Friday, October 05, 2007

Another sign real estate agents are overpaid

Jim Perry, an agent in St. Helena, Calif., spent most of an afternoon vacuuming up thousands of flies from one client's guest house. Mary Hartley, in Albany, Ore., organized a garage sale for one seller, spent 10 hours painting the side of the house for another and recently enlisted her grandchildren to help clean out the debris in a crawl space for a third. And to help Sandra Le Buhn sell her $1.2 million, four-bedroom home in Mill Valley, Calif., Mr. Marks agreed to board her nine-year-old daughter's cherished brown-and-white rats, Zack and Cody, who had been living in a cage in the bathtub.
here. Real estate agents are so overpaid that of course clients can ask for these services. A $500,000 house will net the agent $15k to $30k for minimal work otherwise. Rather than complain about having to do these services, agents should realize they're simply charging too much.

When real estate agents can get their license in less than a month with no education and then get 3% or 6% off the sale of a single house, it's clear there's something wrong. If you're a real estate agent, here's a better idea- discount your price.....a lot.


Anonymous Blake Rebling said...

Ryan I am curious where exactly you are getting these numbers. Maybe you're looking at average commission rates? I'm not sure if Tucson is above or below average as far as commissions but the standard real estate rates is 6% for Long Realty (which controls roughly half of the Tucson Market). Half of that 6% usually goes to both the buyer's broker/agent and half to the seller's, and then past that often half will go to the agent's broker, thus in reality, an agent ends up with a 1.5% cut, which, on a $500,000 house amounts to 7.5k, and that's before you pay huge amounts of taxes as an independent contractor, and keep in mind agents have to buy their own health insurance etc., and a responsible agent will save funds for the bad times of the market (i.e., right now).

I'm not saying that successful agents can’t make a fortune in Real Estate, but I just don't think it is *as good* as you described it. Some very successful agents serve as both broker and agent, and while that may double their income, their liability goes through the roof.

Anyhow, just thought I would drum up a little debate (while defending both of my parents, chuckle). Hope you're doing well.

5:27 PM  
Blogger Ryan said...

The national average commission is now 5.1%, down from 5.4% according to the National Association of Realtors. When I say 6%, I just mean that most big name brokerages are still charging 6%, such as Long Realty (owned by Berkshire Hathaway!). And yes your facts about commission splitting are correct.

Here's the main problem with the real estate agent industry. Each transaction takes very very little time compared to what real estate agents make, even if you only consider them making 1.5%. Even at $7,500, they only need to spend perhaps 10 hours total on the transaction, so their hourly rate is insane. And they only spent a month getting their license, so they can't go on the "expertise" card that Doctors who gave up 7 to 10 years for training can. Real estate agents spend most of their time finding clients, which isn't exactly productive. They blitz us with ads, pay double digits per click on Google, and sit in open houses all day (which supposedly is to help sell the house but really only helps them get new clients).

The reason agents spend so much time finding clients is that their prices are so high, but the way the industry is set up commissions are somewhat fixed, and so there's a huge oversupply of agents relative to current prices, so you have lots of non-price competition.

Instead, the agents that do well will be the ones that charge lower prices (by not working for brokers that make them charge 3% on the seller side and then take half of it), thus doing more actual work and needing to spend less time looking for clients.

The way real estate agents make money is by getting clients. Industries can die very slowly, and for now there is still room for expertise, relationships, and the like. But more and more real estate agents aren't the gatekeepers of information and are just pathways to MLS.

I'll bet if your parents are as sharp as you are they could be dynamite with a first mover advantage as discount brokers (liability yes goes up but I know brokers and if you check with a lawyer you can figure out how not to mess up). Way more clients, more time spent putting people in houses, less time searching for clients, everybody wins.

11:47 AM  
Anonymous Blake Rebling said...

Touche, very well said. I hadn't thought about it quite like that before – as far as fixed rates and how the large firms have prevented a price war. It seems it all goes back to ECON 200.


4:34 PM  

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