Realtors Profit Even When Home Buyers do All the Work
Remember when investors almost completely relied on brokers? Remember when there were no mutual funds or low cost ETFs? Remember when employees relied on pension funds alone for retirement? Remember when a dealership was really the only place you would go to look for cars?
Thanks to the internet and innovative financial products, consumers no longer have to rely on advice and work of others when making big financial decisions. Somebody looking for a car might browse eBay or Craigslist and buy a vehicle without bloated prices. An investor may choose a low cost ETF fund that puts up competitive returns while avoiding expensive brokerage fees. I have to wonder, at what point will this logic ooze into house buying so we no longer use expensive realtors? At what point will we recognize that homebuyers are already doing most of the legwork?
Generally, the home’s seller pays the commission that the brokers/agents involved share. This fee is usually a percentage of a home’s sold price, which can severely take a dent out of a sellers profit (assuming there even is one). However, what are they really paying for? I realize there are some people who still strictly rely on a realtor to do 100% of their home search, but nearly everybody I know gets online and searches houses for hours, then, after finding a few houses they want to see, they then call the realtor to request a showing. The realtor then meets them at the door and lets them in.
Sure, a realtor may have great advice as to a neighborhood or certain qualities of a house, but it’s likely regurgitated from online stats or from HGTV home fashion tips that the home searcher probably already knows or researched. The one really being exposed in the process is the seller. The seller is the one fronting the cost of paying the realtor fees in selling the home, but the buyer is the likely the sole person who found the house in the first place. I think the whole process of buying a home through a realtor is one that needs to be evaluated and reformed. Perhaps consumers need a secure and safe way to automate the process of buying a house without a realtor. The reason most use a realtor currently is the high price of the home and the overwhelmingly amount of paper work involved (usually done through a lawyer and title company, not the realtor) scares individuals away from opting out of a realtor.
Millions of dollars a year are wasted on realtor fees from people who did nearly all of the work in finding the home of their dreams and nearly all of it was fronted by the one actually selling the home. Why is this not scrutinized more? I really believe this is because in the past, people’s homes were actually worth more when they sold them and it was just business as usual, the realtor takes a big chunk of the profits—no questions asked. Salesmen don’t get commission on items sold online, car salesmen don’t get commission for cars sold online, why do realtors still get a piece of the pie when a home is found online?
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Comments
My point is really that I can find out about a neighborhood, market values and amenities own my own, which most of us actively seek out already. As far as negotiating, I feel confident many of us could do that as well. And as far as paperwork, likely we would have a lawyer involved or a title company to help.
I know this is an older post but I just found it. As someone who has sold a few houses, I can assure there is more to it than just letting people in the door. You’re missing the point on what agents are actually compensated for. Being a buyer’s agent is certainly a low hassle job when it comes to showing property, but “showing” the house is not what that agent is paid to do.
What sellers are really paying for is marketing savvy, negotiation prowess, and peace of mind that a high-dollar contract is being handled properly and with skill (yes, there are plenty of very bad agents, too). That entire commission check is paid to listing brokers for marketing the home and securing a contract. The only reason buyers agents are paid at all is that offering a piece of their commission check is an effective way for listing brokers to generate interest from agents who already have ready, willing, and able buyers. That’s how and why the buyer’s agent even exists, and subsequently why they are paid.
The problem for buyers without a buyers agent is that you return to “caveat emptor” style of home selling of decades past. The listing agent has no responsibility for the financial well being of the buyer unless he is also representing said buyer. In fact, when a listing agent gains any knowledge about the buyer, he is REQUIRED by fiduciary responsibility to notify his seller.
A true buyers broker, though compensated by the listing broker, has a fiduciary responsibility to protect the interests of the buyer just as the listing agent must do for the seller. The “act” of showing and selling a house is certainly easy, but the experience to know when something isn’t right isn’t something the average buyer has at his disposal, but a half-way decent agent most likely does.
Lastly, for the record most agents don’t make much money per transaction. That 5-7% or so is generally split 4 ways and that’s still before taxes. The average agent only makes about 1/4 of each total commission, and totals about $35,000 per year…PRE-tax!
Being a former realtor and now having a mortgage company, I strongly believe that realtors are there for a reason, and I agree with Eric Lowery, we are missing the point. Let me just give you a scenario: What if f you are new to the city or to the area, in this case you definitely need the professional advice of a realtor. Is like saying that we shouldn’t hire a CPA to do our taxes, after all, it is our responsibility to add up our expenses and give him the receipts. He then puts them in the computer and tells us how if we are getting a refund or not, easy enough, no? Let’s not forget he know all the rules and laws when it comes to filing taxes, the same way a good realtor should know all the rules and regulations of filling up a contract to buy or lease a house. After all a contract is a legal agreement.
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I cannot agree with your point. Realtors are really required to know about the neighborhood, market values and amenities of the property. Especially for short sales and foreclosure type of properties we need a Realtor. Without the help of a Realtor we could not achieve the negotiation from the lender for a short sale. It is mandatory to submit the paper work properly and it goes on and on. We get the professional transaction from the Realtor so that our burden reduces. Always the professionals deserve their pay. Why not we agree it?