Real estate agent Barb LeBrecht was touring an idyllic 10-acre property she recently sold in Garden Valley, California, a town of several thousand people about an hour northeast of Sacramento.
As I peered past the sea-foam paintwork, this hillside house looked like something out of a Vrbo ad for a rural weekend getaway. Emphasis on the countryside.
“Actually, the last time I was here I wore boots because I was worried about rattlesnakes,” Lebrecht said.
Rattlesnakes weren’t the only danger Lebrecht dealt with. Some squatters reportedly refused to leave. One day, a bull slipped out of a neighbor’s yard and was standing behind her Lexus.
It took two years to sell the place. It is expected to close by the end of the year for about $500,000.
Mr. Lebrecht will receive a commission of 2.5% of the final purchase price, which is about $12,000. The buyer’s agent receives the same share in total 5% commission, which is technically paid by the seller. This is the standard way real estate agents are compensated.
Despite two years of essentially unpaid work, Lebrecht is a big fan of the commission model. She has made a solid living from it for 20 years.
“I have a real affinity for buyers,” she said. “And if buyers were forced to come in and pay the fees themselves…I think that would be difficult. Many of my buyers can barely scrape together a down payment, let alone the closing costs, and on top of that, We also pay the stores.”
She was referring to the potential consequences of the recent wave of litigation that threatens traditional compensation methods for agencies.
In October, a jury in a Missouri civil case found that the National Association of Realtors and several well-known brokers conspired to inflate the commission rates home sellers pay to their agents. The crux of the class action lawsuit is that in order to list a home on a multiple listing service (essentially a master list of homes for sale in an area), a seller must offer a fee to a buyer’s agent. The requirement was that it not be. A jury recently awarded $1.8 billion in damages to a Missouri home seller.
There are a number of similar lawsuits targeting the fee-for-service model. The National Association of Realtors plans to appeal the Missouri ruling, arguing that the seller always had the ability to negotiate the commission rate.
But Andra Ghent, a real estate finance professor at the University of Utah, doesn’t think so.
Ghent said sellers may be able to negotiate. “But the negotiations will take place between 5 and 6 o’clock.” [%] Regarding the whole transaction. I think it is extremely unlikely that you will be able to lower the price through negotiation. In real estate agent education, a real estate agent is taught that he should never contract with less than 5%. ”
Ghent said the commission model also doesn’t work well for buyers. Ghent said that although home sellers are technically paying the fees, the market actually incorporates those fees into the transaction price of the home. And the more expensive the home, the more the purchasing agent will be compensated.
“Real estate agents have a huge incentive to recommend as many mortgage-eligible homes as possible to homebuyers,” she says. “And for many homebuyers, this is not the right decision.”
Nate Johnson, vice president of advocacy at the National Association of Realtors, argues that the disparity in incentives between buyer agents and buyers is overstated. He said good agents are more concerned with getting repeat customers than they are with slightly increasing commissions.
“When you look at the cents and tens of dollars that end up encouraging people to pay more for a property instead of less, it’s just not worth it,” Johnson said.
The advantage of the current model is that the buyer is essentially paying the agent through the mortgage. Johnson said many buyers could risk making the biggest purchase of their lives without professional help if they have to pay out of pocket.
In fact, this is how home buying works in many other countries.
“It’s difficult to compare it to the United States,” Johnson said. “We don’t know exactly what real estate looks like in terms of whether there’s fair and equal treatment in terms of buyers in the market. There may not be.”
In most other countries, fees are significantly lower than in the US, and in the UK, total fees average around 1.5% of the home price.
Charlie Lambdin, who has worked in the UK real estate industry for 20 years, says: “So the buyer will just call the agent and say, ‘I’d like to see the property, please.'” . “And if they like it, the buyer makes an offer to that agent. Usually the buyer has no representation rights.”
But Mr Ramdin said the downside was that the closure process in the UK could be a nightmare.
“Here we are now averaging five months. That’s very bad.”
Ramdin said American real estate agents are much better than British real estate agents.
At least for now.
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