7 ms·

It being % based means the incentives of the agent are more aligned with the seller than buyer. If the agent charged a flat fee -- the agent doesn't have incen

by s_dev 8y ago

It being % based means the incentives of the agent are more aligned with the seller than buyer. If the agent charged a flat fee -- the agent doesn't have incentive to negotiate a higher price.

bootlooped 8y ago
There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients. The reasoning they gave was that the difference in the realtor's percentage between a lower total price and a higher total price was not meaningful enough for them to do extra work or take extra time to get it. It is better for them to sell more houses for less, rather than fewer houses for more. So yeah, the percent means the incentives are more aligned, but maybe not aligned enough.
- dragonwriter 8y ago
  > There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients. Real estate agents are more likely to plan sufficient time to maximize sale value; most people make plans with timelines where sale (or purchase; I bet you’ll find a similar issue on the other side, too) of the house is a blocker for other things before talking to an agent, so the disruption of not completing the transaction timely is significant.
  - rch 8y ago
    My impression is that realtors who have their own investments in a market in which they operate sometimes err on the side of overpricing even when they know listings will remain on the market longer than the seller might want. In smaller, growing markets like Colorado it even looks like cartel behavior to me, since multiple brokers follow the same strategy.
- jaclaz 8y ago
  >There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients. It was a bit more subtle than that. Given a fixed percentage (let's take the 6%), if the agent sells today the house (valued 100,000-120,000 US$) he/she gets US$ 6,000 today. If the 100,000 offer is refused the house stays on the market for - say - 3 months more, and eventually is sold at 110,000 US$) the agents gets only US$ 600 more (and three months later), but has to arrange many more visits, so the formula is incentivating "quick sales" and the agent has all the interest to counsel the seller to accept a "low offer". The proposal by the freakanomics authors was to increase the percentage due to the agent on the sums exceeding the "base value" of the property, so that the convenience would be shifted to "sell the house at the highest reasonable price in a reasonable time".
- s_dev 8y ago
  To the people citing Freakonomics. I've read that piece it was a comparison of real estate agents selling their own houses vs their clients houses. Not flat fee vs % based commision.
SilasX 8y ago
Maybe, but there are better options. As o nate's comment notes [1], the vast majority of their compensation comes from the house getting sold at all, and the gain from anything beyond that is weak. So they're actually incentivized to just make sure the deal happens and not go for the extra. Edit: There's a similar issue with recruiters. [1] https://news.ycombinator.com/item?id=19432743 https://news.ycombinator.com/item?id=19432743
- elliekelly 8y ago
  > the vast majority of their compensation comes from the house getting sold at all, and the gain from anything beyond that is weak You might find this study[1] interesting: >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. [1]https://www.nber.org/papers/w13796.pdf https://www.nber.org/papers/w13796.pdf
pmiller2 8y ago
Then what’s wrong with buyers’ agents taking a flat fee, and sellers’ agents taking a percentage? That right there could almost cut these types of fees in half.
- tfehring 8y ago
  I'd rather see both sides take a flat fee + a higher percentage of the difference from some benchmark. Say, $2,000 + 20% * (Zillow's estimated value - sale price) for the buyer's agent. I have no strong opinion on whether the second addend should be floored at $0 or not.
everdev 8y ago
No real estate agent I've ever worked with or heard of encourages holding out for a better price. They try to talk you into accepting the fastest close. Time is money and the faster they close on your house the faster they can start selling the next one.
- stjohnswarts 8y ago
  haha definitely reverse caveat emptor :)
jliptzin 8y ago
Pretty simple to fix actually. Charge a flat fee up front, like $1,000, to do the initial listing. Get the house independently appraised, maybe subtract 10%. Give incentive commission equal to the difference in the sale price and the discounted assessed home value * 20%. So if the agent manages to sell a $500,000 home for $700,000, they get a $41,000 commission. If the home sells for 10% below its market value, they only get the $1,000 compensation for the listing. Of course this will never actually happen due to the racket currently going on as described in the lawsuit. Why would they agree to this structure when they can already skim 6% off the home price just buy submitting some photos to MLS and opening up doors and closets for people for a few weeks.
- nugget 8y ago
  In your model you’d simply shift (even more) corruption onto the appraisal process.
  - jliptzin 8y ago
    Still, even if a home appraises for 25% less than it otherwise should, that's still a vastly better compensation scheme than our current system.
    - manny_hasyrs 8y ago
      This will make buying a home very unattractive as an investment.
      - opportune 8y ago
        homes shouldn't be investments anyway
      - jliptzin 8y ago
        How does changing a real estate agent’s compensation scheme suddenly make home buying a poor investment?
  - 8y ago
deleted 8y ago
[deleted]

by s_dev 8y ago

It being % based means the incentives of the agent are more aligned with the seller than buyer. If the agent charged a flat fee -- the agent doesn't have incentive to negotiate a higher price.

bootlooped 8y ago

There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients. The reasoning they gave was that the difference in the realtor's percentage between a lower total price and a higher total price was not meaningful enough for them to do extra work or take extra time to get it. It is better for them to sell more houses for less, rather than fewer houses for more. So yeah, the percent means the incentives are more aligned, but maybe not aligned enough.

dragonwriter 8y ago
> There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients. Real estate agents are more likely to plan sufficient time to maximize sale value; most people make plans with timelines where sale (or purchase; I bet you’ll find a similar issue on the other side, too) of the house is a blocker for other things before talking to an agent, so the disruption of not completing the transaction timely is significant.
- rch 8y ago
  My impression is that realtors who have their own investments in a market in which they operate sometimes err on the side of overpricing even when they know listings will remain on the market longer than the seller might want. In smaller, growing markets like Colorado it even looks like cartel behavior to me, since multiple brokers follow the same strategy.
jaclaz 8y ago
>There was a Freakanomics podcast episode or book section (I don't remember) where they asserted that the data showed realtors left their own homes on the market longer, ultimately yielding a higher sale price, when compared to homes they were selling for their clients. It was a bit more subtle than that. Given a fixed percentage (let's take the 6%), if the agent sells today the house (valued 100,000-120,000 US$) he/she gets US$ 6,000 today. If the 100,000 offer is refused the house stays on the market for - say - 3 months more, and eventually is sold at 110,000 US$) the agents gets only US$ 600 more (and three months later), but has to arrange many more visits, so the formula is incentivating "quick sales" and the agent has all the interest to counsel the seller to accept a "low offer". The proposal by the freakanomics authors was to increase the percentage due to the agent on the sums exceeding the "base value" of the property, so that the convenience would be shifted to "sell the house at the highest reasonable price in a reasonable time".
s_dev 8y ago
To the people citing Freakonomics. I've read that piece it was a comparison of real estate agents selling their own houses vs their clients houses. Not flat fee vs % based commision.

SilasX 8y ago

Maybe, but there are better options. As o nate's comment notes [1], the vast majority of their compensation comes from the house getting sold at all, and the gain from anything beyond that is weak. So they're actually incentivized to just make sure the deal happens and not go for the extra. Edit: There's a similar issue with recruiters. [1] https://news.ycombinator.com/item?id=19432743 https://news.ycombinator.com/item?id=19432743

elliekelly 8y ago
> the vast majority of their compensation comes from the house getting sold at all, and the gain from anything beyond that is weak You might find this study[1] interesting: >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. [1]https://www.nber.org/papers/w13796.pdf https://www.nber.org/papers/w13796.pdf

pmiller2 8y ago

Then what’s wrong with buyers’ agents taking a flat fee, and sellers’ agents taking a percentage? That right there could almost cut these types of fees in half.

tfehring 8y ago
I'd rather see both sides take a flat fee + a higher percentage of the difference from some benchmark. Say, $2,000 + 20% * (Zillow's estimated value - sale price) for the buyer's agent. I have no strong opinion on whether the second addend should be floored at $0 or not.

everdev 8y ago

No real estate agent I've ever worked with or heard of encourages holding out for a better price. They try to talk you into accepting the fastest close. Time is money and the faster they close on your house the faster they can start selling the next one.

stjohnswarts 8y ago
haha definitely reverse caveat emptor :)

jliptzin 8y ago

Pretty simple to fix actually. Charge a flat fee up front, like $1,000, to do the initial listing. Get the house independently appraised, maybe subtract 10%. Give incentive commission equal to the difference in the sale price and the discounted assessed home value * 20%. So if the agent manages to sell a $500,000 home for $700,000, they get a $41,000 commission. If the home sells for 10% below its market value, they only get the $1,000 compensation for the listing. Of course this will never actually happen due to the racket currently going on as described in the lawsuit. Why would they agree to this structure when they can already skim 6% off the home price just buy submitting some photos to MLS and opening up doors and closets for people for a few weeks.

nugget 8y ago
In your model you’d simply shift (even more) corruption onto the appraisal process.
- jliptzin 8y ago
  Still, even if a home appraises for 25% less than it otherwise should, that's still a vastly better compensation scheme than our current system.
  - manny_hasyrs 8y ago
    This will make buying a home very unattractive as an investment.
    - opportune 8y ago
      homes shouldn't be investments anyway
    - jliptzin 8y ago
      How does changing a real estate agent’s compensation scheme suddenly make home buying a poor investment?
- 8y ago

deleted 8y ago

[deleted]