The HousingPanic Stupid Question of the Day

July 08, 2006

The HousingPanic Stupid Question of the Day

Why do realtors make 6%?

26 comments:

Anonymous said...: You do realize, I hope, that realtors do not make 6%.

First, the commission is split with the brokerage. Why, I do not know. Individual realtors pay for their own business cards, telephones, desks, MLS sites, and everything else. The brokerage provides a logo. But the home office gets at least half, nonetheless.

Then, most sales are a co-broke--seller's agent and buyer's agent. That splits the commission again with another agent.

So, if a realtor sells a $500,000K property, he or she takes home not 30K, but 7K.

This goes to the heart of the reason why the industry is fucked. Huge sums of money go to corporations who do nothing. Those who actually do the work make so little (comparatively, I mean), and are so dependent on commissions, that even the decent ones are driven to lie for their survival.

What a great way to run a business.; July 08, 2006 5:58 AM
Anonymous said...: Stupid question of the Day # 2:

Why do the hookers behind my local Kmart make $50 a trick, even when working an 11-hour shift?; July 08, 2006 7:04 AM
Anonymous said...: Why do realtors make 6%? For the same reason a dog licks himself ... because he can.; July 08, 2006 1:56 PM
Anonymous said...: I sold my home in January. I had my real estate agent on a sliding scale with price and time to give him an added incentive to sell. We ended up selling the home for $15k less than original asking after about four months on the market. If he would have sold it for asking price in a month or less he would have made 6%. Since it waited 4 months and the price dropped he only made 4%.

I told a friend about this and my friend told me I was stupid. My friend did the same thing on his house but started with a 4% commission instead of 6%. He ended up paying a 3% commission.

Everything is negotiable. Just don't pay the 6%. When you interview the realtors, just tell them what commission you are willing to pay. If they say no, move on. If they say yes you have a hungry one that will work for you.; July 08, 2006 2:15 PM
Anonymous said...: The democrats will want the hookers to be part of a union, and have health care, and do something about global warming....

Oops!, you said KMart, not WalMart ;-); July 08, 2006 3:21 PM
Anonymous said...: I believe that realtors are overpaid, but a lot of their time is spent drumming up listings, trolling for customers so they can be the buyers broker, etc. So even though they may only put 5-10 total hours into your transaction, they maybe spent 20-30 hours trolling you in as a customer....; July 08, 2006 3:24 PM
Anonymous said...: by all means...let's make sure only 'good' people have health care; July 08, 2006 3:25 PM
Anonymous said...: 6% is a double edged sword for realtors, because when real estate heats up, everyone and their mother decides to become a realtor. If realtors could lower commisions, then they could keep the newcomers out by making it less lucrative to become a realtor.; July 08, 2006 3:47 PM
Anonymous said...: because they cant make 7; July 08, 2006 3:53 PM
Anonymous said...: This is not a stupid question.

I show potential listing clients where the money goes and offer them a menu item package of services to save them money. Haven't had one client take me up on it, they settle for going market rate of percentage fees.

Last couple of years agents were in a position to be aggressive and offer lower fee rates because homes were simply selling before any real money was spent on marketing. This year though it's not easy to do. Money has to be spent on marketing. Has to.

I always tell potential clients that my base fee is $2500. If the client just wants me to handle the paperwork and walk the deal through escrow that's all they have to pay. I should say I offer this plan to folks whose home is going to sell for at least $250,000 (base fee equals 1%). If the client wants the listing in the MLS then they'd have to agree to a minimum percentage of 2.5% (to pay the buyers broker, but also I will put up a yard sign, place listing on my website, and use of a lockbox).

Now for that $250,000 listing we are at 3.5%. Marketing a home weekly in my local newspaper is $300 a week ($150 for a business card size ad), and $100 a month in the local showcase. Basically $1300 a month. I allow clients to choose how much advertising they wish to have, at their expense (I pay for the ads and upon successful closing of the transaction I am reimburssed by the seller through proceeds from the sale by escrow company, still my money up front with no guarantee I'll get it back). Of course they see that ad's will cost roughly $6500 for a six month listing period (I factor for 5 months because ads in the showcase take a month to make it into the publication). Puts them at 6.1% in total fees if it does take the entire 6 months to sell the property. However if the home is priced right and in great condition and there is a buyer ready and willing on day one... the seller is only going to pay 3.5%. Pretty good deal.

I have no problem sharing this information with a potential client.

The kicker still is that the seller basically is paying the buyers agent their commission. But clients that hire realtors are looking to get their listing into the MLS and in order to do that you have to offer a commission to a buyers agent.

I think the MLS is in for a fight with the improvements with on line services in the not too distant future. For now though the value of the MLS and the data there is better than any of those services... for now.

I can see a time when if a realtor is hired by a buyer, the buyer will pay the realtor for the service he/she provides (mostly for experience in negotiating and expertise in the transactions). The same thing for sellers, I think they will hire me to handle the legal side of things for less than a lawyer will charge. Sellers will pay for their own marketing and other fees associated with on line listings (no more risk for me to pay for those ads if I don't close on the home).

In other words, goodbye 6% realtor fees.

I should clarify that I do not split my fees with my broker. I am what is called a 100% agent. I do pay a transaction fee to my broker and a monthly rent for the office I work in. I have the flexibility other agents do not. If you are in a position to hire a realtor you will likely be able to negotiate a better commission rate with an agent like me in my situation.; July 08, 2006 4:34 PM
Anonymous said...: it is a cartel. however, i always pay only 1% listing agent fee and 3% to the buyer agent when selling. 3% seems reasonable, providing the buyer agent has qualified buyers, and handles all the details through close.

i also agree with other posts that the end realtor makes a lot less than you'd think. not that i empathize. sometimes they really earn it, and other times they are just plain lucky.

and look closely at a HUD closing statement and see how many other folks are in line to take your money at a closing.

the whole industry is a cartel, and the consumer gets screwed, regularly, and seems to like it.; July 08, 2006 4:52 PM
Anonymous said...: The rest of the cartel is also negotiable. Buyers agents don't have to get 3%. They will take what the listing agent is offering. If you shop title companys you can wave most of their fees and put their work on a flat fee basis instead of a percentage of selling price. And newspaper adds? Newspapers are the worst (few people under the age of 65 read them) and the most expensive way to advertise.

Remember that you are paying your agent to put your property on the MLS and have open houses. Title companys do a database search and initial paperwork. That's it.; July 08, 2006 5:28 PM
Anonymous said...: ISSUE: Real Estate Industry Profits.

FACT: The BUYER of a HOUSE( Next Bigger FOOL if you prefer) PAYS for Everything Directly.. or Indirectly. EVERYTHING !

CONCLUSION: REGARDLESS HOW the Real Estate Industry PACKAGES all the dreamhome BS HYPE...The OBJECT of All these People is to SCREW the BUYER OUT of as MUCH MONEY as they CAN.

END of STORY !; July 08, 2006 6:18 PM
Anonymous said...: In my life, I have purchased 3 properties and sold 1.

I have never been hit directally or indirectly for any realtor fees or closing costs.

Here are my secretes:

SECRETE #1: DON'T USE A BUYERS AGENT/BROKER.

The 1st property I purchased was a condo in 1992. At the time, I drove around the area I wanted to live in and wrote down all the information on each property I wanted to see. I called the listing agent for each property and only permitted that agent to show me the property. Each agent when they could not get me to make an offer on the property that I called them on - wanted to become my buyer's broker. I rejected each request and frankly pissed them off. Too bad. I refuse to hand over 100% of my negotiating power to some idiot buyer-broker who in reality does not represent my best interest and will cost me an extra 3% to boot.

The last condo unit I looked at was vacant and the seller wanted fast sale (due to threat of lawsuit from neighbor... note: years after purchase I found out that the seller's adult son was sexually harrassing the neighbor by climbing over the neighbors bedroom in a shared attic space and doing things while calling out her name)...

At any rate, at the time of purchase all I knew was that this condo was priced to move fast at 15% below market value. I inspected the property to look for hidden damage to justify the below market listing price, but could not find any. So, I asked the listing agent, why the seller wanted a fast sale. The agent looked at me funny not knowing what to say. So I went in for the kill. I told him I would like to write-up an offer right now; but won't unless he tells me what's wrong with the place and why the seller vacated the property before putting it on the market. The agent told me that the seller was an older woman who purchased the unit to house her adult-son, and she decided to buy him another place and just wants to sell this unit fast.

So sensing a desporate seller, I dealt only with the listing agent and appeared to be a fickle buyer; told him I would make a 1 time offer (take it or leave it to the seller - told the agent I was not interested in any counter whatsoever and if he could not close the deal then I would look elsewhere - not using this agent)

So for the agent, it was make the sale to the seller or lose the deal and not have any chance of getting a commission when I purchased something else from someother listing agent.

I told the listing agent to write an offer for $2000 below the listing price (remember the listing was already way below market) and have the seller pay all the buyer's closing costs, including loan orgination fees. Also I only left the offer open for acceptance for 12 hours; after which time the offer would expire and be void if not accepted by the seller.

The agent bulked at this, so I told him to forget it and started to walk out-- he stopped me and said o.k. but I'm sure that the seller won't agree to this.

I wrote a check for $5000 earnest money (that the agent was not expecting - normal earnest money for this type of transaction would have been $500 not $5K).

I signed the offer and handed him the 5K check, looked into the agents eyes and told him not to call me back unless he had the seller's signature on this contract. I then walked out of his office and drove home. (Note: State law prohibited the agent from depositing the check unless he obtained an acceptance from the seller - so my $5K was safe and would be deposited and applied to closing only if the seller accepted)

When I got home, I put a message on the answering machine that I had gone out of town and would not be back til late the next day.

I left and went to visit my brother out of town. The next day I returned and found 6 messages on my answing machine. The first 5 messages were from the agent who was desporate to get a hold of me... he said that it was very urgent that he talk to me to save the deal. Each successive message was more desporate than the last. But none ever said that the seller rejected the offer or made a counter-offer. The last message was left just 10 minutes before the 12 hour deadline expired and informed me that the seller had signed and accepted the offer and that I was now in contract. The agent also informed me on that message that he was depositing the $5K earnest check and that I would now lose that $5K if I backed out of the contract. (A fact I knew and accepted)

Apx 30 days later, at the closing I noticed that my total purchase price was some 19% below what the offical bank appraisal came in at.

Given, that I could have flipped the prop in less than 2 months for a profit; I felt that I did not really pay any realtor fees or closing cost on the prop - but yes the seller paid in spades!!!!
-----------------------------
Stay tunned... More SECRETES later..; July 09, 2006 5:31 AM
Anonymous said...: To: wise_guy_in_re

Great story! I love the way you bullied the seller turning her own agent against her.

I'm sure the real reason the prop was listed below market was to get quick offers, that the listing agent would try to bump.

You turned the listing agents strategy against him and put him in a box against his seller -- FANTASTIC!!!!!; July 09, 2006 5:49 AM
Anonymous said...: I wrote a check for $5000 earnest money (that the agent was not expecting - normal earnest money for this type of transaction would have been $500 not $5K).

MONEY TALKS - BULLSHIT WALKS; July 09, 2006 5:57 AM
Anonymous said...: All you are paying for is the MLS. Without the MLS there would be no need for realtors. Good thing Craigslist and discount brokers like "I Pay One" are leveling the playing field.

I remember sending an email with a link to a Craigslist ad, he told me "you can't use Craigslist there are lots of fake listings there".

SURRRRRRRRRRRRRRRRE; July 09, 2006 6:03 AM
Anonymous said...: he = my realtor friend; July 09, 2006 6:03 AM
Anonymous said...: The 1st property I purchased was a condo in 1992.

Ouch. That must have sucked from 1992-2000.; July 09, 2006 6:43 AM
Anonymous said...: To wise_guy_in_re

That's the dumbest story I've read in a blog. Like you bullied somebody into taking 19% less than their home was worth because of your super negotiating. I've got news for you- the seller wouldn't have taken the offer if they didn't want to. If it was such a great steal of a home why weren't there multiple offers? Even in down markets if a property is priced 15% below value dozens of investors would be all over it.

Sell stupid someplace else...; July 09, 2006 7:05 AM
Anonymous said...: Use BlueRoof.com and get 50% of the buyer agent commission at closing.

Use BlueRoof mortgage and get up to $3000 from the mortgage side.; July 09, 2006 7:07 AM
Anonymous said...: If you price a house right most of the time you don't need a realtor. I've sold 2 houses without one. My last house i put up was about 20k under what the average house was in the neighborhood. I sold it for 480k, realty fee would have been 25-30k. I sold the house to the first person that looked at it, they saved a bit of money and i still made out. They paid all of the closing costs which saved me another 5k. So i put an extra 10-15k in my pocket by not using a realtor. People are just to greedy, lower your price and you don't need a realtor at all.; July 09, 2006 3:15 PM
Anonymous said...: The MLS, a database, a monopoly.

Of course, now anybody can put a database on the www.; July 10, 2006 2:00 AM
Anonymous said...: The 1st property I purchased was a condo in 1992.

Ouch. That must have sucked from 1992-2000.

Funny, you seem to presume that I would have been better off with a larger property and larger mortgage payment from 1992-2000 to get a larger capital gain in RE.

What you don't realize is that while I may have lost a little on the CAP GAIN potential in RE; buying a condo with a cheap monthly payment was about positioning. At the time I was punching the time clock at a Fortune 100 Company and hated my job. Had I over leveraged on RE, instead of underleveraging on that condo, I would have been trapped in that dead end job.

With the condo, I pilled up cash reserves, quit the job and started my own business in 1995. Best move I ever made as the business is now worth over $3.5 mil. Some 10+ times the gain that I gave up on the RE investment that I did not make. Plus, I get all the benefits of not having to put up with some BOSSES BS.

I will never regret buying that condo. It was one of the best decisions that I ever made!; July 10, 2006 4:28 AM
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July 08, 2006

The HousingPanic Stupid Question of the Day

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