customers is the better house for them to purchase? The one offering 3% or the one selling for $50K more offering 3.5%?
I do not totally disagree but I find it interesting that we think about Realtor pay in percentage. I translated it to dollars and thought a person would have had a hard time turning down the dollars. It was a good payday for the Realtor even with the lower %.
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