[Schwolop]

This whole system is so bizarre to me. In Australia, standard practice is that a seller pays ~2% to an agent to have them sell their house. They then pay a sales tax to the state government, that scales weirdly, but call it ~0.5 to 0.75%.

Buyers pay nothing to anybody, except ~$1000 to a conveyancer/lawyer to sort out paperwork when the deal is done (and of course the price of the house, to the seller or mortgagee...)

[harmmonica]

It is bizarre. The difference in numbers between what you're saying exists in Australia and the US is staggering. I'm clueless about the market there, but even if there are laws on the books that better protect buyers/sellers, and so there's some justification for the "risk premium" that US buyers and sellers pay for protection throughout and after the transaction, I'd wager a princely sum that the magnitude of that premium is in no way justified.

Btw, this wasn't always true. Some of the protections/standardizations introduced post-recession actually makes the US residential market more ripe for an OD-type model. I could go on and on about why that may be the case, but I'm guessing others are sick of me writing long-winded comments in here even though you and I are probably the only people still interested in this thread.

As someone else said, though, sure is interesting to watch.

[ensignavenger]

So do Australian buyers not usually have an agent to represent them? Does this put them at a disadvantage?

[Schwolop]

It is possible to hire a buyer's agent, but I don't know anyone who has. Everyone is on an equal footing, sellers just want to sell to the highest paying buyer.

The most common way of selling is via public auction. Each weekend for 6-8 weeks beforehand there's an hour long "open house" where the sales agent shows people through. Then on auction day, interested parties bid in public. I don't see how a buyer's agent would help change an auction's outcome.

Sometimes sellers elect to sell by other methods; best offer, best offer by set date, sales agent to negotiate with interested parties, etc. I suppose in those flavours a buyer's agent might be of some assistance.

I can only assume in the US that there's more risk of something going wrong - do buyers drop out frequently after making an offer or something like that? How else are the fees anywhere near justified for a simple transfer of property?

[ensignavenger]

In the US sometimes auctions are used, but it is not the norm for most markets. Usually the seller will hire a real estate agent, who helps the seller determine what to ask for the home. Then, the sellers agent will be responsible for listing and marketing the home. The cost of marketing is usually paid by the real estate agent, so that can be part of why the commission would be so high. Back in the day when there was no Internet and listings were primarily advertised in newspapers and special directories, marketing was probably a much higher cost.

As far as the buyer goes, they will usually have a buyers agent to help with showings, negotiations and to coordinate the process. An offer is usually contingent on several things- the main ones being 1) home/pest inspections; 2) Appraisal, 3) Financing.

So real estate deals do fall through often enough. Maybe somthing is noted on the inspection- the buyer might ask the seller to pay for a repair, and the seller decides not to. FOr example, when I was shopping for my first home we found a nice little place, I was little concerned about a few things with the roof, but I made an offer contingent on an inspection (as well as the other things noted above). My offer was accepted, so I had it inspected. The roof was really the only concern, the inspector felt that it should be replaced. I told the seller about the problem, and they decided that they were not going to pay anything towards a new roof, so we mutually agreed to nullify the contract.

Later I found another home- it passed all inspections, but the appraisal came in $900 less than what I had offered. The seller was going through a bankruptcy and had to have the sell approved by the bankruptcy judge, and since they had already approved it at my asking price, it was not worth delaying the closing over getting the price reduced $900, so the bank and I agreed that I would just pay an additional $900 down at closing to bring the debt/value ratio to where they wanted it, and we closed. (If it had been a more significant proce difference, that may not have worked out, resulting in another voided contract.)

In other cases, financing may not come through- the lender will pre-approve the buyer, but that is not a guarantee- the lender can decide they don't want to lend on a property due to the condition or something else, they may discover something during underwriting they weren't aware of about the buyer, the buyers situation may have changed, or the market conditions for loans may have changed (interest rates increased); all of which may result in a denied loan, and thus a voided contract.

Real estate agent are supposed to make this all as smooth as possible and help inform buyers and sellers to minimize the risk of any of these things happening.

I agree that with modern technology the current commission structure is probably not optimal, though.