
A new class-action lawsuit takes aim at real estate agents and their 6% fee - mudil
https://www.marketwatch.com/story/big-name-lawsuit-could-upend-realtors-and-their-6-fee-2019-03-19
======
om3n
I'm a software engineer, and I started my career at a well known mortgage
company in Detroit. Views are my own, BTW.

I bought a house a couple years after I started working there, and I wanted
the full home-purchaser experience. I used my company's services for
everything, and as an employee they hooked me up with a real estate agent
(among other things).

I was honestly appalled at what little my real estate agent did for me through
the whole process. I had what seemed like simple requirements: I wanted to
live west of the city, I wanted at least 1 acre, and an outbuilding. The
outbuilding is what threw off the search tool the agent was using to find
houses for me; he rarely found good ones in my price range that had
outbuildings.

I ended up finding the house I purchased. I'm honestly not sure what he did at
all.

When it came time to sell my house, I did it by owner. It was super easy to do
everything, including getting my home on the MLS with a service called Reozom,
for a couple hundred bucks. I used several sources to come up with comps for
pricing.

However, the purchasing agent who represented the buyers of my home was an
absolute MONSTER to me; extremely rude in nearly every email or phone call. I
think she was so horrible because I was proving how absolutely unnecessary she
was in the whole process. I sold the house for a little under asking price,
plus I paid her a 2% commission instead of 3%, and of course not 6% as if she
represented me as well. The funny thing- she didn't notice the 2% in the
purchasing contract until after it was already signed.

What I've anecdotally learned is this: real estate agents don't provide enough
useful benefit for me to use them, and can be hostile as their industry is
increasingly proven to be built on little or nothing.

~~~
chrisco255
Former real estate agent, now software engineer. Doing a FSBO (for sale by
owner) is as old as time. There's nothing wrong with this approach, but you
are limiting your market (and you might therefore be selling at a lower price
anyways) and it's highly dependent on your: patience, financial situation,
free time, marketing skills, general sales skills, local housing market,
tricky property situations, ability to assist buyers with locating financing,
handling any objections or mortgage exceptions that come up (including zoning
and inspections requirements), etc.

Buyer's agents deserve their 3% perhaps even more than listing agents and it's
unfortunate you screwed this agent out of that. It's sort of like stiffing a
server on a tip. Buyers are fickle, time consuming, and sometimes demanding.
It can take many showings and offers to find a good fit for someone. Sometimes
I would work with a client for weeks or months. Many clients would fall
through and you'd get $0 for those clients. So you have to average out your
earnings with the successes.

There's other things you have to do, too sometimes. Like once I had an FHA
financed client and there were certain restrictions about the distance a well
could be from the septic tank at the Federal level but they didn't match the
requirements at the county level (which were looser). So I had to coordinate
with local zoning and the FHA to get an exception for this loan. That was a
bigger ordeal than I can explain here.

These online MLS listing services have been around since 2004-2005. They're
nothing new. Are there crappy agents? Yeah. Just like any profession. But the
profession itself is not going anywhere.

~~~
jacquesm
> Buyer's agents deserve their 3% perhaps even more than listing agents and
> it's unfortunate you screwed this agent out of that.

3% of the value of a house is hardly 'a tip', a common fee in Europe for
selling a house is around 1.5 to 2%, a typical buyer will not use a realtor at
all. Oh, and it is illegal here for a realtor to charge both the buyer and the
seller because there is a clear conflict of interest there, you can only work
for one party. The real estate market in North America is ridiculous.

~~~
mattmanser
It's funny to watch American films and TV shows where everyone seems to be a
realtor on the side, or getting a realtors licence.

~~~
azhenley
It isn't just on TV. A considerable portion of my friends on FB are or have
been realtors.

------
pseudometa
It blows my mind that the fees are percentage based. The amount of work
required for an agent on a 100K house is very similar to that of a 2 Mill
house. Presumably the seller agent wishes to get compensation for increasing
the value of the house, but for both the seller and buyer agents, the number
of deals done far outweighs slight incremental selling prices. In which case,
both would prefer to settle on a lower price and move to the next deal. So
frustrating. I wish the lawyers all the best!

~~~
nrclark
Agreed 100%. Realtors do legitimate work, and deserve to be compensated for
sure. But I think the pay is grossly disproportionate to the amount of value
provided, and it's propped up by Realtor-sponsored laws and kickbacks. A lot
of Realtors won't even deal with non-Realtor(tm) real-estate agents, which
promotes their monopoly stranglehold on the real-estate market.

I'm not sure where I fall on what a real-estate agent's cut should be for
selling a house. But for the buyer's agent, it's really over-valued IMO. And
why should a buyer's agent in San Jose make 4x more than somebody in Des
Moines for the exact same value-add?

When I bought my house, my Realtor found some good listings, arranged
viewings, did the paperwork, and set everything up for me. All useful
services, and worth paying for. But was it worth $12k for less than 40 hours
of total work? I don't think so. That's a higher hourly rate than I'd be
charged by a good doctor. And my house was a pretty cheap one by modern
standards. Those are monopoly prices charged by people who know they've got
you over a barrel.

~~~
dgudkov
>But was it worth $12k for less than 40 hours of total work?

That's $300/hr. Similar to what lawyers ask.

Although, I suspect that a lot more education is required to become a lawyer
than a real estate agent.

~~~
linsomniac
Note they said "less than 40 hours", so that's "at least $300/hour". I feel
like my buyers agent, who I really liked, worked more like 10-20 hours for
$9K, for $450-$900/hour.

Don't get me wrong, I really liked her and she did a great job, but I'm not
sure she did $9K great...

~~~
sokoloff
It’s at least that figure for engagements that result in a transaction. That
doesn’t take into account the people they spend 40 hours with and don’t end in
a transaction.

------
kevindong
I'm about to graduate college and move to NYC for a job. The unfortunate norm
there is to pay a 15% fee (of the annual rent) to brokers to get a rental
apartment. The cheapest the broker's fee gets is one month's rent, so about
8.33% of the annual rent. High end apartments sometimes pay the broker's fee
on the renter's behalf [2]. Large apartment complexes sometimes have their own
leasing offices, so there's no fee there either. To be clear, this is a one
time fee paid when you initially move into the apartment. If you renew the
lease, you don't owe another broker's fee.

Meaning if the rent on an apartment is $2,000/month = $24,000/year, the
broker's fee on that would be $24,000 * 15% = $3,600. The cheaper apartment
are usually owned by small landlords who use brokers to vet applicants. For
those apartments, you're required to use brokers. There's no way to opt out by
working with the landlord directly as the broker's fee is paid by the renter.
The broker provides their services to the landlord for free.

I'm trying my absolute best to find a no fee apartment, but it pretty severely
limits my options. For studio or 1 bedroom apartments under $2,500/month,
there's currently 1,362 no-fee apartments [0] and 3,395 apartments at large
(so, 2,033 for-fee apartments) [1].

[0]: [https://streeteasy.com/for-
rent/nyc/status:open%7Cprice:-250...](https://streeteasy.com/for-
rent/nyc/status:open%7Cprice:-2500%7Cbeds%3C=1%7Cno_fee:1)

[1]: [https://streeteasy.com/for-
rent/nyc/status:open%7Cprice:-250...](https://streeteasy.com/for-
rent/nyc/status:open%7Cprice:-2500%7Cbeds%3C=1)

[2]:
[https://www.brickunderground.com/blog/2015/12/in_case_you_mi...](https://www.brickunderground.com/blog/2015/12/in_case_you_missed_it_high_broker_fees)

~~~
michaelper22
I don't understand how this racket is allowed to operate. From my experience
(three NYC apartments through realtors), the landlord's realtor provides pre-
screening of "desirable" tenants for the landlord, showings, collecting
paperwork from the prospect, and handing over the keys. None of this adds
value from the (prospective) tenant's perspective, but the tenant must pay the
fees (in all three cases, one month's rent).

~~~
tootie
I recently worked on a financial website that does a full credit, background
and fraud check online and in real time for issuing small loans. There's some
amount of manual auditing that can happen in the background for anyone that
raises a yellow flag, but otherwise you can get a loan approved and disbursed
with no fees and it happens in a few days and is fully automated.

------
o_nate
When we sold our house, it was obvious that our realtor's incentive was to get
a deal done. They had no incentive to go for a higher price if it lowered the
chances of a deal getting done. If you really want an incentive to get the
best price, you should have a base fee and an incentive fee, similar to how
hedge funds operate. E.g. 2% of total price, plus 20% of difference of price
above some baseline (e.g. assessed value).

~~~
0x0000000
The Freakonomics guys found that "when real estate agents sell their own
homes, they tend to keep them on the market longer (about 10 days) and get a
higher sale price (by about 3%) than when they sell homes for their clients."

[https://www.investopedia.com/financial-edge/0311/how-real-
es...](https://www.investopedia.com/financial-edge/0311/how-real-estate-
agents-sell-their-homes-for-more.aspx)

~~~
pmoriarty
Real estate agents don't get to choose how long their clients' home is on the
market.

Quite often real estate agents work with people who want to sell quickly, and
therefore price their homes lower than if they had more time to sell.

Also, the advice that real estate agents give on setting prices is often
ignored by their clients. Clients routinely think that they know better about
how to price their own home than the agent -- even an agent who's been in the
business for many decades and who's sold hundreds or thousands of homes.

~~~
coryfklein
> Real estate agents don't get to choose how long their clients' home is on
> the market.

Like hell they don't. The real estate agent's job is literally _to sell the
house_. If a house takes 3 months to sell it is likely because either the
agent isn't doing their job, or the seller is not heeding the agent's advice.

------
bkohlmann
Where you stand really depends on where you sit.

My wife recently became an agent, and prior to that I was all about disrupting
the industry.

But I’ve come to see the 3% on each side as an almost market clearing price.
It’s really hard work, with low barriers to entry, and significant upfront
costs.

In a tight market, being a buyers agent can be a blessing or a curse. She’s
been working with one client for nearly a year, submitting over 20 offers and
going all over the metroplex with nothing to show for it. On the other hand,
she’s had buyers who found something within a month. It works out to a decent
standard of living, but it takes a long time to develop a pipeline. Most
agents quit within a year.

I’m all for disruption, and it’s an industry with a lot of legacy, slow moving
players. Buts it also a complex one with lots of challenges on the individual
agent level.

~~~
Latteland
It's not that people don't do something worthwhile. It's more a question that
is it worth paying 60,000 when selling your house? It's not. At $100 an hour,
do you get 600 hours out of work of them? No. It's not about market prices,
because the cartel (real estate industry) prevents lowering percentages - and
they fight to the death any upstart who wants to do it.

It should not be a percentage, it should be a fixed rate. A few thousand
dollars. Or hourly.

Until people can set different rates, or you have the option of fixed rates if
that is the preference of agent & buyer it won't be honest.

~~~
olyjohn
Who is paying $60,000 to sell their house? Most houses and agents aren't
selling million dollar houses. There are some, but that's not the majority.
Also houses that are priced like that don't have as many buyers, they take
longer to sell. They have to market them to the right people, and have
connections to sell those kinds of places quicker.

People gotta remember, the commission is split 4 ways unless one of the agents
is a broker. Most agents themselves are only getting 1.5%

People CAN set different rates. Redfin charges a very low percentage compared
to others. There are brokerages who charge flat fees, and will just slap your
house in the MLS and then call it a day. You wanna list with a discount broker
go for it... You can even sell your house yourself!

This whole thread reads like a bunch of people talking about tech people. "Oh
you just sit at your computer all day surfing the web, why do you make so
much?" or "Why pay you so much, I can just set up a website on Wix for $10."

Yeah there's some shady shit with the NAR and access to listing services, I'm
not disagreeing with it 100%, but the average agent is doing a lot more work
than you realize.

~~~
mdorazio
> Who is paying $60,000 to sell their house?

Allow me to introduce you to a place called California. In Santa Monica, where
I live, median home price is over $1.5M. Yes, median. La Jolla is about the
same. Irvine is just shy of $1M. In San Francisco it's over $1.2M median. San
Jose is right around $1M. Mountain View is north of $1.7M. Etc. These places
represent thousands of homes and average time on market is generally around a
month. It's really that insane.

~~~
Latteland
I am in the Seattle area, where the average home price is slightly above
$800k. I'm fortunate to have a house that was a little above that average.

------
tacomonstrous
The model's pretty broken now, when anyone can look up listings on realtor.com
or Redfin, and get customized alerts based on preferences. I mean what special
skills do agents even bring on the buy side? I can mediate things with the
seller myself, thank you very much.

On the sell side, an experienced agent can be much more of a help. Even there,
we used Redfin the last time we sold, and the difference in commission was a
full 2% when compared to a more conventional broker.

~~~
olyjohn
Anybody can look up listings. And anybody can go directly to the selling agent
to buy the house. It's not about negotiating a price, it's about making sure
that everything is legit with the transaction. Are you going to make sure that
everything is properly filed? Are you going to keep on top of all the other
people involved to make sure they're doing their jobs? Are you going to go
through 4000 pages of legal paperwork? Are you going to ride the sellers'
asses to make sure the sale closes, so you aren't stuck homeless after moving
out of your old place?

There's nothing stopping you from hiring a real estate lawyer instead of an
agent. I'm sure he'll be happy to charge you by the hour.

And also as the buyer, you don't typically pay anything to the agent.

~~~
WkndTriathlete
Back in the day I did a FSBO with a real-estate lawyer who charged a grand
total of $250 for a sale of $100,000.

I'll take 0.25% overhead any day over 6%.

~~~
asciident
Same, my real estate lawyer charged $350 flat fee. He used standard documents,
private sale. He probably spent about 1 hour on it in total, and that was
about it.

------
seltzered_
Fwiw a16z did a video on the realtor setup and ideas around interacting with
companies more in the future for real estate:
[https://m.youtube.com/watch?v=IRPH3K1GXj0](https://m.youtube.com/watch?v=IRPH3K1GXj0)

I haven’t looked into the details of the article, but it seems interesting
that the RE startups may have some shared interest in changing the 6% rule,
although one could speculate their goals may be to replace an “organic
monopoly” of many agents with a (scaled techno-geographic?) monopoly.

Edit: the Hahn blogpost ([https://www.inman.com/2019/03/08/what-the-bombshell-
buyer-si...](https://www.inman.com/2019/03/08/what-the-bombshell-buyer-side-
lawsuit-means-for-realtors/amp/)) linked by the article posits the suit could
be expanded to also involve larger RE brokerages and not just franchise orgs:

“The lawyers picked the top four largest real estate brokerages in their
Complaint; I assume that they will quickly realize that RE/MAX and Keller
Williams are not brokerages, but franchise companies, and will either amend
the Complaint to include some other large brokerages (Howard Hanna? Compass?
HomeSmart? eXp Realty?) and/or other large franchisors (Realogy brands, Exit,
NextHome, etc.).

The basic claim is that the MLS rule of unilateral offer of compensation is a
violation of the Sherman Antitrust Act.“

------
eutropia
Recently bought my first home without an agent on either side.

If you were able to take away the complexities of applying for a mortgage,
then the transaction would be as follows: buyer and seller sign a purchase
contract(which defines what is being sold, for how much, and under what
circumstances), establish escrow, have the property officially assessed for
value (for tax purposes), have a title agent validate that the deed to the
property is legally the seller's to sell, and finally file the deed with the
local recorder's office.

You can pay a lawyer to draft the purchase agreement for you or write one
yourself.

To me, its the closing costs and lending instruments that need an overhaul --
but yeah, get rid of the realtors too.

------
maerF0x0
This is a big deal for "average" americans. Jack bogle took on the fees eating
up retirement plans. Now the next biggest asset has an opportunity to be
revamped. While real wages have stagnated, we can lower the costs so those
wages go further.

~~~
wnissen
There are 1.3 million Realtors(tm) in the U.S. Imagine what a productivity
boon it would be if even half of them switched to gainful employment versus
rent extraction via their cartel!

~~~
analog31
Better watch what you ask for. When they switched to no-fault car insurance in
my home state, many years ago, the number of non-car-related lawsuits
skyrocketed.

~~~
maerF0x0
IMO no fault anything sounds like a recipe for abuse. That's generally how
society functions -- there are consequences to actions.

~~~
analog31
There are still consequences under no-fault auto insurance. First of all, you
can still get a ticket for causing a crash. Second, your traffic record
increases your insurance premium. Also you could get injured yourself. I don't
think crashing cars is something sane people would do in the absence of the
insurance system.

Since everybody has mandatory liability insurance, on average the net money
transferred between insurance companies is probably close to zero, whether
money changes hands in lawsuits or not.

The aim of no-fault in my state was to reduce the number of lawsuits that
arose over petty incidents, that were flooding the courts.

[https://en.wikipedia.org/wiki/No-
fault_insurance](https://en.wikipedia.org/wiki/No-fault_insurance)

------
andrewtbham
currently, it is illegal to pay anyone a commission for selling your house
except a licensed real estate agent. If you got rid of that restriction,
imagine the opportunities. you could let your friends sell your house by
sharing a link on social media and they could get the commission.

Also in England, real estate commission fees are about 1% vs. 6% in US. As the
article states, in the US a lot of agents won't show FSBO (for sale by owner).
I have personal experience with this where they trash talk or flat out refuse
to show you fsbo.

~~~
noneeeed
Is there a significant difference between what an "estate agent" (UK) and a
"realtor" (US) do?

Are they more involved in the actual legal side of things (the sort of thing a
conveyancing solicitor would do in the UK), or are they still just there to
advertise the property and show people round?

If they were doing a lot more of the legal side of things I could understand
the difference, but a four or five percentage-point difference seems ludicrous
if they are basically doing the same job.

For context for those outside the UK, an estate agent here just works for the
seller, and normally gets a 1 to 1.5% fee (paid by the seller) for advertising
the property and showing people round (and good ones will give you advice on
tarting the house up etc). Once you make an offer on a house it's pretty much
all in the hands of the solicitors and mortgage company from then on.

~~~
chrisseaton
Realtor is a brand name - it's a registered trademark. The generic version is
estate agent.

~~~
noneeeed
TIL!

I've only ever seen it used in the generic sense online, a bit like the way we
talk about "a hoover" when we mean "a vacuum cleaner".

------
Latteland
I just realized this is about the same situation as "financial advisors" that
you pay a percentage of your assests to to "manage them" and that get hidden
commissions when you buy things. They insist that they are doing all for your
benefit, and they further insist they shouldn't be held responsible for making
advice that helps you (it's too restraining or some other bs).

This field is just like that. Unneeded middlemen who could help but in the
vast majority of cases just soak up your money.

------
opportune
One thing I haven't seen yet in this thread is that buyers' agents actually
make use of some pretty anti-competitive behavior on top of the regular cartel
stuff. Not only do they get access to MLS listings a few days before they go
"public" in most areas, but they also are starting to deal with "pre-listed"
houses that they are able to know are about to go on sale via their personal
networks. Of course, that's probably been happening forever, but in hot
markets it's becoming more popular simply due to the low average time on
market for appropriately-priced homes.

Also, I've taken a few classes on real estate (free) from real estate agents
before and one of them told me that he often gets solicited by crooked
inspectors who will exchange references for a-ok inspection results. Plus
agents on neither side / inspectors can easily be held responsible unless
there is provable, outright fraud. I think _maybe_ real estate agents would be
worth it if they also carried some kind of transactional liability but since
they don't...

------
berdon
We bought our house with a realtor who found and walked us through listings.
Ultimately, we found the house we ended up buying. Our buying agent was
helpful and did a good job but the questions she answered and information she
gave was available online.

We sold our house without a realtor and had no real issues. Buying agents
tended to stray from our listing and most would communicate with us first to
make sure we would "pay their fee". Most also tried to sell us on their
agency.

Overall, I probably won't use a realtor again. The value for my price point
was not worth the %.

~~~
gangstead
This was my experience as well. I've bought two homes and both times we found
it ourselves. Used the real estate agent friend of a family member (there's
always one) to show us a couple houses and relay offers, but I never felt like
they did something I couldn't have done myself. I went along to both home
inspections and found things the inspector missed. At all 3 closings (buying
and years later selling the first house, buying second house) I've been
sitting there in a room full of people sighing and tapping their feet while I
read all the paperwork they want me to sign and all three times I've caught
mistakes, two of which were several thousand dollars in the other party's
favor. All in all it's not just the realtors that are doing mediocre work to
extract a percentage, but a whole industry (agents, inspectors, title
companies).

I couldn't agree more that selling my house by myself was also a breeze. Maybe
the experience is different in a down economy. I paid a flat $175 fee to a
website for an MLS listing (which farmed the listing out to an agent in our
MLS region 5 hours away) plus the 3% buyers agent fee and people started
calling. I'm not a great photographer but I took pictures that were 100X
better than a realtor walking around with a cell phone and put the Zillow
"zestimate" as the listing price because I did a lot of research and took an
honest look at my house and couldn't come up with a reason to go higher or
lower. I definitely got the "will you pay my fee" calls despite already
putting the buyer's agent fee on the MLS listing. As an experiment I tried to
negotiate that with an agent and I realized that wasn't going to go anywhere.
The only annoying part of the process was the buyer's agent clumsily slipping
in some clauses in the contract that would have made it a terrible deal for
me.

If anyone is reading this and wants to try going without an agent I'd
recommend asking a friend who recently closed on a house to see their
contract. That will help you spot any tricks an agent is trying to slip past
you.

~~~
justwalt
What kinds of tricks did yours try to pull?

~~~
gangstead
Nothing illegal, but the initial contract was definitely a bad deal for me.
The most glaring item was some added in language that translated to if the
appraisal comes up short of the contract agreement then the seller will lower
the sales price to match the appraisal. In Texas at least an appraiser is
chosen somewhat randomly (I'm not sure how, but neither the buyer nor seller
get to choose) and they give what is at best a guesstimate.

The other glaring things were everywhere a fee was to be paid, they had
checked the seller's box, and that wasn't the kind of market we were in. I had
already signed for my next house and I wasn't about to pay all the closing
costs when I was the buyer and again as the seller.

In Texas all the real estate agents use the Texas Real Estate Commission's
forms for contracts. It has check boxes and fill-in-the-blanks for all the
standard things. I found that almost any place this agent had deviated from
one of the standard boxes she had tried to put something shady in. Maybe in
her experience people representing themselves were less savvy sellers.

------
Jocund
The 6% fee needs to end! I'm a Co-founder of a new firm in NYC who rebates
50%+ of the buyer side commission back to the buyer.

The average buyer doesn't a ton of assistance and giving them 1.5% of the
purchase price back at closing just makes sense.

~~~
opportune
Just curious - why use a percent fee rather than a flat fee?

------
lifehacked
I bought my house, at age 19 without the help of an agent, all the have to do
is coordinate: home appraisal, home inspection, title company. If you can make
10 phone calls you can buy a house without an agent.

~~~
mertd
You still paid the seller's agent.

~~~
low_key
Not necessarily. I bought my first house without an agent from a seller who
was selling by owner.

It's quick and simple. We sat down at a table and negotiated a price in about
15 minutes, then had an inspection and paid a title company to do the rest.

------
Shivetya
It would be a good change. In Atlanta, I assume many other large markets, we
have more than a few flat fee brokers. however it doesn't escape from having
the buyer using a realtor expecting their fee being paid by you the seller.

When I bought my last house I used the same realtor for the home sold and was
able to get a reduced fees on my sale.

------
squozzer
As someone who has bought a couple of houses, a buyer's agent mostly provides
convenience because they can access the property just as easily as the listing
agent.

While agent fees usually run in the thousands of USD, probably the larger
source of tacked-on fees is on the mortgage side, especially when the buyer
does not have the 20% down.

So not sure if transferring more of the fee load to buyers will help move real
estate. After all, except for strong seller's markets or when shopping for a
specific type of home, the seller usually has more incentive to sell their
home than a buyer has to buy it.

Regarding selling, I'm not sure this development is the realtor kill-shot - I
would argue outfits such as Opendoor (convenience) or even Redfin (eliminate
realtor fees) probably will inflict more damage to a realtor's income.

Because selling a house is a 100x greater PITA than buying.

~~~
bluedevil2k
Convenience shouldn’t cost 3% though. When I was looking for a house I was
able to find houses I liked on search engines and then call the aeller’s
realtor directly to set up a viewing. When time came for an offer, paying a
real estate lawyer an hourly fee ends up saving $10k+.

------
cmancini
There are some startups trying to fix these issues and price at flat fees to
mixed effect (Trelora in Denver comes to mind as an example).

I think the true solution will come not by lawsuit but by mass scale market-
making by companies like OpenDoor and Zillow. When you want to sell your home
you can go to these companies and get a check within a few days, and when you
want to buy a home these will have built software and systems to make
purchasing a straightforward process. They'll provide liquidity and take a
cut, but with a couple of companies in the market the 'spread' will probably
be lower than buyer+seller broker fees.

They may not serve unique and luxury real estate in the near future, but for
the 'typical' suburban home it seems like consumers could see a benefit.

------
obelos
I've bought houses using an agent and not, and the latter was in every way
more pleasant and predictable. The agent (and their supervising broker)
overlooked fundamental items in the contract which ought to have been obvious,
like ensuring the current renters would be out before close. Even with the
seller picking up the tab for both agents, as a buyer I would prefer doing it
myself. The only drawback is, of course, that it's much more difficult to get
into houses without being represented by an agent.

------
newhotelowner
I couldn't buy a house without a realtor even though its a house that found
myself and was paying 100% cash. 3%-3% is a lot of money if I don't use any
service from a realtor.

~~~
elteto
What prevented you from buying it yourself?

~~~
planteen
In a hot market (e.g., Denver last year), the seller's agent would not return
your calls for a showing if you didn't have an agent.

I suppose you could visit an open house and then submit an offer. Some houses
never do open houses, or will already have offers before the open house. You
would probably be competing with 2-3 other offers all over asking for a
properly priced house. The odds of them choosing your offer would be lower
since the seller's agent would not like it (it would be a lower offer on
paper, since it has 3% less commission). They might go for it if it was all
cash, but probably not with a mortgage.

~~~
blacksqr
In my home state at least, a sellers' agent is legally and professionally
obligated to present all valid offers received to the sellers. Failure to do
so can result in legal liability, fines, loss of license etc.

If your state is similar, then if you had made an offer by any means, like via
the agent's voicemail and the agent didn't tell the seller about it, then you
would have had cause for legal action.

~~~
planteen
I never made an offer. I was simply trying to see the house without an agent
of my own. The house in question was near where I was renting and had been on
the market over a week without an open house. It went to pending a week or two
later. The seller's agent never got back to me at all.

It's funny you say that about legality though - some of my relatives recently
put in a low-ball offer on a place in AZ. The seller's agent called them back,
said it was insulting, and would not be even showing it to the owners. The
house had been on the market for months. I wonder if that was legal.

~~~
blacksqr
If a market is hot then bidding is necessarily going to be more competitive
and sellers are going to be less accommodating. It's not unusual for buyers to
make an offer site unseen in a hot market. So if you have the cash and you
really want the house, I suggest you check out the rules in your state and
next time try making an offer by any necessary means.

Or get an agent.

------
alehul
Adding onto the complaints of economic inefficiency here: one of the worst
things I found living in Boston (not sure how many other major cities this
applies to) is that it's completely standard for the renter of a property to
pay a broker's fee, generally equivalent to one month's rent, to the
landlord's agent.

In most (healthy, cheaper) rental markets, the landlord will pay a real estate
agent a fee (one month's rent, again) to find a renter. This intuitively makes
sense, as the landlord requires some number of hours of effort from the agent
to list the home, show the apartment to a ton of people, and find one willing
to rent it.

It seems economically so incorrect that the renter should bear the cost of the
fee the rental agent charges for showing the home to like 10 potential
renters— they spend maybe 10 minutes of their time showing the individual
renter, and they're late more often than not!

Edit: below commenter rightly pointed out that this is economically perfectly
correct— unjust from a value perspective would be better phrasing

~~~
xyzzyz
Standard economic theory predicts that the tax incidence falls more on the
party that has lower elasticity — that is, fewer alternative options to make a
deal. If it is hard to find an apartment, the renter will pay most of the fee.
If it is hard to find a renter, it’s the opposite.

------
deckar01
One of the strangest parts about mortgages to me is the "point" system lenders
use to sell buyers lower interest rates. They offer a lower interest rate if
you "buy points" rather than applying it towards your down payment. It seems
like lenders are prioritizing their short term profit over their customers'
long term financial stability.

~~~
jiveturkey
Why is this strange? The majority of lenders repackage and sell off loans that
they originate. Of course they are prioritizing short term profit.

As for buyers, also what's not to love? Buying points gets you more cash flow
than the reduced principal. There's some math to do, and some financial
projection, where you expect to be in 5 years, etc. It's great to have the
option.

------
duwease
Yeah, I've never quite understood the value proposition of that fee myself.
Between that and the gatekeeping that happens to become an agent, it seems
like it's a bit inflated and held up by tradition.

At least the iBuyers like Opendoor provide a service whose value I can see,
even if it might not apply to every individual. Having someone else take on
the hassle of dealing with shady vendors and house showing, repair
negotiations and flaky buyers, while letting me move out cash-in-hand whenever
I want? I get that.. especially after experiencing my good friends hit every
one of those nightmares themselves, ending up having to waste thousands on
AirBnB's after contractor issues left them without either home for months.

------
fma
I always wondered who represents home owners who have cheap houses... Like a
$50k house. Whether you are selling a 50k house or 500k, there's a similar
amount of work. But those houses do get sold.

Also as a rental property owner I hate how realtors charge by the monthly fee.
Meaning, if I rent out my house for $2k a month, I need to pay them that
amount for a new tenant. A $2k a month property with tenants that have jobs is
easier to maintain than $500 property with tenants that barely hold a job.

They also take a 10% cut per month of the rent... $200 for $2000 rent... $50
for $500...just to do the same thing. Real estate fees make no sense!

------
rplst8
I'm generally OK with commission based sales - if there are guarantees.
There's very little due diligence on the part of the Realtor or real estate
agent. They can't really be held responsible for anything related the to
condition of the house if something was hidden or missed by a home inspector.
They'll put anything on the market, and typically make suggestions to sellers
that while intended to improve "curb appeal" and "showability" often cover up
bigger problems that the property might have.

Purchasing a home is always "buyer beware."

~~~
tathougies
> Purchasing a home is always "buyer beware."

I mean, as a rule of thumb sure (because who wants to have to depend on the
legal system for restitution), but not legally. Legally, the seller can't make
any false representations. If you're worried about accidentally doing so, it's
best to hire an agent who then takes on the responsibility for it.

------
TaylorGood
Residential real estate is an odd one. Countless times I’ve seen it warp the
ego of agents and their perception of value being provided. A friend was
looking to buy a $15m house, so I vouched for a childhood friend that was
newer to real estate. Agent friend was able to make it happen by tracking down
the owner who lived an hour away and convinced her to sell. After close the
agent friend then complained to me that he got hosed on the deal because of
the “100 hours” he put in and only receiving 1% - $150,000 ($1,500/hr). A year
prior he was delivering pizzas (!!).

------
robocat
Sellers fees mostly average 3% to 4% in Christchurch, New Zealand -
[https://www.thepropertymarket.co.nz/compare-our-
fees](https://www.thepropertymarket.co.nz/compare-our-fees)

The fee structure is X+1% for the first $350000, and X% above that.

One company advertises 1% fees, but they make it up with other charges.

From my experience, few people use a buyer's agent (maybe because property
details are well recorded centrally, and often they are not part of a
building, and so there are fewer legal risks in NZ).

------
intrasight
We tried selling our first house ourselves. Ran ads in paper. Put up fliers.
Etc. This was before the internet mind you. Tried this for 3 months and
literally had no serious interest. We gave the listing to an agent and a week
later had two full price offers. Sure, the internet has changed things a bit,
but since then I always use a realtor. 6% is fair for the good ones. More
challenging in some markets near me is where 6% isn't enough. Lots of $50K
houses still. That's only $1500 for each agent.

~~~
JMTQp8lwXL
I think the internet changed things a bit more than a little since then.

------
benj111
I'm from the UK where it works differently.

If you're a buyer, what does the realtor do? Do they sort the legal stuff? Or
are you (/seller) paying 3% to find you a house?

How does the legal mechanics of this work, do realtors have an obligation to
work in the interests of the person that engaged them, or the person that's
paying them? Presumably its who engaged them, as they won't know who's paying
them. Why then are they allowed to not show certain homes???

~~~
gnopgnip
In contrast to other systems used, The US system ensures the buyers are able
to make a competitive offer without forgoing representation(because the buyers
agent is paid for even if the buyers are unrepresented), and that almost all
transactions have both the buyer and seller represented by separate agents. If
the buyer is unrepresented, the listing agent is in practice representing
them, and the seller still pays 5-6% so most buyers would want their own
agent. Buyers agents usually sign an exclusive representation agreement
outlining their duties to the buyer, and state law also covers their
responsibilities to the buyer even if the buyer is not paying them directly.
Real estate agents are only compensated when a sale closes, unlike real estate
attorneys, or most everyone else in the real estate industry who are
compensated when a service is rendered. This aligns the incentives of the real
estate agents with the home buyers and sellers. Real estate agents are
spending a lot of money on marketing, which is what allows for sites like
Zillow to exist and for buyers to find homes for sale without directly
involving an agent.

~~~
benj111
You seem positive about the situation?

As a point of reference in the UK it's around 1% commission to sell your
house, they do the marketing, including on a variety of websites.

~~~
gnopgnip
There is a noticeable difference having agents as a buffer when buying or
selling a home. For many it is an emotional experience and without
representation the sale would not close. There is also a difference between
transactions where everyone is represented by an attorney who is paid even if
the deal falls through, or where they are represented by agents who are only
paid when the deal closes. Having a financial incentive to have everyone
represented is overall a positive.

In the US the realtors recommend repairs or other changes before listing the
home, sometimes handle staging the home, arrange a professional photographer,
pull data for comparable recently sold homes, call the listing agent on
pending home for sale to get the contract price(likely will be closed by the
time the appraisal is happening) and have knowledge of the local market to
help you decide on the list price. After listing a home they handle showings
and setting up the lockbox, and this includes screening potential buyers,
usually requiring that they have a mortgage pre approved before viewing a
home. Really the buyers agent is doing most of the work showing homes. In many
cases the listing agent will hold an open house to get more people to view the
home, but this is more for the agents benefit than the seller. After getting
an offer the listing agent still has a lot of work. They will negotiate
counter offers. They will help with preparing the required disclosures. There
is a lot of following up with third parties, the loan officer at the bank,
making sure an appraisal is scheduled, being present with the home inspector,
following up with the buyers agent to get contingency releases, negotiating
repair requests or other amendments. Then there is last minute stuff that
needs to be done, driving a contract somewhere to get a wet signature the day
before closing, getting the county to confirm a deed was recorded today, so
escrow can be released before 5pm.

Buyers agents are used in the UK too, mainly by the wealthy. Less well off
clients go without because they cannot afford it and still make a competitive
offer. 1% is on the low end, and it does not include VAT. If you go with a
full service estate agent they are charging 2.5%, and you are paying 3% out of
pocket for a buyers agent. 1.5%, and paying 1.8% total inc vat is closer to
the average. In a lot of cases that is not far off from what is paid in the
US. Another big difference is the US has the MLS, with virtually every home
listed, and the UK has multiple marketplaces and not everyone will see every
home. To reach almost everyone you need to use multiple agents and pay a
higher fee, if you use a sole agent, you are not reaching all registered
buyers. This is more of a problem in a buyers market, if you have a home in a
hot market you will find a buyer either way. Multiple agency is not needed in
the US.

~~~
benj111
It looks like theres been a downward trend over the past decade [1]. And it
seems a London premium [2].

1% is about right in my experience. (non London).

I wouldn't expect an estate agent to be doing that much running around last
minute though.

[1] [https://www.yopa.co.uk/homeowners-hub/estate-agent-
fees/](https://www.yopa.co.uk/homeowners-hub/estate-agent-fees/)

[2] [https://www.housesimple.com/estate-agent-fees-
information](https://www.housesimple.com/estate-agent-fees-information)

------
legohead
When I was in OK the 6% seemed like a lot, but it was workable.

Now in CA, after selling my first home, this 6% is simply absurd. After
selling and buying a new house, even with considerable equity, if I were to
sell my house again I would actually be losing money.

We had several major life events at once recently (job loss, family death, and
a couple others), and almost had to sell the house. Doing so would have been
like starting over after building up equity for 30 years.

------
kazinator
> _cost that would be borne by the buyer in a competitive market_

There is no such thing; any such cost is a parasitic loss that comes out of
the _value of the transaction_. Two parties are transacting, and in comes this
little vampire and sucks away a bit of it, leaving both of them poorer.

Reasoning such as "the other party pays it so it makes no difference to me" is
horribly irrational and innumerate.

------
mensetmanusman
I found this recent publication to be an amazing account of how real estate is
being used to launder:

[https://www.theatlantic.com/magazine/archive/2019/03/how-
kle...](https://www.theatlantic.com/magazine/archive/2019/03/how-kleptocracy-
came-to-america/580471/)

I wish class-action lawsuits were aimed at the source...

------
jmpman
I took advantage of the situation when I last sold my house. I knew what the
house would likely sell for, and told my agent that I’d pay him his 3% seller
commission for that price, but for anything above that amount, I’d split the
incremental amount with him (I believe I proposed 40/60). Ultimately I made an
additional $10k.

------
brightball
The agents themselves have little control over it. What people should take aim
at is the licensing process itself.

It’s basically an MLM.

~~~
btkramer9
It's no surprise most the MLMers move on to real estate afterwards

------
paradygm
So, who is going to go after the lawyers and the exorbitant fees they will
surely extract from this lawsuit?

------
ryanmarsh
Your local real estate listing service (also useful for competitive price
analysis) is only accessible by real estate agents. This is anti-competitive.
Real estate agents are one of the last bastions of rent-seeking bastards that
will fall, and not a day too soon.

------
Waterluvian
Im buying a house right now. The work my agent is doing surely deserves the
2.5% she gets.

Not that this doesn't mean it's still broken somewhere.

Don't be afraid to be pushy though if you think you're not getting your
money's worth. Or just do it yourself.

------
stopasking
I just wish they could keep real estate companies from asking to buy the house
I just bought a week ago. These people have access to all the listing and
sales data. They know I just moved in. Why are they asking to buy my house?

------
cmancini
There are some startups trying to fix these issues and price at flat fees to
mixed effect (Trelora in Denver comes to mind as an example).

I think the true solution will come not by lawsuit but by mass scale market-
making by companies like OpenDoor and Zillow. When you want to sell your home
you can go to these companies and get a check within a few days, and when you
want to buy a home these will have built software and systems to make
purchasing a straightforward processes.

They may not serve unique and luxury real estate in the near future, but for
the 'typical' suburban home it seems like consumers could see a benefit.

------
dd36
This won’t succeed for a lot of reasons. I suspect they’re after a settlement.

------
altmind
Is 6% realtor fee a norm in USA? Isn't 2% the old, established base?

------
madengr
Good! I find realtors to be parasites. We sold my wife’s house FSBO, which was
not hard at all. My mother just bought a house also FSBO.

No parasites involved, and everyone comes out the better. You can always get a
real estate lawyer to bless everything.

~~~
jvreagan
Exactly what I’ve done over the last 20 years. I FSBO and pay a lawyer by the
hour at the doc signing. Not to mention I sell at a higher price than what
realtors who try to land my business state I could sell for.

------
rhacker
This may lead to banks and realtors colluding. Instead or the current model
we'll get realtor/banks buying properties that go up for sale. Then the
realtor/banks will upgrade the cost to a 50% markup. That will of course be
after flippers fix the house and other things. But in general, we're see the
rich buying out the poor.

And that model will be 100% legal.

~~~
newhotelowner
> Then the realtor/banks will upgrade the cost to a 50% markup.

What stopping them right now?

