This weekly roundup thread is intended for all culture war posts. 'Culture war' is vaguely defined, but it basically means controversial issues that fall along set tribal lines. Arguments over culture war issues generate a lot of heat and little light, and few deeply entrenched people ever change their minds. This thread is for voicing opinions and analyzing the state of the discussion while trying to optimize for light over heat.
Optimistically, we think that engaging with people you disagree with is worth your time, and so is being nice! Pessimistically, there are many dynamics that can lead discussions on Culture War topics to become unproductive. There's a human tendency to divide along tribal lines, praising your ingroup and vilifying your outgroup - and if you think you find it easy to criticize your ingroup, then it may be that your outgroup is not who you think it is. Extremists with opposing positions can feed off each other, highlighting each other's worst points to justify their own angry rhetoric, which becomes in turn a new example of bad behavior for the other side to highlight.
We would like to avoid these negative dynamics. Accordingly, we ask that you do not use this thread for waging the Culture War. Examples of waging the Culture War:
-
Shaming.
-
Attempting to 'build consensus' or enforce ideological conformity.
-
Making sweeping generalizations to vilify a group you dislike.
-
Recruiting for a cause.
-
Posting links that could be summarized as 'Boo outgroup!' Basically, if your content is 'Can you believe what Those People did this week?' then you should either refrain from posting, or do some very patient work to contextualize and/or steel-man the relevant viewpoint.
In general, you should argue to understand, not to win. This thread is not territory to be claimed by one group or another; indeed, the aim is to have many different viewpoints represented here. Thus, we also ask that you follow some guidelines:
-
Speak plainly. Avoid sarcasm and mockery. When disagreeing with someone, state your objections explicitly.
-
Be as precise and charitable as you can. Don't paraphrase unflatteringly.
-
Don't imply that someone said something they did not say, even if you think it follows from what they said.
-
Write like everyone is reading and you want them to be included in the discussion.
On an ad hoc basis, the mods will try to compile a list of the best posts/comments from the previous week, posted in Quality Contribution threads and archived at /r/TheThread. You may nominate a comment for this list by clicking on 'report' at the bottom of the post and typing 'Actually a quality contribution' as the report reason.
Jump in the discussion.
No email address required.
Notes -
I have been waiting for a post on the NAR settlement and it has never come. The NAR was forced to pay out a large settlement due to lawsuits and change how buyers agents are compensated.
https://www.nbcnews.com/business/real-estate/national-association-realtors-settlement-changes-rcna143634
The standard way homes are bought and sold in a market is at a 5 or 6% commission which is then split 50-50 between the buyers and sellers agents. I believe the big change now is on the mls websites buyers commissions were expected to be listed. You are no longer required to lists and discriminate buyers concessions and some technical details I am not 100% certain on. But barriers to trade and non-standard arrangements will be easier.
I have had friends buy properties before un represented but it is frowned upon. In those cases they would make their offer and basically say I have no agent so reduce your price 3% and rework your sellers contract so your sellers agent gets 3% like he would if I had an agent. The old system made this harder since most people just like to follow the way. Which I believe led a lot of people to just hirer a buyers agent probably a friend and let them get paid.
Culture war isn’t our general culture war but you can find plenty on twitter saying things like “turn out everyone hated us” realistically though we just didn’t like real estate transactions costing us 6% (plus more in many areas with transfer taxes).
There are a lot of interesting economics to discuss on this issue. Another area is a lot of realtors don’t transact all that much. A couple deals a year. My guess is this deal makes it much harder for the casual real estate agent if commissions fall. You won’t be able to buy/sell for your friends network. Another issue with being oversupplied with realtors is many spend more time finding clients than working with clients. Trades in general with commodity products but high margins for various reasons would tend to a model of a high amount of resources being spent on client acquisition.
Another area if the new world in real estate occurs is the housing market would change significantly if commission fall meaningfully. Lower transaction costs means people can move more frequently. If your home costs $1 million and $60k commissions are happening then you are paying that $60k somehow even if it’s indirectly. It would also seem to help flips significantly. If real estate transaction were saying $0 then I would think nearly every property would be a flip as some people would have true expertise in rehabbing/remodeling. Our current 6-10% transaction costs makes it very expensive for a 6 month guy to do it. They can only step in for properties heavily degraded where no true owner (with no expertise) would be interested. This is one reason I thought the various ibuyer companies would fail because adding more fees makes it uneconomical.
Can somebody steelman a buyers agent for me? They are paid as a percentage of the total cost of the sale, so aren't they incentivized to negotiate against their purported clients?
Agents always seem to have weird incentives. Reputation of course matters more than anything for more business.
The converse to a % would be an hourly wage for giving advice and finishing processes (like a Lawyer) but that system would encourage buyers agents to not close deals and instead have deals fail but keep the billable hours up.
Reputation to get more clients is the only thing that works to align client/agent incentives since every incentive system I see for agents in one-off deals would have misaligned incentives.
If I had to steelman buyers agents it’s probably something like they need to exists and most buyers have a need for the specific service to varying extents. The exact compensation structure is hard to perfectly align incentives.
Even if I am buying the simplest of real estate purchases say a condo in a 300 unit property and looking at a few similar sized buildings it would still take me hundreds of hours to figure out costs/benefit trade offs while a buyers agent who specializes in large condo buildings in a neighborhood should have built up a strong feel for relative value in those buildings. Maybe it takes 200 hours to gain pricing knowledge of condos in a neighborhood but if they have 20 clients/year for multiple years they spread that fundamental research time down to sub <10 hrs per client.
Why do they need to exist in the age of the internet? It’s way less overhead to hit up Zillow for leads than it is to coordinate with an agent. You’d still have an appraiser, inspector, title insurance and a bank guarding the interest of the buyer. Earnest money protects the seller. If you need coordination, a one time fee is most appropriate. Residential real estate agents pattern match to cars salesmen who are strictly negative value. They artificially inflate the cost of automobiles via unwanted human interaction and likewise exist due to cartels.
As for pricing, Zillow or the equivalent will tell you the price and estimated price since the last sale of every property in your city from a birds eye view, often with photos from the previous sale. In my metro, there is no way the average buyers agent adds 30k of value - maybe a couple of grand is reasonable. On the sellers side, a one time fee also makes more sense to do staging, photos, and listings.
I got no disagreement that most deals can probably work on a bare bones style agent.
I was more steel-manning why they should exists versus why they should exists at a 3% commission.
A very small percentage of buyers agents likely do deserve 3%. There are unique projects that require far more expertise. If some platform rolled up buyers agents, paid them a salary, and charged 1% buyers fees I feel like that business model can work. To date that model has not work perhaps due to restrictions etc from the old ways.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
Naive people think "they are paid more if it sells for more, and it is in my interests that it sells for more". They ignore that the agent wants to make a maximum profit per unit time, not a maximum profit per sale.
This assumes an infinite supply of potential sales. In practice I would expect to optimize over some denominator which combines time and sales, emphasized differently based on how saturated the market is.
Regardless, this doesn't address the main issue that the buyer's agent and seller's agent have near-identical incentives: have quick sales with high prices. The only distinction is that the buyer's agent's ability to market their services to future clients is correlated with low prices, but I'm not sure how strong of a correlation that is.
More options
Context Copy link
More options
Context Copy link
That's right. The only countervailing force is that they want to close a deal sooner rather than later to get paid, so they won't hold out for arbitrarily small increases in price.
More options
Context Copy link
More options
Context Copy link
I didn't know you could do that! That's brilliant. I always thought it was a bit of a scam- buyers would use an agent because "why not, it's free" and the seller would be forced to pay them, even though buyer's agents really don't do a lot of work in most cases.
One of them was small business owner in his ‘70s he told his buyers agent he would pay him $10k. So he was technically still represented but he bought a penthouse that had sat on the market between 3 and 4 for low 2’s so a full commission was much more. So he’s still letting the seller get an extra 60-70k. I don’t think most deals need a full 2.5-3%. First time home buyers need some more help and special situations can justify more.
More options
Context Copy link
More options
Context Copy link
I did make a low-effort comment on it here. The text of the settlement still isn't available, but it should be posted here in the very near future.
I like the comment of a buyers agent telling the customer they were free. I’ve had that happen though for a rental.
Buyers agents especially value can be all over the map. I bought raw space one time and going thru that process needed more help. Buying a standard 2 bed condo you should not need as much help. There is fat in the system if the two agents are being paid the same.
IMO do think this subject is top-level worthy as it opens the door to all kinds of new business models and the economic logic behind them. I know people looking at offering cheap buyers agents but trying to internalize all the other fees. Mortgage brokers also have a 1-3% commission so one avenue is those guys get their real estate license and provide low touch services.
Personally I feel like I would prefer it became more like an accountant and numbers focused versus a good-looking sales people job.
When I was in the market I used a buyer's agent I knew, and he was able to give me discount but it was limited based on how much his agency required him to charge. I guess there could theoretically be independent agents, but it would be tough to do it without marketing support. My guess is commissions won't change that much.
More options
Context Copy link
Appraisals are also a nice little grift. A friend of mine recently shelled out $5,000 for an appraisal of a property she was purchasing. Basically all the appraiser did was look at nearby comps and then produce a 50 page report that was 49 pages of boilerplate. Couldn't have taken more than a day.
$5k? I thought those were in the $1k range for appraisals. Unless we are talking something in the mid-7 figures.
Low 7 figures. Commercial property which I guess makes a difference.
More options
Context Copy link
More options
Context Copy link
Must have been commercial. Residential appraisals are not that much.
Yes, it was commercial. Low 7 figures.
Yeah that is normal market rate. More work goes into it than you think. Commercial appraisers often get deposed if things go wrong. You will go walk the comps and talk to other recent buyers and owners, research the industry, decided on appropriate approaches for valuations etc...etc...etc...about 2 weeks and the appraiser is only getting a percentage if they work for someone else.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
$5,000? That's ridiculous. When I had my own law practice I'd hire appraisers occasionally and my guy charged $400 and he actually went inside the place.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link