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September 5, 2006

The Sacred Six Percent Commission Under Attack

cartoon
The Times examines the question of how long six percent can continue to be the standard real estate brokerage fee in an era when the democratizing effects of the Internet is enabling buyers to do a lot more of their own leg-work and techno-savvy start-ups are willing to undercut the old horses. We're sure plenty of you who have sold in the last couple of years have stories of agents who did agree to cut the commission to five, or even four, percent. Of course, given what the market has done, a one or two percentage point cut still results in absolute fees way above where they were a decade ago. The authors of Freakonomics found that commissions do not align the interests of agents and their customers. Why? On the margin, the agent doesn't have much incentive to get a higher price; instead, he'd much rather get the deal done and move on to the next one. The financial advisory business began migrating to the salary model a few years ago for this very reason. Think that could ever happen in real estate?
Last Stand of the Six Percenters [NY Times]
Illustration by Scott Pollack

Comments

I remember some comments on this site about Corcoran going down to 5% in some cases.

Posted by: Anon at September 5, 2006 10:45 AM

I don't understand why sellers should continue to pay 6% when the labor involved with selling a house has not increased over time (whereas the value of a 6% commission has increased exponentially). when brokers float the "we need at least 3% on each side to get buyer's brokers in the door," it shows the level of corruption out there -- sellers must pay because brokers collude to keep it at 6%.

Posted by: anon at September 5, 2006 10:45 AM

When is the DOJ going to stop persecuting Microsoft whose anti-competitive measures no-one gives a hoot about, and start targeting real cartels like the real estate industry? Brokers are just raping homeowners and no one seems to care. It should be that a broker gets 30 days in jail for not showing a house because the buyer's broker was charging less.

Posted by: anon at September 5, 2006 10:54 AM

I recently sold an apt. in Brooklyn with a major Brooklyn Real Estate company. They really, really wanted the listing and when it came time to negotiate the commission, I said 3% or forget it. I won't mention the name out of respect to the broker but they accepted. They regretted it but they accepted. Playing hardball gets results.

Posted by: RentingForNow at September 5, 2006 10:59 AM

broker fees are a disgrace and daylight robbery. I sold my townhouse FSBO and I think it actually went smoother without the broker involved and i saved myself tens of thousands of dollars in the process. the lawyer does all the work anyway and charges a modest $3,000 or so. Theres is no justification why the broker should make anymore than the lawyer for doing an 1/8th of the work they do. i say always try FSBO first and if you really are having difficulty go to a broker as a last resort.

Posted by: anon at September 5, 2006 11:02 AM

RentingForNow -- out of respect for the broker????? bull$hit. If your story is true, the reason you are not disclosing the broker is (a) you are subject to a confidentiality clause or (b) you are one of those people who are so self-centered that you wouldn't feel good if others got the same deal that you got. It's exactly that kind of behaviour that keeps prices at 6%. If you said, I sold house X with Y broker for 3%, the next guy would have a starting point for negotiation, and soon enough the 6% would become 3%. Part of the reason for broker upper hand in the fee negotiation (or lack thereof) is the lack of information.

Posted by: anon at September 5, 2006 11:22 AM

Dear Anon:
I did not sign a confidentiality agreement. I am not self-centered. I negotiated a great deal and the broker asked me not to tell anyone. If you're selling an apartment, using me as a guideline is lazy and stupid. If you want a favorable commission, negotiate your own deal. Maybe your anger stems from the fact that you're clueless in matters like this and have been consistently kicking yourself in the ass for being screwed by a real estate broker. If this is the case, please continue to buy and sell real estate as morons like you make people like me a greater profit. And finally, I suggest psychotherapy for your anger and jealousy issues.

Posted by: RentingForNow at September 5, 2006 12:13 PM

they are worse than car salesman, they should go back to foot locker and sell shoes

Posted by: Anonymous at September 5, 2006 12:43 PM

We recently brought an apartment without using a buyer's broker, so the seller's broker get to keep all 6%. On a $700k apartment that's $42k. For doing what? Holding open houses a few time? Acting hyterical whenever she was afraid the deal might fell through?

By comparison, our lawyer did lots of work for us negotiating the contract, dealing with title company, mortgage broker, etc. He only gets a few thousand dollars out of the deal.

Brokers are overpaid. FSBO is the way to go!

Posted by: WT at September 5, 2006 12:47 PM

I tried to sell my townhouse FSBO, offering a 2.5% buyers broker commission. We got a few calls, but that's it. After two months had gone by with zero offers, we upped the commission to 5%. Then the phones started ringing and we got the place sold.

I'd suggest a similar approach. It's difficult to gauge interest in your property without listing it in the NY Times and holding a couple open houses.

For me, it turned out that the buyer's agent was very professional and a great intermediary between myself and the buyer.

Does she really deserve the huge amount of money she made for ten hours work? To me she does. That house would still be sitting on the market and I'd still be sweating bullets if she hadn't brought in the buyer.

Not everybody scours the internet for deals like you folks do, and in a slowing market a good broker may be the only way to get anywhere near your asking price.

Posted by: Simpson at September 5, 2006 1:14 PM

The Times trots this article out at least once or twice a year. Buyers don't pay a commission in NYC, so this article doesn't really apply here. Some sellers will probably be willing to pay more than 6% as properties sit on the market longer. Paying two mortgages can add up...

Posted by: Anonymous at September 5, 2006 1:26 PM

As a first-time buyer I bought a FSBO apartment in a small Brooklyn co-op about 3 years ago -- I didn't work with a real estate agent, and neither did the seller. There were some special circumstances that made this FSBO situation work particularly well for this deal -- it is a decidedly inexpensive apartment, a small and pretty informal co-op, and we all definitely did a lot of legwork to push the deal through (though I'm not sure we did that much more than other folks I know who DID work with agents).

As a buyer I definitely believe I got a better deal on my place than I would have if a big agency was representing the seller. However, I also did a lot of work on the apartment once I moved in -- even cleaning the place myself after the previous owner left a bunch of her stuff behind! Even, now, when apartments in my building have almost doubled in price, I suspect my modest apartment wouldn't be worth many agents' time. But if I ever change roles and become a seller, I would consider using an agent to help me market and sell my place -- but knowing what I do now, maybe I'd try to whittle their commission down to 5%.

Posted by: shelz123 at September 5, 2006 1:27 PM

"As a buyer I definitely believe I got a better deal on my place than I would have if a big agency was representing the seller."

Is this what sellers want to hear?

Posted by: Anonymous at September 5, 2006 1:32 PM

if the sellers got a better deal too, then it's great. I've sold and bought FSBO before and both times thought both seller and buyer saved their end of the commission.

Posted by: Anonymous at September 5, 2006 1:57 PM

I sold my co-op without a broker. It was just as easy as past times when a broker was involved. If you put an ad in the NY Times on the web with decent pics you are reaching the serious buyers here in NY. In my opinion, broker fees are a waste of money.

Posted by: Anonymous at September 5, 2006 1:58 PM

As usual, we only hear the happy, fuzzy fsbo stories. The guy from Tiffany Place that was featured on Curbed.com back in April still has his place on the market.

"I've sold and bought FSBO before and both times thought both seller and buyer saved their end of the commission."

The key word here is 'thought'. You'll never really know will you?

Posted by: Anonymous at September 5, 2006 2:01 PM

I sold my apartment on Clinton Avenue through Aguayo and Hubener for 4% in 2001. I didn't negotiate that, that was what they offered. At the time Corcoran wouldn't match, and just suggested I up the asking price to make up for difference. I passed. (That said I feel like I didn't get great advice about moving the apartment, and it sat on the market until I suggested dropping the price 15k).

Posted by: Anonymous at September 5, 2006 2:09 PM

I love to rent my apartments on craigs list with "no brokers please" addition. It makes me happy plus potential tenants would save few $$$.

Posted by: Anonymous at September 5, 2006 2:18 PM

Aguayo charges 6% because they don't co-broke. Which means only Aguayo customers are allowed into a property. They covet their listings. So if Corcoran charges a 6% commission they could easily end up with only 3% of it (as opposed to Aguayo's 4%) if an agent from another firm brings the buyer. Aguayo's 4% commission is not in the seller's best interest, it's in their own...

Posted by: Anonymous at September 5, 2006 2:27 PM

i found my 3% broker to be incompetent. if i had paid 6% for the same level of service, i would have felt incompetent.

Posted by: bk at September 5, 2006 3:09 PM

I think much easier to sell FSBO in hot market where there is very little inventory and surplus of buyers.
But in balanced or buyers market maybe need broker more.
Many people can market there own property successfully - but plenty of people can't. And ends up as big mistake.
But I do agree that many agents seem to be totally clueless about product they are selling. Maybe that is a tactic. And maybe they are just stupid people.

Posted by: Anonymous at September 5, 2006 3:23 PM

I personally just don't see what agents bring to the table. If I'm going to look at a property, it's not the brokerage stamp that interests me. It's the price, the location, the square footage, and the amenities. And anyone who can scrape together the money to buy a place should be able to write a half-intelligible ad for the Times.

And bk, I think that's my new favorite quote of the year.

Posted by: Mateo at September 5, 2006 3:43 PM

Hey, 2:32, give it a try. You think it's so easy? Believe me, you wouldn't last two minutes...

Posted by: Anonymous at September 5, 2006 3:43 PM

Many real estate agents appear to be clueless and stupid because, quite frankly, they are. The reason? There's a huge turnover in this business. Many try and most fail. I'm sure many of you have worked with agents who are destined for the dust heap. Go with an agent who has been in the business for at least a couple of years and knows their shit...

Posted by: Anonymous at September 5, 2006 3:47 PM

Just do an advanced search on the NY Times website. Type in key words like "owner" and "no brokers."

Every other site is so small and the listings are so old, what's the point of looking unless you have absolutely nothing better to do.

Posted by: Anonymous at September 5, 2006 5:14 PM

as was discussed once on this site before, the smart thing is to use a sliding scale.

ie. sell my apt for 400, i give you 3%
sell it for 425, i give you 4%,
sell it for 450, i give you 5%
sell it for 475, i give you 6%,
ad nauseum.

sellers should start pushing this and make them work for their money.

Posted by: ltjbukem at September 5, 2006 5:49 PM

Is this FSBO vs. Broker discussion made worse because of the reluctance of city brokers to use MLS? I know that when I have bought houses in other areas, the searches were made infinitly easiser by having a centalized database to conduct my search. By forcing you to conduct your search across many sources, brokers maintain more control over the market and inflate thier involvement.

Posted by: PMO at September 5, 2006 6:17 PM

We have to accept the "bubble" was not the norm. The truth is, buyers ultimately need to be allowed to determine the price. It's an auction essentially, to sell a home. If it's worth more, they'll bid it up. And if NObody is putting in offers at all, or none at the amount you want, then get a clue, it's priced too high. Secondly, getting more traffic and getting it early on is really important. The fact that owners are willing to hire a place like Aguayo to save a buck, in order to get a fraction of the potential buyers looking at the place? Stupid. I can't figure out how they get any listings. And no, I'm not a realtor. I've just always had very good ones. Because I hire experienced ones; I don't hire newbies or babies who promise me the moon and the stars just to get my listing. And then can't deliver. I know exactly what my property is worth, I don't need the snow job.

Posted by: kittyn at September 5, 2006 6:44 PM

As always The Times just generalizes and then whammo so does a great majority of readers. The truth is if brokers did not work hard last year they certainly are this year. Buyers respond less to sellers who particularly are in denial this year over the dwindling market place. They get to push their losing proposition FSBO and buyers get to pass on them. An experienced agent definitely does count for something oh and for the anon blogger who felt that ALL brokers are being compensated oh so much did we forget about the real crooks who made out these past few years (sellers) yes try comparing their profits to anyone elses.

Posted by: anon at September 6, 2006 7:59 AM

Is anon at 7:59 really comparing the legitimacy of a seller's profit to that of the brokers?

I am just misreading that right? no one is THAT stupid.

Posted by: anon at September 6, 2006 9:14 AM

there should be a cap of 10K fee per million dollars of value in a property for brokers. anything more is entirely unjustifiable - i dont care how experienced they are. when i bought a townhouse in clinton hill the "broker" was a very experienced guy with years logged in the area. But all he did was open the door and shuffle paperwork between lawyers and then took a 35K check or something.not my money. 35K?? anyone can find 10 or so potential buyers in NYC without spending that kind of money. its a crime really.

Posted by: anon at September 6, 2006 10:02 AM

Anon 9:14 Me thinks you may be that you may be that stupid.

Posted by: anon at September 8, 2006 8:10 AM

Anon 10:02, it really was your money. It reduced the profit of the sellers, so they likely passed at least a portion of that cost on to you.

My neighbors just sold their unit FSBO. They asked for a lower price than a broker would have charged and were able to move it really quickly. They could have squeezed a bit more out of it if they had been willing to bring a broker in and sit on it a while, but since they were able to cut out tens of thousands of dollars worth of expenses by forgoing the broker they got a lot of interested parties in the door FAST.

Posted by: Max at September 11, 2006 5:26 PM

I'm going to do FSBO in the next couple of months for my brooklyn heights co-op. Does anyone have any sense of the role of seasonality (i.e., best time of the year to sell) or any MAJOR pitfalls to avoid in FSBO?

Posted by: acm123 at February 6, 2007 10:02 AM

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September 5, 2006

The Sacred Six Percent Commission Under Attack

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