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Residential real estate commissions going forward

11,062 Views | 119 Replies | Last: 5 yr ago by jagvocate
Phat32
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The going rate is and has been 6% for a while (3/3). What does this board think it will look like in 10 years?

Personally, I think we're going flat fee initially, then some sort of technology-based model after that.
DallasAggie0
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6% made sense 20 years ago without the tech.

Now, it's quite frankly, ridiculous. I think the new tech startups like doordallas with reduced commissions are eventually going to take over.
dallasiteinsa02
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The entire system has one issue that needs to be overcome before you will see a dramatic drop in fees. How do you give buyers access to the homes, without the sellers there, without it becoming a theft or safety issue? I have often thought about building a system like uber for real estate. Build a central showing system and have on demand background checked staffers that will open the home for you. They are just there to make sure everything is on the up and up. The buyers pay a fee for the person to meet them at the house and give them access. Sellers pay a nominal fee to be in the system and pick up all the costs for marketing such as pictures. Negotiations are done through the system with the ability to have a lawyer involved for an additional fee.
one MEEN Ag
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A large percentage of people are going to consider the hand holding and 'local expert opinion' as worth the 6%. The technology platform's can't replace a real estate agent yet, but it is threatening their value. Seems the biggest obstacle is the time delay between when a property is on the market and listed on trulia, zillow, redfin, and HAR- if it even lists at all before being sold. Also, people like to think of real estate agents as chasing down prospective homes for you while you attend to other things. That 'value' is baked into the commission. Furthermore, no one has consolidated the data into a decision making process.Is the home undervalued or overvalued? You find a home on Trulia- now what? Oh, here's recommendations on buyers agents to represent you when you contact the listing agent.

The jobs most insulated against the rise of automation and technology are those that require human to human contact. Deal making and emotional decisions like homebuying are ideal for keeping real estate agents around. That doesn't mean there won't be downward pressure on real estate agents though.

I wouldn't be surprised to see a technology company that offers flat rates for assistance on individual parts of the real estate transaction.

Also, what was the average home value 20-40 years ago vs now? 6% nowadays represents a huge transaction fee on the modern price of homes.



gig em 02
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Redfin has gone to 1% for listing, they will destroy the market with that
histag10
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dallasiteinsa02 said:

The entire system has one issue that needs to be overcome before you will see a dramatic drop in fees. How do you give buyers access to the homes, without the sellers there, without it becoming a theft or safety issue? I have often thought about building a system like uber for real estate. Build a central showing system and have on demand background checked staffers that will open the home for you. They are just there to make sure everything is on the up and up. The buyers pay a fee for the person to meet them at the house and give them access. Sellers pay a nominal fee to be in the system and pick up all the costs for marketing such as pictures. Negotiations are done through the system with the ability to have a lawyer involved for an additional fee.


I would think smart home tech will play a roll as well. I believe there are currently locks that can send a one time unlock code to a phone. That, coupled with video monitoring, would ease a lot of concerns I would imagine, especially for vacant houses.
aggie appraiser
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histag10 said:

dallasiteinsa02 said:

The entire system has one issue that needs to be overcome before you will see a dramatic drop in fees. How do you give buyers access to the homes, without the sellers there, without it becoming a theft or safety issue? I have often thought about building a system like uber for real estate. Build a central showing system and have on demand background checked staffers that will open the home for you. They are just there to make sure everything is on the up and up. The buyers pay a fee for the person to meet them at the house and give them access. Sellers pay a nominal fee to be in the system and pick up all the costs for marketing such as pictures. Negotiations are done through the system with the ability to have a lawyer involved for an additional fee.


I would think smart home tech will play a roll as well. I believe there are currently locks that can send a one time unlock code to a phone. That, coupled with video monitoring, would ease a lot of concerns I would imagine, especially for vacant houses.

This is already being done to some extent.
jtraggie99
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aggie appraiser said:

histag10 said:

dallasiteinsa02 said:

The entire system has one issue that needs to be overcome before you will see a dramatic drop in fees. How do you give buyers access to the homes, without the sellers there, without it becoming a theft or safety issue? I have often thought about building a system like uber for real estate. Build a central showing system and have on demand background checked staffers that will open the home for you. They are just there to make sure everything is on the up and up. The buyers pay a fee for the person to meet them at the house and give them access. Sellers pay a nominal fee to be in the system and pick up all the costs for marketing such as pictures. Negotiations are done through the system with the ability to have a lawyer involved for an additional fee.


I would think smart home tech will play a roll as well. I believe there are currently locks that can send a one time unlock code to a phone. That, coupled with video monitoring, would ease a lot of concerns I would imagine, especially for vacant houses.

This is already being done to some extent.

Are you guys familiar with OpenDoor? They are already doing this. That said, I'm not sure their business model is working. Many of the homes I've seen listed by them in Dallas sit on the market for weeks or months.
Deats99
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Biased as I am married to an agent and am a lender.

For the perfectly qualified shade tree lawyer that is buying a cookie cutter tract home, these services could be great. For everyone else they are about as viable as a wet blanket is for protection.

Time and time again I see unknowing buyers taken advantage of by knowing professional sellers. It goes both ways. What you don't know and a computer can't tell you will eat you alive. Now is it easier with technology? Yes. Is it a complete answer? I think Not.

But like I said I am biased. I only get to clean up the messes these FSBO's and limited listing folks create. At some point the contract has to be hemmed up. This typically falls on the lender and or closing agent, and that is not who you want negotiating and amending contracts.

Let's take a example from the side I know. Rocket Mortgage. They live by the fact that they cut out the "expensive" loan officer. Who is making the judgement call that a client could go reduced doc, but should they? Does the computer know that if the borrower simply provided tax returns and one more w-2 they would get a better rate. The flip side of that, is how do you have a conversation with a computer to explain that in 2016 you took a loss in your 10 year old business and that maybe you should go through LP which will allow for one year tax returns for a seasoned business. By the time a computer realizes that, they are already in possession of the 2 years of returns and the well is poisoned. That is highly selective but is a good example of what value is added.

A good plan violently executed now is better than a perfect plan executed next week.
-George S Patton
Señor Chang
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How do these companies have non-licensed employees opening the door? Would they not be subject to a fine from TREC?
Deats99
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Most of the one's I have heard have put it on the Homeowner
A good plan violently executed now is better than a perfect plan executed next week.
-George S Patton
Señor Chang
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So they are just targeting buyers without a buyer's agent? Only pay a flat fee on one side of the transaction
Shooter McGavin
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DallasAggie0 said:

6% made sense 20 years ago without the tech.

Now, it's quite frankly, ridiculous. I think the new tech startups like doordallas with reduced commissions are eventually going to take over.
On the listing side maybe there will be a reduction in the rate, selling side - nope.

doordallas will flop around for a while, but the place will be a revolving door with agents. Any agent that is worth a crap will be done with that place as soon as they get the business figured out. The constant turnover will kill it off, with the exception of the really simplest of transactions.
DallasAggie0
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Virtually ever aspect of real estate has high turnover and isn't dying. That's wishful thinking at best and the market is saturated with realtors.
plowboy1065
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S
I agree the market is saturated with realtors but it's not full time producing agents. It's the trophy wife that gets her license thinking she's going to set the world on fire because she's socially connected with all the other trophy wives. Once she sees how it's not all luncheons and happy hours, and to be a multi million producer takes very long hours and dedication, she decides it's not for her and goes back to yoga pants. In the 5 years I've been in real estate, I can't even begin to count the number of agents that have come through our office that you'll see everyday for a few months and then never again. I don't even bother to learn their names anymore
TresPuertas
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As an appraiser I've done thousands of jobs in my career and of those I handled one by a flat fee Door agent in Dallas.

The property ended up appraising for $70k over the contract price, which, had the seller hired a competent agent, wouldn't have happened.


That flat fee commission ended up costing the seller a LOT more than 6%.

There isn't a lot of love lost between my professions and agents, but they certainly have their value and most times, earn the money they make

SteveBott
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Of those posters that are not realtors. Question...

How many of you will work nights and weekends? I'm talking 40 hours every week? And throw in plenty of hours during normal work hours?

That's what it takes. Kids soccer game Saturday? Nope. You're driving a client to listings. Sunday brunch? Nope. You are driving or working a contract offer.

Point is a successful realtor works when others are with their family. I've never had a client buy during the work day. Always nights and weekends.

Discount realty has been around 20 years and has never seriously dented the 6% deals. Why? See above.
SteveBott
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Oh and mortgage is not much different. I was on the phone last night at 8pm with a realtor and at 8:30 with my client.
aggiebq03+
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Lots of people work nights and weekends, including me. I'm compensated for it, and have no problems with realtors getting compensated either.

I'm also glad flat fee is available on sellers side, and rebate realtors on the buyers side as options. If you've lived mostly in one area and know what you want when buying and what your house is worth when selling, it's nice to be able to save some money. However, I would seek a competent realtor if moving to an unfamiliar area.
plowboy1065
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I mean this in no way personal or directed at anyone here that's a rebate realtor. As someone that meets with a lot of buyers who are interviewing buyers agents, I tend to see that those that offer rebates as their selling point are generally not a high volume producer. It really comes down whether the buyers care more about getting money back at closing from their realtor that doesn't close a lot of transactions on a yearly basis or using a realtor that has a proven track record of high volume production and experience that may save you more money in the long run
DallasAggie0
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SteveBott said:

Of those posters that are not realtors. Question...

How many of you will work nights and weekends? I'm talking 40 hours every week? And throw in plenty of hours during normal work hours?

That's what it takes. Kids soccer game Saturday? Nope. You're driving a client to listings. Sunday brunch? Nope. You are driving or working a contract offer.

Point is a successful realtor works when others are with their family. I've never had a client buy during the work day. Always nights and weekends.

Discount realty has been around 20 years and has never seriously dented the 6% deals. Why? See above.

A lot of people work nights and weekends and I know you are aware realtors take days off during the week to compensate, and can show up much later in the work day as there aren't set hours like a regular business.

As far as I am aware (what I see on MDL) residential realtor commissions don't scale with price which seems to me to be absurd. I don't really have an issue with 6% under a certain threshold but it gets to a point where I fail to see additional value being added which is where I can see reduced commission services stepping in.
TresPuertas
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The thing is, you are more than welcome to to negotiate your commission with your agent beforehand. There is nothing that says you are required to pay 6%.

I'll say it again, with higher sales prices and more at stake you really are going to want a competent agent., and those aren't going to negotiate their fees. I've seen agent incompetence cost a lot of people a lot of money , and with disccount agents you aren't going to get the best and brightest

Like anything, the commission rates are a product of the market
DallasAggie0
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Yes, thread is about the future of real estate commissions going forward. I see a lot of aspects of real estate getting automated or reduced heavily in the future. Title companies? Blockchain will wipe them out. Lenders? I'm not so sure we won't have AI type programs running in the background. Realtors won't be immune.
TresPuertas
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Well aware what the thread is about. I was responding to your previous comment.
mazag08
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DallasAggie0 said:

Yes, thread is about the future of real estate commissions going forward. I see a lot of aspects of real estate getting automated or reduced heavily in the future. Title companies? Blockchain will wipe them out. Lenders? I'm not so sure we won't have AI type programs running in the background. Realtors won't be immune.


How will blockchain remove title companies?

As mentioned before, a computer can't do what a lender can do in non automatic situations.

And Realtors have and will continue to survive the barrage of crappy, ineffective replacements.
mazag08
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These threads always make me laugh. It's the same adamant posters every time with a stick up their ass about Realtors. And they are always wrong.
jja79
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I've never really understood the concept of hiring someone to negotiate possibly your biggest transaction who's sales pitch begins with ...... I voluntarily forfeit some of my own income.
East Dallas Ag
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There will continue to be downward pressure until the next market slow down. When homes aren't selling but you have sellers that need to sell, they'll happily pay 6% for an agent who will produce results. After the 2008 crash agents who could show a track record of successful results when nothing was moving were pushing 7-8% commissions. The barrier to entry is far too low in residential and as touched on before allows for too many part-timers to enter the market and eat away at market share. It's counter-intuitive but I think that if the barrier to entry was greater, commissions might actually soften a bit. When full-time, professional agents have to spend more time and money fighting for market share, what they can afford to charge at a minimum goes up as their volume goes down. This is a business cost that few consumers ever consider when factoring where the commission goes to - client acquisition. If it were as simple as "Get License, Sell Houses" then no one would ever flunk out of the business, but a large expense for agents is their personal marketing, not actual property marketing and as commissions are the only stream of income, that cost has to be baked in along with actual property marketing costs, overhead, broker splits etc.

Door Dallas is a VC funded brokerage that hires freshly licensed agents to work for a salary, if inexperience is what you want, you might save some money, you might not. I assume their end goal is to be bought by a Zillow or other large umbrella wanting to get in the retail side of the business. But in order for their model to be profitable each salaried agent will have to cover a large amount of business, and obviously service and quality suffers. Based on how much advertising they do on the radio, their client acquisition costs must be insanely high right now, helps to be VC funded, but I'd l like to see their P&L statement.

Opendoor uses a code based lock system to allow anyone to tour their houses at anytime, but they can get away with that because they are the actual owner of the property and they are vacant. While they have a camera system in the homes usually, i imagine they've gotten knocked off a few times at this point. As mentioned there was a group about 2-3 years ago that was trying to Uber-ize the house-showing activity but it never got off the ground, my guess is due to Texas' confusing and strict agency laws. As soon as a principal sues because they thought they were represented by the person opening the door...and then subsequent suits are brought, it kills the whole plan. So maybe blame lawyers there.

I do think it makes more sense for a buyer to actually hire and pay their own broker, but it adds additional expense to a buyer already shelling out tens of thousands of dollars, and might require them to actually start making some payments along the way of the process. Few industries do so much work completely on contingency - would an attorney, CPA, architect, contractor etc work for 3-6+months and never send a bill? If consumers would be more willing to pay-as-they-go, commissions would also soften.

In my opinion the intricacies and nuances of individual neighborhoods and the homes therein are too great for a large scale flat-fee, automated or AI based listing service to provide quality representation at this point - if all you care about is cheap, you can definitely get that. If anything I can see, and I am trying to create within my own business, a hybrid model of flat-fee geographic experts. If you are positioned as the regional (more like neighborhoods, or city quadrants, not entire metropolises) and have a flat fee system, I think that would be attractive to sellers. But it's an uphill battle and few of us have the funding.

If anything the commercial leasing side of things seems most prime for an automated showing disruption, and the elimination of buyer's reps, especially when a comprehensive commercial MLS happens.


DallasAggie0
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mazag08 said:

DallasAggie0 said:

Yes, thread is about the future of real estate commissions going forward. I see a lot of aspects of real estate getting automated or reduced heavily in the future. Title companies? Blockchain will wipe them out. Lenders? I'm not so sure we won't have AI type programs running in the background. Realtors won't be immune.


How will blockchain remove title companies?

As mentioned before, a computer can't do what a lender can do in non automatic situations.

And Realtors have and will continue to survive the barrage of crappy, ineffective replacements.

1. Not much explanation required. We aren't far from a point every individual has their entire history on blockchain and every aspect of your home from construction, repairs, and ownership on blockchain. Smart contracts will analyze it all in seconds.

2. Artificial intelligence. Customer service will probably still be necessary though and again all your credit history and financial records will be accessible and analyzed in seconds.

3. We'll see. Realtors will survive but 6% remains to be seen.
Señor Chang
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Lots of good realtors offer rebates including one of the forum sponsors, Cody Robinson.
East Dallas Ag
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I think what is a more interesting conversation is what the process with look like in 10-20 years. I envision within 10 years, the buying process will look much different. Gone will be the days of going out on nights or weekends and physically touring dozens of properties. You will go to the Realtors office (this will quickly evolve to just doing so at home or the office as VR proliferates) and you will "tour" multiple properties through VR tours with VR goggles - or whatever they evolve to. The technology is already there to do this, the cameras that create the VR tours are somewhat prohibitively expensive now, but technology is improving to allow iPads to do this. After virtually touring dozens of properties in minutes/few hours, you tell your agent we want to see "7,12,19, and 24" and you actually go and see those in person. At first that will be with an agent or assistant, but will evolve to self touring with home based drones/bots/whole house cameras for safety/protection of the house and to answer questions either from the listing agent remotely or via an AI interface like Siri. The ability to be able to have the freedom to do this will be heavily based on pre-process background checks so a lot of the automation, at least of this process, in the future will rely upon how clean your background is and then how you address those with more checkered pasts.

The process from there on is probably fairly similar to the process is now in terms of offer writing, negotiating and closing. What changes is the buyer load that a couple agents and their assistants could carry, so you can guess what it will do for the demand for buyers agents.

Both buyer and seller agents will shift more to advisory and transaction management roles, perhaps under the umbrella of an attorney, as buyers and sellers are able to automate and a la carte more pf the processes. I see the transition going a bit slower on the seller side and will likely take a generation or 2 for everyone get comfortable with the technology. There will always be a few hold outs so handling their cases will become a niche business. Regardless I can see the need for need for agents cut 50-75+% in 10-20 years.
jmazz
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Flat fee listing, % based commission to buyer's agent. That's what we (12 Realty) do in B/CS. As homeowners and investors (HomeVestors franchise) I feel we're pretty competent to perform accurate CMAs for sellers and we don't miss the mark too terribly often as it relates to market value/potential sales price. But I can see that being a problem for a flat fee brokerage that isn't local to the market they're listing in and a seller ultimately taking a hit b/c they went the flat fee route and could've sold for _____ dollars more which would've more than covered the 6% they tried to get away from.
SteveBott
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The preview of property online is done now. You still need an agent to help physically see a home now and your future. I'm not going to make my biggest financial transaction on a virtual tour.
aggiebq03+
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jja79 said:

I've never really understood the concept of hiring someone to negotiate possibly your biggest transaction who's sales pitch begins with ...... I voluntarily forfeit some of my own income.

Vanguard used this approach for investment products. I've got more in my investments than I do in my house. Don't see why this approach wouldn't work in real estate.
East Dallas Ag
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Then you didnt fully read or comprehend my post, the buyers for the most part will always see the house they buy in person, but the number the actually see in person will be greatly reduced, thereby reducing the amount of homes an agent will actually show in person, at least on a per client basis.

And I'm sure "I'll never get a loan for the most expensive purchase I'll ever make from a guy I don't meet in person" was uttered many time as the internet expanded. Now how many clients do you actually meet face to face?
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