[philwelch]

(Disclaimer: I work for a tech company in the real estate industry. Opinions are my own.)

> It blows my mind that the fees are percentage based. The amount of work required for an agent on a 100K house is very similar to that of a 2 Mill house.

Negotiating a $100,000 purchase or sale is an order of magnitude less lower stakes than negotiating a $2,000,000 purchase or sale. If you're a real estate agent and you're able to negotiate 5% up or down on the final sale price on a $2,000,000 house, that's equivalent to the entire value of the $100,000 house. It's not the same job. You could make the exact same argument about salesmen who are paid commission (which is almost exactly the same job as a seller's agent).

> but for both the seller and buyer agents, the number of deals done far outweighs slight incremental selling prices

There's definitely a bias for getting a deal done from the agent's perspective--moreso than for other sales or procurement agents because closing deals unblocks deal flow. I think this gets balanced out by the principals (buyers and sellers themselves) having final say on whether to extend or accept an offer.

[kbutler]

$2M house. Seller's realtor says, "Drop the price $200,000 to get a sale". Costs seller $200,000. Gains realtor $54,000 (costs $6,000 from .03*$2M). Or hold out for the sale at $2M. Nets seller $200,000 and increases the realtor's commission only $6K additional with all concerns of delay, potential withdrawal of sale, etc.

This is an immediate and unpreventable conflict of interest that impacts the realtor's fiduciary responsibility to act in the principal's interest.

[opportune]

I'm having trouble following your math here, how can the seller's realtor gain money from selling the house at a lower price? How did you arrive at the figure of $54k??

It's true that a realtor might favor a slightly lower price for a faster sale but I don't get your numbers.

[kbutler]

$2M house. 6% commission split 3% to seller's realtor and buyer's realtor. Seller's realtor gets $60K if it sells in 1 month or 1 year, same commission. No sale = $0.

First week gets a 10% low offer of $1,800,000. If sale completes, that's $54,000 income for the realtor (.03*1800000). Or, could hold out for a better offer after for some months of additional work to hopefully get an offer for the full $2M, and the realtor just gets $6,000 more - or $0 if no sale. Seller holding out would get $200,000 more, or if no sale, still has the house.

Realtor's personal interest is to maximize return on invested work - take an early offer and go on to the next sale, even if it is low. Seller's best interest is probably to hold out for a bit better deal.

[philwelch]

I suspect this actually starts to change at the upper end of the market, but only if you have proportional commissions.

There aren't that many $10,000,000 houses. You can't just dump a $10,000,000 house ASAP and list another $10,000,000 house next week. And at $10,000,000, every percentage point in sale price is worth a marginal $3000 to the sellers' agent. If someone comes in 10% below listing on a $10MM house, the difference alone is equivalent to the sellers' agent commission on an entire $1,000,000 house.

[jessaustin]

...after for some months of additional work...

I'm as suspicious of realtors as anybody, but this scenario here includes a real asshole as a seller. If she doesn't want to sell her house, she shouldn't waste everybody's time by putting it on the market. This sort of "just testing the market" shenanigan raises costs for everyone.

[fma]

Statistically, per freaknomics, a realtor selling their own home lists their house 10 days longer so they can get a better offer.

https://www.bankrate.com/finance/real-estate/real-estate-age...

Levitt and Dubner found that, on average, self-listed homes stay on the market an extra 10 days, prompting the authors to hypothesize that agents might be a little more aggressive about their own homes because a 3 percent fluctuation makes a fair difference on the total sale price, but not that much of a difference when it comes to the commission.

[jessaustin]

ITT we're talking about "some months" (three? eight? more than a couple, anyway), not "10 days". The Freaks are just hypothesizing the price rise anyway; markets don't always go up.

Your link identifies the only actual service that realtors provide: objectivity. Houses are worth what buyers will pay for them. The realtor who can predict what price a house will fetch in the near term is providing a service. Permanent realtor's signs indicate failures of objectivity.

[freewilly1040]

In the scenario the seller is gaining $200K by waiting two months. You think she should forgo this money to save everyone else's time looking at her ads?

I personally try and be a polite person, but I'm not $200K polite.

[jedberg]

The commission shouldn't be based on the full price though. When a car salesman sells a car, their commission is based on the profit, not the total price. Selling a Honda can get you more commission than a BMW if you are good at what you do.

To make the same for a house, the seller should say "this is how much I want" and then the agent gets to keep say 50% of whatever they get over that price. Then the incentives are aligned.

[scarface74]

So does the real estate do less work based on how much a house has appreciated since it was bought?

[jedberg]

I didn’t say base it on profit for a house. I said base it on a price the seller wants. Like consignment.

[scarface74]

It’s still a horrible idea. If I know the market value of my house which is easy to find out based on comparables, how much over could the real estate agent sell it for? The buyer can’t get a loan for more than the house is appraised for. In most house buying situations, the seller,buyer, and mortgage company all know what the house is worth with only a little wiggle room.

[dragonwriter]

> The buyer can’t get a loan for more than the house is appraised for.

The buyer in most cases (there are exceptions) probably can't get a loan with a LTV ratio higher than some number less than or equal to 1 times the appraisal value (.8 typically for a conventional, first mortgage alone), but can generally put as much of their own money into a purchase as they want.

[scarface74]

Outside of a very few areas of the country. There is more than enough housing inventory for people not to pay over the appraised value of the house. Most people are smart enough not to be upside down on their home the day they move in.

If you have good credit you can still get 100% LTV loans. Heck you only have to have a 600 credit score and not have had a foreclosure in 3 years to get a government back FHA loan with 3.5% down.

There are plenty of people who did “strategic defaults” on multiple properties after 2008, rented for three years and got an FHA loan for a new mortgage (ask me how I know).

[jedberg]

If the seller doesn’t offer enough wiggle room no agent will take the deal.

The seller would have to offer enough wiggle room that the agent wants to take on the risk. Combined with a flat fee, the system would guarantee income for the agent and also align the incentives.

[jedberg]

You could make the same argument about cars. “Why would anyone sell cars if any buyer can look up the base price of the car?”

Or literally the sale of any other item in the world. Why is a house the only thing where the commission is based on the full price?

[fatnoah]

I have an even more cynical take on things. I purchased a house last summer and played the naive buyer and entered into a dual-agency agreement with the selling agent. Due to the competitive market in the town we were buying in, this was to hopefully give us the tiebreak with competing offers. I have few expectations from a buyers agent beyond opening doors to let us in to view properties and to communicate with the seller's agent.

For selling our prior house, I think our seller's agent actually performed some services. She ran the open house, gave us great advice on pricing in our town (5 square miles, she's been selling for 30 years), and -most importantly- gave a buffer in communication with the buyer. Should any issues arise, there's no direct communication with the buyer AND it also helped us be dispassionate when choosing among our various offers.

[shostack]

Was your hope with this strategy that the double commission would cause the agent to steer the sale to you?

I see things about strategies like this, and then seriously question whether I feel agents in general have enough integrity to warrant leaving me out of the communication process as you propose.

[fatnoah]

Yes, that was definitely part of it. In the town we purchased in (near Boston suburb) the median home value is > $1 million, so that extra 2.5 percent is a lot of money.

In our last homebuying experience, we lost two houses to other buyers. In both cases, our offer was higher than the closing price by 5-10% BUT our buyer's agent was from a different agency than the sellers. In both of those cases, the people who got the house were represented by someone from the same agency as the seller.

[raiyu]

Perhaps true but if you are buying and don't have a broker you can already reduce the price 3% by not having the seller pay any buyer broker fees.

That's a garaunteed 60% discount off of you hypothetical 5% that the agent would have negotiated.