Are Realtors the Next to Get Disrupted?

Are Realtors the Next to Get Disrupted?
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#1

Flat Fee RE Brokers

For decades, the 6 percent commission for real estate agents has been pretty standard, but then came 2 percent and 1 percent offers from new brokerages, and now, just a flat fee.

London-based Purplebricks, which is barely 3 years old, launched its new U.S. business in Los Angeles on Friday, after raising $60 million in special stock offering.

It offers the full services of a regular real estate brokerage for just $3,200. That includes professional photography, 3-D virtual tours, help with staging, home tours and listings on all the major online platforms.

http://nbr.com/2017/09/15/no-more-6-commission-these-brokers-will-sell-your-house-for-a-flat-fee/


#2

This is the response wiki post. You can edit this out for your response.


#3

Seems like they’ve launched in LA

London-based Purplebricks, which is barely 3 years old, launched its new U.S. business in Los Angeles on Friday, after raising $60 million in special stock offering.
https://www.cnbc.com/2017/09/15/no-more-6-percent-commission--these-brokers-will-sell-your-house-for-a-flat-fee.html

I thought redfin was gonna be disruptive going from 3% to 1%, but of course there was still fat to trim. The model makes a lot more sense now with how high the housing markets have gone relative to wages.

I think the only thing left now is the buyer’s side, rebating agents help, but the sellers still dishing out the full percentages.

I see the industry fracturing similar to brokerages, you’ll have your discount real estate agents for your typical customers and the current 6% real estate model will be used to push luxury properties.


#4

Redfin has been disrupting for 11 years, but with the number of unsolicited ads I get in or near my mailbox from local realtors, you’d never know.

Also the headline is clickbait. They’re not getting rid of the 6%, they’re only replacing the first 3% with a flat fee. Website says “List for $3,200 + typical buyer fee.”. And if they’re only giving buyers a $1K credit, they’ll be selling (as a buyer’s agent) cheaper properties (under $400K, approximately), because Redfin gives back more above a certain threshold. So it may be cheapest to list with them and buy with Redfin.


#5

Since they’re launching in LA, I doubt its under 400k so Redfin’s probably still competitive for now

Getting below this 3%+ɛ is gonna be difficult as it requires the buyer not use their own agent which won’t really happen easily as long as they don’t pay the fee directly. The buyer is incentivized to get someone to fight for them.


#6

What exactly do realtors do to justify the 6% commission? We bought our first house this year direct from the sellers, so I really have no idea. The process was pretty easy, they gave us a tour and we hired an inspector and lawyer. They told us if a realtor was involved, the price would have been 20-30k more!


#7

Currently selling my home and buying direct from a builder. Selling and buying agents do absolutely nothing. The selling agent hires a photographer but, in my area they only do that if you sign an exclusive for 6 months and the house is worth over 500k. They pay for a few ads in their brokerage magazine and list on MLS and the other home sites.

Other than that they are never seen or heard from again. They just schedule or have their office secretary schedule showings when buyers agents call. This particular agent has been horrible. She had me put a copy of the key in a lockbox to be kept at the concierge desk. While I was out of town a real estate agent came to my home pick dup the key and walked around my condo. HOWEVER, my agent never told me she was coming. I have security cameras and called my agent to confirm this person should be there, she said NO. I had building security and the police detain the woman.

Long story short, the agent forgot she was coming. It was gross negligence. If I had been home the agent would have been shot.

As far as buying, since I’m buying a new build and don’t need an agent for anything. I’m getting a rebate. I found the builder, location and have made all the design choices myself. Just got the agent involved after the fact to get a rebate. Shame the builder wouldn’t give that to me directly.


#8

When a house was around 100-150k I can somewhat understand 6% (3% each) as commission for the work done. However, when house prices are triple or more that amount then there’s no reason for commission to triple – it’s not three times as much work. That’s why shows like Million Dollar Listing really annoy me.

A flat fee on both sides would be much fairer in most cities where the median prices have creeped up.


#9

The buyer’s agent does so much more work than the seller’s agent. They deserve to get paid. The seller’s agent for our house took bad pictures and prayed for dual commission.


#10

It really depends on the property. If you’re purchasing in the 500k+ range (ie most places in NYC) I can’t justify a 3% commission. My firm rebates buyers minimum 50% of the buyer side fee.


#11

I’m in the process of purchasing a condo in the NY Metro area with Redfin and I have to say that I am very impressed by my experience so far. Right now I’m just past the attorney review phase and can say pretty confidently I don’t think I’ll ever go back to the traditional model. I’ve purchased two other properties in the past and worked with realtors to sell and lease previous properties so I’ve worked with probably 5-6 different brokers. Some were just outright terrible and some were good enough but I could never shake the feeling they all gave me advice that was motivated by their compensation first and my own needs second.

To top it off this agent from Redfin I’m working with has been the most knowledgeable out of anyone I’ve worked with in terms of understanding the area, the process, and pricing. On top of that, he’s returning my calls/emails at 9pm and working on weekends. Their model depends on variable compensation based on a customer satisfaction survey the customer provides at the end of the process. The refund I get at the end is really just icing on the cake.


#12

I really regret using an agent when we bought our condo in 2015. Especially after I swung by to grab some hardwood samples from the previous owners, before we had closed, and the PO said he would have loved to have done a FSBO deal with me, and saved us thousands in the process.

We found two condos in the area we were looking in, on Zillow, and went for an agent just because we were new to the buying thing. We saw both condos we found on ZIllow, and ended up buying the second one. The agent did nothing except show up for an hour during inspection and show up at closing and sit in the corner. He did give us a nice binder of “new home” literature, some pens, and a bottle of Moet. I would too, if I just made $12k for nothing.


#13

I have a friend of a friend who is an agent in the midwest. He’s been doing it for a few years now and he probably has the most relaxed work schedule of anyone I know (myself included). This really isn’t entirely surprising when you think about it because even with a significant investment in marketing you’re only going to get involved in so many home sales a year and your customers are going to generally expect you to be available to fit their schedule and be available to field their calls. This means you’re going to have to work fairly inefficiently and have a lot of downtime that you can’t fill with a part-time job at McDonald’s (or any other part time job your limited skillset is likely to get you).

Now this isn’t true of all agents, but most of the ones I’ve met over the years have an oversized ego and an oversized sense of entitlement. Let’s say you expect to make $90k/year because you believe you’re worth that and afterall you probably own a fairly expensive car (don’t want to pull up to your client’s house in a Honda) and an oversized house along with luxury habits that you need to be able to pay for. Let’s also say your average slice of the pie on a sale is ~$5,000 (remember, you’re in the midwest in a minor market so that $5,000 is probably being generous and was mostly chosen to make the math easy). With $0 in marketing, expenses, etc. (not realistic) you’d need to be involved in 18 home sales a year to make that happen. That would be 2 sales a month during spring, summer, and fall, and 0 during the three worst winter months.
Those are the optimistic numbers you probably came into the industry with, but with $0 in marketing you’ll quickly realize that the phone isn’t ringing and all that organic marketing crap you read about isn’t as effective as you thought it would be. Let’s say you up your game to $3,000/month in marketing (again, only for 9-months since there’s no sense throwing money away in winter when people aren’t buying): Now we’re up to $27,000 in marketing expenses so to net $90k we need a revenue of $117k. Now we’re up to needing to be involved in 24 sales a year, which would probably be 2.5 sales a month during the 9 months when it’s not painful to be outside and a couple freak sales that came in during the winter.
Now the phone is ringing, but you’re quickly realizing that most of the calls are from tire kickers who aren’t serious about buying/selling, but like having you show them homes to fulfill whatever that does for them. You’re probably getting 5-6 qualified leads a month and are actually realizing 2 sales a month, which wasn’t quite your original goal, but is $90,000 in sales with $63,000 left over after marketing expenses. Not horrible for the amount of work you’re doing!
Of course, now that you’re looking at your actual expenses you’re suddenly realizing that there’s probably another $1,000 per month you didn’t realize was going to be there starting out and that brings you earnings down to $51,000 per year. Still not horrible, right? Oh, that’s right, you’re self-employed, which means that self-employment tax (equivalent of social security and medicare) take 15% off of that, leaving $43,350 before income tax.
Most people in the midwest would kill for a cake job where they put in maybe 3 hours a day of actual work and are making money like that, only in your case you’re barely scraping to get by due to your expensive lifestyle and since sales will vary month to month when you have a month with no sales you’re living off your credit card and hoping next month’s sales will let you pay them off.
Now in time as you’re more established you can ease up on the marketing a bit and probably get involved in some bigger sales to bring your income back up closer to where you wanted it to be, but you’re certainly not living high on the hog right now.

Now some internet hack comes along and tells you that you’re lazy and overpaid and your industry needs to be disrupted? Forget that noise! You don’t want your family to have to start going to the soup kitchen for dinner and waiting under the flag for free cheese. :slight_smile:

I’m honestly surprised the Internet hasn’t disrupted this industry long ago. It’s probably one of the most inefficient industries out there, where an agent needs to charge their client thousands of dollars in commissions to deliver what is probably hundreds of dollars in value.


#14

The main reason I never got into owning real estate is that I knew I’d be moving every 3 to 5 years over the last 20 years and between property taxes, insurance, and maintenance, once you tacked on realtor fees and closing costs, it didn’t seem worthwhile compared to renting.

Let’s analyze the realtor market. It is:

  • Run by people who take a week-long course, pass a state licensing test at the of the week, and are now qualified to be realtors.

  • Requires access to databases of houses for sale. Now we have the internet.

  • Requires taking high quality photos of the house to post. Now we have cell phone cameras.

  • Requires access to historical housing prices to make fair offers. Again, the internet does this.

  • Requires access to specialized information such as HOA rules, local geographic information, home inspection, etc. The internet does all of this as well.

I too am surprised that the realtor market hasn’t collected. I do expect the realtor market to disappear for several reasons over the coming 20 years:

  • Elimination or reduction of mortgage interest tax deduction putting downward pressure on houses.

  • Rising interest rates putting downward pressure on housing.

  • Growing student loan debt putting reducing pool of new buyers, putting downward pressure on housing.

  • Entrepreneurs creating a disintermediated RE sale market to cut out realtors.

The only unknown for me is what kind of power realtor lobbying groups have. We’ve seen Taxi lobbying groups try to shut down Uber/Lyft but have been wholly unsuccessful except in a handful of local markets. If the realtor lobbying group achieves or increases power, then they can bribe corrupt politicians to ban RE transactions without a specific type of realtor involved taking a cut. Thank you, government.


#15

Kinda like what Tesla is/was facing.


#16

Tesla is in an interesting spot, because on one hand, they are being blocked by lobbyists who want Tesla to follow a dealership model. But on the other hand, they are benefited by electric vehicle tax credits.

I suspect on the net, Tesla is better off by government interference, because if not for the tax credits, I don’t think they’d have a business, even if they were free to sell directly to customers from the start.


#17

I think we disagree here, without additional context. I agree, business would hurt without tax credits (just like it would for utility-scale solar and wind plants), but I don’t think they just simply wouldn’t have a business. EV and renewable tax credits and accelerated depreciation are just QE for renewable stuff.


#18

I bet that a good 10-20% of the money going into Realtor commissions then gets paid towards leasing their new luxury cars.


#19

The biggest tax credit for EVs is the implied gas tax credit, not the one time federal tax credit. If states go to a mileage tax, this would be a huge change in the EV economics.


#20

Gasoline excise taxes are impactful but still not as much as the $7500 tax credit.

Gasoline taxes are 18 cents a gallon at the federal level and vary from 12 to 50 cents by state. Worst case its 68 cents total. If you drive 150,000 miles in a car that gets 30 miles to the gallon thats 5000 gallons of gas and about $3400 total gasoline taxes worse case. Most states its more like 30 cents a gallon and total tax is around $2400.