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The entire Real-Estate industry is ripe for disruption. Exactly why are we paying 6% to "agents"? What are "agents" actually doing? 10+ years ago the need for "

The entire Real-Estate industry is ripe for disruption. Exactly why are we paying 6% to "agents"? What are "agents" actually doing? 10+ years ago the need for "Real Estate Agents" was there as information was not readily accessible. Things like "what kind of area is this property in", "what are schools like" "what are prospects for this area 5 years down the road" and so on. All this information (and MUCH more) is currently readily available online. I have purchased and sold 4 homes in the last 6 years and agent I have worked with has made many tens of thousands of dollars and I can tell you with utmost precision that she hasn't spend more than 10 hours total. My wife and I scouted locations, went to open houses, did research online for things that are important to us and finally called the agent and said "we want to make an offer." Other than that the only other time we called is for her to let us into a home if there was no open house soon. 10+ years ago we had other "agents" that made a lot of money, e.g. "Travel Agent" in Travel&Leisure industry. Then internet came along and now we have 1,000's of websites that have replaced what Travel Agents used to do... For Real-Estate I think MLS is just a start a small piece of the puzzle, someone very smart is going to disrupt the whole industry and make many billions of dollars.

sidlls 10y ago
The real estate industry is very heavily regulated and, worse, these regulations are extremely fragmented. Any disruption is going to have to deal with that. Also, agents for basic residential purchases where the property is about as mundane as it gets provide very little value. However good agents will do proper diligence by inspecting the public records for the property. That part may be disruptable with software and an ambitious enough records maintenance effort. But good agents who do their jobs properly are well worth 6% (and, by the way, that 6% is frequently split two ways, so each agent gets 3%). Of course my bar for "good agent" is much higher than Joe Coldwell or Jane Keller-Williams. "Good" agents know local and state regulations very well and do diligence to inspect the public record and work closely with well qualified inspectors to get the best (lowest for buyer, highest for seller) price they can. Most agents, especially for "big box" brokers do basic humdrum contract paperwork and have a very basic approach to disclosure and negotiation and don't add much value. They're ripe for disruption.
- pfranz 10y ago
  > work closely with well qualified inspectors to get the best (lowest for buyer, highest for seller) price they can. Kind of an aside; what's the motivation for buyer's agents to get good inspectors or the lowest price possible? They're getting a percentage and they're motivated to make sure the deal falls apart. Although, as a buyer it's not like I knew good inspectors, anyway. The best I could do is read their sample reports and go off of my own (sparse) knowledge of home construction.
- solresol 10y ago
  6% !??!? Australian here: on my last house sale, I did a deal with the agent where if he got a price above a quite-high threshold that he would get 3% instead of his usual rate. This was seen as a remarkably generous offer, unheard of in the industry. I've only once seen someone use a buying agent: husband and wife were both hospital doctors with three young active kids and they figured they valued their time enough that they would pay for a real estate agent to short-list properties for them. I wonder what is so much more difficult about real estate in the USA that it requires so much more in the way of services.
  - jacalata 10y ago
    Australian who lives in the US and is looking at buying a house. What's different? Almost everything, starting from the basics like there aren't auctions, you have to submit a secret bid that the seller will read and then tell you if it was accepted or not. Factors that can affect acceptance include what percentage of your purchase will be made with cash, whether you are willing to buy it without bothering to inspect the house first, and how many days it will take for you to close the deal if accepted - and of course, everything else like whether you are the kind of nice quiet couple they think their neighbours want to live next to, whether you have the same name as their brother-in-law, and whether you are the kind of person they want to imagine living in their house once they are gone.
wefarrell 10y ago
Agreed. There are many potential advertising opportunities to boot. When people buy a new home and move they typically need to get new utilities, health and car insurance, doctors, dentists, furniture, appliances, etc... They need to decide where they're going to shop for groceries, which restaurants they want to explore, what activities they're going to get into.
wehadfun 10y ago
Wife's a real estate agent so I have some insight. Agents mainly do two things: 1. If selling they can put your house into MLS. 2. For buyers they can let you into a house. Being able to do these things requires NAR membership, a state license, and other fees and cost real estate agents thousands per year. Also driving meetings clients at houses takes gas and time. Also your 6% commisiion is paying for all the other people that the agent spent gas and time on who did not buy a house. Would you be willing to advertise in the news paper that your house is for sale and leave the doors unlocked so that random people could check it out?
- deleted 10y ago
  [deleted]
- bluedevil2k 10y ago
  On 2, buyers can be let into the home by the seller's agent.
  - wehadfun 10y ago
    True a buyer could be let into a home by sellers agent and even use the sellers agent to purchase the home. Agents love this! Its called getting both ends of the deal. It doubles the agents commission. Does not benefit buyer at though and actually is a bad idea.
    - rplst8 10y ago
      Yeah, even with a buyers agent, the buyer doesn't get much. Both agents (if being paid out of the 6% commission) have a fiduciary responsibility to the seller. About the only thing a buyer gets out of the whole deal is a title search to make sure there are no outstanding liens on the property - and they have to pay for that themselves!
- mratzloff 10y ago
  If that's all most agents are doing, that's worth maybe 0.5%.
jlgaddis 10y ago
Reminds me of the piece that Freakonomics did on real estate agents. It's probably worth the read for anyone about to buy/sell a home.
- SturgeonsLaw 10y ago
  The TLDR on this piece is that since commission is a fraction of sale price, the primary incentive for agents is to just get a sale, and fast, rather than maximise sale price, as even tens of thousands extra adds only a little to their cut, so their time is better spent pushing the property through the sales pipeline and moving on to the next one as quickly as possible. There's a study which draws similar conclusions: > Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin. https://www.nber.org/papers/w13796 https://www.nber.org/papers/w13796
cbr 10y ago
The entire Real-Estate industry is ripe for disruption. Exactly why are we paying 6% to "agents"? https://www.redfin.com/ https://www.redfin.com/ is already doing this. They charge half the normal fee if you're selling and they give about half of their fee to you after purchase if you're buying. (We bought our house with them.)
- bdangubic 10y ago
  Sure, but what you are paying 1/2 for? Imagine owning a home which sells for $1,000,000. Currently you pay roughly 6% - $60,000. You pick Redfin - they charge take the money and give you back 1/2 but you are still paying them $30,000!! But if your house is sold for $100,000 you'd pay $6,000 or $3,000 to Redfin. The whole thing is just the biggest currently running scam that I can think of and someone will come along and totally disrupt this entire industry of scammers :-)
  - jnicholasp 10y ago
    Exactly. Does it take ten times as much work for a real estate agent to sell a $1m house versus a $100k house? Obviously not. So what are we paying ten times as much for in the one case, and if there's no connection between effort and fee, what are we paying for, and why, even in the low end case? Totally a scam, totally ripe for disruption.
    - rplst8 10y ago
      The level of service is pretty low too. Its basically handling setting up a few appointments to see houses, helping grease the skids for inspections, and setting up a closing with a settlement company/lawyer. Stuff that really doesn't take all that much expertise/knowledge. I'm sure there are little things that go on behind the magic curtain, but definitely something that could be automated in a b2b fashion. The worst part of it all - all that money is spent basically to protect the seller so they can wash their hands of the whole deal once the house is sold. There is very little to no buyer protection in the real estate world.
  - dmeeker 10y ago
CamperBob2 10y ago
The entire Real-Estate industry is ripe for disruption. Exactly why are we paying 6% to "agents"? What are "agents" actually doing? ... I basically agree, but I will say that when we bought our house and the (FSBO) seller turned out to be a flake and/or an outright nutcase, the realtor we were working with earned every penny of his 3%. I won't go into what he did for us because some of it may not necessarily have been legal for someone who's not an attorney to perform. Let's just say it took a lot of hustle to hold the seller to his commitments and make the deal happen according to the contract... especially when some of the flakiness turned out to be our own fault, due to the (in)actions of our mortgage lender. Most of the other realtors I've dealt with fit your description perfectly. Nowadays, my thinking is that they're like airline pilots -- most of the time you can take them for granted and even think about how to replace them with automated processes, but when things start to go wrong, you may find yourself appreciating their work more than you thought you would.
- pfranz 10y ago
  I think a lot of the value in real estate agents is a motivated party to make sure the deal doesn't fall apart. Buying a house is emotional for both sides and petty things can cause people to walk away.
lucaspiller 10y ago
As a Brit I don't get the agent thing for buying and selling houses in the U.S. As I understand it's basically required for the buyer and seller to have an agent. Here you can sell a house privately, and the only fees you need to pay are the solicitor for conceyancing - the fees are around the same when buying or selling, between £500 - £2000. They will just do the paperwork, check there aren't any issues with the deeds, and do minor contract negotiations, and register the sale. The purpose of an agent here is really just to have a shop where they can advertise your sale, take clients and guide them around a house (but TBH I'd rather just look myself without an agent as they don't add any value in my experience), and do a bit of management between the buyer and seller. For this they'll usually charge 0.5% - 3% (to the seller), but if you want to do it yourself you can just advertise on sites such as Zoopla.
- ommunist 10y ago
  Yup, did that exacttly in Herts. Zoopla does the job.
flylib 10y ago
checkout Opendoor https://stratechery.com/2016/opendoor-a-startup-worth-emulating/ https://stratechery.com/2016/opendoor-a-startup-worth-emulat... https://www.opendoor.com https://www.opendoor.com
willholloway 10y ago
As someone who grew up in a family of real estate investors, landlords and brokers and has 14 years experience as an adult with it, I have to say, and I'm not picking on you because what you are espousing is a widespread belief, but you are wrong. You are wrong about the amount of time she spent, and wrong about the industry being ripe for disruption. Spending 10 hours on four deals is not physically possible, or you have the luckiest, worst realtor in the history of the broker business. Many have said the same thing about the industry, where are the results? Realtors are not still in business because of information asymmetry. Redfin has tried, and they have not succeeded. In fact they ended up moving towards the historical model. That tells you something. I'll let you in on a secret, you can sell and buy any house you own or want yourself! It's called For Sale By Owner and many people do it. You can also negotiate on commission. But be careful, because there are a lot of laws in place in RE, to protect buyers. It is heavily regulated. You could make a mistake and fail to disclose something that could end up costing you HUUUUGEEE. What you get with a good realtor is a ton of service. Just the other day I drove 25 minutes each way to go make sure a homes thermostat was on and the house was warm when the temperature dropped. I was doing a favor for a realtor I know, that is selling a house for a family in another part of the country. A good realtor will do things like that for you. And it's often a thankless job. The house I did that for might not even end up selling, the realtor may not even get a commission and it ends up being a lot of free work. A good realtor knows attorneys, handy men, plumbers, electricians, landscapers and is a tough negotiator. A good realtor will market your property to a wider audience than would be easy for you to do yourself. There are a lot of things that can go wrong and disrupt a sale, often times at the last minute. Those connections can save a deal. I've seen it countless times. The reason the real estate broker business hasn't been disrupted is because it's a service business, it's not a product and its difficult to reduce it to something that scales and can be automated. There is a large graveyard of startups that have tried. I gave up my real estate license because of the sentiment you are expressing here, and the amount of competition that was willing to put up with it. It's a crap job in my opinion, it benefits the customers much more than the agents in all but the really hot markets.
- bdangubic 10y ago
  Oh c'mon... "Spending 10 hours on four deals is not physically possible, or you have the luckiest, worst realtor in the history of the broker business." In lots of cases there simple isn't anything to do. I saw the house, did my own research on it, went to see it, did more research, did more research and then called my Realtor and said "Make an offer." Is that worth $43,000? Why would she make $43,000 for few hours of work? I bought two houses this way, my first and last call to my Realtor (personal friend of mine) was "Here's our offer on the house, send it in." One offer was immediately accepted, the other one went back and forth 3 times over two days. The simple fact that charging based on percentage of the sale is theft, there is no other way to put it. There is one other "entity" that does this and this is Government with Sales Taxes (also theft :-) ). Can you tell me one good reason why Real Estate Agents do not simply charge by the hour?

sidlls 10y ago

The real estate industry is very heavily regulated and, worse, these regulations are extremely fragmented. Any disruption is going to have to deal with that. Also, agents for basic residential purchases where the property is about as mundane as it gets provide very little value. However good agents will do proper diligence by inspecting the public records for the property. That part may be disruptable with software and an ambitious enough records maintenance effort. But good agents who do their jobs properly are well worth 6% (and, by the way, that 6% is frequently split two ways, so each agent gets 3%). Of course my bar for "good agent" is much higher than Joe Coldwell or Jane Keller-Williams. "Good" agents know local and state regulations very well and do diligence to inspect the public record and work closely with well qualified inspectors to get the best (lowest for buyer, highest for seller) price they can. Most agents, especially for "big box" brokers do basic humdrum contract paperwork and have a very basic approach to disclosure and negotiation and don't add much value. They're ripe for disruption.

pfranz 10y ago
> work closely with well qualified inspectors to get the best (lowest for buyer, highest for seller) price they can. Kind of an aside; what's the motivation for buyer's agents to get good inspectors or the lowest price possible? They're getting a percentage and they're motivated to make sure the deal falls apart. Although, as a buyer it's not like I knew good inspectors, anyway. The best I could do is read their sample reports and go off of my own (sparse) knowledge of home construction.
solresol 10y ago
6% !??!? Australian here: on my last house sale, I did a deal with the agent where if he got a price above a quite-high threshold that he would get 3% instead of his usual rate. This was seen as a remarkably generous offer, unheard of in the industry. I've only once seen someone use a buying agent: husband and wife were both hospital doctors with three young active kids and they figured they valued their time enough that they would pay for a real estate agent to short-list properties for them. I wonder what is so much more difficult about real estate in the USA that it requires so much more in the way of services.
- jacalata 10y ago
  Australian who lives in the US and is looking at buying a house. What's different? Almost everything, starting from the basics like there aren't auctions, you have to submit a secret bid that the seller will read and then tell you if it was accepted or not. Factors that can affect acceptance include what percentage of your purchase will be made with cash, whether you are willing to buy it without bothering to inspect the house first, and how many days it will take for you to close the deal if accepted - and of course, everything else like whether you are the kind of nice quiet couple they think their neighbours want to live next to, whether you have the same name as their brother-in-law, and whether you are the kind of person they want to imagine living in their house once they are gone.

wefarrell 10y ago

Agreed. There are many potential advertising opportunities to boot. When people buy a new home and move they typically need to get new utilities, health and car insurance, doctors, dentists, furniture, appliances, etc... They need to decide where they're going to shop for groceries, which restaurants they want to explore, what activities they're going to get into.

wehadfun 10y ago

Wife's a real estate agent so I have some insight. Agents mainly do two things: 1. If selling they can put your house into MLS. 2. For buyers they can let you into a house. Being able to do these things requires NAR membership, a state license, and other fees and cost real estate agents thousands per year. Also driving meetings clients at houses takes gas and time. Also your 6% commisiion is paying for all the other people that the agent spent gas and time on who did not buy a house. Would you be willing to advertise in the news paper that your house is for sale and leave the doors unlocked so that random people could check it out?

deleted 10y ago
[deleted]
bluedevil2k 10y ago
On 2, buyers can be let into the home by the seller's agent.
- wehadfun 10y ago
  True a buyer could be let into a home by sellers agent and even use the sellers agent to purchase the home. Agents love this! Its called getting both ends of the deal. It doubles the agents commission. Does not benefit buyer at though and actually is a bad idea.
  - rplst8 10y ago
    Yeah, even with a buyers agent, the buyer doesn't get much. Both agents (if being paid out of the 6% commission) have a fiduciary responsibility to the seller. About the only thing a buyer gets out of the whole deal is a title search to make sure there are no outstanding liens on the property - and they have to pay for that themselves!
mratzloff 10y ago
If that's all most agents are doing, that's worth maybe 0.5%.

jlgaddis 10y ago

Reminds me of the piece that Freakonomics did on real estate agents. It's probably worth the read for anyone about to buy/sell a home.

SturgeonsLaw 10y ago
The TLDR on this piece is that since commission is a fraction of sale price, the primary incentive for agents is to just get a sale, and fast, rather than maximise sale price, as even tens of thousands extra adds only a little to their cut, so their time is better spent pushing the property through the sales pipeline and moving on to the next one as quickly as possible. There's a study which draws similar conclusions: > Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin. https://www.nber.org/papers/w13796 https://www.nber.org/papers/w13796

cbr 10y ago

The entire Real-Estate industry is ripe for disruption. Exactly why are we paying 6% to "agents"? https://www.redfin.com/ https://www.redfin.com/ is already doing this. They charge half the normal fee if you're selling and they give about half of their fee to you after purchase if you're buying. (We bought our house with them.)

bdangubic 10y ago
Sure, but what you are paying 1/2 for? Imagine owning a home which sells for $1,000,000. Currently you pay roughly 6% - $60,000. You pick Redfin - they charge take the money and give you back 1/2 but you are still paying them $30,000!! But if your house is sold for $100,000 you'd pay $6,000 or $3,000 to Redfin. The whole thing is just the biggest currently running scam that I can think of and someone will come along and totally disrupt this entire industry of scammers :-)
- jnicholasp 10y ago
  Exactly. Does it take ten times as much work for a real estate agent to sell a $1m house versus a $100k house? Obviously not. So what are we paying ten times as much for in the one case, and if there's no connection between effort and fee, what are we paying for, and why, even in the low end case? Totally a scam, totally ripe for disruption.
  - rplst8 10y ago
    The level of service is pretty low too. Its basically handling setting up a few appointments to see houses, helping grease the skids for inspections, and setting up a closing with a settlement company/lawyer. Stuff that really doesn't take all that much expertise/knowledge. I'm sure there are little things that go on behind the magic curtain, but definitely something that could be automated in a b2b fashion. The worst part of it all - all that money is spent basically to protect the seller so they can wash their hands of the whole deal once the house is sold. There is very little to no buyer protection in the real estate world.
- dmeeker 10y ago

CamperBob2 10y ago

The entire Real-Estate industry is ripe for disruption. Exactly why are we paying 6% to "agents"? What are "agents" actually doing? ... I basically agree, but I will say that when we bought our house and the (FSBO) seller turned out to be a flake and/or an outright nutcase, the realtor we were working with earned every penny of his 3%. I won't go into what he did for us because some of it may not necessarily have been legal for someone who's not an attorney to perform. Let's just say it took a lot of hustle to hold the seller to his commitments and make the deal happen according to the contract... especially when some of the flakiness turned out to be our own fault, due to the (in)actions of our mortgage lender. Most of the other realtors I've dealt with fit your description perfectly. Nowadays, my thinking is that they're like airline pilots -- most of the time you can take them for granted and even think about how to replace them with automated processes, but when things start to go wrong, you may find yourself appreciating their work more than you thought you would.

pfranz 10y ago
I think a lot of the value in real estate agents is a motivated party to make sure the deal doesn't fall apart. Buying a house is emotional for both sides and petty things can cause people to walk away.

lucaspiller 10y ago

As a Brit I don't get the agent thing for buying and selling houses in the U.S. As I understand it's basically required for the buyer and seller to have an agent. Here you can sell a house privately, and the only fees you need to pay are the solicitor for conceyancing - the fees are around the same when buying or selling, between £500 - £2000. They will just do the paperwork, check there aren't any issues with the deeds, and do minor contract negotiations, and register the sale. The purpose of an agent here is really just to have a shop where they can advertise your sale, take clients and guide them around a house (but TBH I'd rather just look myself without an agent as they don't add any value in my experience), and do a bit of management between the buyer and seller. For this they'll usually charge 0.5% - 3% (to the seller), but if you want to do it yourself you can just advertise on sites such as Zoopla.

ommunist 10y ago
Yup, did that exacttly in Herts. Zoopla does the job.

flylib 10y ago

checkout Opendoor https://stratechery.com/2016/opendoor-a-startup-worth-emulating/ https://stratechery.com/2016/opendoor-a-startup-worth-emulat... https://www.opendoor.com https://www.opendoor.com

willholloway 10y ago

As someone who grew up in a family of real estate investors, landlords and brokers and has 14 years experience as an adult with it, I have to say, and I'm not picking on you because what you are espousing is a widespread belief, but you are wrong. You are wrong about the amount of time she spent, and wrong about the industry being ripe for disruption. Spending 10 hours on four deals is not physically possible, or you have the luckiest, worst realtor in the history of the broker business. Many have said the same thing about the industry, where are the results? Realtors are not still in business because of information asymmetry. Redfin has tried, and they have not succeeded. In fact they ended up moving towards the historical model. That tells you something. I'll let you in on a secret, you can sell and buy any house you own or want yourself! It's called For Sale By Owner and many people do it. You can also negotiate on commission. But be careful, because there are a lot of laws in place in RE, to protect buyers. It is heavily regulated. You could make a mistake and fail to disclose something that could end up costing you HUUUUGEEE. What you get with a good realtor is a ton of service. Just the other day I drove 25 minutes each way to go make sure a homes thermostat was on and the house was warm when the temperature dropped. I was doing a favor for a realtor I know, that is selling a house for a family in another part of the country. A good realtor will do things like that for you. And it's often a thankless job. The house I did that for might not even end up selling, the realtor may not even get a commission and it ends up being a lot of free work. A good realtor knows attorneys, handy men, plumbers, electricians, landscapers and is a tough negotiator. A good realtor will market your property to a wider audience than would be easy for you to do yourself. There are a lot of things that can go wrong and disrupt a sale, often times at the last minute. Those connections can save a deal. I've seen it countless times. The reason the real estate broker business hasn't been disrupted is because it's a service business, it's not a product and its difficult to reduce it to something that scales and can be automated. There is a large graveyard of startups that have tried. I gave up my real estate license because of the sentiment you are expressing here, and the amount of competition that was willing to put up with it. It's a crap job in my opinion, it benefits the customers much more than the agents in all but the really hot markets.

bdangubic 10y ago
Oh c'mon... "Spending 10 hours on four deals is not physically possible, or you have the luckiest, worst realtor in the history of the broker business." In lots of cases there simple isn't anything to do. I saw the house, did my own research on it, went to see it, did more research, did more research and then called my Realtor and said "Make an offer." Is that worth $43,000? Why would she make $43,000 for few hours of work? I bought two houses this way, my first and last call to my Realtor (personal friend of mine) was "Here's our offer on the house, send it in." One offer was immediately accepted, the other one went back and forth 3 times over two days. The simple fact that charging based on percentage of the sale is theft, there is no other way to put it. There is one other "entity" that does this and this is Government with Sales Taxes (also theft :-) ). Can you tell me one good reason why Real Estate Agents do not simply charge by the hour?