Wow! Where to even begin? Expat, this is a great example of sloppy thinking on an economic issue.

Firstly, let me address the issue of how much an agent actually makes. In your example here, you claim that an agent makes $24,000, which is 1/2 of your annual salary, on one sale. This is absolutely not true.

Let's examine this from the perspective of the listing agent. Most likely the buyer will come with an agent, which takes this earned commission from $24,000 to $12,000. You also failed to mention that the agent actually owes 50% of his commission to his qualifying broker, which now cuts down the earned commission to $6,000. If an agent manages to sell four homes of $400,000 each, at the end of the day after self-employment taxes, they net $18,772.

You are waaaay off base if you think that real estate agents are killing it making tons of money. Of course I didn't mention the fact that these agents are independent contractors, which means they have to pay for their own medical coverage and retirement savings. I guarantee you that you make much more than the average residential real estate agent.

Let's take a look at what a real estate agent actually does. The sad truth is that probably only about 10% of agents know what they are doing and are actually making decent money. The vast majority of agents are NOT worth the commission. However, this just puts the onus on you to find a good agent. A good agent is absolutely worth the commission. I am on my third home and can attest to this. A good agent can do things that are not at all in the scope of a real estate attorney's domain. A real estate attorney can't tell you how much a house should sell for, what the market is doing, what comps are applicable and which one's aren't.

You are nuts to not get a buyer's agent. It doesn't cost you a dime. Why in the world wouldn't you? If you are looking at properties that are in the MLS, that means they have a listing broker. It also means that the seller will be paying a 6% commission whether you have an agent or not.

On a side note, commissions are negotiable. I negotiated my last commission fee down to 4.5%. The agent was happy to do it since he knew our house would be a quick sale. He was correct.

The residential real estate profession is a little like the teaching profession. Most of the good teachers are not paid enough, which there are many poor or mediocre teachers that are paid too much. The same applies to real estate.

It's not like you are the first to think of this. For-Sale-By-Owner is an old concept. (Note, it's the seller who decides this, not the buyer). Anyway, FSBO sales are exposed to much less of the market because a buying agent will never go there. So you may not get as a high a sales price as you thought since only a small group of independent (cheapskate) buyers are even going to see your home. Notice I am talking from the seller perspective. If you are buying this conversation doesn't even make sense. Also, if you are selling you might consider a discount broker that will give the buyer agent a commission but only take a very small portion of their sale (much less than 3%), but they won't do any advertising or grunt work for you.

One comment to you as a buyer. You can not contact the seller directly and attempt to negotiate a deal without the agent. Again, you certainly wouldn't be the first to think about this. The seller signs an exclusive contract with the listing agency. They can not legally sell their property directly to you. Anyway, good luck.

My parents have been real estate agents for over 20 years. And... wow. Your ignorance is showing, BAD.

Well, not both of my parents...but my mother has been a realtor for almost 30 years now. She is hugely successful specifically because she offers value to her clients. She has two others working under her and she can still not keep up with the demand for her services. Alas, this is how capitalism works - she offers a service that is of value to her clients, thus they beat down her door. :)

Incidentally, Will is pretty spot-on with his analysis of where that money goes. I'll have to call her this evening to get the actual numbers, but I would bet that she pays out at least 50% in expenses on any given sale. I have no idea what you make as a teacher, Expat, but let's just say that the avergage teacher pulls down $50k after some years of experience. Well, to get that same amount of pre-tax income the average realtor would probably have to make $100k of commissions. Given the house prices you referred to, this doesn't seem like it would be all that difficult. Ask some people in the real estate industry, though. There is a reason that there is an incredible amount of turnover in this industry. It is littered with the remains of unsuccessful agents specifically because most who go into the business make the same assumptions you do - that it is easy work for fat commissions - the opposite, however, is usually the truth.

I'll talk with my my mother (and brother and sister-in-law, the other parts of the team) this evening to get their take. I'll likely post more then.

I actually looked back over my numbers and realize that I was much too conservative. Many agents can expect more like a 70/30 split with their broker. And I way underestimated the tax implications, on top of the fact of having to pay out of pocket all of the business expenses like mileage, computer, fees, etc.

I also want to address the question that Expat has about whether a buyer broker has an incentive to trying to lower the price. And the answer is that the buyers broker is actually legally obligated to represent the buyer exclusively to the best of his ability.

Too many buyers assume that they can just use the listing broker as their agent. This is complete stupidity. The listing agent is legally obligated to represent the interests of the seller to the exclusion of the buyer. In no way can a listing broker represent a buyer.

Will (and others),

I'm sorry if my post came across as an attack on real estate agents. I have nothing against them. Like my post says, I've used them in London. I'd certainly agree that some are worth the money.

However, why should realtors be exempt from market forces?

I don't spend a $1.29 for a hamburger at Burger King because I know they pay a franchise fee to the corporate office. I spend the $.99 at McDonalds because it is cheaper. I'm sorry that agents must pay between 50%-70% of their commission to some corporate suit. But I'm not $24,000 sorry.

Agents used to have all the information. They used to have comparables, a feel for the market, contacts with title & escrow companies, etc. However, all of that is online. Zillow will tell you what every house in a neighborhood is worth. Those with good Googling skills can find excellent sources of information about property markets. Google opens up the semi-translucent world of mortgages, mortgage brokers, title companies, escrow companies etc.

I know that a buyer's agent "costs" me nothing, but that is like saying that B&O taxes don't cost the consumer anything. If I have an agent, my seller will need to mark up his property so he gets the amount he wants/needs from the property. If I don't use an agent then I immediately have a $12,000 bargaining chip on the $400,000 place. And that's not small peanuts. $12,000 at 6% over 30 years is an additional $13,000 in interest.

I understand that the 6% fee may have made sense when house could be purchased for $100,000, but when a house quadruples in value, why shouldn't the agents fee decline? Are they doing more work? What exactly warrants a 400% raise?

I'm only frustrated because I got the EXACT same service in London for 1/3 of the price, so I know it is possible.

I don't know what I'm going to do at this point. I need to buy maximum house for minimum price. If I can do that without an agent, I'm tempted.

I'm not the only one wondering about this. An online agency, Redfin, is working with people who don't want to pay 6% of $400,000. They are an online agency with a small footprint in certain markets. They charge a 1% buyer's agent fee (actually they charge 3%, but refund 2% to the buyer). To sell a house, it is a flat $3000.

About the other problems of being self-employed, especially health care, I'd argue that the health care availability/accessiblity issue should be addresses separately so that entrepreneurs can take risks without literally putting their lives on the line. But that is certainly another thread.

I'm not very knowledgeable @ this area, but my understanding from reading some DR books is that people who sell their home w/a realtor make more on their home than those who list independently. This makes me believe that you get something for what you pay.

I'm with Will that realtors aren't independent from market forces. The only reason they may not have to negotiate is that they aren't asked to OR they have enough business so that they don't need to.

I don't know how this thread keeps coming back to whether agents can be useful and valuable. I don't doubt that some are. I just don't like paying 3 times as much for the same service I got in London. Call me crazy.

My point is simply that the 6% fee seems extraordinarily high.

Now it is true that the seller can negotiate a lower fee, but what does that do for the buyer? Should I negotiate a lower fee with my agent? If so, why would the buyer agent work hard for me? That is the discussion in Freakonimcs that Mr. Dunaway referenced.

And as far as people not selling as quickly or for as high a price when they sell by owner, that may be true, but agencies like RedFin will offer an expertise on pricing and markets that FSBO's don't have. And they will do it cheaper than ReMax, Century 21 and the rest. I just can't see how agents will be able to justify their 6% commission with house prices at levels that they are in many major metropolises. Especially if they can't clearly articulate what they do that is worth $24,000 (or $12,000) they will make on a sale.

I realize this thread is a little old, but I saw this NY Times article this morning and thought it might be worth some consideration. I myself would never argue that a product or service is overpriced if people are paying for it; however, as knowledge and technology changes, so does supply and demand, which inevitably puts yesterday's prices above or below today's.

If the article is behind the firewall, the relevant point is:

The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially.

I don't know if the results are accurate, but I still wonder what the value of an agent is that justifies the high price they charge. If the study is true, it will be a lot harder for agents to keep up the 6% number.