Are Realtors Really Making Too Much?
The Freakonomics guys have been on this rant for years, and until recently, I agreed with their logic. But the mounting evidence (in my mind) is starting to swing the other way.
The biggest piece of evidence is the existence of credible discounted brokers like Redfin.com which has been operating for a number of years now and have yet to make any impact on the 6% overall. In the past Redfin used to have very low fixed commission fees (if I remember correctly) and now they have gone to “50% savings”, which when you look into it is really only 25% since they are just talking about one side of the transaction. But you’d think that if they are listing both buyers and sellers they could just act like market makers and reduce both halves.
Now I understand that there is status-quo-preserving regulation and there is collusion and all sorts of conflict of interest in this game. But if the “big fat tip” is so large, why hasn’t the open market corrected this yet? There should be tons of competition into the discount broker space if there’s money to be had there. It should be an exploding industry, especially. now with all the extra inventory available. Perhaps there finally is an opportunity, and time will tell.
From a customer’s standpoint, I have to admit that it’s not about the raw information, it’s about understanding the intricacies of buying and selling a fairly complex asset (which 99% of the population is not up for doing). And if an agent can convince me that for their extra 3% they can get me much more than that in the sale price, it doesn’t sound like such a bad deal. Unless I’m an experienced buyer/seller of real estate, even if I understand all the numbers and regulations from a theoretical standpoint, I’m not going to be a good negotiator in practice.
My guess is that the true value of the broker (both sides combined) is about 4%. The other 2% is the corruption in the system that we all know about. What do you all think?