Realtor compensation practices may finally change!

[kork13]

Article: Real estate lawsuit settlement upends decadeslong policies that helped set agent commissions

Ever thought that it's crazy that realtors on both sides of a home transaction are paid by the seller? Or that their standard commission is always 6% of the sale price, split between buyer/seller agents? What about the problem of realtors selectively not showing a house to buyers if the seller states they won't honor the extorted 6% default commission? Ever seem strange that realtors are paid based on the sale price, which incentivizes realtors on BOTH sides to get listing prices as high as possible?

Yeah ... So does probably most of the country. A recently negotiated anti-trust settlement may finally force a change in all of that. Hopefully, realtor compensation goes to a defined-fee model -- at the start, realtor & client agree for the realtor to be paid $X00 for services, or $X,000 upon successful close of a purchase/sale. It'd force competition between realtors, and provide a real choice to buyers & sellers.

[srblanco7]

Article: Real estate lawsuit settlement upends decadeslong policies that helped set agent commissions

Ever thought that it's crazy that realtors on both sides of a home transaction are paid by the seller? Or that their standard commission is always 6% of the sale price, split between buyer/seller agents? What about the problem of realtors selectively not showing a house to buyers if the seller states they won't honor the extorted 6% default commission? Ever seem strange that realtors are paid based on the sale price, which incentivizes realtors on BOTH sides to get listing prices as high as possible?

Yeah ... So does probably most of the country. A recently negotiated anti-trust settlement may finally force a change in all of that. Hopefully, realtor compensation goes to a defined-fee model -- at the start, realtor & client agree for the realtor to be paid $X00 for services, or $X,000 upon successful close of a purchase/sale. It'd force competition between realtors, and provide a real choice to buyers & sellers.

Certainly hope it does become the impetus for change in realtor fees. I think multiple sources have noted that the US pays amongst the highest realtor fees in the world.

And, working from recollection, I think the book Freakonomics notes that engaging with a realtor does not necessarily result in the Seller receiving the best price. Realtors are incentivized to move inventory at a pace, rather than invest additional effort (e.g., multiple showings, additional marketing) to generate the highest price for the Seller. The incremental benefit to them at some point is not worth the additional effort.

[ua_guy]

This is very much-needed change, and I hope it has the intended effect!

[Fishindude77]

I've never been a fan of paying anything based on a percentage.
Seems like a fixed fee based on how much time, effort and expense it requires to sell the place makes more sense.

In todays market, I'd probably skip the realtor all together.

[disneysteve]

I've never been a fan of paying anything based on a percentage.
Seems like a fixed fee based on how much time, effort and expense it requires to sell the place makes more sense.

Exactly. There is some base level of work involved in selling a home, but that work is essentially the same whether the house sells for 200K, 500K, or 1M. Why should the person selling the $1 million home pay 5 times as much as the person selling the 200K home?

Maybe the answer is a tiered system. 6% on the first 200K, then 1% on each additional 100K. Sell at house for 500K and you'd pay $12,000 on the first 200K plus another $3,000 on the next 300K for a total of $15,000 or 3% overall on a 500K sale.

[bjl584]

Article: Real estate lawsuit settlement upends decadeslong policies that helped set agent commissions

Ever thought that it's crazy that realtors on both sides of a home transaction are paid by the seller? Or that their standard commission is always 6% of the sale price, split between buyer/seller agents? What about the problem of realtors selectively not showing a house to buyers if the seller states they won't honor the extorted 6% default commission? Ever seem strange that realtors are paid based on the sale price, which incentivizes realtors on BOTH sides to get listing prices as high as possible?

Yeah ... So does probably most of the country. A recently negotiated anti-trust settlement may finally force a change in all of that. Hopefully, realtor compensation goes to a defined-fee model -- at the start, realtor & client agree for the realtor to be paid $X00 for services, or $X,000 upon successful close of a purchase/sale. It'd force competition between realtors, and provide a real choice to buyers & sellers.

Hopefully this will open up the market to more starter homes.
Realtors don't want to list low priced homes due to the low commission

[disneysteve]

Hopefully this will open up the market to more starter homes.
Realtors don't want to list low priced homes due to the low commission

I think the problem there is more with supply. Builders aren't building smaller homes because that's not where the money is. Then there are zoning issues. Towns are quicker to approve 5 new homes with large lots than 20 new homes crammed into the same space due to traffic and infrastructure concerns with schools and such.

[bjl584]

I think the problem there is more with supply. Builders aren't building smaller homes because that's not where the money is. Then there are zoning issues. Towns are quicker to approve 5 new homes with large lots than 20 new homes crammed into the same space due to traffic and infrastructure concerns with schools and such.

New construction, you are correct. There is no profit for a builder to build a smaller home.
But there a lot of existing smaller homes that Realtors has steered clear of or haven't listed with much enthusiasm due to the low commission potential.

[ua_guy]

We have a colleague who moved to the Seattle area and is trying to buy a home priced $1M-$1.5M. That's up to 50% more than the median home price for the county.

They've put offers in on multiple homes. Every home listed in that price range is currently receiving 7-15 offers. One home in particular, they bowed out after 4 rounds of over-asking price escalations. Apparently the escalations went to 7 rounds before all but one buyer tapped out.

As my husband and I were listening to this story, wide-eyed, we are strongly considering putting our home on the market!

[disneysteve]

We have a colleague who moved to the Seattle area and is trying to buy a home priced $1M-$1.5M. That's up to 50% more than the median home price for the county.

They've put offers in on multiple homes. Every home listed in that price range is currently receiving 7-15 offers. One home in particular, they bowed out after 4 rounds of over-asking price escalations. Apparently the escalations went to 7 rounds before all but one buyer tapped out.

As my husband and I were listening to this story, wide-eyed, we are strongly considering putting our home on the market!

We live in an older (early 1960s) suburb that is very stable and established. Yesterday we got the periodic mailing from a local realtor listing homes she's recently sold in the neighborhood. One house around the corner from us was listed for $430,000 I think and sold for $525,000. That fact that a house in this area is going for that much over asking is insane. No way the houses are actually worth that but I guess it's "worth" what someone is willing to pay but I think they're nuts.

[Fishindude77]

There are lots of starter homes being built but in todays market they cost $350k or more even in rather low cost of living areas, and nobody involved is making huge margins. It's a highly competitive business.

If people would be willing to live like we did 60 years ago with two bedroom homes, on small lots, in town, one bathroom, no garage, a 10x15 living room and a 10x15 kitchen, maybe 1,000 - 1,200 SF total you could probably get some real simple homes down to $200k range but that's still a big financial stretch for many. I think builders would gladly build these, but new home buyers want (or feel like they need) a lot more. To get much cheaper than $200k, you have to build multi unit buildings; apartments or condos.

If you need to go cheaper yet your options are some modulars, house trailers or buying an old beat up fixer upper. You can easily spend $70k on a very simple, cheap looking modular home and will still need to get it delivered and set, buy a lot, build a foundation, put in a driveway, get sewer, water and electrical hook ups, etc.

Inflation is the real problem. It was less noticeable at the super low interest rates of last several years but is now a real problem when rates are 7-8%.

[LivingAlmostLarge]

gosh I hope that it passes.

I have yet to see people moving. So many are sitting tight because of interest rates

[Jluke]

There are lots of starter homes being built but in todays market they cost $350k or more even in rather low cost of living areas, and nobody involved is making huge margins. It's a highly competitive business.

If people would be willing to live like we did 60 years ago with two bedroom homes, on small lots, in town, one bathroom, no garage, a 10x15 living room and a 10x15 kitchen, maybe 1,000 - 1,200 SF total you could probably get some real simple homes down to $200k range but that's still a big financial stretch for many. I think builders would gladly build these, but new home buyers want (or feel like they need) a lot more. To get much cheaper than $200k, you have to build multi unit buildings; apartments or condos.

Buying an older home for 200k could come with added expenses to update the home as there are some homeowners who do not adequately keep their homes up to date. So you buy that 200k, 60-year old home and kitchen, bath and exterior probably need updating, mechanicals, roof too. So there’s an easy 75k (or more) added cost if it’s single family home under 2000 so ft. . May as well find a better move-in ready home for 300k or so.

this definitely does not work in a HCOLA

[disneysteve]

Buying an older home for 200k could come with added expenses to update the home as there are some homeowners who do not adequately keep their homes up to date. So you buy that 200k, 60-year old home and kitchen, bath and exterior probably need updating

Maybe, maybe not. If something is in disrepair, sure, you need to fix it. If something is just visually outdated, updating it is a total want, not a need, and we all know that far too many people can't distinguish one from the other. Our house was built in 1964. It still has the original bathrooms except for the powder room (and even that is still partly original). Do they look dated? I guess so, but they are 100% functional so we've kept them as they are. Our kitchen was redone 2 years before we bought the house, so that would have been 1992 making it 32 years old. Could it use a refresh? Of course. Are we sinking 50K into it? Not a chance.

[Jluke]

^^^^^
exactly. Need vs want. Outdated vs non-functional.

It very well may be a generational thing with young new home buyers expecting decent quality when having to pay top dollar for a home.

for those selling, now is the time as updates won’t need to be made and homes still go above asking due to low supply.

not a great place to be these days for non homeowners trying to establish themselves