The New Real Estate Sales Business Model

The current business model for selling real estate needs to change. The collapse of the housing bubble may be what causes a major shift in the way real estate is sold in the United States.

Today’s featured property was purchased by us at auction. IndyMac,
which is now owned by the US taxpayer, bought this property, and now
they are trying to get some of their money back.

4 Rockrose Way kitchen

Asking Price: $631,900

Address: 4 Rockrose Way, Irvine, CA 92612


The End — The Doors

Of our elaborate plans, the end
Of everything that stands, the end

I got out my crystal ball this weekend and gazed into the future of
the residential real estate sales business. I foresee the end of the 6%
sales commission model.

The 6% Business Model

When a seller signs a listing agreement with a realtor, the
commission is typically 6%. This commission is split between the
buyer’s broker and the listing broker. Each one gets 3%. This
commission is often further split between the broker and the
salesperson. Each one gets 1.5%. Each real estate commission could
potentially get split into 4 pieces each representing 1.5% of the sales
price. This structure supports a great many people — too many.

The 6% sales commission business model only survives for two
reasons: 1. The National Association of Realtors (NAR) lobbies every
level of government to maintain their advantage, and 2. The NAR
controls market data through the Multiple Listing Service (MLS).

It is hard to say what the future is for the NAR lobbying efforts.
I, for one, have been suggesting that the NAR be regulated by the
Securities and Exchange Commission (SEC) due to their propensity to
routinely make false statements regarding the financial performance of
housing as an investment class. When people stop to examine the role of
the NAR in the inflation of the housing bubble, the power of their
lobby may be pushed back by public opinion. Of course, they were just
as responsible for helping inflate the coastal bubble of the late 80s,
and they managed to convince people the deflation of the bubble was due
to the economy. The realtors were blameless, of course. Perhaps they
will get lucky and avoid responsibility again in the eyes of the public.

The big problem for the NAR and their business model is the
free-flow of information on the internet. The internet is taking away
the exclusivity of their information. Eventually, this factor alone
would lead to the death of this sales model. Competition for
commissions among all those with data access who are not subject to the
cartel arrangement of the NAR would cause commissions to fall.

We already see this among the buyer’s brokerages like Redfin who are
offering 1% buy-side sales commissions instead of the usual 3%. Redfin
and other discount, buy-side brokerages like them have already chipped
away at half the commission structure. The only thing missing is a new
business model to chip away at the sell-side of the equation. That is
where today’s post comes in.

Problems with the Current Model

In the 6% business model, the realtor is totally responsible for the
sales and marketing effort. Any staging, photography, advertising or
other resources devoted to the marketing effort comes out of the
realtor’s pocket. If there is no transaction, the realtor does not get
paid, and any sums spent in marketing efforts is gone. There is no risk
to the seller in this business model as the risk of a sale resulting in
a commission is entirely on the realtor.

This creates a number of incentives that do not work very well.

Since all the financial risk is on the realtor, their incentive is
to do as little as possible. Even though there is a fiduciary
responsibility to market the property, realtors often do nothing that
requires an outlay of money. They will take their own poorly-staged
photographs and write the awful descriptions I lampoon on a daily
basis. They will sign up for whatever free marketing is available, and
do little else that costs them money.

Realtors are not entirely to blame for this behavior. Since owners
have no risk, and since they are not personally invested in the
process, they often behave in ways that inhibit a transaction from
taking place.

Owners will list their homes for sale purely for vanity. They put a
WTF asking price on the property so they can brag about how much it is

Owners are sometimes very greedy. They put a WTF asking price on the
property to make sure they extract every last penny from the sale.
Prices outside the realm of possibility simply waste everyone’s time —
and the realtor’s marketing dollars.

Owners do not always stage the property well or keep it clean for
showings. If a realtor has to show a pigsty, it does not help
facilitate a sale.

Owners are not always emotionally ready to sell their property. This
often causes them to behave in ways that prevent a sale without their
even realizing it. Owners may know they need to sell, so they list a
property, but unless they want to sell, it will not happen.

The Pay for Marketing Model

The business model I propose changes these incentives. It would have the following characteristics:

  • Sellers contract with realtors for marketing services.
  • A 1% commission is paid to the listing agent if there is a sale.
  • The buy-side commission is set by the seller ranging from 1% on up.

Contracting between the potential seller and the listing agent takes
the risk away from realtors and compensates them for their marketing
efforts, whether or not a sale occurs. It changes the mindset
of sellers. Once a seller starts spending money to sell their house,
they are far more motivated and committed to completing the transaction.

There is a 1% sell-side commission to provide additional incentive
for the realtor to perform their marketing and sales duties well. It is
nice to know they are making enough to cover their expenses and make a
few bucks through the marketing program, but the commission structure
is still necessary to motivate them properly.

The seller also gets to determine the buy-side commission. A typical
commission would be 1% similar to what Redfin makes on its buy-side
activities. However, if the seller is particularly motivated, they can
increase the buy-side commission to attract more attention to their

How It Works

Can you picture what will be
So limitless and free

The business model of a consultant is fairly simple: you write a
scope of work detailing what will be done, and you list the deliverable
products you will produce. The purchaser of these services agrees to
pay for these services as work proceeds and deliverables are produced.

If sell-side realtors embrace a marketing consultant business model,
with a 1% sales commission incentive bonus, they would have limited
risk of spending money without getting paid (every consultant has this
risk), they would not be starving to death in the lean times, and they
have some upside potential if they do the marketing job well enough to
make a sale happen. The advantage to sellers is obvious: a 1%
commission plus direct marketing expenses is much less expensive than
paying a full 3% on the listing side of the commission structure. It is
truly a win-win.

A good realtor or property marketing company can devise a number of
marketing plans to suit any budget. The minimum plan would contain
whatever services the realtor felt was essential to facilitate a home
sale. It is a waste of time to do less than this. Each realtor or
marketing company can devise their own plans and cost structure. They
could even keep track on statistics on each plan’s success (did it
sell, and how fast). Since the focus is on tasks and deliverables, the
seller of the property who is contracting for these services can easily
verify if the services are actually being performed. As stated
previously, the seller pays for these services whether or not a sale

For instance, a realtor may have a minimum package that is one step
above a for-sale-by-owner effort. The property can be photographed by
the realtor who also writes the description and loads it into the MLS.
For an extra $1,000 the property can be professionally staged and
photographed, and a professional copywriter can write a description.
For more money, the property can be included in various real estate
advertising publications. I think you get the idea. A full menu of
possible marketing possibilities can be put together into packages or
sold to the property seller a-la-carte.

The savings for the seller would be enormous. For example, the
typical 6% commission on a $500,000 property is $30,000. This comes
right out of the seller’s pocket at the closing table. If the seller
were to contract with a realtor for $2,500 in direct marketing (which
would buy a lot of marketing), a 1% sell-side commission, and a 1%
buy-side commission, the seller would be spending $2,500 trying to
facilitate the sale (a motivating risk to the seller) and $10,000 in
commissions ($5,000 to the listing, sell-side broker, and $5,000 to the
buy-side broker). Instead of costing $30,000, the sale costs the seller
$12,500. That is a 59% reduction in cost to the seller.


There will be resistance to this plan on the part of some realtors
who would prefer to continue to get 3%-6% for doing little or nothing.
Those that have been enjoying the free ride will have the most to lose.
However, this has not stopped Redfin from taking 2/3 of the commission
out of the buy-side of the transaction. If a person or organization
with vision, good marketing skills, and a basic understanding of the
consulting business model were to go after the sell-side, I don’t think
there is much that would stop them.

I am not a marketing expert, so I am not the one to do it, but
perhaps one of the readers of this blog is. I hope someone does this —
at least by the time I am a seller again…

This is the end
Beautiful friend
This is the end

Today’s featured property was purchased by us at auction. IndyMac,
which is now owned by the US taxpayer, bought this property, and now
they are trying to get some of their money back.

4 Rockrose Way kitchen

Asking Price: $631,900IrvineRenter

Income Requirement: $157,975

Downpayment Needed: $126,380

Monthly Equity Burn: $5,265

Purchase Price: $870,000

Purchase Date: 12/20/2006

Address: 4 Rockrose Way, Irvine, CA 92612

Beds: 4
Baths: 3
Sq. Ft.: 2,500
$/Sq. Ft.: $253
Lot Size: 3,328

Sq. Ft.

Property Type: Single Family Residence
Style: Traditional
Year Built: 1966
Stories: 2
Area: University Park
County: Orange
MLS#: P672478
Source: SoCalMLS
Status: Active
On Redfin: 3 days


Great price for this townhome. Needs TLC. It has 4 bedrooms and 2.5
bathrooms. tile and carpet flooring. Good size living room with
fireplace. Oak kitchen cabinets. Huge master bedroom with fireplace.
Enclosed den. Direct garage access. Subject property is being sold in
its as is condition without any warranties expressed or implied.

Lately, I have been trying to look at properties as if their prices were approaching reality. Even with the big discount, this property is still grossly overpriced. I might become interested at $420,000, but at $631,000… not.

This property was purchased on 12/20/2006 for $870,000. The owner used a $696,000 first mortgage, a $130,500 second mortgage, and a $43,500 downpayment. The owner went into default, and the property was purchased by INDYMAC FEDERAL BANK FSB on 12/10/2008 for $552,758. That sale represents a 37% drop from the peak.

If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $276,014. I, you and every US taxpayer will lose $232,514. The original owner lost $43,500.


This is the end
Beautiful friend
This is the end
My only friend, the end

Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
Ill never look into your eyes…again

Can you picture what will be
So limitless and free
Desperately in need…of some…strangers hand
In a…desperate land

Lost in a roman…wilderness of pain
And all the children are insane
All the children are insane
Waiting for the summer rain, yeah

Theres danger on the edge of town
Ride the kings highway, baby
Weird scenes inside the gold mine
Ride the highway west, baby

The End — The Doors

54 thoughts on “The New Real Estate Sales Business Model

  1. scott

    Again, others may have more knowledge on this than I but I believe the model IrvineRenter is putting forth here is much closer to the model that is used in the commercial property market ie greater focus on the listing agent as marketer, agree a marketing plan and budget. I did work once years ago (was a banker selling a REO commercial property) and the contract with the real estate agent was very detailed on the marketing plan and budget for this property (what brochurs, adverts, etc would be undertaken)…I don’t recall the sales commission but it was less than 6%, but pretty sure we paid more than 1% but the higher fee may have covered the buyer’s broker as well.

    1. IrvineRealtor

      Thx, IR –

      A one-size-fits-all approach to a business model is bound to fail when you have so many different preferences with different clients/partners.

      I’ve offered this type of multi-tiered “menu-style” service for several years with (my own limited) success.

      Basing a relationship off of a marketing plan gives everyone involved more transparency. What has been done?, what is next?, what is working?, is much more actionable and less frustrating than simply measuring by “still not sold”.

      If it is fair for the buyer/seller and fair for the broker, it would be foolish to turn away business.

  2. Renting 4 Now

    All of this thinking is outdated –like adding features to a current technology. What is needed is a complete retooling of the process to eliminate ALL potential conflicts of interest. Marketing? Seriously? MLS is really all that is needed. Sure, plenty of agents can’t spell, write, etc. as seen by the ridiculous listings we’ve all seen. However, that does not change my interest in any house – though it would make me grumble in signing a sales contract for the house knowing that the GED-level education agent made out with a boatload of MY cash. Anyone who truly wants to sell their house will keep it clean, etc. Those that are messy probably aren’t going to negotiate much– and when have you seen a house that is truly priced to sell w/o needing some serious negotiations? Unmotivated sellers keep messy houses, don’t care if their listings are sharp, etc. And you aren’t going to be able to negotiate with them. Bottom line is that the RE agent concept is dead. Get a RE attorney to do a closing, have someone post the house on all of the free sites AND the MLS for a small fee, and reduce the commission as best you can in your negotiations. If sellers start just paying for MLS and not “marketing” and huge commissions, the buyers will all respond VERY favorably.

    1. IrvineRenter

      I would like to agree with you, but from what I have witnessed with FSBO listings, I don’t think just getting on the MLS works.

      Redfin calls out the FSBO listings, so they are easy to find. From what I have observed, most owners if left on their own do not price the property properly, and they do not market it very well. The listing prices are usually beyond WTF despite the fact they do not have to pay a 6% commission. You would think they would price it lower, but they don’t. Often the realtor is the only party to a listing providing a reasonable estimate of current market value. With nobody to push back on the listing price, FSBOs start with WTF pricing. Greed and ignorance if left unchecked is embarrassing.

      Also, I don’t know that I have ever seen a FSBO property marketed well. Perhaps I have simply missed them, but I have not seen any with professional photographs or well-written descriptions. I have not come across any FSBOs with nice flyers or other marketing materials.

      Perhaps these FSBOs are selling anyway. I don’t have any statistics to know, but from what I have observed, I rather doubt it.

      1. New Renter

        I sold a home FSBO in 2008 and did comparatively well. I will admit that when we initially listed the home, we priced it a little high. But we quickly brought the price down, and ended up selling for one of the highest prices in the neighborhood for around that time.

        We paid a small, flat fee to have the home listed in the MLS. We drafted a well-written description, IMO, and posted nice photos. We also printed glossy flyers that we put on the for-sale sign out front for people to take. Although we did not offer a LB, we were available to show the home on a moment’s notice and it was always clean.

        We initially offered the buyer’s agent a 2% commission but ended up raising it to 3%. The buyer who bought our home was represented by a high-end real estate agent. The agents who toured our home or showed it all stated that it showed well. I highly recommend the FSBO option, as long as you have the property listed on the MLS and price it reasonably.

          1. New Renter

            I am a little embarrassed to say that we used I would not recommed using them. It results in overpaying by several hundred dollars. The agent that they assigned us to to list our home in the MLS, contracts directly with homeowners for far less. I can look up her contact info on my home computer, although I am a little hesistant to post it here.

            One other thing that we did is on our flyers we put “Realtors welcome. MLS # XXXX.” A few realtors still asked us to sign a one-time contract before they would show the home, but most did not require this.

  3. cara

    Your pricing model may only work with bubble size prices. $500k is not a reasonable price for a house, hence the discount from $500k is not a good choice for the example.

    Redfin’s buyside commision has a minimum of $4000. (which they’ve adjusted upwards at least once) And, at least in DC, they reduced their commision to 2% not to 1%. So, for anything I’d be interested in buying Redfin is either totally a wash, or more expensive.

    I like the way your new structure organizes incentives, but I just don’t think it will save money for anything but the top-tier of homes.

    1. Walter

      I recently went to a Redfin seminar to see just how they do things.

      As I remember, properties below the mid 300s hit their minimum commission so they make less sense for the low end.

      Above this price they may be a good deal.

  4. Transplant

    I’m not sure IR’s 1.5 *4 is accurate. The 3% split part is accurate, but usually the broker’s take is not 50% of the 3%. Depending on the company and the realtors’s relative value to the company, that number is more commonly in a range from 30% (for rookies) to 2% (for multi-million producers). Some companies (like Remax), charge the agents fixed fees for rent, etc., but give then 100% of the 3%.

  5. wheresthebeef

    Someone actually paid 870K for a fixer upper 40 year old townhouse. An appraiser and a bank thought it was worth the going rate…I am speechless!

    Hopefully a mania like this will never happen again. The entire world economy is on the brink from this stupidity. God help us all.

    1. george8

      Absolutely. Even the current asking of $631k is very overpriced from the 160 times rent fundamental.

      We, the tax payers, will have to take much more loss on this one.

  6. Irvine_Lurker

    Is it just me or does University Park have some of the fugliest houses in Irvine? I cringed when I saw that elevation.

    1. lunatic fringe

      I’m not so sure how much sense it makes to buy an attached fixer in a neighborhood of attached homes with incredibly ugly elevations. Talk about a limitation.

      And the interior is a complete gut job, I see nothing of value in the photos that could be left. The sunroom and extra room atop it are poorly designed and don’t seemlessly tie in with the rest of the home.

      This home is a poor candidate for a fixer project, especially in this market, unless you get it at a screaming deal. And I mean a really screaming deal.

      1. wheresthebeef

        I would consider a screaming deal to be about 350K for this place. You’ll probably need another 100K for the gut job renovation.

        At the end of the day, it’s still a townhouse located in Irvine.

        For almost 900K, these people could have bought a nice SFR in Turtle Rock. The kool-aid must have been laced with something extra back then!

  7. zoiks

    How fitting you would pick another listing in which the Realtwhore(TM) lies about this being a SFR. It is *not*. It is an attached/townhome/condo. Wow, to think that a Realtwhore(TM) would resort to lying in a listing! Unpossible!

    IR, here’s a new home-selling model for you: dump all the Realtwhores(TM) in the ocean, and start fresh, without NAR lobbyists. We’ll see what new marketing structure forms. It’ll have something to do with the Internet, and probably little to do with a Monopolized Listing Service.

    To the many, many Realtwhores(TM) who frequent this board: Eat me!

  8. tlc8386

    It all boils down to transparancy the more info you have and give out to the buyer the more will sign up for your services. Those RE agents who want the full 6% in this environment are dreaming of the old days.
    Taking a listing and setting it high will make the seller happy as it sits for months. A good agent will show the owner what is realistic and not a bubble dream.
    I sold my last home even though I had a agent, he did not do any work. I had a list of all my improvements for the property. Warranties for all new applicances (water heater, garage door), information on the landscaping. I staged it myself and a professional thought someone else did (as he showed up on my first open house) I sold that house in twenty days. If you have to move you are motivated to get it sold.

    And I do agree many of these listings are trying to see what price they can really get. They really do not want to move but they clog up the system and hurt and waste everyone’s time.

    Selling yourself can hurt you as well as the buyer does not want to meet you but for me it worked in my favor as I had information that the buyer wanted. So much of this is missing in selling a home.

    I think an educated buyer is what the new RE market will have to deal with. As questions asked first should be before I’ll give you a bid. Hopefully those days are over.

    As I look at homes now I have not found one RE agent that has done any kind of homework on the house he or she is trying to sell. They are there to sit and look stupid. If you ask them a question about the home they have to look it up they have no clue as they sit in the home.

    It’s really terrible and yet they want to be paid sky high for listing it.

    I am with IR the entire model needs an overhaul and I am totally for it.

  9. dafox

    funny, I was just thinking of this RE process yesterday.
    What needs to be done is a flat fee buyers agent. I want a house. I also want an agent who WANTS to get me a kickass deal – NOT be motivated by a higher buy price.
    Its a buyers market, and agents should be helping buyers get a better price. You can avoid alot of the shopping around by having an agent who LISTENS to the prospective buyer.
    Agent would do the following before getting onboard:
    1. Have a bullet point list of items in houses (fixer upper or move-in ready, fireplace, pool, etc). Buyer marks ‘must have / desired / no preference / do not want’ on each item.
    2. Agent verifies what buyer truly can afford and pay for (how much cash do you have for closing? do you really have a pre-approved loan? etc)

    Agent then is able to tailor houses to the buyer without showing them 30 diff houses. Agent also has to listen to buyer, figure out their likes/dislikes and further tailor houses to what they’re looking for.

    1. tlc8386

      Problem is no one is willing to do any homework and if you find that agent you have a gem.

      One said to me when you find your house call me and I’ll do the paper work for 6% of course.

      Still renting 4 years now here in OC.

      someone find me the house I want and I’ll pay you a decent $$$

      any takers?? LOL

      1. Mikee

        That’s the problem isn’t it – will the buyer’s agent be able to find a house you want (i.e. price,location,amenties, etc.) that you wouldn’t find yourself.

        My last realtor did that, and also found someone to buy our old house. She had a network that was able to get us what we wanted without my having to put in the hours searching the listings or playing ‘open house’.

        My first realtor experience was more of the ‘call me when you find something.’ I dropped her immediately.

  10. owner

    Just wanted to say that the commission is totally negotiable between agent and owner. I sold a house in 2005 and had an agent who was open to some innovation. I thought I could sell the house myself at 900k, so for the listing agent I negotiated a commission that looked like $5k + 15%*(sales price-900k). To avoid confusion, we appended a table to the agreement that listed the sales price in 5k increments and the corresponding commission I would pay. I thought this would give incentive to the agent for the highest closing price possible.

    I wanted to do something similar for the buying agent, but my listing agent said it was too complex for them to understand. In his words, “the MLS only has a space for 2 digits and a percent sign”.

  11. autolykos

    “Redfin calls out the FSBO listings, so they are easy to find. From what I have observed, most owners if left on their own do not price the property properly, and they do not market it very well. The listing prices are usually beyond WTF despite the fact they do not have to pay a 6% commission. You would think they would price it lower, but they don’t. Often the realtor is the only party to a listing providing a reasonable estimate of current market value. With nobody to push back on the listing price, FSBOs start with WTF pricing. Greed and ignorance if left unchecked is embarrassing.”

    Anecdotally, I can say this is true. When I bought my house, there was a house on the same street FSBO. The development is pretty cookie-cutter, so all the houses are basically the same, so we called them to ask them their asking price. It turned out to be 20% more than the house we ended up buying (which, again, was almost the exact same house). It ended up selling for marginally more than mine after they got a realtor involved. It really isn’t possible to underestimate the stupidity/greed of most people.

    Speaking of which, I was watching HGTV this weekend and saw a show about some woman from Newport Beach who was a “full-time real estate investor”. She was planning to buy a second home in Tuscany with the proceeds that she had accumulated buying and selling homes in So. Cal. I almost threw my shoe at the tv.

    1. tonyE

      The shows on HGTV should have the date (year) watermarked on the lower right of the screen.

      We were watching some HGTV shows (“what’s my house worth” – or something like that)that obviously had been shot in ’06. Like the cookie cutter house in SoCal that had shot up like 40% in three years…

      Nowadays, those shows should be shown in the “Science Fiction Channel”

      1. autolykos

        I was thinking the same thing. I can only imagine the woman’s been totally ruined by the crash in the real estate industry. Based on the show, it looked like all she did was sit at her computer, “research” “investments” and flip the properties she ended up buying. It’s a testament to how ridiculous things got that people were actually able to live an upper-middle class lifestyle when they added no value to the economy.

  12. brealiving (part of buyside realty) has a listing option for sellers. No fee. Listed on MLS and the seller does all the work. Good thing is it allows access to MLS.

  13. Why no fsbo

    I’ve been struck time and again by the ineptness of every FSBO I’ve ever encountered. I remember trying to talk a FSBO into selling for 3% less than the value of the house, essentially splitting the 6% real estate commission with me. They insisted on a value above the market and the house went unsold for over a year, including six months they had it listed by an agent.

    My theory is that the people who would do a good job selling by themselves also can do a good job of finding the best listing agent, negotiating a deal on the commission, and working as part of a team to maximize return.

    As to the way that real estate agents are compensated, there’s no way that the current structure survives any more than the classified ad has survived in the age of the internet.

  14. Gremlin2000

    I am beginning to lose a bit of confidence in your analysis. First, you reinforce the 6% model under every weekday post, then you continuously trash it in almost every other comment. Why even use it as a reference in your posts? You probably just use it to enhance the shock value of the potential loss of the property.

    I think you can finally put 6% commission appendage to rest in your daily posts. The losses are big enough that you don’t need the added “.99 cents” to exemplify the loss.

    It seems that you and a lot of your respondents resent the money an agent makes on a sale. Well I do too, especially when you have a bunch of idiots in the business in an appreciating market. It seemed like the best silver-tongued shyster got most of the sales.

    Now in a depreciating market, the agents are having to work for the sale. Let me point out Irvine Realtor here. And with lower prices, the pay-off is much less. What you all have to remember is that Irvine is not the only city that agents do business in. What kind of money are we talking about in an average $350,000 sale?

    $350,000 x .06 = $21,000 x .5 = $10,500. Divide that by their split with the broker and Uncle Sam and then factor in the months it took them to secure that sale assuming, like most of you, that they just sat on their butts and invested nothing on the transaction. Which one of you would like to work so little money for months of “work”? And why do you people resent real estate agents making so little?

    No wonder the system is full of uneducated agents right now. Most of the smart people have left the real estate business and are actually working a real job that pays a living wage.

    Wait…. ok, I’ve got my Nomex suit on now. Fire away :smirk:

    1. tlc8386

      I can remember Irvine when one house was not below 1 million—

      so where do you get 350k? A condo I assume–

      somewhere ??

      And we all know what happened fast and easy money sent thousands of people into becomming RE agents–and yes many of then did a lousy job and even fradulant activities as in the one that used his friends to line up and bid up the prices.

      But looks like many did this as well with heloc’s abuses.

      Many lost all control as thousands poured into this market for the gold at the end of the rainbow mentality.

      Find me a real agent that really cares about their clients well being, what they can really afford, who has looked up the condition of the homes, who knows everything about the house and I’ll hire you.

    2. IrvineRenter

      I do not reinforce the 6% sales model in my daily posts. I merely reflect the reality of life in the business. When that changes, I will change the posts.

      As you noted, the numbers are so large, that no additional “shock value” is needed. I put down whatever number the calculator gives me because I want to be accurate.

      Most of the rest of the civilized world has a real estate sales system that operates on 2% commissions. There are fewer agents that cover more properties. In your example above, you made is sound like an agent works 40 hours a week on one property. In reality, if they don’t put in 40 hours total over the life of a listing. Given the amount of time they put into sales and marketing on any particular property, they are overpaid — well, at least they were during the bubble.

    3. WaitingToBuyByAndBy


      I believe most of the derogatory comments are aimed at those “bunch of idiots in the business in an appreciating market”. There is natural envy for someone who works out a way to get money for nothing. This includes flippers, realtors, and investors.

      And when I say money for nothing, please don’t take me literally. If a flipper adds $25k worth of improvements to a home, they are entitled to boost the price accordingly. However, boosting the sales price by $100k is not in accord with the actual value they added to the property.

      So kudos to you for braving the fiery tongues of the IHB. As others have mentioned, there is a genuine need and a desire for a competent, caring realtor at reasonable compensation (despite the minority of nay-sayers). Even IR supports the role of a real estate agent, although his post indicates a need for a change to the model.

      In response to your post about lower priced homes, it seems fair to consider the “minimum commision” that was brought up in previous comments regarding RedFin, who have apparently already discovered there is a price below which a 1% commission does not make sense.

      Real estate agents today face a potentially huge change (elimination of the 6% commission). This is whether or not IvineRenter’s plan is adopted at any scale. I consider RedFin to be of greater value to me than any real estate agent. Rather than considering it it a necessary evil to find an agent (to handle the actual transaction), I will seriously consider buying directly through RedFin.

      I bought two cars through AutoTrader and in addition to negotiations with the owners, I had both vehicles inspected before purchase. RedFin offers this same kind of shopping service (and risk).

      I believe people placed way too much trust in realtors during this bubble. As you may have guessed, that will be difficult to earn back. It is better for a buyer to buy knowing there is a risk: check the title, check the building permits, and get the house inspected. I would want to do these whether I used a realtor or not. So if I can find the property myself, and check the details, why would I need a realtor?

      So if you are as smart as your good grammar and spelling lead me to believe, you may want to take to heart your own words when you said “most of the smart people have left the real estate business and are actually working a real job that pays a living wage.”

      1. New Renter

        Has anyone had experience using Redfin and asking the listing agent to show you the home on behalf of the seller as Redfin recommends? We tried to follow this procedure when we rented our current home. We did all the research ourselves. We would find homes that we were interested in and then ask the listing agent to show us the home. We made a rental offer on one of these homes and asked the listing agent to refund us part of the 6% commission or reduce the commission, since we were unrepresented. She got very offended and called in her broker who threatened us. They claimed that the listing agent was entitled to 6% because she originated the rental by showing us the home. They did not agree that she had shown us the home on behalf of the owner. We ended up letting it go because it was the exact house that we wanted for the right price, and we didn’t want the owner to not want to rent to us as potentially difficult people. Any suggestions for how we should have handled this?

  15. jsgoodkind

    “Owners are sometimes very greedy. They put a WTF asking price on the property to make sure they extract every last penny from the sale.”

    I love it…like the owner shouldn’t try to get the most money possible…give me a break.

    No, they should just give the house away. Don’t want to appear greedy…heaven forbid! LOL

    1. tlc8386

      It took ten years and lot of $$$$$ improvements for my house to double in the Bay area and this was insane–moved down to the OC and the houses here tripled in less than three years–
      even more so—

      And only a few places in the States came close–NY city and maybe some in Fla.–

      And very few improvements as I was shown houses with no yards (grass or sprinker systems) no hardscape, no underground drains, no improvements for mudslides (LOL) a joke here.
      NO new paint, falling apart houses, VERY OLD as well.

      The OC in my opinion was drinking drug filled Koolaid compared to any where else in the country.

      Just look around and do some real homework.

    2. IrvineRenter

      You are making a straw man argument, but I suspect you know that. Nobody has suggested sellers should be giving their properties away or selling them for less than fair market value.

      There are legitimate reasons for sellers to accept a few pennies less than maximum potential resale value of their property. Not the least of these is actually closing the sale. Rejecting legitimate offers in hopes of a better one is a good way to sell for much less later. It happens all the time.

      Appearing greedy and unwilling to negotiate is a turn off to many prospective buyers. Unless the property is prices well to begin with, the buyer is inept at negotiation, or the buyer is crazy in love with the property, greedy sellers simply do not sell their properties.

      Greedy sellers are the ones most likely to sell for less than the largest bid they received on the property, and they will take the longest to sell it.

  16. Elliotte Harold

    One thing I’ve been curious about on a lot of your posts. Where do you get the mortgage information from? That is, how did you find out that “This property was purchased on 12/20/2006 for $870,000. The owner used a $696,000 first mortgage, a $130,500 second mortgage, and a $43,500 downpayment. The owner went into default, and the property was purchased by INDYMAC FEDERAL BANK FSB on 12/10/2008 for $552,758. That sale represents a 37% drop from the peak.” Obviously this is from public records, but where/how did you look up this information?

    1. IrvineRenter

      There are several data services that organize the public records. Most of these charge for the data. The service I use is

      1. Bitter Renter

        “Most of these”? So there are sites that don’t charge for this data? If so, what are they?

  17. Jim Jones

    I can’t imagine why anyone would want to own a property like this unless it was as a cash positive rental. I think IR mentioned this in a previous post, there are two types of properties: those that would only appeal to an investor as a rental and those those that normal(IE not crazy) people would want to own to live in. This property falls in the former category. Thus the 12/2006 price is that much more astounding. It seems to me that any sales numbers that do not differentiate between these two categories of properties are of dubious value.

    1. autolykos

      I keep looking at the redfin listing to see if there’s something I’m missing that would cause a person to pay over $600,000 for this place. The prior owners I can understand – they just came to the closing table with $40,000 and expected to be able to just finance the thing forever. But how do you sit down in today’s financing and decide to spend this kind of money on this place? Even compared to the rest of the places usually profiled it’s subpar.

  18. NOT

    Oh Look, it is a few houses away from the 405 freeway. How “convenient”.

    I know a little about these units and before any purchases, one should really take a hard look at the (cast iron) pipes 🙂

  19. tlc8386

    Example of house priced way out of market–

    Property History for 4082 escudero
    Date Event Price Appreciation Source
    Dec 17, 2008 Price Changed $1,099,000 — SoCalMLS #P646208
    Dec 13, 2008 Price Changed $1,149,000 — SoCalMLS #P646208
    Dec 13, 2008 Relisted — — SoCalMLS #P646208
    Dec 12, 2008 Off Redfin — — SoCalMLS #P646208
    Dec 10, 2008 Price Changed $1,150,000 — SoCalMLS #P646208
    Nov 28, 2008 Relisted — — SoCalMLS #P646208
    Nov 08, 2008 Off Redfin — — SoCalMLS #P646208
    Oct 21, 2008 Price Changed $1,290,000 — SoCalMLS #P646208
    Sep 18, 2008 Price Changed $1,399,000 — SoCalMLS #P646208
    Sep 18, 2008 Price Changed $1,599,000 — SoCalMLS #P646208
    Sep 17, 2008 Price Changed $1,399,000 — SoCalMLS #P646208
    Aug 13, 2008 Price Changed $1,650,000 — SoCalMLS #P646208
    Jul 10, 2008 Listed $1,900,000 — SoCalMLS #P646208
    May 21, 2008 Sold $352,900 -33.3%/yr Public Records
    Nov 02, 2005 Sold $990,000 107.4%/yr Public Records
    Jun 16, 2005 Sold $750,000 18.4%/yr Public Records
    Mar 03, 2000 Sold $307,000 34.9%/yr Public Records
    Sep 10, 1999 Sold $266,000 — Public Records

    *Per MLS rules, we cannot display prices from inactive listings.
    Property Tax
    Taxable Value
    Land $875,439
    Additions $91,769
    Total $967,208
    Tax (2008) $10,107
    What’s the Market Like for Houses Near 4082 escudero?
    House: $/Sq. Ft. in 92620
    92620 House median price per square foot
    Median House Values
    Select a neighborhood, zip code, or city for more stats.
    List $ $/Sq. Ft.
    Northwood (Irvine, CA) $699,900 $357
    92620 $759,900 $357
    Irvine $850,000 $375

    Home Value Estimates for 4082 escudero
    Low Estimate High
    Zillow.comZillow No data is available for this property.
    Eppraisal.comEppraisal $624,008 $734,128 $844,247
    Cyberhomes.comCyberhomes $902,768 $1,003,076 $1,153,537
    No chart or percentile data is available for this property.

  20. JoeLadera

    The sooner we flush these realtors the better. We have been getting ripped off by this racket for too long. It wil be refreshing to not have to deal with some of these cheesy sales types (anyone see American Beauty?).

  21. LarryB

    You will all love this one. A small house near me went on the market in December for 540K (4 Briarglen). No takers. The realtard has now upped the price to 575K! I’d love to hear an explanation from Bill White at Prudential.

  22. Carnap

    Wow….this property just reminds you how utterly irrational real estate got in California. This house for $870k? $630k…?

    I’m not even sure I’d live in this piece of crap for free.

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