Lower Buyer's Commissions?

It is possible to significantly lower buyer’s commissions, but it will take a change of buyer behavior to do it. Today’s post shows how this could be done.

365 Orange Blossom kitchen

Asking Price: $189,900

Address: 365 Orange Blossom #140, Irvine, CA 92618

The Soup Nazi — Seinfeld

No soup for you! Next!

All businesses create expectations for service with their customers. The Soup Nazi is the best known example of a business owner whose product was so desirable that customers were willing to do whatever was necessary to get it.

Have you dealt with an attorney lately? Attorneys have trained their customers to expect to pay large retainers and to be billed enormous sums for every passing thought the attorney has about the client. They are second only to the Soup Nazi for training their customers to succumb to their wishes.

Realtors have done the poorest job of any industry that I can think of at setting appropriate customer expectations. The customers of buyer’s agents have been trained that it is OK to demand unlimited hours of an agent’s time to be driven around to look at dozens and dozens of properties for no compensation at all. Agents are actually willing to do this because they hope for the possibility of compensation if the looker actually becomes a buyer. As a result, buyers of real estate are subject to paying an inflated cost to cover the cost of those who look but do not buy.

For an agent, real estate commissions are like playing roulette; you don’t know when you will get compensated or how much it will be, but since commissions are so large, it is a game many are willing to play. It is the size of commissions that encourage realtors to play this game, and it further serves to create poor customer expectations.

Lowering buyer’s commissions requires reframing the compensation system to encourage a more efficient use of a realtor’s time. It starts with customers realizing one important point: when you pay a realtor a 3% commission, you are not just compensating them for the time you spent with them; you are compensating them for the time they spent with the other clients who did not buy a property and generate a commission.

This fact has two important implications for developing methods of reducing commission rates: (1) realtors can charge much less if they know they are going to get paid, and (2) realtors can charge less if they do not have to invest large amounts of time in non-paying customers. This efficiency is best achieved if compensation moves away from a commission basis to a pay-per-services model.

If the buyer and the broker have established a billing rate for the services performed, the buyer knows what they are paying for, and they are likely to be more judicious in their demands on the realtor’s time. For those who judiciously use their broker’s time, they will receive a commission rebate at the close. For those that go over their allotment, they may pay up to the typical 3% commission, but the commission will never exceed the amount specified in the listing contract.

What follows is not a service offering. As you may recall, we are in the process of forming a brokerage, but we are not DRE approved yet, so what follows is a hypothetical of how such a structure could be achieved.

What a buyer’s broker does

When you examine the tasks of a buyer’s broker, there are really only four major tasks they perform: (1) research properties for buyers, (2) show properties to buyers, (3) prepare formal bids and negotiate deals for buyers, and (4) coordinate the outside professionals during the escrow process. There is plenty of routine communication with phone calls and emails between broker and client during the process, but the four items listed are the ones that consume most of a broker’s time.

Once the key tasks are identified, a broker could establish a billing rate for each of these tasks and charge accordingly. Depending on the assurance of getting paid, the rates would be different, but the connection between time invested and compensation would be apparent to both the broker and the client. Once clients see that their actions have a direct association with how much they ultimately will pay for the service, they are incentivized to be more efficient in their use of a broker’s time; both parties benefit.

Traditional Commission Program

Many people will not want to be cost conscious when they purchase a property. They will want to take their time, look at many properties, and feel no obligation to be efficient with using a broker’s time. There is a commission structure for everyone, and those people will pay the full 3% (or whatever commission is specified in the listing contract) for full service.

Billable Hours Program

Lowering the commission is relatively easy with a pay-for-services model. In this model, the services demanded of the buyer’s agent are recorded, and a running total of billings is tracked. If a transaction takes place, the broker will be paid at the close of escrow for amounts billed up to the commission amount specified in the listing contract. If no sale occurs, the prospective buyer is not obligated to the broker for any of the billable time.

This model provides an incentive for buyers to be judicious in their use of a broker’s time, but it does not provide assurance that the broker will get paid. Due to the uncertainty of payment, the billing rates will seem rather high, but as previously noted, buyers who complete a transaction are paying for all those who do not.

The billable hours commission structure could work as follows:

  • A minimum fee of $8,000 is charged at the close of escrow for coordination of the escrow process and other miscellaneous unbilled services provided during the sales process.
  • Showings cost $200 flat fee plus $200 per property viewed on each tour.
  • Brokers Opinion of Value reports, which are required before first written offer, cost $600 for each property.
  • First written offer on each property costs $600.
  • Subsequent written offers cost $400 each.
  • The overall commission is subject to a 1.5% minimum charge. Any funds due to buyer’s broker from the listing contract in excess of the amount billed are returned to the buyer.

Example of a Billable Hours program:

Assume a buyer has a budget for properties in the $800,000 range. During the course of the search, they go on 3 home tours and visit 8 properties. They write offers on 3 properties, and after 5 counteroffers, they end up buying a property worth $780,000. How much would their commission be?

$600 – three showing appointments
$1,600 – view eight properties
$1,800 – first written offers on three different properties
$2,000 – five counteroffers required to close the deal
$8,000 – escrow coordination and realtor compensation
========================================================
$14,000 – total broker compensation

$23,400 – listing contract buyer compensation at 3%
$14,000 – fee to broker
========================================================
$9,400 – refund to buyer after closing

The buyer would pay a total fee of $14,000 to the broker. Since the commission paid at the closing table would be $26,400, the buyer would receive a check for $9,400 from the closing ($23,400 – $14,000 = $9,400). That works out to a 1.8% commission.

Billable-hours programs such as this one are most favorable to high-end buyers because the fees will quickly consume a 3% commission on a low-cost property. Despite this disadvantage, the potential is there to reduce commissions at most price points.

Retainer Program

To get to the lowest possible price point, a broker must know they are going to get paid for the time and effort invested in the process. Since buyers are so accustomed to getting this service for nothing, a typical billable-hours scenario will not succeed because people who do not buy simply will not pay the invoices when the bills come due. However, if a billing rate is established up front—a lower billing rate than the non-retainer structure due to the assurance of compensation—and if a buyer is willing to put up a retainer to guarantee payment, then a low-cost minimum compensation structure can work for both parties. This will be most advantageous for a buyer who (1) knows with certainty they are going to purchase, (2) does most of their own research, and (3) will not be lowball bidding on dozens of properties. A buyer who fits these criteria can get a significant refund at the closing table.

The Retainer commission structure could be structured as follows:

  • A minimum fee of $4,000 is charged at the close of escrow for coordination of the escrow process and other miscellaneous unbilled services provided during the sales process.
  • A retainer of at least $4,000 is required to qualify for this program.
  • Showings cost $100 flat fee plus $100 per property viewed on each tour.
  • Brokers Opinion of Value reports, which are required before first written offer, cost $300 for each property.
  • First written offer on each property costs $300.
  • Subsequent written offers cost $200 each.
  • The overall commission is subject to a 1.0% minimum charge. Any funds due to buyer’s broker from the listing contract in excess of the amount billed are returned to the buyer.

Example of a Retainer program:

Assume a buyer has a budget for properties in the $500,000 range. During the course of the search, they go on 4 home tours and visit 10 properties. They write offers on 3 properties, and after 4 counteroffers, they end up buying a property worth $480,000. How much would their commission be?

$400 – four showing appointments
$1,000 – view ten properties
$900 – first written offers on three different properties
$800 – four counteroffers required to close the deal
$4,000 – escrow coordination and realtor compensation
========================================================
$7,100 – total broker compensation

$11,400 – listing contract buyer compensation at 3%
$4,000 – retainer paid in advance
$7,100 – fee to broker
========================================================
$8,300 – refund to buyer after closing

The buyer would pay a total fee of $7,100 to the broker. Since the buyer paid $4,000 in advance, and since the commission paid at the closing table would be $11,400, the buyer would receive a check for $8,300 from the closing ($11,400 + $4,000 – $7,100 = $8,300). That works out to a 1.5% commission.

In general, the retainer program will result in the lowest commission rate. If this same example is repeated for the $880,000 property in the first example, the commission would be subject to the 1% minimum charge.

{book7}

Bottom line is that people must be compensated for their time, or they will not perform the task. This is not greed or avarice, it is just a fact of life.

What is stated above is not a service offering; it is a hypothetical example of how alternate commissions could be structured to make the industry more efficient. Perhaps some area brokers reading this post will implement these ideas, perhaps not. As with the post, The New Real Estate Sales Business Model, a discussion of ideas in the public realm is a good thing. The 6% commission model is broken, and its days are numbered. The industry needs to start looking for alternatives to take its place.

365 Orange Blossom kitchen

Asking Price: $189,900

Income Requirement: $47,475

Downpayment Needed: $37,980

Monthly Equity Burn: $1,582

Purchase Price: $300,000

Purchase Date: 11/24/2004

Address: 365 Orange Blossom #140, Irvine, CA 92618

Beds: 1
Baths: 1
Sq. Ft.: 814
$/Sq. Ft.: $233
Lot Size:
Property Type: Condominium
Style: Contemporary
Stories: 2
Floor: 2
View: Creek/Stream
Year Built: 1977
Community: Orangetree
County: Orange
MLS#: S562617
Source: SoCalMLS
Status: Active
On Redfin: 85 days

Upper level end unit 1 bedroom with a loft that could be a 2nd bedroom.
Cathedral ceilings add volume and spaciousness to this largest 1
bedroom plan in the Lake Condos tract. Living room and balcony overlook
streams and waterfall with ducks. The tract includes pool, spa, tennis
courts and clubhouse. Quiet interior location on a greenbelt away from
the noises of the street. Adjacent to Irvine Valley College, shopping,
restaurants and both the 5 and 405 freeways.

If you were going to stage a picture to make the kitchen look as small as possible, could you do better than today’s picture? This place isn’t fit for hobbits.

P.S. Check out the post at South Coast Homes. Kelli Hart has picked up the story on the Laguna Beach HELOC abuse.

103 thoughts on “Lower Buyer's Commissions?

  1. OC Progressive

    Interesting.

    The world of real estate commissions didn’t seem so crazy when you could buy a house for 200K and you didn’t have the resources on the net to do your own research. Then a $6,000 commission on each side didn’t really seem outrageous for a good agent.

    Now, it’s hard to justify either the 3% on the seller’s side and even harder to justify the same cut on the buyer’s side. A good escrow company can do the bulk of the post sale work.

    I’d really like to see a system where the agents were free to negotiate the rate of commission and the services to be performed. I think you’d see some very strong agents lower the gross commission from 6% to around 3.5%, with a few strong specialists in every neighborhood competing on price and service. Most of the useless agents would be out of business.

    1. IrvineRenter

      I know this sounds antithetical, but one of the difficulties of lowering commissions is the competition. There are so many realtors playing the game because of the high commissions that the total number of properties divided by the total number of realtors is a small number. It makes obtaining volume very difficult. If you lower them too much too quickly, there are still too many realtors out there to generate enough volume to make a living. IMO, the adoption of a commission structure as described above would lead to fewer agents and lower commissions overall, but it will take time.

      If lower commission rates increases volume (if demand proves to be elastic), then it will be easier to adopt a lower commission model. If however, lower commission rates do not significantly increase volume due to customer loyalty and relationships to their agents or other factors, then we may be stuck with a 6% model for quite some time.

      1. OC Progressive

        Frankly, the herd needs to be thinned. There will be a demand for professionals in addition to discount services, but this 6% model is nonsense, and only adds to the inefficiency and unprofessionalism of the Realtor class.

  2. Chuck in Newport

    Agents aren’t lawyers, and they shouldn’t be paid more than 10 bucks an hour to drive people around and open doors. As for preparing offers…again, they aren’t lawyers and cannot act like a lawyer in any sense of the word without breaking the law. They are not allowed to “give advice.” The buyer and seller can read (though they often choose not to, to their detriment at times). Deciding whether B or S pay for termite inspection? Not rocket science, just a part of the deal (on the East Coast, in some places this is negotiated; some places it is “customary” for one party or the other to pay – -I think the same is true here, and the difference is in So. Cal. one party usually pays, and vice versa in Nor. Cal.). Standard sales contracts are just that. The buyer and seller should be filling out the forms themselves, because they will have to live with the terms. Moreover, on nearly every transaction I have done, one or both agents have lied to me or to the other agent…and they have misrepresented “facts” all over the place. They have used amateurish tactics to get a deal closed (e.g., “another offer is coming in so you’d better hurry with your counter offer” etc.). Enough. There should be no standard situation where a real estate agent gets paid thousands of dollars (and the sellers’ agent does what exactly, besides illegally give what in reality is legal advice?) and post listings to web sites and sit at open houses? The whole industry needs an overhaul, and not simply a structured discount from the exorbitant lump sums that are paid. High school graduates can make appointments and open doors. Good faith negotiating? Since when does an agent try to truly negotiate on behalf of a customer, when their livelihood depends upon getting paid and closing a deal, NOT on protecting or advancing the wishes of the buyer/seller? They are willing to get you a small discount, but when you go for a REAL price instead of 10 percent off of WTF, you have so much convincing and explaining to do to your OWN agent that it is frustrating beyond belief. I think there should be a flat fee of some kind for some services, such as $100 for 20 homes showed, but not the high fees detailed above. Or let them cover their gas and make minimum wage. This isn’t a true “professional” service (dentist, doctor, CPA) any more so than a retail clerk is a “professional.” And they should get paid accordingly.

    Having said all that, maybe, just maybe, an honest guy like IR can make this thing work, so that us consumers don’t feel like we are getting taken, and that the payment of commissions (or fees) is an evil to be despised. That would be a welcome sight on the horizon.

    1. MalibuRenter

      Realtors give advice all the time, much of it bad advice.

      I have been surprised when looking at real estate elsewhere that the agents are often much more professional than SoCal. I was surprised that they could answer many more questions accurately off the top of their heads. Like year built, number of square feet, whether there was a security system.

      I met seven different agents while shopping for a place in Dallas. Any of them would be in the top 5% in LA for knowing actual details of the homes they were showing. They even had dimensions of all of the individual rooms in the descriptions.

      1. Takeda

        SoCal is full of two types of ‘agents’ Corrupt or incompetant. Not being able to answer questions that are required on the DRE exam. HMMM. How did they pass if they are that incompetant. What was the other option?? If I ask about SqFT they should know. Or honest answer on plumbing upgrade. Here a great Q’s I never get answered. What was the cost per sq ft in this area over the years.From say 1990-2009 they dont want you to know. Why. Shhesh look at the increase and you’ll realize that you’re the last sucker in. Back east I would get DETAILED comps on Lot size, replacement cost, RE 101 stuff, things I never knew to ask, I was told by my agent. (Maybe I was lucky, good agent?) and ofcourse when I ask here in SoCal, the rules don’t apply… No one lucks at that…yada yada yada. Just watch your pocketbook.

      2. DarthFerret

        The only advice that I’ve ever received from real estate agents is: BUY!!! It comes in varying flavors and with varying degrees of passion and urgency, but the advice has always been the same over the past 18 months that my wife and I have been looking. The scariest part is that one of them nearly hooked us into buying back in March 2008. We’d be nearly $100K underwater if we had followed through on that buy. (I started reading this blog shortly after that close call.) I’ve yet to hear a realtor tell me specifically why it would be a bad idea to buy ANY specific property until I’ve already pointed out a specific fault to him/her myself. They don’t mind repeating the fault after I voice it, but they NEVER point it out first.

        And I actually LIKE the agent that I’m working with at the moment! But that’s mostly because he’s invested so many countless hours of his time into us. When we eventually do buy (making lots of low-ball offers on Irvine REO’s recently), there’s no way that his commission will fully compensate him for the time that he’s spent with us.

        1. Geotpf

          His commission is fine. Assume he’s spent two full working weeks (80 working hours) on you, and you buy a property that costs $500k (typical for Irvine, unless you are looking at condos), and he’s coughing up half of the 3% commission to the broker, he will make $7,500, or $93.75 an hour. If that’s typical for him, and he works a 40 hour week, with two weeks off a year, he’ll make $187,500 a year.

          1. IrvineRenter

            Actually, you would need to cut that number in half to account for all the people who are shown properties who do not buy. Then you are looking at a realistic scenario for what buyer’s agents make.

          2. Geotpf

            Yeah, but you also will get people who look at just a few houses and make a purchase almost immediately. I doubt the typical homebuyer requires 80 hours worth of work before a sale; maybe half that or less. But factoring in the lookie loos and the people who are picky, and I imagine the average would be about 80 hours per sale. I wonder if anybody has ever calculated what the actual number of hours worked per sale is in the real world.

    2. chuckconners

      Not every first time buyer is aware of dishonest realtards -steering buyer to fly by night lenders,corrupt appraisers,gypsy termite companys,escrow firms that pull fast ones and of course the insurance guy everyone uses..you buy a house and keep on paying for this crap for years.

  3. cara

    Odd choice of property to go with this post. Below the $200k level, the numbers you listed would never yield a rebate for the buyer even under a retainer program. Thus I think you would need to set a cap as well as a minimum in the contract with your buyer’s agent.

    1. IrvineRenter

      Yes, low-cost properties are a problem just like leases in the MLS. Agents don’t like to mess with them because they don’t make much money. It doesn’t take any more time for an agent to close a $2,000,000 deal than it does to work a $200,000 deal, but the commission is 10 times as much. In fact, when I originally considered this idea, I wanted to eliminate the minimum commission entirely, but a minimum commission is necessary to make up for the money not made on low cost properties and to compensate for the additional cost of errors and omissions insurance on high-priced properties.

      1. no_vaseline

        If this keeps up (market prices crashing to 1997esque levels) all the properties will be low cost.

          1. mike in irvine

            I doubt that will happen in irvine. These days good houses in the mid to upper mid market range are getting multiple offers. Areas like Westpark/Oak Creek have very low inventory and banks are still not willing to lower prices on foreclosed homes.
            I am a renter and I dont see any chances of hitting my or IR’s cash flow valuations this year. Prices are bound to go higher if the economy show any signs of improving. There is a lot of talk about a tsunami of foreclosures hitting irvine…i doubt that will happen.

          2. Soapboxpolitico

            Mike – Don’t forgot the fundamentals, it’s always about fundamentals!

            Median home prices in Irvine grew to past 10x median incomes and no amount of funny money and creative financing could sustain it. I assume you’ve been paying attention these past 18 months or so?
            Put more plainly, something is worth NOT only what someone is willing to pay but also WHAT they can afford to pay. (This is why rents are a reliable indicator of what housing should be.)

            Irvine, like many places in CA, is a classic tale of the emperor has no clothes. Although I have no concrete data to cite, it is my considered opinion that many, many households in Irvine, and large parts of OC and LA county, comprise majority portions of that “tsunami” of Alt-A and Option ARM resets headed our way.
            These folks were just better at managing their money and/or moving cash around to stay afloat and we all know that does not a permanent solution make.

            As has been said many times here in the past, when prices, median or otherwise, meet 3 to 4x incomes stability will return. Or, if you prefer, when prices meet 140 to 160x rental equivalency will we see normal and sustainable home prices. There is still a lot of toxicity to work out of the system. Be patient and don’t forget the lessons learned here.

          3. Soapboxpolitico

            Oh. And don’t forget … multiple offers doesn’t really mean a thing. How many of those offers resulted in closed deals in escrow?

            That is where the proverbial rubber meets the road.

          4. renter_forever

            I wish what you are saying is true. I am so tired of waiting for Irvine house prices to come down to reasonable levels, I have been looking for 3 years now.

            Sometimes it gets frustrating and you are tempted to overpay/stretch but I have resisted it so far.

            It is however, discouraging to see the Govt trying to prop up this housing market artificially. It makes me feel that responsible behavior gets you nothing other than feeling good with your conscience. Anyway just venting here…

            Nice blog, I just found it last week. I hope what you predict comes true but I have a nagging feeling that Irvine might hold its own.

          5. Soapboxpolitico

            I hear ya, believe me I hear ya!

            The wife and I fell out of escrow on a place almost three years ago. Turns out to have been the smartest financial decision we ever made or we’d be precisely the folks we keep reading about. I found this blog shortly beforehand and I dare say it was a miracle because it was the deciding factor in us walking away.

            I keep telling the wife, patience, patience the market will come to us. I too get angry and frustrated when I hear about yet more doomed-to-fail plans trotted out to “save the homeowner”. Bull***t! These plans only temporarily forestall the inevitable and worse, reward bad behavior. The only thing that can cause stability is a return to fundamentals and true affordability … OR significant wage increases and which do you think is more likely?

            It’s the classic moral hazard … how do you punish the guilty while rewarding the innocent? In this case it’s painfully simple, allow “home owners” (home debtors) who are inextricably overextended to fall into foreclosure. Purge the system of the toxicity and push the reset button. I argue that there are far more “good” people like ourselves who did the right thing, who saved for the future, who forewent instant gratification, who meet their financial obligations out there than those who gamed the system. If not then we certainly number enough to restore some semblance of order and stability if given the chance.

            More to the point, if you’re Joe Banker wouldn’t you rather deal with the guy who’s got downpayment cash and a solid credit history then the guy who’s trying to wriggle out from underneath his bad decisions? And what does it serve to artificially prop up a house of cards, if you’ll pardon the pun?

            Be patient. The fundamentals never lie and equilibrium will return. It will happen in fits and spurts and might even be painful for all concerned but it will happen. Two sayings come to mind: Easy come, easy go. & Anything worth having is worth working toward.

          6. renter_forever

            Yeah, we too fell out of a deal early last year and I am very glad we did. I have to credit my wife with that.

            My wife is usually more emotional about houses, when she herself said that this deal was not worth it, I knew we had to back out.

            I am still amazed at these banks who a couple of years back we trying to convince me that I could easily afford a loan 7x times my salary!!

          7. mike in irvine

            I understand your point and do hope that some sanity returns to the market. Most of the people in Irvine consider $700k for a 3.5 bedroom house to be a firesale price. I have no idea where they get such kind of money or how they can afford to make the monthly payments.
            I think a record number of houses will be sold in April and May.

      2. Blueberry Pie

        “. It doesnā€™t take any more time for an agent to close a $2,000,000 deal than it does to work a $200,000 deal,”

        Just like tipping a waiter. The waiter didn’t work any harder to bring me a $20 steak than he did to bring me an $8 hamburger, so why do I have to tip him twice as much?

        1. Shannon

          OT:Just a little FYI, I worked in the service industry for years. Waiters are taxed on their sales totals. Sales prices are added in to hourly wages and then taxed. If you look at a food servers pay check and say they worked 60 hours in a two week period, their paycheck would not even reflect the hourly minimum wage. Does that make sense? So the higher the bill the larger tax obligaton the food server has the larger the tip needs to be to compensate for the payment to the government. Also, food servers have to tip out busboys and bartenders who do not claim their tips or sales plus they usually make more than minimum wage hourly. It is a little twisted. We don’t think twice about giving a bartendar a buck or two for two drinks but quible over 6.00 for a waiter or waitress spending an hour with us.

        2. IrvineRenter

          Yes, it is like tipping a waiter. Generally, you find better wait staff at high-end restaurants because the tips are better, but this is not always the case.

          Interesting analogy. I had not thought of that…

          1. Blueberry Pie

            It could be the same restaurant. You could go to Chili’s and order something that costs $18 or something that costs $9. Neither one is any more work for the waiter.

            Shannon, I realize that waiters are taxed on their ticket totals, so I always tip fairly based on my bill (and usually even high when my wife and I split meals and end up with a low bill). The system is lame, but I follow along with it because otherwise it’s the little guy getting hurt.

      3. Soapboxpolitico

        IR – hello again, it’s been some time no?

        One thought keeps rattling around my brain upon reading your ideas/thoughts on this subject of commissions and reforms, and perhaps you’ve answered this or addressed it already.

        Assuming the position of the buyer, what’s in it for me? Put more pointedly, if this is all, eventually, coming out of my pocket, wouldn’t my motivation be to pay NO commissions under any circumstances? Other than compensating for someone’s time to help me sort thru the data and find suitable properties based on my criteria, what do I really care what the seller’s broker does or doesn’t do for them?

        Maybe I missed that somewhere. Apologies in advance if I did. Thanks again for all the insight … can’t say enough about the sheer magnitude of knowledge I’ve acquired!

        1. IrvineRenter

          Hello, good to see you again.

          What most people forget–or perhaps do not realize–is that you are paying a buy-side commission whether or not you use a buyer’s broker. There is a 6% commission in a typical listing contract, so if you do not use a buyer’s broker, the listing agent will keep all 6%. In theory, working without a buyer’s agent should save you 3%; in practice, I have my doubts. Most listing agents will pocket the 6%.

          One of the reasons buyers do not think about this is because it is being paid by the seller. Or is it? If there were no commission, wouldn’t the house be 6% cheaper? Sellers have to get 6% more to cover the cost of the commission, so they try to hold out for 6% more money. The commission takes away some negotiating room.

          So I guess my long-winded answer is to say, of course you would like to pay 0% commission, but you are going to pay one since it is worked into the listing contract. The only question is “how much of that 6% are you going to get back?” Under the current system, you will get nothing. Under the system outlined above, you will get something if you are prudent with the agents time.

          1. Soapboxpolitico

            Understood. I suppose the commission rate or dollar amount could become an aspect of the transaction negotiations, as it has been in the past.

            I suppose my view was slightly askew, but perhaps not. Let me explain. Again, as the buyer, I am agreeing to purchase the home at X dollars. It is understood the seller is paying the commissions but because I am the one funding the overall transaction, it’s really my money we’re talking about here, not theirs. Sure the commissions technically come out of the sellers profitability but without me, the buyer, it’s all “monopoly money”.

            So to your point, if we remove commission rates of 6% then, QED, the transaction price should be 6% less. Obviously not the case, but it’s why I ask as the buyer, ergo the moneyman, what do I care what the sellers broker does or doesn’t do?

            As an aside, as a technology salesman myself, I’m constantly tasked to provide “value-add” to the transaction or, in theory, the buyer would be better off simply cutting me out and going to the vendor/manufacturer directly. (Because my commission is a direct component of mark-up/profitability of the deal. They cut me out, they save the mark-up.)

            Not to be glib but where’s the value-add from the buyer’s perspective?

          2. Soapboxpolitico

            Another thought just struck me … OUCH! šŸ™‚

            Perhaps you covered this as well. Maybe we just remove the idea of commissions altogether. I think you sort of suggested this but when what someone makes is solely predicated on the sale price, it invites a whole host of negatives not the least of which are collusion, non-transparency etc. HOWEVER, it is fair for someone to ask to be compensated for their time in a transaction and there is always the issue of motivation.

            Maybe one way to address this would be to simply require both sides pay their respective agents for the transaction. Be it a percentage or hourly rate or what have you. It’s the only way I can see both sides being fairly and ethically represented because both sides would be negotiating in the best interests of their benefactor working to find agreeable common ground. It could potentially remove the highest possible sale price as the principle motivation and simplify the agreement too.

          3. norcal

            Here in Silicon Valley sellers pay the commission, hence we should see a rise in people selling their own homes. We can all check out the listings now, and study the comps if we want to; it sounds as if in southern California buyers are at the mercy of the people who can open the lock boxes, whether they are honest and well-informed or not. Knowing that key code is all you need to earn a commission. So how much is that knowledge worth?

            Irvine Renter, how would your system work in a place where sellers paid the commission, and if in addition the properties were 50% REO? How do realtors get paid to sell foreclosed properties, anyway? Does the bank have a flat fee they pay, or do realtors work on commission for them?

            I think asking $200/per house viewed is too much, really. I’d be more willing to go for $50-80 as a buyer. I speak as a private buyer, not a property investor.

          4. Chris

            “Here in Silicon Valley sellers pay the commission..”

            Ummm…last I checked, I have to pay *all* commissions on both houses that I sold back in ’05 and ’06 in Irvine.

            *snicker*

          5. IrvineRenter

            There are too many questions to follow.

            I would note this:; if there was a competing MLS, perhaps an internet based listing service, realtors would cease to exist. The only thing that justifies their commissions is and always has been access to data. If this data were freely available and anyone could list a home for sale at any time, realtors would go the way of travel agents. Until we have a freely available MLS, everyone will have to pay realtors 6% to get listed in their private database.

            norcal,

            Believe it or not, REO listing agents generally make 5% or 6% on the listing. They are highly sought after because the agent knows there will be a sale, but competition has not brought rates down.

  4. MalibuRenter

    From looking at homes in Dallas over the past few weeks, I have concluded that California realtors don’t just have spelling problems and crappy photographic skills, they also waste a lot of their time arranging homes to show. Dallas has centralized showing reservations, and it’s awesome. The agents call a single service where someone is always in. They can make a reservation to see a house, or call on the fly and frequently go right to a house. No phone tag. The real estate agent we worked with also automatically mapped an efficient route for the showings.

    “Established in 1994, Centralized Showing Service, Inc. (CSS) was the first company to address the issue of home showing inefficiencies in the residential real estate community. Since its inception, CSS has become the largest and most successful company of its kind. CSS currently schedules over 15 million showings per year and has over 100,000 REALTORĀ® members in over 40 markets across the U.S. Our membership includes everything from, independent agents to large companies to entire REALTORĀ® Associations and MLS board-wide service. CSS has operations in Dallas/Fort Worth, Houston, San Antonio, Kansas City, Raleigh/Durham/Chapel Hill and Central Maryland. CSS also supports call centers for real estate companies in Memphis, Nashville, and Chattanooga.

    The success of CSS has grown out of our commitment to provide REALTORSĀ® a quick, courteous and professional way to schedule their showing appointments. Our state-of-the-art website reporting and feedback collection systems augment our high-quality, personalized service. In each market, our goal is to provide a single number for all REALTORSĀ® to call when scheduling their showing appointments. Agents find that they can schedule 10 or 12 showings in less than 5 minutes with CSS through our call center or even easier through our website. This ease of scheduling appointments through CSS makes our members’ listings more attractive for co-op agents to show.

    Centralized Showing Service, Inc. is a revolutionary system changing the way REALTORSĀ® do business. If you would like to bring CSS to your area please e-mail us at corporate@Showings.com.” http://www.showings.com/css_overview.cfm

    This should be high on the list California Association of Realtors reforms, right after mandatory spell check and prohibition of all caps on the MLS.

    1. no_vaseline

      Are you moving from Malibu to the big D?

      Talk about penthouse to the outhouse!

      1. Texas Triffid Ranch

        It all depends. There’s a lot going on in Dallas these days, and Fort Worth is one of the best-kept secrets in the country. Now, if you were talking about Lewisville or Plano, I’d agree with you. (I went to high school in Lewisville, and the place has only gotten scarier since I left in the Eighties. It’s a town where you don’t have to worry about people singing the high school football team fight song, mostly because they can’t remember the lyrics to “Dueling Banjos”.)

    2. IrvineRealtor

      This sounds like it would be a useful tool, but I question how effective it would really be. It is one thing to chart a course for 5 vacant homes, and quite another to accommodate a restricted schedule: from a family with a newborn that wants 24-hours’ notice, to a home where the seller requires that the listing agent be present (to guard against theft, perhaps), to tenant-occupied homes where the true stakeholders have no control over showing conditions.

      It sounds like you had a positive experience with it, though, so perhaps I’m being to pessimistic.

      1. priced_out

        When I sold my place in NC a few years back, I wanted 24 hour notice so that I could take my dog with me to the local park while the house was being shown.

        I have a siberian husky, and while he’s incredibly affectionate, he is not terribly loyal. Huskies love to run and the common problem is that they get off leash and start running — they run too far to find their way home… what a breed.

        I wanted to keep my dog, so instead of trusting a stranger to prevent him from slipping out, I would take my dog to the park and sit with him for an hour until the showing concluded.

        Our realtor used a centralized appointment agency. I got something close to 24 hours notice before each appointment so that I could take time off work to take my dog to the park.

        … you guys don’t have a centralized appointment agency? It’s not that difficult a concept. What astounds me is not that CA doesn’t have one; it’s that you’re so frickin’ arrogant (case in point: “penthouse to outhouse”) without even realizing (let alone considering!) that other states have it better than you.

        1. tlc8386

          I have to laugh don’t you know everyone in CA thinks this is the only place on the planet—Dalla I loved Dallas—great place the people actually talk to you and have a great quality of life—Good luck and great info–

    3. dean

      Welcome to God’s Country MalibuRenter.. Glad to see you made it safely.

      You’ll soon vaguely recall “Penthouse” memories of overpriced homes, soaring unemployment, confiscatory taxes, earthquakes, wildfires, water shortages and electrical brownouts.

      But thanks to IR and the magic of the internet, you can safely reminisce pool-side from Big D anytime.

      Remember – Life’s not better in Texas – just bigger and less expensive.

      1. no_vaseline

        Yeah – now he got ice storms in Feburary and humidity that smother an elephant in exchange!

        Look, I’m from Bakersfield. I don’t have a ton of places to look down on. But Texas is decidely sideways from Bako.

        1. Texas Triffid Ranch

          Depends upon the situation. Ten years ago, I would have agreed with you, but my love/hate relationship with Dallas is definitely leaning toward the latter these days. A few more kicks to the head, and we’re gonna be a real live city, and not just a live rendition of a George Romero movie.

        2. Dean

          Vaseline – I spent several summer months in Barstow during the 90’s, so I think I’ve seen the one place in CA that could make Bakersfield look heavenly.

          1. AVRenter

            I see your Barstow and raise you one California City. Cal City: where bulldozers fear to tread.

      2. MalibuRenter

        I am in TX for at least three months. Not sure after that.

        Oh, and nice house, 3br 2ba, 2100 sf, very good safe neighborhood in Dallas, grassy half acre yard, furnished with fairly good furniture, 10 minutes to work. $2000/mo on a short term lease.

    4. Walter

      The MLS pushes you NOT to check your spelling! It only works with IE 6 and 7 which do not have spell checkers. I have tried and tried to use it with Firefox which has a spell checker, but it will not work correctly. So you need to keep moving text in and out of the MLS to check spelling. I do this, but many agents don’t bother.

  5. Lee in Irvine

    As the smoke clears, and we have a chance to see the carnage left behind, I think the realtors are gonna be a target of the gov’t.

    1. Geotpf

      Nah, their lobbying unit (that is, the NAR) is too strong. Also, they are like car dealers, in that every city has a bunch of them, and they therefore have the ear of local politicians everywhere.

      In the whole housing collapse mess, I’ve never heard a poltician put any of the blame on realtors.

      1. Lee in Irvine

        “Nah, their lobbying unit (that is, the NAR) is too strong”

        That’s what everyone tells me who works in the industry … and I know a lot of them.

        We’ll see … so far, all the media has done is channel in on the victims of the scheme, they haven’t gone into the details and the specifics.

        When you connect the dots, it’s very easy to blame a lot of this mess on the wild, wild, west, real estate industry, and blame a system that rewards latte drinking bimbos and cheap suit wearing carnival barkers.

        1. Lee in Irvine

          BTW, I want to add to that. There are some good, honest, smart, hard working people that are real estate agents. But I think they’re the minority.

        2. Shannon

          Among my female friends who have children, agenting counts–despite market conditions–itself among the most desirable careers, because one can make Big Money with relatively little work. We all know this isn’t true, but I think it’s telling that they believe it. They talk a lot about how it’s so flexible and not very difficult to learn and how you can bring your kid to showings and whatnot. That they think it’s the perfect career for someone whose priorities are elsewhere must say a lot about the agents they’ve encountered. Can’t say it’s an impression I can counter based on the real estate agents I’ve met.

          1. Geotpf

            If you’re good at it, it makes a lot of money. 3%, or even 1.5%, of a half a million dollars is a lot of money. If you close only a sale a month at a half million and take 1.5%, that’s $90,000 a year. Imagine if you can close 5 or 10 sales a month!

  6. Texas Triffid Ranch

    Truth be told, we can put blame on both sides for the inefficiency. Sure, the costs are concentrated on those who buy to make up for the idiots who are just wasting a realtor’s time, but what about the idiot realtors who waste a buyer’s time? My wife and I dread dealing with realtors, just because we can state “We need X and Y and Z, and we aren’t interested in a house that doesn’t have these three things,” and spend the next three hours being shown wildly inappropriate and ridiculous houses. (They’re almost as bad as corporate house relocators, who want to argue with you when you point out “Well, I’d someplace that’s, how do I put it, closer than 75 miles from work?”)

    1. girly girl

      Amen! We finally had to “fire” the first agent we ever worked with (back in the dark ages of 2001). He continually pushed us toward houses above our stated price range, into neighborhoods we didn’t want to be in. In 2002 we ended up finding what we wanted by ourselves, and THEN found an agent. Easiest commission she ever earned! We had another one come sniffing at our door in 2006, trying to convince us to cash in our equity (oh, equity, I miss you) and buy a $1mil house in Ladera Ranch of all places! We are about as non-Ladera as you can get. I wish I had listened to the part about selling, as pretty much all of my equity has evaporated (it’s a condo – sigh), but at least I didn’t drink the Ladera Kool-Aid.

      1. Texas Triffid Ranch

        Right now, my wife and I are living in a (rented) condo in a decent neighborhood, waiting for the debris from the real estate nuke strike to stop falling. Three years ago, we were getting three and four phone calls a day from realtors who thought we owned the place, and who wanted us to sell. Quite literally, our mailbox would get another five or six business cards per week from other realtors, all hinting that they could get us a really good price. I haven’t received a single one in about a year: it couldn’t have anything to do with the multiple McMansions across the street that haven’t sold in two years, could it?

    2. Shannon

      ^Yes. I don’t know how many more ways I can say, “Don’t contact me if what you’ve got doesn’t fit what I told you I wanted.” I realize times are tough, but the chances that I’m going to fall in love with a two bedroom condo when I want a four bedroom house, or vice versa, are pretty slim.

      I think the phrase we’re all groping for here is “time suck.” For everyone involved.

    3. Blueberry Pie

      Yeah, we went to an open house a few weeks ago. When we walked in we took a flyer and saw that the house was overpriced and out of our price range. But we walked through anyway just to look. I think that looking at as many houses as possible makes me a better buyer.

      After we looked we told the agent that the price was out of our range. She said “oh, that’s just a starting point, I’m sure it will sell for much lower”. I said that it would still probably be out of our price range. She then proceeded to talk our ears off for another 15 minutes or so – never giving us a chance to politely say that we were going to leave. Finally my wife got irritated and just interrupted her and said “I just want to leave now.”

  7. Geotpf

    I don’t think that’s not going to work. What people might do is use a different realtor to show them properties, but switch to you to do the final deal. Or, they might go to some place like Redfin that has a similar commission rebate but doesn’t charge for showings.

    1. IrvineRenter

      That happens quite often. Because of the discount brokers, many agents are demanding buyers sign a Buyer’s Representative Agreement before they do anything to prevent this from happening. It still goes on. Few will go to court over it. It is one of those behaviors a buyer can only do once. If an agent discovers this, they will refuse to show properties in the future and sever the relationship. Who wouldn’t?

  8. pianist

    The commission rebate appears to be taxable income to the recipient, therefore the agent/broker has to 1099 the buyer at year end.

    1. IrvineRenter

      Yes, a better method is to take a discount at the closing table and reduce the downpayment.

      1. freedomCM

        actually, the best way is to give the rebate amount to the seller, and reduce the sales price.

        that way you lower the taxable basis, rather than just plowing the rebate into paying down the principle of the loan.

  9. thrifty

    The following link titled “an honest realtor” is from patrick.net and is purported to be written by a realtor. If true, the NAR has in effect hurdles that are unlikely to be overcome by any movement short of a coordinated mass uprising involving consumers and a variety of governmental entities. I think a far simpler answer is already in progress: discount brokerages such as Redfin, etc. Like discount security brokerages such as Schwab, however, it will take a generation or more to effect the appropriate changes. And the internet is, imho, critical in the process.

  10. LC

    You are featured on the home page of the OCRegister for your $9 million Laguna Beach HELOC abuse featured property.

  11. tjwilliams

    Steven Levitt has done some good work on the problems with realtor commission. On the selling side, the realtor’s only goal is to sell your house, not necessarily to get you the best price. After all, why risk not selling the house for $460,000 when you can sell it for $450,000. They won’t risk the $13,000 commission for an extra $300, but that extra $10,000 is great for the seller. As evidence, he points to the fact that when realtors sell their own homes they generally stay on the market for an extra 30 days and sell for $10,000 more.

    On the buyer’s side it’s the same way. The realtor has no incentive to put you in the home you want, they just want you to buy any home so they can get paid. It really is a backward system of compensation.

  12. Chuck

    What this model would do would essentially eliminate the looky-loo, forcing them to only be able to see houses that were being shown by the seller’s agent in an open house. Maybe this is ok because it does cut out people who are going to waste the agent’s time.

    But I don’t think anyone would pay $200 per home visited. Let’s say I arrange to see 5 houses in the same neighborhood with an agent and it takes 2 hours. They earn a $200 flat fee plus $1,000 for the 5 houses? $1,200 for 2 hours of work is ridiculous.
    I think asking the buyer to pay a flat fee to the agent if they DON’T end up buying a house within a certain period may be appropriate. Otherwise I view the showing of houses as simple marketing which is done for free in a lot of industries. While driving the potential buyer around the agent has a chance to get to know them, impress them with their knowledge and experience, and hopefully gain a client for life. If the agent thinks their time is being wasted they can simply refuse to show the buyers any more houses. Their lost time, probably just a few hours, is simply a cost of doing business.

    Just my opinion….

    1. priced_out

      Maybe that’s why Real Estate agents price the way they do: it’s a lot harder to pay $1200 to visit a few houses than it is to pay $6K at closing for the same services.

      By the time the buyer is sitting down signing themselves into hundreds of thousands of dollars of debt, their head is swimming — they’re no longer thinking rationally. And that’s exactly the moment the agent swoops in with their obscene price.

      I think you’ve going to have a hard time with this business model because people are so irrational in the way they spend money.

  13. Soylent Green Is People.

    Most buyers will look at an arrangement like this and go huh? The billable hours in explaining a commission structure like this alone will cost a fortune.

    Its great in theory, but in practice?

    How about a State of California law limiting buyer and seller fees to 4 percent total? (2 buyer, 2 seller) period, the end. Everyone will scream for a week, but the better agents who want to make this a profession rather than a hobby will survive.

    Lop the head off of the hydra in one fell swoop is my suggestion.

      1. no_vaseline

        What do you do for somebody in Bakersfield, where many of the homes in the area sell for less than $80K?

        1. Soylent Green Is People.

          A) An agent would have to sell more homes to make a living. Fewer ‘Tards would consider Bakersfield a market and close shop. So far, not a bad thing. Any agent remaining would still make a healthy living with reduced competition.

          C) 2% on a $1,000,000 home ($20,000)enriches the ‘Tard’s and does not aid the home owner in obtaining better advice or a higher sales price. 2% on $80,000 ($1,600) is not a career ender if commissions were capped. If people quibble about not earning $1,600 on every deal, perhaps another line of work should be pursued.

          On the one hand I don’t begrudge people from earning what the market will bear. The Real Estate industrial complex is very unhealthy and needs significant corrective surgery to make it well. A cap on commissions helps sellers, buyers, and will flush the part timers out of the business.

  14. camsavem

    Anyone who works for themselves knows they dont get paid for everything they do; it is just part of being in business. I close about 25% of all the deals that I quote. Contractors, repair men, printers etc. all spend lots of time quoting jobs that you never get but none of us complain.

    If you’re not quoting, you’re not selling.

    If the real estate profession had any integrity you would not need an agent to represent both the buyer and the seller, and shouldn’t the commision percentage go down as the value of the homes go up? Seriously. Are the agents that spectacular that they can make 30K for taking a few pictures, buying some cookies and walking someone through a house?

    I bought a 300K house from a private party without the use of an agent. The only cost associated were the transaction was escrow and title. He/we saved 18,000.00 on the deal and it was a piece of cake, smoothest real estate transaction I have ever done.

    Not sure why they are even neccesary, the escrow company does all the work. Useless.

  15. Anonymous

    Actually, Redfin (http://www.redfin.com/buy-a-home/share-the-commission) is somewhat similar to the buyers broker thing you wrote up.

    Looked at a house using their system, it’s mostly self-serve (ex. look at the Redfin listings yourself, try to get the listing agent to let you see it for free. If that fails, pick out multiple listings you want to see, and Redfin sends a junior type agent lets you see them for free – but only some many listings, so many times, after that you have to pay). When you see the place you want, they have a senior type agent to write and submit the paperwork.

    So, less comission, but also less free service, seemed pretty fair.

  16. Sonntag

    I like this blog but the writer seems to have no clue as to what going rates are, or that the world has changed from the go-go 90’s euphoria of fast profits and get rich quick dot bomb schemes.

    Point #1: YOU HAVE NO BUSINESS ASKING FOR 6% LISTING AGENT FEE WHEN THESE RATES WERE SET IN TIMES OF LOW TURNOVER AND DRAMATICALLY LOWER HOME PRICES

    Irvine Renter would have made a great delusional CEO, claiming that he should be paid a bonus after the company crashes but does not burn.

    “After all, my skills prevented it from being much worse”, he’d reason.

    You can get a 1.5-2.0% or flat fee discount broker to sell your house. Of course if a potential buyer uses a buyer’s agent then it will be more.

    People get paid for the profits they bring in, nothing more. By your logic, if you went 10 months without selling a home you’d ratchet your rates up to $90,000 so you could get the salary you think you deserve.

    Why Irvine renter expects us to accept his criticism of home-owners and lifestyle, while claiming thrift should apply to all others besides him, is mind boggling.

    A reasonable salary expectation for a real estate agent should be $25-$30,000 per year. And yes, it’s a bozo salary for a bozo job

    1. Soapboxpolitico

      Huh? I don’t follow your logic or more specifically your point. Could you clarify?

      IR is making the point that commission rates today were set by proclamation in a different time with different circumstances and thus require updating to modern needs. 30 years ago people tended to stay in their homes for 10+ years or more, rarely trading-up unless circumstances required it (births, deaths, job changes). Today, especially in CA, the stat is something like people change homes every 2-3 years. Considerably more turnover, thus more transactions.

      In every economic scenario of supply and demand, one aspect of discounting is to encourage transaction growth. More transactions equals more cash flow equals more profitability. (Sure profitability measured in terms of Gross Margin falls but in terms of Gross Profit, improved.) SO, we’re not talking about being paid bonuses regardless of results, we’re talking about equitable compensation for effort. I think that is the point you were trying to make, albeit with somewhat faulty logic.

      I agree with you on the larger, and separate issue of CEO pay. It is clearly NOT equatable and certainly not results based. The current system of CEO comp is “heads I win, tails you lose”. That’s a whole other can of worms!

    2. Chris

      ” YOU HAVE NO BUSINESS ASKING FOR 6% LISTING AGENT FEE WHEN THESE RATES WERE SET IN TIMES OF LOW TURNOVER AND DRAMATICALLY LOWER HOME PRICES ”

      Actually, if people are willing to pay 6% to IR for his broker service, why not? He’s free to charge whatever the market will bear. It’s that simple.

      It’s like the house he profiled today. If someone is willing to bid $200k on it, he/she will probably get the bid provided that he/she can get the financing necessary to close the deal (or pay all cash).

      Let the market decide.

      1. Chris

        BTW, my last reply was simply to ward off on Sonntag’s “YOU HAVE NO BUSINESS…” statement. Frankly, nobody has any business telling anyone how to run his or her own business. You can say things like “I don’t think you’re gonna get a lot of folks that will pay 6% nowadays” or “this market will probably not take your 6% commission in stride since I can readily find 4 or 5% agents that will do a hella good job in researching the area”…..but I think those 4 words are simply too strong to tell someone about how to run his or her own business.

        “Why Irvine renter expects us to accept his criticism of home-owners and lifestyle, while claiming thrift should apply to all others besides him, is mind boggling.”

        If I didn’t accept it, I would have countered his arguments in comments. Unfortunately, I don’t surf the NAR sites šŸ™‚

  17. cara

    Yeah that high end actually does turnover has changed the high end realtor’s job entirely. It used to be their job to convince the current owners who weren’t even thinking about selling to sell their house to their client by (a) demonstrating that it was a good price and (b) getting them excited about buying this other house over here. My aunt did like three of these transactions in one year in Chatham, helping people trade homes to each other and made more in that year than she ever had as an inn-keeper. other than that she just handled all the summer rental listings, which paid very little but built great repore.

    1. cara

      as I try to spell check repore and accidentally post…

      oddly enough, she then married one of her clients who she’d done 3 transactions with and joined him in his antiquing business. Didn’t make money as quickly but was way more rewarding.

  18. caligreatest

    Real Estate agents are going to end up like travel agents, because of the internet.

    1. Soapboxpolitico

      Let’s hope.

      By the way … I’ve got some damn fine buggy whips. Anyone? Anyone? šŸ˜€

  19. Chris

    “The 6% commission model is broken, and its days are numbered.”

    Yeah but IR, you mentioned that you were gonna charge 6% for your service šŸ™‚

    Ironic, ain’t it?

      1. Chris

        You got me there….I was referring to your previous article about a month ago about being a RE broker.

  20. Chris

    It’s funny that people complain about fees paid for certain services (such as the 6% here) but they’re perfectly ok with software fees and/or accounting fees when it comes to FILING TAXES!!! (the exclamations….oh the exclamations).

    For crying out loud, is it that hard to fill out 1040, Schedule A, B and D with CA 540 as an additional minimum pain? And what the hell is wrong with filling them out ON PAPER and use SNAIL MAIL?

    Ok, I should cut down on the coffee today šŸ™‚

  21. tazman

    Hmmm, Irvine Renter:

    It seems like Redfin already has implemented a model that looks much like you’re retainer plan. First round of showings free (up to four houses), then you pay for additional showings as you go. If you get an accepted offer, they rebate money back to you.

    The only flaw in their model, from my perspective, is that they are have to set the minimum price too high (@ $175k) in order to get their guarantee. This is already starting to wipe out opportunities for them as condo prices and even SFR in LA County are well underneath those prices.

  22. MalibuRenter

    I have a new suggestion. For those old enough to remember the breakup of ATT, do the same to the NAR. Have competing associations, with competing software.

  23. newbie2008

    The 6% rate makes sense in most parts of the country except the coastal areas. 6% of $200,000 is $3,000 for each side of the sale, minus 1% for the broker’s office fee. So $2000 on a sale that involved expense such as ads, showing, lunches to close a deal, etc.

    $20,000 in CA coastal regions is just too large of a sum justify. A flat fee would be more in balance with actual cost and effort involved.

  24. newbie2008

    BTW, There are good and bad agent every where. One agent (wife’s choosing) tried to fax over 200 pages of unreadable listing after I told her to stop faxing them. That was in the day’s of thermo paper and jaming my phone for hours. she also arrive at the showing 30 minutes late. Mold house covered with scented candles and road noise covered with a music over the intercom system. Needless to say she didn’t make the sale. Another agent showed a few house, listen to the requirement, thin the listing down to a half dozen and worked very diligently (had comps and stats ready) and he made the sale. He left the business in the midwest.
    A friend was a RE, but too straight forward in assessing the repair cost (also trained as a contractor). His honest assessment of the repair cost cost him the sale. Other would say minor repairs of $100 or so, turned out to be 20x more as my friend estimated. The RE that low balled the repair bill got the sale. Lots of people just want confirmation instead of the truth.

  25. Jumparound

    In holland we pay around 1,5% (thats excluding Taxes) to the realator.
    Any additional costs (like hiering the guy who makes the contract official (can’t think of the english name, but its not a lawyer) And the additional taxes that have to be paid to the gvt. are for the buyer.

    But than again, the realator has to pay income tax.

    So if you work for yourself (and are financial not too smart) you pay around 50% incometax to the gvt.

    How much is incometax in CA? or the US of A in general?

  26. Derisive

    Sorry IR – your plan won’t work. Instead, I think it will backfire.

    Say that this pay-per-service plan is instituted as you say; showing fees, offer fees, and compensation. Primarily, this detracts from the overall standard that realtors will have to meet. If they are guaranteed money, they will be less likely to try as hard to make a sale.

    If for instance, I as a buyer have a realtor that is absolutely terrible and we see 5 properties in 2 hours, what do I see as fair compensation? $250/hr?

    I instead see buyers in general avoiding paying this outrageously high rate (the hourly compensation you suggested is in between lawyers and doctors). I don’t think it would matter if it fell to even $25 a property – people would wise up to the process and with the prevalence of sites like Trulia, Redfin, Zillow, etc would come to avoid realtors altogether.

    1. AVRenter

      Are people too obtuse to differentiate between the pay system and hypothetical pay scale being used here?

      Individual pay rates aside, I would absolutely employ someone under this method. There’s no reason to believe that the contract couldn’t be modified to incentivize the Realtor to complete the sale, such as getting full payment upon close of contract as was indicated above. If the final rate is competitive with discount services, and I even have the option of increasing/improving those services, then I’d be willing to consider it.

  27. computer consultant

    ITs about time real estate sales market became more transparent, efficient and competitive.

    6% will a thing of the past very quickly.

  28. tlc8386

    If homes were totally open to people to view you would not need someone to show it to you. And many are today with open homes on the weekend.

    What people need is really someone to do the homework on a home they decided upon. This would take all the work out of showing for RE agents. You could advertise you find a home and we will supply you with all the much needed info on it and help you get your loan and do the paper work–that I can see many would do with a flat fee.

    That would work for many doing their own weekend open housing tours.

    Matter of fact you may even get more info on the home this way–at least honest info.

    You could also have seperate fees for the background info–and additional fees for the closing.

    Many want to serve themselves and find their own home but they need help with the rest of the work.

    I could see a nice market for this kind of service.

    and the 6% can be the alternative for those who don’t want to look on their own–

    you could have two different types of service–

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