Why do we need a real estate agent?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Besides, why would you pay for a RE Atty out of your pocket?

Because real estate attorneys actually provide value and protection to a buyer that is roughly proportionate with the cost. Agents do not come close. 3% on 1.3 million is almost $40,000. Having someone search MLS so that you don't need to log into redfin and getting driven around in their SUV is not worth close to that much. The reason people are somewhat accepting of this fee is because they mistakenly think money is relative, not absolute, and that "if I'm spending $1.3 million on a house, what's another $39,000 on an agent?" That makes no sense, because from an economic perspective, overpaying by $39,000 on a house is exactly the same as overpaying for $39,000 on a can of diet coke. Either way, you're out the same amount of money.

Real estate agents might be worth their keep if they significantly reduced the risk you faced in purchasing a property. But they don't. Real estate attorneys do a much better job of that at a fraction of the price (and, as a bonus, are bound by ethical rules that agents are not).

And agents might also earn their keep if having them around decreased your purchase price by 3%, but there's no evidence they do, nor do they even have the same incentive to negotiate as you do, because they actually lose money if they get an additional reduction in the sale price. Their primary concern is making sure the sale happens at some price point, so they will always err on the side of telling you to be safe and accept an offer over pushing for additional concessions and losing the house.

you are mistakenly assuming that by going without an agent a buyer would save the $39K of commission. but the reality is that by going without an agent, the buyer would still pay $1.3M on the house and the seller's agent would pocket the entire 6% or 5% commission. so the buyer would not save anything, and go unrepresented. what's the advantage?

I would ask for a 3% discount off the price. Make sure you talk to the sellers directly. I had a seller's agent refuse to work with me and show the house because of the rebate realtor I was using. Joke was on that old hag because I contacted the sellers directly and told them what was happening and they were pissed.

[Anonymous]

The great realtor rip off from the Economist: http://www.economist.com/node/21554204

I'm shocked that the fees in Britain are half what ours are!

[Anonymous]

These responses are great. The real estate agents talk up their value, and then the lawyers chime in with their contribution to the process. A good agent can help, yes, and as such, should be compensated accordingly. A bad real estate agent should be beaten. From a sellers' viewpoint, you put your $1.3mm house on the market. Are you gonna let any person simply walk-in off the street and look around? They might be a serious buyer, with a massive trust fund. Or they might be a friggin burglar looking at his next job.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Besides, why would you pay for a RE Atty out of your pocket?

Because real estate attorneys actually provide value and protection to a buyer that is roughly proportionate with the cost. Agents do not come close. 3% on 1.3 million is almost $40,000. Having someone search MLS so that you don't need to log into redfin and getting driven around in their SUV is not worth close to that much. The reason people are somewhat accepting of this fee is because they mistakenly think money is relative, not absolute, and that "if I'm spending $1.3 million on a house, what's another $39,000 on an agent?" That makes no sense, because from an economic perspective, overpaying by $39,000 on a house is exactly the same as overpaying for $39,000 on a can of diet coke. Either way, you're out the same amount of money.

Real estate agents might be worth their keep if they significantly reduced the risk you faced in purchasing a property. But they don't. Real estate attorneys do a much better job of that at a fraction of the price (and, as a bonus, are bound by ethical rules that agents are not).

And agents might also earn their keep if having them around decreased your purchase price by 3%, but there's no evidence they do, nor do they even have the same incentive to negotiate as you do, because they actually lose money if they get an additional reduction in the sale price. Their primary concern is making sure the sale happens at some price point, so they will always err on the side of telling you to be safe and accept an offer over pushing for additional concessions and losing the house.

you are mistakenly assuming that by going without an agent a buyer would save the $39K of commission. but the reality is that by going without an agent, the buyer would still pay $1.3M on the house and the seller's agent would pocket the entire 6% or 5% commission. so the buyer would not save anything, and go unrepresented. what's the advantage?

I would ask for a 3% discount off the price. Make sure you talk to the sellers directly. I had a seller's agent refuse to work with me and show the house because of the rebate realtor I was using. Joke was on that old hag because I contacted the sellers directly and told them what was happening and they were pissed.

This is just dumb. If you want a 3% discount, just offer 3% less than asking.

But making an offer and then asking for another 3% is kind of beyond the pale.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Besides, why would you pay for a RE Atty out of your pocket?

Because real estate attorneys actually provide value and protection to a buyer that is roughly proportionate with the cost. Agents do not come close. 3% on 1.3 million is almost $40,000. Having someone search MLS so that you don't need to log into redfin and getting driven around in their SUV is not worth close to that much. The reason people are somewhat accepting of this fee is because they mistakenly think money is relative, not absolute, and that "if I'm spending $1.3 million on a house, what's another $39,000 on an agent?" That makes no sense, because from an economic perspective, overpaying by $39,000 on a house is exactly the same as overpaying for $39,000 on a can of diet coke. Either way, you're out the same amount of money.

Real estate agents might be worth their keep if they significantly reduced the risk you faced in purchasing a property. But they don't. Real estate attorneys do a much better job of that at a fraction of the price (and, as a bonus, are bound by ethical rules that agents are not).

And agents might also earn their keep if having them around decreased your purchase price by 3%, but there's no evidence they do, nor do they even have the same incentive to negotiate as you do, because they actually lose money if they get an additional reduction in the sale price. Their primary concern is making sure the sale happens at some price point, so they will always err on the side of telling you to be safe and accept an offer over pushing for additional concessions and losing the house.

you are mistakenly assuming that by going without an agent a buyer would save the $39K of commission. but the reality is that by going without an agent, the buyer would still pay $1.3M on the house and the seller's agent would pocket the entire 6% or 5% commission. so the buyer would not save anything, and go unrepresented. what's the advantage?

I would ask for a 3% discount off the price. Make sure you talk to the sellers directly. I had a seller's agent refuse to work with me and show the house because of the rebate realtor I was using. Joke was on that old hag because I contacted the sellers directly and told them what was happening and they were pissed.

it all depends on the market. in my area $1.3M homes have sold in less than a week on the market with multiple offers in the past year and a half. if you call the seller directly and ask for a 3% discount on the price, the seller, in a seller's market and with a house fairly priced, is going to laugh in your face, while counting the escalation clauses in the offers his agent is showing him. if the house is not fairly priced and is sitting on the market, than you can get a positive answer, but it would not be saving the buyer's agent fee, it simply would mean not paying an overprice on a house that it is not worth that much. OP says she wants to buy for up to $1.3M and that she and her husband are inexperienced home buyers. in their situation, and if the market is still a seller's market, they may loose on great homes or get a house for not a great price, and save nothing because the seller's agent pockets everything.

plus, I do not see what asking directly the seller for the 3% discount has to do with the commission. even if the seller agrees, he still has to pay his agent full commission (and I do not understand your example - seller's agents normally split the commission with buyer's agent, so I do not see why that seller's agent did not want to show you the house since you were working with a discount agent)

[Anonymous]

Right, there's no point to reducing the sale price. I assume what PP meant is that you tell the seller that you'll pay the asking price minus X% if the seller can get the agent to reduce his or her commission (with the result being that the seller makes the same amount of money or more and the buyer pays less).

Although the fact that you'd have to do this demonstrates the problem with the system; neither of the agents actually have an incentive to represent the buyer and seller's best interests.

[Anonymous]

Anonymous wrote:The assertion that the agent would be able to pocket all of the commission makes no economic sense to any party involved. I agree with PPs that you probably need an agent just to (literally) get through the door to the property. By the time you have presented the best offer, you have more room to get money back.

Anyhow, I think its sad that the best arguments advanced in favor of paying a real estate agent a massive commission so far are: (1) You can't conclusively prove you are personally harmed by doing so; and (2) agents will ignore you and prioritize other people who are using agents. What a terrible, entrenched industry. It makes about as much sense as a midevil guild system.

what you say make no sense. the seller's agent gets the full commission because this is what usually in the contract. a seller agrees to pay the agent say a 5% commission. and this is what the seller pays. the commossion may be split with the buyers' agent if there is one, but still the terms are that the seller pays 5%

when you have presented the best offer, and the offer has been accepted, you cannot ask for money back. that would be changing the terms of the offer once there is a contract.

in other countries the situation is different, but not always better. I am a foreigner and in my country the seller pays about 2 or 3% commission to the seller's agent. but the buyer pays as much out of its own pocket to the same agent. so at the end agents get almost the same as here, but buyers have to pay the listing agent out of their own pocket.

[Anonymous]

The commission agreement is in the contract between the seller and the seller's agent. A seller is entirely within his or her right to say "After thinking about it, I'm not willing to sell this house through you unless you agree to reduce your commission from 5% to 3% so that I can accept this pending offer."

And, as the Economist Article nicely points out, this argument is circular. Agents tell sellers they'll build the commission into the cost of the house, and tell buyers they're not hurt by the commission. Its not possible that both are true.

[Anonymous]

Anonymous wrote:Right, there's no point to reducing the sale price. I assume what PP meant is that you tell the seller that you'll pay the asking price minus X% if the seller can get the agent to reduce his or her commission (with the result being that the seller makes the same amount of money or more and the buyer pays less).

Although the fact that you'd have to do this demonstrates the problem with the system; neither of the agents actually have an incentive to represent the buyer and seller's best interests.

that would not make sense either. the seller enters into a contract with the agent for the sale of the house. all the terms are discussed and agreed upon, including that the commoission will be let's say 5% of the sale price. so, after an acceptable offer comes in, you think that the seller can go to the agent and say "look, now I would like to give you only 2% of the commission instead of the %5 I agreed upon in the contract". in a hot market, a seller would not waste time with such a buyer, but even in a cooler merket, this does not make sense. the seller lowers the price if there are no offers for the asking price.

next time I buy a car, after signing the contract I will tell the car dealer that I am shaving 4K or 5K off the price because yes, I agreed to pay that price but now i have changed my mind

[Anonymous]

Anonymous wrote:The commission agreement is in the contract between the seller and the seller's agent. A seller is entirely within his or her right to say "After thinking about it, I'm not willing to sell this house through you unless you agree to reduce your commission from 5% to 3% so that I can accept this pending offer."

And, as the Economist Article nicely points out, this argument is circular. Agents tell sellers they'll build the commission into the cost of the house, and tell buyers they're not hurt by the commission. Its not possible that both are true.

You obviously have no idea that the listing agreement is a signed contractual. If the seller just up and decides to not pay what they agreed to and signed, there's not a court in this country who would enforce that. It's binding for the time period.

[Anonymous]

Anonymous wrote:The commission agreement is in the contract between the seller and the seller's agent. A seller is entirely within his or her right to say "After thinking about it, I'm not willing to sell this house through you unless you agree to reduce your commission from 5% to 3% so that I can accept this pending offer."

And, as the Economist Article nicely points out, this argument is circular. Agents tell sellers they'll build the commission into the cost of the house, and tell buyers they're not hurt by the commission. Its not possible that both are true.

You just contradicted yourself. The seller is not within his or her right to change the terms of a listing contract in this way. Not at all. In fact, if the agent brings a ready, willing and able buyer and the seller tried to do this and the buyer walked because of it, the seller would legally owe the agent a commission, whether or not the house has sold since the agent fulfilled the terms by bringing a ready, willing, and able buyer.

So, once there's a contract, a seller actually has no right at all to say "I'm not wiling to sell this house through you unless you agree to reduce your commission from 5% to 3%." That's what a contract IS.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Right, there's no point to reducing the sale price. I assume what PP meant is that you tell the seller that you'll pay the asking price minus X% if the seller can get the agent to reduce his or her commission (with the result being that the seller makes the same amount of money or more and the buyer pays less).

Although the fact that you'd have to do this demonstrates the problem with the system; neither of the agents actually have an incentive to represent the buyer and seller's best interests.

that would not make sense either. the seller enters into a contract with the agent for the sale of the house. all the terms are discussed and agreed upon, including that the commoission will be let's say 5% of the sale price. so, after an acceptable offer comes in, you think that the seller can go to the agent and say "look, now I would like to give you only 2% of the commission instead of the %5 I agreed upon in the contract". in a hot market, a seller would not waste time with such a buyer, but even in a cooler merket, this does not make sense. the seller lowers the price if there are no offers for the asking price.

next time I buy a car, after signing the contract I will tell the car dealer that I am shaving 4K or 5K off the price because yes, I agreed to pay that price but now i have changed my mind

Yes, you can renegotiate the commission prior to sale. The car analogy is not a good one because that is a consummated purchase.

[Anonymous]

Anonymous wrote:The commission agreement is in the contract between the seller and the seller's agent. A seller is entirely within his or her right to say "After thinking about it, I'm not willing to sell this house through you unless you agree to reduce your commission from 5% to 3% so that I can accept this pending offer."

And, as the Economist Article nicely points out, this argument is circular. Agents tell sellers they'll build the commission into the cost of the house, and tell buyers they're not hurt by the commission. Its not possible that both are true.

a seller can negotiate the commission before signing the contract, and for sure can try to find an agent who agrees to work for a 3% or even less. but after the contract with the agent is signed, the seller cannot unilaterally refuse the pay if the contract with the agent, like most contracts, specifies that the seller's agent has exclusivity for a certain time and has to right to get x% in commission if an acceptable offer comes in. so if there is an acceptable offer, the seller has to pay the agreed upon commission in its entirety to the agent.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The commission agreement is in the contract between the seller and the seller's agent. A seller is entirely within his or her right to say "After thinking about it, I'm not willing to sell this house through you unless you agree to reduce your commission from 5% to 3% so that I can accept this pending offer."

And, as the Economist Article nicely points out, this argument is circular. Agents tell sellers they'll build the commission into the cost of the house, and tell buyers they're not hurt by the commission. Its not possible that both are true.

You just contradicted yourself. The seller is not within his or her right to change the terms of a listing contract in this way. Not at all. In fact, if the agent brings a ready, willing and able buyer and the seller tried to do this and the buyer walked because of it, the seller would legally owe the agent a commission, whether or not the house has sold since the agent fulfilled the terms by bringing a ready, willing, and able buyer.

So, once there's a contract, a seller actually has no right at all to say "I'm not wiling to sell this house through you unless you agree to reduce your commission from 5% to 3%." That's what a contract IS.

The agent didn't bring a ready, willing, and able buyer if the buyer is willing only if the commission is cut and the agent is not willing to cut the commission. That's question-begging.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The commission agreement is in the contract between the seller and the seller's agent. A seller is entirely within his or her right to say "After thinking about it, I'm not willing to sell this house through you unless you agree to reduce your commission from 5% to 3% so that I can accept this pending offer."

And, as the Economist Article nicely points out, this argument is circular. Agents tell sellers they'll build the commission into the cost of the house, and tell buyers they're not hurt by the commission. Its not possible that both are true.

a seller can negotiate the commission before signing the contract, and for sure can try to find an agent who agrees to work for a 3% or even less. but after the contract with the agent is signed, the seller cannot unilaterally refuse the pay if the contract with the agent, like most contracts, specifies that the seller's agent has exclusivity for a certain time and has to right to get x% in commission if an acceptable offer comes in. so if there is an acceptable offer, the seller has to pay the agreed upon commission in its entirety to the agent.

Right, if the agent refuses to reduce the commission, he or she can point out that the seller won't be able to sell the house unless the seller goes through with the contract. The seller can then counter that if the house has to go off the market, the agent will lose the commission. Then the two can meet somewhere in the middle. That's how a re-negotiation works. They both have an incentive to reach a mid-point.