Fundamental change in home sales commissions

Investment Analysis Clubs Macro Economic Trends and Risks
1

https://www.nytimes.com/2024/03/15/realestate/national-association-realtors-commission-settlement.html

Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits

The National Association of Realtors will pay $418 million in damages and will amend several rules that housing experts say will drive down housing costs.
By Debra Kamin, The New York Times, March 15, 2024

American homeowners could see a significant drop in the cost of selling their homes after a real estate trade group agreed to a landmark deal that will eliminate a bedrock of the industry, the standard 6 percent sales commission…

For a home that costs $400,000 — close to the current median for homes across the United States — sellers are still paying around $24,000 [6%] in commissions, a cost that is baked into the final sales price of the home. …

Without that rate essentially guaranteed, agents will now most likely have to lower their commissions as they compete for business. Economists estimate that commissions could now be reduced by 30 percent, driving down home prices across the board. … [end quote]

https://www.wsj.com/personal-finance/mortgages/buying-house-tips-2024-27496a34?mod=hp_lead_pos1

The New Rules of Home Buying in a Changed Market

Real-estate agent commissions are the latest in a string of housing-market upheavals

By Veronica Dagher, The Wall Street Journal, March 16, 2024

…
One thing that hasn’t changed much: Homeownership is a stretch for many people. About 20% of homes for sale in February were affordable for the typical household, according to real-estate brokerage Redfin…

Starting in July, most home buyers will have to sign agreements saying how much their agents will be paid. If sellers don’t want to cover those costs, buyers might have to foot the bill. It is still unclear what the compensation model will be like going forward. Some buyers might pay an hourly rate for their agents. Others might be charged flat fees…

In many parts of the country, you now need to know upfront if an insurer will cover your house, and how much it will cost. Roughly 45% of U.S. homes have at least one severe or extreme climate risk, according to Realtor.com. … [end quote]

I don’t know the best way to get good service from a real estate agent while minimizing commissions.

Suggestions?
Wendy

.

3 Likes
2

Ugghh! I just posted on this as well.

That’s a great question. The barrier to becoming a real estate agent is quite low in the US. There are a lot of agents who don’t know what they’re doing, and if they don’t have someone guiding them, they will make serious mistakes (dumb-dumbs). Some do know what they’re doing, but take advantage (scumbags). Both dumb-dumbs and scumbags are on the losing end of the stick because of the recent settlements.

I’d suggest finding an agent and become close personal friends with them. Unfortunately, this takes time…

I suppose another route might be soliciting recommendations from people you trust.

3

Mean people have great arguments for cutting the next guy’s pay.

Or should we say gal’s pay?

Some 66 percent of all Realtors today are female. In 1908, when the National Association of Realtors was founded, that percentage was zero — the group was 100 percent male. The first woman was admitted to its membership in 1910, however, and by 1975, a third of its membership was female.Mar 14, 2023

36.7%

Women occupy 36.7% of the commercial real estate industry. This percentage has not changed much over the last 15 years. Women continue to earn less than men.

1 Like
4

I guess I’ll be the mean guy. In my county, the average home price is $930,000. With the traditional 6% commission, each agent would earn $27,900. Given the current average of 46 days on the market, each agent earns $607 per day.

Some agents will broker multiple deals at the same time, up to 100 per year. Other agents will be lucky to broker 3-5 deals per year. Some homes sell within 36 hours, others take months. It doesn’t make sense to pay a realtor the same $27,900 for something that might take 36 hours or 3 months. Something’s gotta change.

3 Likes
5

People are paid commission to incentivize them.

For the seller who only needed 36 hours to sell it worked.

The agent only ends up with a quarter of the commission.

There is a lot of overhead.

One broker I know says his rates are going up but the people selling won’t notice. He will nickel and dime them to death with the costs. He will put them under contract. If you are selling a $900k home it is not like the numbers magically change.

6

Bold strategy. Brokers rely heavily on networks and referrals. Screwing your clients over nickels and dimes can work in the short term. I dunno if it’s a winning strategy.

1 Like
7

Minimizing broker commissions did wonders for me while service improved manyfold, no more phone tag with the broker, etc., etc.

Or was it the other way around, technology making brokers obsolete?

When cartels (stock exchanges) set rates it’s not to improve service but to improve their incomes. Commissions only improve service in free markets. Cartels (National Association of Realtors) is the opposite of free markets.

The Captain

2 Likes
8

Like anything else. Get recommendations from friends (or the internet or wherever.) Get presentations from three. Ask all the questions you want, negotiate the commission, see what happens.

Never sign for more than 90 days even if they push you. If you’re happy with them at 90 days there’s nothing stopping you from re-upping. Be realistic, if the house doesn’t move in that time frame look at price, look at the market, and then look at price again.

Yes, a good realtor can make a difference. Ours in Boston set up a program which got us an additional $100,000 over ask, but the market was hot and her tactic was brilliant, so we didn’t mind paying the 6%.

2 Likes
9

That’s good, but let’s look at the numbers. The primary value of this agent (in your example) was getting you an extra $100k using clever tactics. If the price went from $900k to $1M, and you paid the agent $60k, then the agent got a full 60% of their added value! That’s even more than hedge funds* charge, [traditional] hedge funds only charge 2% of the total plus 20% of the gain. Seems kind of outrageous that the broker got 60% of the gain while you only got 40% of it. Would you similarly be satisfied with this kind of agent/broker deal on equity investments?

* To be fair, the hedge fund will charge 2% every year, so if you held it for 10 years, you’ve paid quite a bit over the period. But IMO, both cases are extreme ripoffs of the consumer.

1 Like
10

Well, not really. Had it sold at 900k, she would have gotten $54,000. But wait, we’re not talking about sending commission to zero. Let’s get crazy and say they sink to 3%. Then it would have cost $30,000 instead of $60,000, but I still got a lot extra.

The reality is that we were absentee owners. I could not have run the thing that she did by long distance. I did not want to hold hands with potential buyers. I could not attend the closing, dealt with the after-the-fact inspection issues, made sure the buyers were credit worthy, and so on.

The Realtor added real value. It was worth it, even if slightly overpriced. (I’m not saying I’m opposed to having the rate float, I’m generally opposed to cartels and fixed rates, just that I see the value that a professional can add and am willing to pay it. Likewise the guy who puts a new roof on my house, but I’m not in favor of a cartel which dictates how much every roofer should charge whether their work is mediocre, good, or exceptional.

5 Likes
11

This is the issue at hand. You, an absentee owner, really needed the agent to handle all sorts of things, and they did, and then they got paid very handsomely for their labor. But the neighbor, who has a very similar unit, was there to handle almost everything, and it sold in a week, after only two showings, and there were no inspection issues, and he attended the closing … and … paid exactly the same agent fee that you did!

4 Likes
12

He is the king of the hill in his small city. He has been a broker for 40 years. He knows the power of contracts.

He won’t just get a few more nickels. He will also ask for the 6% in the contract. If someone goes elsewhere he won’t care. He has more clients than he needs. The contracts now are seller without a buying agent split. I think those are the terms. So if there is a negotiation he is already on the winning side of it. Except he sees not nearly enough listings in the spring.

13

That is right but as I understand it only the buyer’s split has been taken away by law.

This means the buying agents will create their own contract to show.

In fact there could be more than 6% commissions now if you include the nickeling and diming.

14

I am guessing that realtors can still earn their fees on expensive high end properties. But here in the rural Shenandoah valley, Zillow and realtor.com can show listings, comparable sales, past histories of sales on the listed properties, tax assessments, etc.

1 Like