Source: Unsplash/Avi Waxman
Posted on 08/24/2021 6:34:19 AM PDT by Kaslin
Source: Unsplash/Avi Waxman
The housing market is hot, hot, hot right now, and home prices continue to soar in many markets to their highest prices ever. Since it doesn't cost a real estate agent ten times as much to sell a million dollar home than a $100,000 home, one would expect that the percentage fees for real estate agents would be falling. They aren't. Why?
I started investigating the fees charged by the real estate industry some 15 years ago when I was an economics writer for the Wall Street Journal. What I discovered is that the real estate agents had created a de facto legal cartel that often rips off buyers and sellers of homes. The excess cost to home buyers and sellers from this industry cartel is typically more than $10,000 for homes with a price above $500,000.
A Brookings Institution study found that, "across the country, national average commission fees over the past couple of decades have doubled and outpaced inflation in most years." The researchers found that the increase in real estate commissions are "invariant to factors that affect the cost of housing transactions," and that we would expect these fees to be falling due to "significant technological changes in the meantime."
For the economy as a whole, the real estate agent rules may cost home buyers and sellers up to $75 billion dollars -- A YEAR.
Don't get me wrong. A great real estate agent can be a godsend for anyone buying or selling a home. The industry adds value for sure when the agent can find just the right dream home for a family or a buyer willing to pay top price. If a home buyer or seller wants the best in the business and is willing to pay a 6% transaction fee to their agent, that's great.
But too often the fees are fixed by the industry with little or no flexibility in negotiating fees of 6% typically split between the agents for the buyers and the sellers. In other countries, like Britain and Australia, the fees are typically closer to 3%, half as high as in America.
In this digital age -- with online transactions becoming the norm -- the fees and commissions in most consumer industries like stock trading, travel agents and used car brokers have fallen due to online competition from the likes of eBay, E*TRADE, Etsy, Netflix, Uber and Airbnb. At-home shopping is practically costless. Yet the real estate price gouging has managed to stay mostly immune from these "disintermediation" forces.
High-priced commissions persist today because of government fiat. State laws often make it all but illegal for non-registered agents to come in with lower commissions through "anti-rebate" laws. Even in normally pro-competition states such as Florida and Texas, the politicians continue to protect the agents' higher commissions -- often adding tens of thousands of price to the homes.
Today, 40 states have laws that protect the industry by restricting full and fair price competition. Ten states still prohibit agents to compete by offering consumers rebates. Believe it or not, the penalty for real estate agents providing rebates and charging LESS is losing your license.
Realtors prevail because they are good at flexing their political muscle. Every congressional district has hundreds of agents, and they are active in politics. Last year, national and state associations of Realtors topped the rankings of campaign contributors in both parties in order to maintain high commission by protectionist rules.
There are some hopeful signs of chinks in the real estate agent cartel's armor. Technology upstarts like REX are trying to squeeze out unreasonable fees by suing states to end government-created rebate bans. If they succeed, agent fees would be slashed, and home shoppers of all income ranges would save thousands of dollars by negotiating better deals with the agents.
I rarely agree with President Joe Biden on the economy, but he declared in a recent executive order that "competition is the core ingredient for capitalism." He has called for a federal investigation into price fixing among competitors and occupational licensing rules. Perhaps, after all these years, he will be the president who ends the real estate racket.
Liberals intend to do exactly that. Abolish PRIVATE PROPERTY!...............
Another convoluted mind thinking the answer to an imperfect market is MORE unconstitutional totalitarian government. Government is BY FAR the MOST CORRUPT entity of any, and government doesn’t just ask for your participation, it FORCES your involvement with the threat of confiscation, prison, and/or death.
Freedom and the voluntary cooperation between buyers and sellers in market free from government interference isn’t perfect but is is WAY ahead of whatever is in second place.
Redfin is good, if you live in an area where they operate. They cap their commissions at 1% and refund the rest to you. Only drawback is that other companies hate them, and may not cooperate as fully with your Redfin agent as they would one from with a traditional company.
Fake news. An agent can charge 100% or $1.00 in every state.
Marketing costs money. Corporations spend billions on marketing.
You are totally free to sell your house by yourself if you don’t want to pay a commission.
“There are some hopeful signs of chinks in the real estate agent cartel’s armor.” - Hey! That’s racist!
The cost of the agent isn't the problem to me -- since I haven't paid any of the three a penny. But after going through the process of reviewing listings and making a half-dozen offers, I am walking away from this process utterly baffled at how so much mediocrity can find its way into one industry. These people are morons. It's one thing for them to waste MY time, but during this process they've also been wasting a lot of their OWN time.
Redfin is good, if you live in an area where they operate. They cap their commissions at 1% and refund the rest to you. Only drawback is that other companies hate them, and may not cooperate as fully with your Redfin agent as they would one from with a traditional company.
And remember, the #1 goal of any agent or agency is to get listings, not sales. Listings are a guarantee of revenue in most market conditions.
Don’t get me wrong - a good Realtor is worth their weight in gold. I’ve had a relationship with one for over 20 years, and she goes to bat for me like you wouldn’t believe. Because I’m an absent owner in her market, she looks after things for me during the sale process, and has her finger on the pulse of the market so tightly that she knows about things virtually as soon as they happen.
OK, my real comment - we often hear from socialists that “it has never been done right.” I like to say the same thing to critics of capitalism - “it has never been done right” - at least in the last 100 years or so there has been too much interference by the socialists in our government.
The solution to this problem is real capitalism, not more socialism. We are starting to see some of it creep in, with ads on the radio claiming lower and lower fees. 3% is starting to become common. Or “2.99.”
I’m waiting for someone to come out with a combo, like 10k + 1%.
Not surprising that Moore would get something so badly wrong. This is the same dope who tried to make the case back in 2018-2019 that record-low interest rates had to be maintained by the Fed even during a time when the unemployment rate was effectively 0% and businesses all across America were unable to hire enough staff.
A buyer's agent is about as useless as one more Indian at Custer's Last Stand.
There are a few good real estate agents—but they can be hard to find—and good real estate agents are drawn to easy markets and easy transactions—why work hard when they don’t have to....
That leaves the morons to deal with the more complex and difficult transactions...
Crazy business.
The US never has been, and never will be, a free market economy. We are becoming Fascist and aren’t even in the top ten for free economies.
Our purchase was direct from the seller with no agent.
Funny story about a buyer’s agent.
My wife has a sister (who lives alone) who is completely brain dead.
Sis hired her hair dresser as their buyer’s agent when she decided to buy a house.
Sis ended up buying a house at the corner of the busiest intersection in the entire metro area, next to the busiest exit ramp off an Interstate in the entire metro area.
She didn’t realize how busy it was because she did not check out the area during a weekday rush hour.
It gets better—Sis and her moron agent never measured the size of the garage, so Sis did not find out her vehicle could not fit into the garage until _after_ she bought the house.
As for rush hour, for about four hours a day you can’t hear yourself think (even inside the house with windows closed) because the freaked out commuters are busy honking the horns at each other!
He mentions the industry “fixing” commissions, that’s a big no-no everywhere, violates anti-trust.
As far as “rebates,” he may be referring to what we call “kick backs,” which would be off title stuff, that’s a no-no.
It’s straight brokerage. I can sell your coffee cup for you and charge a fee, fixed or percentage, anything we agree to. No license required for that.
Real estate you have to have a license, laws and forms you are required to follow and use, but I can sell your house or commercial property for you for anything we agree to.
Exactly see how much you own your land after you don’t pay your real estate taxes for one cycle. The government makes sure even if you don’t work you will pay your tribute to the king if you own even a scrap of land.
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