9 ms·

Real estate agents too. 6%? Why don't they get paid hourly like other contractors?

by yeahitslikethat 8y ago

Waterluvian 8y ago
What!!? My agent made 2% on a 500k - 1M home last month.
- WillPostForFood 8y ago
  It is typically 6%, split between buyer's and seller's agent.
- apathy 8y ago
  Usually it’s 1% to 3% on each side of the sale. I sure as hell didn’t like paying $45000 to the agents but we would have listed (and sold) the house for $50000 less if not for our agent’s prodding. So in the end we cleared an additional $5000 by not getting nervous and accepting her advice. We thought the market was cooling down too much to support a price on the high end of the range. We were wrong. It sold in one week.
  - citrablue 8y ago
    The problem here is that who knows if your listing price was optimal. I know some real estate agents who would argue that in a hot market, you should list for significantly less in order to create a bidding war. It doesn't make sense to compare this outcome to what you -- an amateur -- would have done.
  - mysterypie 8y ago
    But isn't it usually the exact opposite of your experience? That is, the agent will happily encourage you to sell it at a lower price because she wants her commission now, rather than a very slightly greater commission 6 months from now? As an example, suppose your house could sell for $750,000 immediately with you paying a 6% commission of $45,000. Or, suppose the same house could sell in 6 months (after a lot of showings) for $800,000 with you paying $48,000 in commission. The $50,000 extra you'd make on the sale is really big for you. But the extra $3000 the agent makes for months of extra work and waiting around is nothing. She'd rather take her $45,000 after selling it cheap after 1 week and then move on to sell another house. Isn't that the normal dynamic? EDIT: I've heard that you can write a listing contract so that the agent's fee is tiered. So, for example, they'd get 1% if they sold it for $500k because even a "for sale" sign written in crayon in front of the house would sell it, but then 6% on the amount between $500k and $750k, and a juicy 18% or whatever on the price above $750k. But does anybody actually do this?
    - AnthonyMouse 8y ago
      > So, for example, they'd get 1% if they sold it for $500k because even a "for sale" sign written in crayon in front of the house would sell it, but then 6% on the amount between $500k and $750k, and a juicy 18% or whatever on the price above $750k. But does anybody actually do this? The problem is that doesn't really fix it. You want them to get the $800K even though the $750K offer walks in the first month. But the $750K offer nets them $20,000. The $800K offer nets them $29,000 -- 45% more to get a ~7% higher price, but for doing 500% more work. So they still take the $750K the first month and then spend the other 5 months selling five more houses for $750K each. In theory you could make the math severe enough work out the other way, e.g. they get 0% for the first $750K and then 50% of anything over it. But then the problem you have is valuing the base price appropriately. If you set it at $800K then they don't even bother trying to sell your house, but if you set it at $600K then they're back to being better off to sell six houses in six months for $750K each instead of one for $800K, and you end up paying them a very large commission for the privilege.
    - zdragnar 8y ago
      I've sold twice, and both times the agents gave me a range to offer at based on how long they thought it might take to sell. They were very much "on my side" so to speak. I think the thing your example overlooks is the power of referrals. The happier you are with them, the more likely you are to refer friends and family to the agent when they ask you for a trustworthy recommendation. Like any sales gig, a network of happy customers takes time to build and is where the real money is at.
      - apathy 8y ago
        This. REAs live and die on referrals.
    - RhodesianHunter 8y ago
      > "That is, the agent will happily encourage you to sell it at a lower price because she wants her commission now, rather than a very slightly greater commission 6 months from now?" The listing agent is incentivized to price your house as highly as possible while still selling it quickly. Under most normal circumstances this aligns exactly with a seller's best interests.
  - sk5t 8y ago
    For real though--you're happy with paying $45K for that advice? Rather than do a bit more research, you're okay with letting a realtor take away almost all of the economic surplus?
    - erichocean 8y ago
      Shh, and definitely don't tell him that if a house sells in one week, it was underpriced.
      - apathy 8y ago
        I should probably care more, but after netting about $750k fixing up houses over the past 20 years while my wife and I worked full time jobs, I don’t. Estimates had converged on between $860k and $940k from various realtors and models; we took her advice, listed at $950k, and ended up with about $300k in net profits. FSBOs don’t usually sell as well for the simple reason that REA caravans don’t hit them. This is kind of important since we live 2000 miles away from where we were selling. We’ve seen some 1% agents and they were possibly worse than nothing (we soaked a seller with shitty agents for about $35k when we started to walk away after an inspection). Our agent also dealt with endless bullshit (reassessment, delivering an ultimatum to an annoying tenant when my wife folded, etc) for a couple months leading up to the sale. We wanted to unload the house and NOT deal with finding a new tenant. I think this is the part people underestimate — it’s NOT just the $5k net. It’s also all the crap we didn’t have to deal with while living 2000 miles away and both working full time jobs. There are endless time sensitive documents, amendments, etc that I didn’t have to grind my teeth about. Honestly I’m starting to wonder how many houses the friendly Internet Experts have sold. It’s a shocking amount of bullshit to navigate.
mruts 8y ago
Why aren't sales people paid hourly? Incentives are better aligned when you get a percentage of the contract value. Not completely aligned (the real estate agent is going to be optimizing for deal-flow, not absolute highest price), but more aligned than an hourly wage.
- yeahitslikethat 8y ago
  The point being missed is everyone contributes a percentage to the value of the house. I'm hard pressed to believe the real estate agent's contribution is 6% of that value. Almost Noone else in the value creation work flow gets paid on percentage. Why then real estate agents?
  - mruts 8y ago
    No one is forcing you to have one. Many people don’t use them. But more people do. And if you believe that the market is somewhat efficient, people are paying a fee (it’s a lot lower than 6%) because they feel it’s generally worth it.
debatem1 8y ago
Agents getting paid a percentage of what their clients get isn't the concern here, and is generally considered good in the sense that the more they get for you (their client) the more they take home. The issue here is that the agents are taking a (fairly large) cut of the shows being produced as an alternative to getting paid by their clients. In the real estate analogy, it's as though your agent could decide to get paid a percentage of the buyer's income less expenses rather than a chunk of the sale price. In that scenario you would expect your agent to bring you lots of wealthy buyers who then produce low-ball offers, and so has it been in the writers guild experience.
- AnthonyMouse 8y ago
  > Agents getting paid a percentage of what their clients get isn't the concern here, and is generally considered good in the sense that the more they get for you (their client) the more they take home. That's the theory, but then it turns out to be a lot more profitable to get commissions for selling five houses for $400K each than to spend the same amount of time to sell one house for $550K. Cue statistics about real estate agents selling their own homes for substantially more than they get for their clients.
  - debatem1 8y ago
    Sure; the point of paying them a percentage is to get their incentives to roughly align with yours. Short of giving them 100% you should expect that at some point that breaks down and they will figure the next optimization isn't worth it when it would be to you with your larger share. But that's very different from this situation described here, where the agent serves a different and in fact diametrically opposed master.
  - nathanvanfleet 8y ago
    I think the statistics were also that real-estate agents houses also stay on the market longer than other houses. Which also agrees with what you're saying. Essentially they can maybe make 6% of 20-50k more but it would require weeks more work on their part so it's not nearly as big a deal to the agent as it is to the owner.
robocat 8y ago
If real estate agents were paid hourly, imagine all the new problems you would have with them. Their incentive would be to keep the house unsold forever, and milk the client for many hours of work (regardless of the value of those hours)
- walshemj 8y ago
  Fixed price conveyancing aka Purple Bricks in the UK seems to work.
- yeahitslikethat 8y ago
  The days on market is a public number and would deter such behavior.

Real estate agents too. 6%? Why don't they get paid hourly like other contractors?

Waterluvian 8y ago

What!!? My agent made 2% on a 500k - 1M home last month.

WillPostForFood 8y ago
It is typically 6%, split between buyer's and seller's agent.
apathy 8y ago
Usually it’s 1% to 3% on each side of the sale. I sure as hell didn’t like paying $45000 to the agents but we would have listed (and sold) the house for $50000 less if not for our agent’s prodding. So in the end we cleared an additional $5000 by not getting nervous and accepting her advice. We thought the market was cooling down too much to support a price on the high end of the range. We were wrong. It sold in one week.
- citrablue 8y ago
  The problem here is that who knows if your listing price was optimal. I know some real estate agents who would argue that in a hot market, you should list for significantly less in order to create a bidding war. It doesn't make sense to compare this outcome to what you -- an amateur -- would have done.
- mysterypie 8y ago
  But isn't it usually the exact opposite of your experience? That is, the agent will happily encourage you to sell it at a lower price because she wants her commission now, rather than a very slightly greater commission 6 months from now? As an example, suppose your house could sell for $750,000 immediately with you paying a 6% commission of $45,000. Or, suppose the same house could sell in 6 months (after a lot of showings) for $800,000 with you paying $48,000 in commission. The $50,000 extra you'd make on the sale is really big for you. But the extra $3000 the agent makes for months of extra work and waiting around is nothing. She'd rather take her $45,000 after selling it cheap after 1 week and then move on to sell another house. Isn't that the normal dynamic? EDIT: I've heard that you can write a listing contract so that the agent's fee is tiered. So, for example, they'd get 1% if they sold it for $500k because even a "for sale" sign written in crayon in front of the house would sell it, but then 6% on the amount between $500k and $750k, and a juicy 18% or whatever on the price above $750k. But does anybody actually do this?
  - AnthonyMouse 8y ago
    > So, for example, they'd get 1% if they sold it for $500k because even a "for sale" sign written in crayon in front of the house would sell it, but then 6% on the amount between $500k and $750k, and a juicy 18% or whatever on the price above $750k. But does anybody actually do this? The problem is that doesn't really fix it. You want them to get the $800K even though the $750K offer walks in the first month. But the $750K offer nets them $20,000. The $800K offer nets them $29,000 -- 45% more to get a ~7% higher price, but for doing 500% more work. So they still take the $750K the first month and then spend the other 5 months selling five more houses for $750K each. In theory you could make the math severe enough work out the other way, e.g. they get 0% for the first $750K and then 50% of anything over it. But then the problem you have is valuing the base price appropriately. If you set it at $800K then they don't even bother trying to sell your house, but if you set it at $600K then they're back to being better off to sell six houses in six months for $750K each instead of one for $800K, and you end up paying them a very large commission for the privilege.
  - zdragnar 8y ago
    I've sold twice, and both times the agents gave me a range to offer at based on how long they thought it might take to sell. They were very much "on my side" so to speak. I think the thing your example overlooks is the power of referrals. The happier you are with them, the more likely you are to refer friends and family to the agent when they ask you for a trustworthy recommendation. Like any sales gig, a network of happy customers takes time to build and is where the real money is at.
    - apathy 8y ago
      This. REAs live and die on referrals.
  - RhodesianHunter 8y ago
    > "That is, the agent will happily encourage you to sell it at a lower price because she wants her commission now, rather than a very slightly greater commission 6 months from now?" The listing agent is incentivized to price your house as highly as possible while still selling it quickly. Under most normal circumstances this aligns exactly with a seller's best interests.
- sk5t 8y ago
  For real though--you're happy with paying $45K for that advice? Rather than do a bit more research, you're okay with letting a realtor take away almost all of the economic surplus?
  - erichocean 8y ago
    Shh, and definitely don't tell him that if a house sells in one week, it was underpriced.
    - apathy 8y ago
      I should probably care more, but after netting about $750k fixing up houses over the past 20 years while my wife and I worked full time jobs, I don’t. Estimates had converged on between $860k and $940k from various realtors and models; we took her advice, listed at $950k, and ended up with about $300k in net profits. FSBOs don’t usually sell as well for the simple reason that REA caravans don’t hit them. This is kind of important since we live 2000 miles away from where we were selling. We’ve seen some 1% agents and they were possibly worse than nothing (we soaked a seller with shitty agents for about $35k when we started to walk away after an inspection). Our agent also dealt with endless bullshit (reassessment, delivering an ultimatum to an annoying tenant when my wife folded, etc) for a couple months leading up to the sale. We wanted to unload the house and NOT deal with finding a new tenant. I think this is the part people underestimate — it’s NOT just the $5k net. It’s also all the crap we didn’t have to deal with while living 2000 miles away and both working full time jobs. There are endless time sensitive documents, amendments, etc that I didn’t have to grind my teeth about. Honestly I’m starting to wonder how many houses the friendly Internet Experts have sold. It’s a shocking amount of bullshit to navigate.

mruts 8y ago

Why aren't sales people paid hourly? Incentives are better aligned when you get a percentage of the contract value. Not completely aligned (the real estate agent is going to be optimizing for deal-flow, not absolute highest price), but more aligned than an hourly wage.

yeahitslikethat 8y ago
The point being missed is everyone contributes a percentage to the value of the house. I'm hard pressed to believe the real estate agent's contribution is 6% of that value. Almost Noone else in the value creation work flow gets paid on percentage. Why then real estate agents?
- mruts 8y ago
  No one is forcing you to have one. Many people don’t use them. But more people do. And if you believe that the market is somewhat efficient, people are paying a fee (it’s a lot lower than 6%) because they feel it’s generally worth it.

debatem1 8y ago

Agents getting paid a percentage of what their clients get isn't the concern here, and is generally considered good in the sense that the more they get for you (their client) the more they take home. The issue here is that the agents are taking a (fairly large) cut of the shows being produced as an alternative to getting paid by their clients. In the real estate analogy, it's as though your agent could decide to get paid a percentage of the buyer's income less expenses rather than a chunk of the sale price. In that scenario you would expect your agent to bring you lots of wealthy buyers who then produce low-ball offers, and so has it been in the writers guild experience.

AnthonyMouse 8y ago
> Agents getting paid a percentage of what their clients get isn't the concern here, and is generally considered good in the sense that the more they get for you (their client) the more they take home. That's the theory, but then it turns out to be a lot more profitable to get commissions for selling five houses for $400K each than to spend the same amount of time to sell one house for $550K. Cue statistics about real estate agents selling their own homes for substantially more than they get for their clients.
- debatem1 8y ago
  Sure; the point of paying them a percentage is to get their incentives to roughly align with yours. Short of giving them 100% you should expect that at some point that breaks down and they will figure the next optimization isn't worth it when it would be to you with your larger share. But that's very different from this situation described here, where the agent serves a different and in fact diametrically opposed master.
- nathanvanfleet 8y ago
  I think the statistics were also that real-estate agents houses also stay on the market longer than other houses. Which also agrees with what you're saying. Essentially they can maybe make 6% of 20-50k more but it would require weeks more work on their part so it's not nearly as big a deal to the agent as it is to the owner.

robocat 8y ago

If real estate agents were paid hourly, imagine all the new problems you would have with them. Their incentive would be to keep the house unsold forever, and milk the client for many hours of work (regardless of the value of those hours)

walshemj 8y ago
Fixed price conveyancing aka Purple Bricks in the UK seems to work.
yeahitslikethat 8y ago
The days on market is a public number and would deter such behavior.