[DesiLurker]

I see many (likely realtors) defending the fees & the larger model. Here is some back of envelop math I once did to put it in perspective:

according to Bob Shiller (of case/shiller fame) it has historically taken about 30 years of work to own a house in steady markets. now on an average people move houses once every 7 years due to labor mobility/family/etc reasons. so roughly 4 housing buy/sell transactions in an average persons life. assuming 7% commisions (~9% if you include both buyer and seller plus origination as you are often both when you move). so essentially you end up with .93^4 or ~75%. which means you've worked 25% of your life for your realtor(s).

Now do you think the commissions are worth it? IM[NSH]O its total BS, at best their work is fixed commission especially in the booming & super expensive markets like sf bayarea.

[ralph84]

Math isn't correct because most of that 30 years of work is interest on the mortgage, which the realtor doesn't get a cut of.

[DesiLurker]

that is in addition to mortgage interest. one could argue that is justified because ultimately its the bank taking a risk on giving you a loan for the property. so they deserve a premium for that risk, how much premium is another question but the fact remains that they are one of the parties in the transaction.

My issue here is with these middleman who have nothing to do with property once the sale is made & exist to take a cut of the transaction because they have monopoly on the listing service. the calculation I've done only reflects the cut to the realtor simply because they've inserted themselves in the process.

just think about it, increasingly Americans dont have any other retirement saving besides equity in their homes. so its not a hyperbole to say that you've effectively sacrificed 25% of your retirement to these (really resisting the urge to name call) people.

[ralph84]

If you think the service isn't worth the cost that's fine, but it's nowhere near 25% of lifetime earnings. I'm 40 and have purchased three properties and sold one of them. The total commissions on all four of those transactions weren't even 25% of my earnings last year.

[DesiLurker]

Did you even read the calculation I did? please go back and read the comment and work it out yourself.

>>> I'm 40 and have purchased three properties and sold one of them...

well, based on what you said you are a real estate investor and are hardly representative of average joe. another way to think about it is the math is for the residential RE market as an aggregate and as an aggregate it takes a shelter buyer regular joe 30 years of earnings to fully own a house. if you have issues with that stat please take it up with Bob Shiller. the rest of math is self evident assuming 4 transactions throughout the lifetime 'on an aggregate'.

[dragonwriter]

> now on an average people move houses once every 7 years due to labor mobility/family/etc reasons. so roughly 4 housing buy/sell transactions in an average persons life.

You assume the aversge person owns a home at the beginning of, and throughout, their working today career. That has never been the case.

[TallGuyShort]

Very good point with the math. However with super expensive markets, doesn't their commission then match their increased cost of living to be working there?

[DesiLurker]

that can be used to justify almost any level of commission including fixed fee rate. ultimately its modulated by increase number of realtors coming into the market. the core amount of work needed to buy/sell a house is not that much and can be effectively segmented to specialized (low-cost) individuals like Redfin is trying to do. you could also argue that in hot markets like sf-bayarea homes sell themselves so the workload on realtors is not so much, which means they can sell more houses to make up for 'lost' commission like rest of america.

the problem is that even if a realtor wants to reduce his commission, he has no control over the other party and they'll want to have full 3%. this minimizes the incentive to disrupt the process though in super expensive markets it may still make sense.