4 ms·

The real estate agents operate as a cartel and wouldn’t accept offers this way.

by 3qz 4y ago

hkt 4y ago
I don't know how it works in Canada, but in the UK the incentive is that most estate agents take a % of the sale value. They have every reason to push house prices higher. Cartel or no cartel, it is very harmful.
- grasseh 4y ago
  That's exactly how it works in Canada too. Both estate agents split a % of the sale value. That's fine on the seller's side, IMO. But on the buyer's side, it's a silly conflict of interest.
- nameisname 4y ago
  This is how it works in Canada and it's absolutely toxic. I have seen Realtors push people up on price when they're the highest bid.
  - sokoloff 4y ago
    The Realtors are (transparently disclosed as) working for the seller. Why wouldn't they do that? It's literally their job and everyone knows it. It's certainly the case that the agent who knows that a particular bidder is the highest/most attractive offer is working for the seller.
    - RocketOne 4y ago
      The buyer's realtor is supposed to be working in the buyer's best interest and getting the lowest price possible. In reality it doesn't often work that way, especially when the buyer and seller realtors know each other. I just bought a house and both realtors ended up being from the same office, and are good friends. Do I honestly think I got the best price? Not likely.
      - sokoloff 4y ago
        Maybe it’s different in Canada, but in the US (or at least in Massachusetts and New Hampshire) the agent merely must disclose to whom they owe allegiance. In both of my purchase transactions, the agent I worked most consistently with was legally working for the seller. (I was comfortable with that and acted accordingly, having “my” agent submit bids that I was comfortable with, but not treating/trusting them as if they were my lawyer). You can have an agent working on behalf of the buyer, but my experience is that’s a minority rather than majority arrangement.
        djrogers 4y ago
        Your experience is not the norm, nor is it one I would recommend in most cases. You should find an agent you trust and can work with well to represent you, and they should be the only agent you ever have to speak to. Dual representation can work out ok in some scenarios, but the hyper-inflated and super competitive market we're in right now isn't one of them.
        sokoloff 4y ago
        Even in a situation where your agent is representing only you, they still have a massive incentive to get you to raise your bid so they get 1/4 of the total commission (and their brokerage house gets 1/4 of it). Their incentive is even stronger than that of the listing agent, because when it comes time to choosing a bid, the listing agent and brokerage is getting their commission one way or another and so a 1% difference in final contract price on a $1M house represents a difference of around $150 pre-tax to the listing agent. A difference of 1% that causes that specific buyer to get the house can represent a $15150 pre-tax difference to the buyer's agent. If you tell "your" agent that you'd like to bid $1M but are able to and would pay up to $1.2M because you really love the house, you're giving away a lot of information that I decided I wasn't willing to give up and so kept all Realtors at arms-length.
      - Ekaros 4y ago
        Coming from country(Finland) where the buyer does not employ realtor the whole thing of buyer paying someone to get house feels weird. And seller's realtor really doesn't only care about price, but also about the speed they can sell the property, thus spending less time on it.
- jaclaz 4y ago
  The issue is that the flat percentage incentive is not a valid one, there was a chapter in Freakonomics about that (I seem to remember it was about Chicago estates, but it could have been another city in the US). The study determined that when a house was the property of the estate agent sold in a little more time at a noticeably higher price. The idea if that your house sells (today) for (say) 100,000 units of value (pounds/dollars/whatever) the estate agent will get (still say) 5% of it, i.e. 5,000 "units" (also today). If in a few more months time you can sell it for 120,000, the agent will get (a few months later) 1,000 "units" more, but he/she will have spent a lot more time visiting the property with prospective buyers, runnning ads on newspapers, whatever, so the incentive for the agent is to conclude the sale as soon as possible, even if at a (reasonably) lower price. The proposal to correct the incentves was to have a flat percentage (like the mentioned 5%) until a certain amount and a much higher percentage (like - if I recall correctly 15% or maybe 20%) on the excess. Of course it depends on the local current market, but estate agents have interest to push house price higher only until the property is an "easy sale", the sheer moment the house stays on the market for some time (this highly depends on the local market, it could be weeks or months) they will start saying something "Hmmm, maybe we valued a little too much, we (that means you) should discount it by 10%", this in the same 100,000 unit house means that you will get 10,000 unit less, while the agent would get 4,500 units instead of 5,000.
bluGill 4y ago
Farms often are sold in live auction this way with the bidders announcing their bid. Each bidders knows their maximum, but none give that way, all they give away is they are willing to top the previous bid by someone else (even this is a trick - some bidders will pretend to be more/less interested than they really are trying to scare off other bidders) The auctioneer is typically a licensed real estate agent. The whole farm will be sold that day, sometimes field by field, sometimes as a whole (sometimes both ways - this is complex to understand: they get bids an all fields separately, then for the whole and the larger total wins). Then they sell the equipment and junk. Bankers are on hand to verify financing... For houses most people wouldn't work this way, but for farms it makes sense.
- randomdata 4y ago
  As a farmer in Canada, I haven't seen a farm auction like that since I was a kid. Most farms these days are sold either by someone knocking on a door and making offer that can't be refused or by tender, conducted by law firms. Real estate agents/auctioneers, and the cut they want to take, have largely been taken out of the equation given how easy the farm properties are to sell.
  - bluGill 4y ago
    I see ads for farm auctions that work like that every few weeks living in Iowa. I have no idea why there are regional differences, but I'm not really surprised they exist.
    - randomdata 4y ago
      > I have no idea why there are regional differences I'm sure it is multi-faceted, but supply management is a big difference. Notably, diary farmers in some provinces voted to impose a quota price limit in an attempt to make it affordable for new farmers back in the mid-2000s. This means that the amount that quota sells for is the same now as back then, even though the fair market value has at least doubled in the meantime. This has created a market aberration where the quota is undervalued and to resolve it farmers have started tacking the difference onto the purchase of land. In other words, on paper I pay you $x for quota and $y for land in order to stay compliant, even though in reality I'm actually paying you $2x for quota and $y-x for the land. This, of course, has driven up the price of farmland to unreasonable heights as people notice what farmland is selling for on record. $40,000 per acre isn't unheard of these days. I bet you in Iowa, despite having a climate that can easily outgrow us in Canada, won't see anything close to that. As farmland prices have risen (up ~700% since 2007), residential sprawl out into that farmland has become much more expensive. This has increased the pressure on housing in existing urban areas, pushing prices up there. And, thus, the Canadian housing problem that's being discussed in the larger scope here.

The real estate agents operate as a cartel and wouldn’t accept offers this way.

by 3qz 4y ago

The real estate agents operate as a cartel and wouldn’t accept offers this way.

hkt 4y ago

I don't know how it works in Canada, but in the UK the incentive is that most estate agents take a % of the sale value. They have every reason to push house prices higher. Cartel or no cartel, it is very harmful.

grasseh 4y ago
That's exactly how it works in Canada too. Both estate agents split a % of the sale value. That's fine on the seller's side, IMO. But on the buyer's side, it's a silly conflict of interest.
nameisname 4y ago
This is how it works in Canada and it's absolutely toxic. I have seen Realtors push people up on price when they're the highest bid.
- sokoloff 4y ago
  The Realtors are (transparently disclosed as) working for the seller. Why wouldn't they do that? It's literally their job and everyone knows it. It's certainly the case that the agent who knows that a particular bidder is the highest/most attractive offer is working for the seller.
  - RocketOne 4y ago
    The buyer's realtor is supposed to be working in the buyer's best interest and getting the lowest price possible. In reality it doesn't often work that way, especially when the buyer and seller realtors know each other. I just bought a house and both realtors ended up being from the same office, and are good friends. Do I honestly think I got the best price? Not likely.
    - sokoloff 4y ago
      Maybe it’s different in Canada, but in the US (or at least in Massachusetts and New Hampshire) the agent merely must disclose to whom they owe allegiance. In both of my purchase transactions, the agent I worked most consistently with was legally working for the seller. (I was comfortable with that and acted accordingly, having “my” agent submit bids that I was comfortable with, but not treating/trusting them as if they were my lawyer). You can have an agent working on behalf of the buyer, but my experience is that’s a minority rather than majority arrangement.
      - djrogers 4y ago
        Your experience is not the norm, nor is it one I would recommend in most cases. You should find an agent you trust and can work with well to represent you, and they should be the only agent you ever have to speak to. Dual representation can work out ok in some scenarios, but the hyper-inflated and super competitive market we're in right now isn't one of them.
        sokoloff 4y ago
        Even in a situation where your agent is representing only you, they still have a massive incentive to get you to raise your bid so they get 1/4 of the total commission (and their brokerage house gets 1/4 of it). Their incentive is even stronger than that of the listing agent, because when it comes time to choosing a bid, the listing agent and brokerage is getting their commission one way or another and so a 1% difference in final contract price on a $1M house represents a difference of around $150 pre-tax to the listing agent. A difference of 1% that causes that specific buyer to get the house can represent a $15150 pre-tax difference to the buyer's agent. If you tell "your" agent that you'd like to bid $1M but are able to and would pay up to $1.2M because you really love the house, you're giving away a lot of information that I decided I wasn't willing to give up and so kept all Realtors at arms-length.
    - Ekaros 4y ago
      Coming from country(Finland) where the buyer does not employ realtor the whole thing of buyer paying someone to get house feels weird. And seller's realtor really doesn't only care about price, but also about the speed they can sell the property, thus spending less time on it.
jaclaz 4y ago
The issue is that the flat percentage incentive is not a valid one, there was a chapter in Freakonomics about that (I seem to remember it was about Chicago estates, but it could have been another city in the US). The study determined that when a house was the property of the estate agent sold in a little more time at a noticeably higher price. The idea if that your house sells (today) for (say) 100,000 units of value (pounds/dollars/whatever) the estate agent will get (still say) 5% of it, i.e. 5,000 "units" (also today). If in a few more months time you can sell it for 120,000, the agent will get (a few months later) 1,000 "units" more, but he/she will have spent a lot more time visiting the property with prospective buyers, runnning ads on newspapers, whatever, so the incentive for the agent is to conclude the sale as soon as possible, even if at a (reasonably) lower price. The proposal to correct the incentves was to have a flat percentage (like the mentioned 5%) until a certain amount and a much higher percentage (like - if I recall correctly 15% or maybe 20%) on the excess. Of course it depends on the local current market, but estate agents have interest to push house price higher only until the property is an "easy sale", the sheer moment the house stays on the market for some time (this highly depends on the local market, it could be weeks or months) they will start saying something "Hmmm, maybe we valued a little too much, we (that means you) should discount it by 10%", this in the same 100,000 unit house means that you will get 10,000 unit less, while the agent would get 4,500 units instead of 5,000.

bluGill 4y ago

Farms often are sold in live auction this way with the bidders announcing their bid. Each bidders knows their maximum, but none give that way, all they give away is they are willing to top the previous bid by someone else (even this is a trick - some bidders will pretend to be more/less interested than they really are trying to scare off other bidders) The auctioneer is typically a licensed real estate agent. The whole farm will be sold that day, sometimes field by field, sometimes as a whole (sometimes both ways - this is complex to understand: they get bids an all fields separately, then for the whole and the larger total wins). Then they sell the equipment and junk. Bankers are on hand to verify financing... For houses most people wouldn't work this way, but for farms it makes sense.

randomdata 4y ago
As a farmer in Canada, I haven't seen a farm auction like that since I was a kid. Most farms these days are sold either by someone knocking on a door and making offer that can't be refused or by tender, conducted by law firms. Real estate agents/auctioneers, and the cut they want to take, have largely been taken out of the equation given how easy the farm properties are to sell.
- bluGill 4y ago
  I see ads for farm auctions that work like that every few weeks living in Iowa. I have no idea why there are regional differences, but I'm not really surprised they exist.
  - randomdata 4y ago
    > I have no idea why there are regional differences I'm sure it is multi-faceted, but supply management is a big difference. Notably, diary farmers in some provinces voted to impose a quota price limit in an attempt to make it affordable for new farmers back in the mid-2000s. This means that the amount that quota sells for is the same now as back then, even though the fair market value has at least doubled in the meantime. This has created a market aberration where the quota is undervalued and to resolve it farmers have started tacking the difference onto the purchase of land. In other words, on paper I pay you $x for quota and $y for land in order to stay compliant, even though in reality I'm actually paying you $2x for quota and $y-x for the land. This, of course, has driven up the price of farmland to unreasonable heights as people notice what farmland is selling for on record. $40,000 per acre isn't unheard of these days. I bet you in Iowa, despite having a climate that can easily outgrow us in Canada, won't see anything close to that. As farmland prices have risen (up ~700% since 2007), residential sprawl out into that farmland has become much more expensive. This has increased the pressure on housing in existing urban areas, pushing prices up there. And, thus, the Canadian housing problem that's being discussed in the larger scope here.