4 ms·

> The buyer doesn't bear the cost at all This is the issue. If both sides had to pay their own agent, significantly fewer agents would be used. Instead the buy

by voisin 3y ago

> The buyer doesn't bear the cost at all This is the issue. If both sides had to pay their own agent, significantly fewer agents would be used. Instead the buyer externalizes the cost, and many sellers aren’t confident enough to deal with the buyer’s agent directly so they arm themselves with an agent.

koolba 3y ago
The buyer is paying the agent in the addition to the sale price. The buyer is also paying additional taxes for many years afterward on the higher assessed value (as it includes the commission!).
- voisin 3y ago
  > The buyer is paying the agent in the addition to the sale price. Well I guess this gets a bit philosophical. Who pays the cost (the actual payment goes from the buyer to the seller’s lawyer which remits a portion to the agent) differs from who bears the cost (called the “incidence” [0]), which depends on the price elasticity of demand versus the price elasticity of supply, and this burden obviously shifts depending on the cycle of the housing market. You are correct that the incidence would fall to the buyer for quite some time now but perhaps this is shifting now. [0] https://en.m.wikipedia.org/wiki/Tax_incidence https://en.m.wikipedia.org/wiki/Tax_incidence
- seanmcdirmid 3y ago
  Home assessments are based on property value, not sales prices, in many jurisdictions.
  - koolba 3y ago
    Sales prices (for an arms length sale) are de facto assessments. Every jurisdiction accepts or at least factors them in if you request an assessment to lower your property taxes. In some jurisdictions where the growth rate is capped (like CA), a 3-6% drop in price will be locked in essentially forever.
    - seanmcdirmid 3y ago
      Not in my jurisdiction (seattle), and my assessment hasn’t come close to hitting the price I paid yet since they are weighting land more than buildings in property taxes now (so…we never expect it to ever actually match, and that’s by design).
- cgh 3y ago
  Correct. There’s only one party putting money on the table here. “The seller pays the commission” is real estate agent doublespeak.
  - tylersmith 3y ago
    Money is only one half of a trade. Giving up some value of an asset when trading it is also form of payment.
  - poulsbohemian 3y ago
    Um - for years now real estate agents have been specifically told by their lawyers to not use that language, because it's been well-established that it is not true. If you've heard that language from an agent, it's a good sign they were either new to the business or dropping soundbites to sound knowledgable.
- kelnos 3y ago
  This pisses me off quite a bit. A simple fix could be to have the realtors bill for their services outside the purchase contract (which could still spell out those fees in a legally binding manner). The closing costs we pay to the title company aren't included in the purchase price, so it doesn't make sense that the realtor fees should be either.
Ajay-p 3y ago
Is there not U.S. states where both the buyer and seller pay commission fees? A quick search provided this: The seller’s agent collects a listing fee for marketing and selling the home. The buyer’s agent collects the buyer’s agent fee for bringing a qualified buyer to purchase the home. In my understanding there is costs borne by both the buyer and seller for the services of a real estate agent.
- jaywalk 3y ago
  No, the seller pays the 6% commission to their agent and then their agent gives the buyer's agent half of it. That's how it works everywhere in the US.
  - PaulDavisThe1st 3y ago
    Except in a for-sale-by-owner scenario, where the seller is not using an agent. In those scenarios, it may be necessary to agree to a fee paid directly by the seller to a buyer's agent. 2-3% is typical. This is not always necessary - some buyers will not be using an agent either, but it is not rare.
    - jaywalk 3y ago
      Well yeah, of course. I'm talking about the most common scenario, where both parties are using Realtors (TM).
    - kelnos 3y ago
      The thing that's excessively dumb about even that approach is that the buyer almost certainly would prefer to pay their realtor directly, outside of the purchase price. Since property tax assessments usually just follow the purchase price directly, I'd much rather purchase the house for $485k and give my agent $15k separately, than have my tax assessment be based on a $500k purchase price where the seller immediately turns around and gives $15k of that to my realtor.
  - poulsbohemian 3y ago
    Except it's actually more nuanced than that, and this is important... the client actually has a contract with a brokerage, where their agent is actually a sub-agent. The commission fee goes to the brokerage and in many cases the agent doesn't have the ability to negotiate it with the client (despite being an independent contractor). When the commission is paid, it is paid to the listing brokerage and then split out according to the agreement - some to the listing agent, and then in many cases to the buyer's brokerage who then splits it with the buyer's agent according to their agreement. This is all important because there's a layer of legalities and agency relationships that the public completely ignores, but is relevant if we're going to have a conversation about commissions. It's also relevant because some states have begun to change their laws to be more in line with what the public thinks happens, which has its own weird twists. *Brokers and lawyers in the audience will probably say I'm still handwaving away some nuances here regarding agency laws. Mea culpa, I'm trying to keep this simple.

by voisin 3y ago

koolba 3y ago

The buyer is paying the agent in the addition to the sale price. The buyer is also paying additional taxes for many years afterward on the higher assessed value (as it includes the commission!).

voisin 3y ago
> The buyer is paying the agent in the addition to the sale price. Well I guess this gets a bit philosophical. Who pays the cost (the actual payment goes from the buyer to the seller’s lawyer which remits a portion to the agent) differs from who bears the cost (called the “incidence” [0]), which depends on the price elasticity of demand versus the price elasticity of supply, and this burden obviously shifts depending on the cycle of the housing market. You are correct that the incidence would fall to the buyer for quite some time now but perhaps this is shifting now. [0] https://en.m.wikipedia.org/wiki/Tax_incidence https://en.m.wikipedia.org/wiki/Tax_incidence
seanmcdirmid 3y ago
Home assessments are based on property value, not sales prices, in many jurisdictions.
- koolba 3y ago
  Sales prices (for an arms length sale) are de facto assessments. Every jurisdiction accepts or at least factors them in if you request an assessment to lower your property taxes. In some jurisdictions where the growth rate is capped (like CA), a 3-6% drop in price will be locked in essentially forever.
  - seanmcdirmid 3y ago
    Not in my jurisdiction (seattle), and my assessment hasn’t come close to hitting the price I paid yet since they are weighting land more than buildings in property taxes now (so…we never expect it to ever actually match, and that’s by design).
cgh 3y ago
Correct. There’s only one party putting money on the table here. “The seller pays the commission” is real estate agent doublespeak.
- tylersmith 3y ago
  Money is only one half of a trade. Giving up some value of an asset when trading it is also form of payment.
- poulsbohemian 3y ago
  Um - for years now real estate agents have been specifically told by their lawyers to not use that language, because it's been well-established that it is not true. If you've heard that language from an agent, it's a good sign they were either new to the business or dropping soundbites to sound knowledgable.
kelnos 3y ago
This pisses me off quite a bit. A simple fix could be to have the realtors bill for their services outside the purchase contract (which could still spell out those fees in a legally binding manner). The closing costs we pay to the title company aren't included in the purchase price, so it doesn't make sense that the realtor fees should be either.

Ajay-p 3y ago

Is there not U.S. states where both the buyer and seller pay commission fees? A quick search provided this: The seller’s agent collects a listing fee for marketing and selling the home. The buyer’s agent collects the buyer’s agent fee for bringing a qualified buyer to purchase the home. In my understanding there is costs borne by both the buyer and seller for the services of a real estate agent.

jaywalk 3y ago
No, the seller pays the 6% commission to their agent and then their agent gives the buyer's agent half of it. That's how it works everywhere in the US.
- PaulDavisThe1st 3y ago
  Except in a for-sale-by-owner scenario, where the seller is not using an agent. In those scenarios, it may be necessary to agree to a fee paid directly by the seller to a buyer's agent. 2-3% is typical. This is not always necessary - some buyers will not be using an agent either, but it is not rare.
  - jaywalk 3y ago
    Well yeah, of course. I'm talking about the most common scenario, where both parties are using Realtors (TM).
  - kelnos 3y ago
    The thing that's excessively dumb about even that approach is that the buyer almost certainly would prefer to pay their realtor directly, outside of the purchase price. Since property tax assessments usually just follow the purchase price directly, I'd much rather purchase the house for $485k and give my agent $15k separately, than have my tax assessment be based on a $500k purchase price where the seller immediately turns around and gives $15k of that to my realtor.
- poulsbohemian 3y ago
  Except it's actually more nuanced than that, and this is important... the client actually has a contract with a brokerage, where their agent is actually a sub-agent. The commission fee goes to the brokerage and in many cases the agent doesn't have the ability to negotiate it with the client (despite being an independent contractor). When the commission is paid, it is paid to the listing brokerage and then split out according to the agreement - some to the listing agent, and then in many cases to the buyer's brokerage who then splits it with the buyer's agent according to their agreement. This is all important because there's a layer of legalities and agency relationships that the public completely ignores, but is relevant if we're going to have a conversation about commissions. It's also relevant because some states have begun to change their laws to be more in line with what the public thinks happens, which has its own weird twists. *Brokers and lawyers in the audience will probably say I'm still handwaving away some nuances here regarding agency laws. Mea culpa, I'm trying to keep this simple.