study: brokers are a waste of money

If you have the time and energy to spend on selling your house by yourself, then you don't need to use a broker. However, most people in Manhattan have full time jobs that extend way beyond the traditional 9-5, and those are the prime times to show apartments. This is only one of the many things that brokers do, and yes, you pay for it in the form of a commission at the end of the deal.

This is a service industry, and just like most services out there, people can perform these services themselves if they put the energy into it. More often than not, if you want to make your life easier, you hire a professional who's job it is to specialize in that one service.

Additionally, this is an article that is focused on homes, not Manhattan/NYC apartments. When they talk about 11% of the home's value being $14,800, it doesn't really hold much weight in the context of Manhattan.

(Matthew Russell - Brown Harris Stevens)

Why may i ask does it not hold weight in manhattan. If anything it is much worse in terms of numbers here. Apartments have higher values and the inflated values may cover the 6% broker fee or may not. I still argue it is insane that you need your home to appreciate over 6% just to pay the 6% brokers fee.

Most brokers continue to tell us that we need them because they are providing services that we do not have time to do. I argue that we have no choice because of the way the system operates.

Another thread is already talking about the buyers broker. I am not saying there are not brokers that actually give the service of walking clients through open houses and private appointments, but a lot at the lower price point just send their clients to open houses that in this day an age can be found on their own, then really do not do anything for you.

If you read the article the answer is in the buyers broker. If enough people started to recognize that the buyers broker may be a handicap, rather then a savior, then and only then will people realize that they can deal directly with an owner and hammer out a fair deal to all parties.

I can tell you from personal experience that when i let a broker take over while they did find someone at the inflated price to cover their commission, I also had someone on my own that would have netted me out about the same thing. And i had no problem holding open houses or meeting after work.

Most normal working people looking for apartments are not running around 9-5 during the week, at least not in my opinion. You can argue against me, but i would assume the level of buyer i am talking about works full time and can not look except on weekends and after work.

Sniper: Thanks for posting this. I think the findings of the study are sufficiently striking without provocative headlines. The authors acknowledge the sampling bias inherent in their data, and their conclusions are hedged accordingly.

"Brokers are a waste of money" and the milder Money headline "No reason to pay realtor commission" don't do justice to the subtlety of the study's findings. The authors seem to understand the complexity of the question. A narrower - and more accurate - summary of their thesis might be: "Broker commissions would probably be a waste of money for most successful FSBO sellers." In other words, the study tends to validate the decision of most successful FSBO sellers to bypass listing their homes with brokers. For other sellers, the conclusions are interesting but their relevance is ambiguous.

I'm curious about how the study dealt with FSBO sellers who offered commissions on a non-exclusive basis to agents who brought buyers: were such sellers excluded altogether? If they were included, were they part of the control or the experimental group? Each of the options presents challenges.

There is also the question of how the researchers filtered other noise in the sample. For example: FSBOs tend to be owner-occupied and well-maintained. They may not be staged optimally, but they are seldom vacant wrecks. By contrast, the most distressed properties – such as bank REO – are almost always sold through a broker.

In no way am I diminishing the relevance of this study. The conclusions are compelling within their acknowledged limits. I hope further research (untainted by industry lobbying) will build on this foundation.

Another study says that sellers don't get what they pay for, but paid for what they got.

Thanks Sniper. This is a very good story.
My own two cents:
1)Brokers have a vested interested in promoting the idea they add value and are biased.
2)Related issue is that brokers block access to MLS services and benefit from exlusivity,preventing
discounting. This suggests that brokers act more in their interest than the clients.
3)If one believes in an efficient real estate market then the price shouldn't go up 6% which would
suggest the opposite an inefficient market

The broker is more akin to a professional shopper. It's more of a convenience than anything else. So the fee that the seller pays should be based on convenience and not the higher price. My two cents is brokers misrepresent their service. If their service was described properly the seller would hesitate due to the large sums involved, but by advocating that the price is higher , the broker tells the seller it's free money since it represents a higher sales price not otherwise achievable.

The truth needs to get out.

The only real way to prove what a broker's value-add is would be to have the same property offered FSBO and by a broker, and to see how quickly it sold and at what price.

Since that's impossible to do, we're always going to have a debate.

But it's possible since this study looks at FSBOs that sold, it's like looking at the self-selected cream of the crop -- kinda like those studies that say private schools are better than public schools, when it's possible that they just get better-prepared kids.

ali r.
DG Neary Realty

I totally disagree. It should be possible. In the same way that REO and short sales are tracked seperately by many HPA indices, it should be possible to identify FSBO. Over time the differences if any should emerge. We'll never get this from the NAR since they have too much to lose here(especially if the results don't support their mission)

FP -- "Kinda like those studies that say private schools are better than public schools, when it's possible that they just get better-prepared kids." That makes no sense. "Better-prepared" by whom? If, by that, you mean "smarter," then the private schools with smarter kids are "better" at achieving the ultimate result, which is producing people who can thrive in college and beyond. Smart kids in public schools have to overcome a lot to equal smart kids in private schools, since the latter just do a better job of preparing them for the post-high school world. I am a big proponent of public schools (in theory), having attended some myself, but I am sick of people making excuses for them and lowering the bar (which means they won't ever succeed).

Sorry for the tangent. Back to bashing brokers.

By their parents.

here's the headline to remember..."Buyers pay 6% to use a broker" . It's not free someone has to pay those commissions so the seller jacks it into the price.

You mean "by their parents," who/whom raised them? That is a fair point. And I am not at all knocking public schools; I just want them to have the same standards and expectations (within reason) that the private schools have so public schools can either improve or we go to some other model. I still cling to the old liberal shibboleth that a public school education should mean something.

IMO, brokers are often important because sometimes a middleman, 3rd party can defuse emotions of the principals during negotiations. But, such a broker must be a gifted, ethical & professional. Sloppy &/or unethical brokers can screw up the deal. And yes, I believe that the term "ethical broker" is not an oxymoron. IMO, the key is to find a good broker. And yet, it is also possible to do a deal w/o a broker, but the principals must also be gifted, ethical & professional. Whether a deal can be done w/o a broker depends on the circumstances of the deal & the characteristics of the principals.

Ethical is probably the right word because you want to be able to trust that the broker working with you is really negotiating on your behalf. I think maybe one day the model will go that a buyers broker gets some sort of flat fee to work on your behalf and no share on a commission. This whole share of a commission between brokers means they may just look out for themselves.

As I said earlier had i listened to my broker i would have bid $50000 more then the apartment is worth, sure that is only $3k in commission, but that is $1500 to each broker. I wonder how often brokers give misleading info to a buyer about where the bid was in actuality. My concern is if the buyers broker knows you are willing to pay X, but you ask them to bid Y, does the number come back as being X because they know you will pay?

It all comes back to whether it is a buyer's broker or seller's broker. The former is your agent and owes you a fiduciary duty, which is legalese for "they can't screw you" (metaphorically, of course). If it is a seller's broker, then "buyer beware" is the order of the day. So, it is not just ethics; you also have legal protection if your broker is acting in a way that is inimical to your interest.

Yeah, but buyer's broker could be unethical & not care about fiduciary duty.

Yes, agreed, but my only point is that you don't just have to rely on good faith or trust. There are ways (subtle or not) to remind a broker that he or she owes you a legal duty.

Yes but proving that they did not work on your behalf is next to impossible. Unless later on you are at closing and the seller is actually there and says oh i would have done X, and you paid Y, and you actually told your broker to offer X.

This is what i was saying when you have no idea what the two brokers are talking about and are relying that a deal is being done on your behalf by your broker, who of course you are not paying.

Ethics is not the issue at hand. The question do brokers consistently increase the sales price by enough to justify the hefty 6% add on. I suspect the answer is No.

Furthermore the very notion pre-supposes an unsophisticated buyer.

Dumb

And dumber

This is something we can debate all day, but for better or worse it's very difficult to sell your apartment FSBO in NYC and most owners don't want to try! If you do, of course you have every right to pursue this path with a number of options available to you. I don't know what the argument is even about, yes brokerage firms have most listing inventory, but (we) don't have an exclusive pipeline of buyers. Put an ad on SE, NY Times and call Gotham Photo and have them blast out your listing like the big boys.

Let's talk after 4-5 months of showings. I have clients that have tried, some successfully, but all have stated it was no picnic and it was highly stressful on top of dealing with their regular full time life. Definitely not impossible, but for most Manhattanites not a viable option.

We are trying to offer some creative alternatives for the sophisticated, hands on NYC real estate junky. By far the most effective model has been our ability to offer commission rebates along with knowledgeable service.

Keith (broker)
http://www.theburkhardtgroup.com/agents_details.php?agent_ID=7619

This is something we can debate all day, but for better or worse it's very difficult to sell your apartment FSBO in NYC and most owners don't want to try

There you go. Your supporting my argument right here. The seller is paying a convenience fee, to have someone else do the work. And your "picnic" comment is meant to provide anecdotal evidence of how miserable an experience selling your own apartment can be.

So what's the price of convenience? 60k on a million dollar unit, 120 on a two million dollar unit for part time work that occurs over a series of weeks and at worse case several months.

Anyone want to approximate the cost per hour, assuming of course some percentage success rate...

There are convenience fees that busy people are happy to pay for - say $5 tip for a food delivery man, or $6 for freshdirect. A real estate commission does not fall into this category - let's take the typical owner, who let's say owns a place that is worth 4x their gross salary. at a 6% commission, that's 24% of their gross, maybe 35% of their net. Unlikely for most that the opportunity cost of the time spent for showings is anywhere near to that amount.
If it were a convenience factor, then brokers would charge a fixed fee, or a $/hr basis.
The % of sale holds because a brokers worth is that they are able to gross a higher amount, in a shorter period of time, with a high likelihood of closing - thus minimizing your risk. If you think that is worth it, then you pay it. If not, you don't. In my mind, it comes down to the type of property you have - the more unusual, the greater the variance in price, the more the fee is worth it. No different than say bond trading - a treasury is extremely liquid, and the commissions are correspondingly thin. A highly illiquid bond, with a limited buyer pool, has a much greater commission. For a generic unit in a building with consistent sales data, anyone can come up with the price, and the buyers are there (at the right price).

I agree wholeheartedly with printer that brokers are worth more on more illiquid properties.

But the "convenience fee" is no mean argument. Once sellers start making in the range of $400K+ a year (which in our hypothetical example means that they own $1.6mm+ properties) it's very tough for them to disconnect from their jobs for the amount of time that it takes to sell an apartment.

Once they start making in the range of $1mm a year, they tend to be on 20% travel, if not more, and it's darn near impossible for them to even be in town at all the right times.

ali r.
DG Neary Realty

ali,

If it were 'convenience factor', then commissions wouldn't be contingent on the price of the property. Even though the opportunity cost of going to the supermarket is substantially higher for the person making $1mm vs. $250k, yr, he doesn't pay fresh direct 4x more for delivery fee.
And selling a $5mm place is not particularly more work than selling a $1mm place. The commission is much higher, however, because the risks for the seller are much higher.
Even look at the commentary on these boards - most people who reluctantly sign up a selling broker do so b/c they fear that by not doing so they will be missing out on most buyers, or perhaps end up accepting an offer from an unqualified buyer, all of which result in a much longer selling time, which means increased risk for them.

I guess it comes down to whether you think that real estate is a "basic" or a "professional" service.

Our hypothetical richer person doesn't pay more for Fresh Direct, but she does pay more for a range of personal services including agenting, management, accounting, beauty care, lawyering, & medical care. Are those professional services? I think some would say yes, some would say no, depending on what professions they're coming from to start with.

ali r.
DG Neary Realty

so a lawyer charges more for a real estate closing on a $2 million sale than on a $1 million sale.

an accountant charges more to prepare a tax return of the same complexity for an individual who makes more?

the price for a massage is based on your income?

heart surgery is more expensive for rich people?

Ali, your logic is flawed. almost all brokers charge 6% regardless of the quality of the service. if you want to pay $400 for a haircut you can but $40 ones are available too.

The brokers continue to argue the fee represents a higher selling price and not a convenience fee. If it did represent a higher selling price, then they should reduce the fee if the actual price doesn't reflect this premium. This is just clever marketing.. Banks charge over-draft fees that if expressed as an annual rate would shock the hell out of their customers, so the banks don't phrase it that way.

Ali....It is not a question of professional or basic service. I will conceed that some brokers are "professional" and they provide a service that is on par with this statement. However you are bringing up professions such as mine accounting. I can tell you that I have never increased a fee based on someone's income level. When doing a tax return it all depends on how many additional forms need to be filled out, etc. Just because someone makes $1 mil vs $200k if they need the same forms completed they will be charged the same.

This is where the arguments get lost. The brokers are trying to sell the sellers that 6% should be the fee, but that makes no sense. There should be some rate that is associated with the level of service provided on an hourly or fixed fee.

Brokers are not getting someone to pay $2 million for a $1 million apartment, what they are doing is finding the clientele to bring to a certain apartment that fits their income level and net worth in order to afford that apartment.

I may agree that a $20 million apartment may need a higher fee because the pool of buyers is smaller, but for what we are talking about on here, there is just no justification that could explain why a fee would double if you were to sell a $2 mil apartment instead of a $1 mil apartment.

And i think it is wonderful for all the brokers that most people are not smart enough to realize they are being taken for a ride.

And Keith the reason it is not a picnic to sell on your own is because it is nearly impossible to gain access to people when brokers get involved on the buying end also. Trust me i had no issue giving up time years ago, even when i was travlling some for work, it is just hard to get people in.

Ali,

The wealthier person pays more for professional services because the risk of inferior service are greater than they are for the average person. Taxes are a perfect example - someone making 75k on w-2s can buy turbotax or go to H&R Block - they don't need to pay $500/hr b/c the accountant from a big 4 firm isn't doing anything special for them. A $5mm earner with k-1s from various investments, different tax shelters, a need for estate planning, etc. pays the $500 (or more) b/c the difference between the job that an H&R Block would do vs. the top tier professional can be 100s of thousands of dollars.
The basics of listings, showings, board packages are nothing any competent professional can't handle - it's the access to the right network of brokers and potential buyers that separate the best agents from the pedestrian ones, and why they get the bigger listings and hence get paid more $/hr for their work. They maximize the return and minimize the risk for the seller.

The wealthier person pays more for professional services because the risk of inferior service are greater than they are for the average person. Taxes are a perfect example - someone making 75k on w-2s can buy turbotax or go to H&R Block

UMMM NO!

It's about complexity. More sources of income, more deductions, more accounts to keep track of. If a seven figure person has one bank account, no dependents and no mortgage etc. They should pay the lowest rate. Anything else is called, "being taken for a ride"

Read down my post, RS - I talk about the increased complexity being a driving factor. While certainly not always the case, typically the wealthier a person is, the more complex their taxes. And if not, they could perhaps use the advice of the accountant for ways to minimize their taxes.

service/value is definitely in the eye of the beholder. some buyers/sellers are eternally grateful for what their broker provides and that is worth every penny to them. obviously the headline and story is provocative and can be battled back and forth all day long. there are even some brokers on this thread that gave me inavaluable pricing and selling knowlegde to help me unload my apartment FSBO...and for that i am grateful to them.

printer/mikev/aboutready: At higher price points, many excellent brokers will negotiate the commission down to 5% or even lower. Some brokers are reluctant to negotiate; sellers who want to minimize transaction costs should avoid those brokers.

Keith mentioned buy-side commission rebates above. A negotiated commission, combined with a rebate to the buyer, can reduce the total commission bite on a deal to 3-4%. That can still be quite a lot of money, but it's substantially less than 6%. How the buyer and seller share the benefits of those savings is hard to pinpoint, and will vary from deal to deal. What's clear is that less money goes to brokers, which seems to be important to many sellers AND buyers.

Dropping the commission 1/2 to 1% does occasionally happen but its a drop in the bucket. As pointed out
6% on a $1,000k is 60k 5% on $3,000k is 150k, for essentially the same work. The brokers are simply thinking that the seller can afford to pay. It's not that complicated.

If the real estate industry were truly market based and open to real competition commission rates would come down in a meaningful way.

well argued printer.

ali

So what we've learned is that brokers agree they add value.

columbiacounty
about 3 hours ago
so a lawyer charges more for a real estate closing on a $2 million sale than on a $1 million sale.
an accountant charges more to prepare a tax return of the same complexity for an individual who makes more?
the price for a massage is based on your income?
heart surgery is more expensive for rich people?

I suppose that the argument here is that rich people with high priced real estate assets don't have bargaining power and therefore we must help those poor rich people.

West 81st, i do not think it is the buyers worrying about commissions, it is the sellers. The buyer is paying the same no matter what. The question originally I believe was are the brokers adding $'s to the final price to cover their commission or really just taking a bite out of the proceeds and thus costing the seller a lot.

Ali I do not believe Printer's argument was well argued. The problem is there is a difference between tax preperation and tax consulting. Tax preperation is based off of the complexity and the time it will take and more often than not is a flat fee. Tax consulting however would be on an hourly basis as you are considering different potential tax saving scenarios. here of course the price will VARY per hour depending on the caliber of person you are hiring.

So unless you are trying to tell me that brokers are going to begin to VARY their total take based on caliber, then you have not found a valid argument yet.

I can promise you now that if you try and charge the "wealthy" individual more for the same time and complexity as someone not "wealthy" they will find another tax preparer to do the return. I have seen it before with some clients of my father who work at hedge funds and every year are mindful of what they are paying and how much it is worth to them for the tax preperation portion.

Mikev
3 minutes ago
So unless you are trying to tell me that brokers are going to begin to VARY their total take based on caliber, then you have not found a valid argument yet.

But don't they? The better brokers get better and bigger properties and get bigger commissions. The worse brokers sell smaller properties and get smaller commissions. The better broker isn't going to waste time on the smaller property. And you aren't going to hire a broker who typically handles $500K listings to sell your $5MM listing and frankly if for some reason you decided to, you'd have some serious bargaining power as the broker would welcome the opportunity to move upmarket and have greater access in the future to better and bigger listings.

huntersburg, with the exception of a few brokers who won't sully themselves with the lesser listings, most of the top-notch brokers handle listings of all sorts. a good broker knows that a relationship may last years. you sell someone's one bedroom for them and find them the two bedroom. somewhere down the road you may wind up selling the two bedroom and finding them the four-bedroom penthouse.

and ali, didn't you once write that if someone conveys their desires adequately to their broker and then doesn't find the apartment of their dreams in three apartments the buyer is just too damned picky? that doesn't sound like a lot of broker work for the split. but maybe if they're rich you'll give them a pass and happily show them 6 or so.

Well that's wonderful. A seller of a smaller, lesser expensive property can get a top-notch broker at a discount to price that the top-notch broker is typically charging.

okay, maybe not walk-up studios in yorkville. but you'd be surprised at where some of the better brokers are showing.

Again, it sounds excellent. Top quality brokers who receive big fees from rich clients with expensive properties are also offering their services at a lower price to some other sellers.

ar, didn't we meet online three or four years ago when you said you were looking for a place in Harlem? Believe me, the people an agent meets who buy quickly are balanced by the people an agent meets who take a long time with a search.

ali r.
DG Neary Realty

huntersburg what exactly are you attempting to say? We are talking about the fact that it is based on percentage not on how large the % earned on the property. Whichever way you look at it is 6% of the gross sales price.

The questions is why is it not hourly at some reasonable rate or some fixed fee, not based on some arbitrary 6%.

As i think i have said in the past would you walk into your tax preparer and let him charge you 3% of your gross income? Because if so i would be more then willing to start doing everyone's tax returns based on that.

What does a tax preparer doing tax prep have to do with a broker selling real estate?

A tax preparer charges what he can get. A broker charges what he can get.

It's the holy grail of just about any profession to charge based on the notional value of the asset instead of for work performed. It's not just real estate brokers, and tax preparers(this one is arguable), but stock brokers who are constantly pushing to charge a flat fee based on the size of the account say 1-2% a year, even if few trades occur. Some people agree, Most realize its stupid.

well huntersburg if you pay attention and actually read it is simply the question of fees. It has everything to do with it as besides riversider bringing up a broker account charge of assets, a real estate broker is more or less the only other one i can thinking of that wants a set commission rate that is not based in reality. Even a stockbroker is not so greedy to ask for 6% off the top of the value of an asset.

Why are you questioning fees? Is the fee you negotiated on the property you are selling too high?

Or are you looking to protect people who are rich and have expensive properties from paying too much money to brokers?

Like healthcare, the system is fat and broken.
From the 6%, it often enough gets split between a buyer broker and seller broker, so that's down to 3%. Then you have the split with the house and the physical broker. Depending on senority and other factors, this can vary between a 70/30 split in either direction to 50/50.

To me, as much as I have to complain about brokers, the individual broker is not "raking it in." There is plenty of footwork, twice as expensive cab rides, etc. that is often unseen.

I think the "brokerage house" "end" or "cut" is competing with technology and will be forced down the road to take less of the pie. 6%, especially in these time is proving to be quite detriment to closings.

How the fees are split doesn't make any difference to the partying paying. He just pays a dollar amount. Either that dollar amount is fair, or it is unfair to one of the sides.

Mikev,

"The questions is why is it not hourly at some reasonable rate or some fixed fee, not based on some arbitrary 6%"

The answer, I believe, is that you are not paying them for the work they do, rather you are paying them for maximizing your return while minimizing your risk. The work of listing a property, managing open houses and showings, packaging documents for a board submittal are not that different for either property, are fairly pedestrian and can be managed by any competent person who comports themselves professionally. You want the person who is going to get you the best bid, in the shortest period of time, which closes smoothly. If that is done well, you save yourself the same amount, and avoid the risks, on an amount proportional to the property's value. You could argue that 5 or 6% is too high, but that's a different matter.

It is similar for a tax return - I don't make $5mm/yr, and I am paying a lot less per hour than the hedge fund guy with all sorts of revenue streams and tax avoidance strategies. Because the risk to me of my guy not optimizing the results is not nearly as high as it would be for the hedge fund guy. The big 4 accountant with a lot of experience with similar returns, and a team under him is likely going to do a better job. And the agent with experience in selling $5mm units is going to get me the better bid in the shortest amount of time, with the higher likelihood of closing quickly and smoothly.

Mikev wrote: "West 81st, i do not think it is the buyers worrying about commissions, it is the sellers. The buyer is paying the same no matter what. The question originally I believe was are the brokers adding $'s to the final price to cover their commission or really just taking a bite out of the proceeds and thus costing the seller a lot."

Two quick points in reply:

1) Many buyers regard the entire commission as coming out of THEIR pockets, because they supply all the money in a deal. It's a reasonable view. Accordingly, they are more sensitive to commissions than you might expect. [Ironically, my clients enjoy a bigger competitive advantage on full-commission listings, because I can offer them larger rebates when I have a 3% buy-side split to work with.]

2) If the total dollars taken by middlemen in a transaction is reduced - by whatever mechanism - the difference may wind up in the seller's pocket, the buyer's pocket or divided between the two. It's not just sellers who benefit from lower commission rates, and it's not just buyers who benefit from commission rebates.

West 81st if you are doing a rebate and helping out a buyer then i am in complete agreement with you, however not many do.

Printer I do not actually believe it is the case that the broker is maximizing my return nor lowering my risk. As i stated earlier when i sold my last property in 2005, the broker more or less broguht me a buyer that after commission was in line with what i was about to do on my own. I had signed an agreement stating that anyone i had brought in prior to the agreement was mine and no commission would be paid. I stupidly trusted the broker when he claimed that he vetted the buyer and all was good and then went through 5 months of torture as the contract signing, board package, etc dragged on. I think at the end of the day the net was a few thousand higher, however that was eaten away in carrying costs of the apartment by an extra 2-3 months.

My point is that while i agree a broker is a means to an end that does not mean you should pay a large premium because without tht person the buyers pool is significantly reduced and it is not because of price. I have had brokers tell me to avoid FSBO because they will never deal and are delusional, enough brokers tell people that and they beleive that is why no one shows up. Meanwhile they are only protecting their interest because unless that FSBO wants to deal they would lose out on a commission.

Without a concern on both sides of a % commission the process would go smoother, a fixed fee or some other arrangement would stop a lot of the negative feelings towards brokers because one would feel they are maybe working for them. I am even talking about the buyers side. if a buyer wants to use a broker they should pay some sort of fee for their time as it is not really a necessary thing.

You may say why is it not necesary and then think about when you last bought a car did you bring in someone to negotiate for you? No you did your research and offered a price. Same goes for real estate.

Mikev
about 1 hour ago
Without a concern on both sides of a % commission the process would go smoother, a fixed fee or some other arrangement would stop a lot of the negative feelings towards brokers because one would feel they are maybe working for them.

I'm sure you could ask for a fixed fee. Say your place that you was expected to sell for about $750-$800K. I"m sure you could agree that the commission would be fixed at $45,000 regardless if it sells for $750K or $800K and higher or $700K for that matter. Sound good - does fixing the fee solve your problem?

Years ago, I sold a place. Did my research, tracked similar apartments on ACRIS. and marketed my apartments using multiple approaches. I sold in several weeks just below market but way above what would have been accomplished if I went through a broker and paid 6%. It's only one story, but it speaks to the fact that the brokers don't have magic marketing powers. In fact they tried to make my life hell, cold calling me and then offering to stop if I signed with them.

How many years ago was that, RS?

during the reign of king john?

Anyone know how long the city has had ACRIS?

I think the database was made searchable in 2006, showing transactions back to 2003. something like that.

Riversider, what year was it that you sold? If in the early years of ACRIS, that was the height of the market.

My bad, I used other tools for price discovery if that's the case.

mikev,

I am not intending to advocate for brokers, or their fee structure. Its more the other way around - I can't believe that with all the improvements in access to data that the fees have been so sticky, and I'm trying to determine why that is. It can't be a 'convenience factor' because the amounts are just too large - when looked as remuneration for the skill set, or as an opportunity cost for the seller.

The only thing that makes sense is that people fear the reward of doing it themselves or using the handful of smaller brokers which offer other options outside of the fixed fee is not worth the risk of not handing to a traditional broker.

It sucks that you had such a crappy broker who screwed up the contract/closing. At least it was during a good time in the market - imagine if that were the summer/fall '08.

The answer is the industry is working together to protect the 6% threshold, only grudgingly accepting a little less. I would not be surprised if the largest brokerages employ behind the scenes enforcement tactics(such as access to listings)

The difference between RE brokers and practically any other broker is that RE broker is NOT a profession but an occupation. An insurance broker, mortgage broker, stock broker - all of them must have some specific skill pertaining to that particular field (actuarial, finance etc.) In RE brokerage, there's no specific skill, no school and the only talent is hustling. We can create the brokerage for dry cleaning, or dental work. As long as a broker can insinuate themselves into a transaction, they'll call themselves indispensable and call it a day. The same mechanism and machine that created a "Brangelina=the most beautiful people", who knows why.

An insurance broker, mortgage broker, stock broker - all of them must have some specific skill pertaining to that particular field (actuarial, finance etc.)

I don't know about that. An insurance broker definitely doesn't have to know actuarial science. A stock broker has some tests that are a relatively low bar. Many mortgage brokers have been replaced by the Lending Tree.

huntersburg, OK. The have to know something, right?
And still the only skill of a RE broker is to organize an open house, for someone else's home, and see who wanders in.
Let's try another analogy: a dating service. They broker a potential relationship but they do not, DO NOT pretend that they are the only way to meet a date.

huntersburg how about an hourly fee that makes sense for the skill set and training. I would say $50 to maybe $300 or a bit more for the power broker selling the $10 million or more apartments.

I mean seriously if you cut through the we share the fee with another broker, with the house, with the dog, etc, mentality, the broker still walks away with a large fee when looked at by the hour is way out of line.

I assume you are a broker as you have not come back with one valid addition to the coversation.

At the end of the day it is the question of what someone should be making on an hourly basis to me. As I said how often do you make a deal where you are giving up 6% of your gross. the answer is real estate and entertainers with managers taking a cut to run all aspects of their lives. To me there is just something wrong with this.

Everyone is entitled to earn a living but when there is unspoken collusion in the industry to keep an artificial marker of 5-6% it is just wrong.

And yes you can start with the sell on your own, but we all know why most people will not do it and that is the exposure.

A key finding that has been mostly ignored in the reporting of this study is that buyers tend to do better--that is, get a better price for a comparable property--when they buy from a seller who has listed with a real estate brokerage, than if they buy from a For Sale By Owner (FSBO).

The researchers suggest reasons for this. One is that FSBO sellers are often sophisticated in real estate and patient. Another is that sellers who use agents are less confident of their own judgment, and/or are in much more of a hurry to sell, and are therefore willing to accept a lower price.

This study came out of Northwestern University, which means the methodology is most likely sound. I tried to find the actual study online, but right now all I could find is the press release. You can't assume that the study design did not take the obvious into account; these are sophisticated social scientists doing this. (In my years of writing about studies like this, I only found an egregious methodology error on very rare occasions.)

The study used data only from Madison, Wisconsin, which is (among other things) a college town and a strong cultural center in the Midwest, with a higher proportion of college educated persons than in some other Midwestern towns.

As I've been saying for a long time, sellers who have the time and expertise can and do sell their NYC apartment themselves. People who want professional help can pay for it.

I was surprised to see that the study found that buyers in Madison are better off, statistically and overall, if they buy properties listed by brokerages. In Manhattan many, maybe most, deals involve two brokers--one for the buyer and one for the seller. Since the trade association REBNY insures that commissions are split when two brokers are involved, given these findings, it seems to me buyers would maximize their advantages by working with buyer's brokers. Some of us buyer's brokers also routinely cooperate with FSBOs as well.

Karla Harby
Rutenberg Realty
kharby@crrnyc.com

Mikev
about 9 hours ago
>huntersburg how about an hourly fee that makes sense for the skill set and training. I would say $50 to maybe $300 or a bit more for the power broker selling the $10 million or more apartments.

Sure, you can propose that on your next sale transaction.

>I mean seriously if you cut through the we share the fee with another broker, with the house, with the dog, etc, mentality, the broker still walks away with a large fee when looked at by the hour is way out of line.

It's great that you think that, so propose it, see if you can get the broker you are working with to agree.

>I assume you are a broker as you have not come back with one valid addition to the coversation.

I am not a broker. Why do you assume that I didn't have a valid addition? You were complaining about there being a fixed percentage. Now we've boiled it down to not an issue with a fixed percentage, but rather because you want to pay on an hourly rate. Which is fine. But keep in mind that just about everyone who works for a living is trying to maximize what they earn, and your proposal is just your proposal. Just because you don't like something doesn't mean that your alternative is going to be acceptable. But you can give it a try.

>At the end of the day it is the question of what someone should be making on an hourly basis to me. As I said how often do you make a deal where you are giving up 6% of your gross. the answer is real estate and entertainers with managers taking a cut to run all aspects of their lives. To me there is just something wrong with this.

It might be what someone should be making on an hourly basis to you, but most people who work and provide a service try to get the best deal they can for themselves. You should feel free to negotiate for the hourly rate next time you are selling a property. And again, just because you think there is something wrong doesn't mean that your opinion should prevail. Kids write letters to the president of Iran and North Korea because they want peace in the world, but ...

>Everyone is entitled to earn a living but when there is unspoken collusion in the industry to keep an artificial marker of 5-6% it is just wrong.

Unspoken collusion sounds pretty powerful. Kind of like gravity - no one coordinates it, it just happens, right?

>And yes you can start with the sell on your own, but we all know why most people will not do it and that is the exposure.

Oh, exposure (aka, making a market)! So maybe there's some value after all that is greater than the hourly rate you are proposing! Excellent, no need for unspoken collusion after all.

kharby2 wrote:
"I was surprised to see that the study found that buyers in Madison are better off, statistically and overall, if they buy properties listed by brokerages. In Manhattan many, maybe most, deals involve two brokers--one for the buyer and one for the seller. Since the trade association REBNY insures that commissions are split when two brokers are involved, given these findings, it seems to me buyers would maximize their advantages by working with buyer's brokers. Some of us buyer's brokers also routinely cooperate with FSBOs as well."

That's a huge logical leap, Karla, and I don't see how the data justify it.

Discussions of the value of a buyer's broker on this board tend to be quite polarized: "An unaffiliated buyer can always get 2% off the price just by asking" vs. "A buyer's broker is free, because the full commission is baked into the price anyway." I think the reality is probably subtler and more varied than either of these absolutes. In the paragraph quoted above, you seem to take the second position as a starting point, by assuming that the involvement of a buyer's broker has no adverse affect on pricing. That premise is probably true in some deals, but it is not self-evidently true in all (or even most) cases.

It seems to me that you have taken a study that classified deals according to one criterion - whether the SELLER retained a broker - and fabricated a conclusion regarding a completely different independent variable that the study does not even appear have investigated: whether the BUYER utilized a broker.

Are most deals in New York City co-brokered? Yes. Perhaps, if the study had focused on Manhattan rather than Madison, or at least distinguished between co-brokered and direct deals, the data would support your hypothesis. It didn't, and they don't. I'm not saying that you're wrong; just that your hypothesis would require a different experimental design.

Discussions of the value of a buyer's broker on this board tend to be quite polarized: "An unaffiliated buyer can always get 2% off the price just by asking" vs. "A buyer's broker is free, because the full commission is baked into the price anyway."

This assumes that there is a "price" for the apartment when the buyer shows up.
That 2% flexibility might be built in anyway, independent of the broker situation. Most sellers, I'd think, have some flexibility except in the hotter markets with multiple bidders. So the 2% that the smart buyer gets by not working with a buyers' broker, might not reflect such smarts on the part of the buyer. Next time, if you are working on your own, why not try for 4%? (or more)

hijack: Karla, are you still here? there's a question about brokerage policy on this thread: http://streeteasy.com/nyc/talk/discussion/23863-selecting-a-broker

It's not a question I could answer, but maybe you can, and I bet your boss Paul certainly could.

end of hijack

ali

huntersberg: You are correct: the real financial impact of involving a second broker in any given transaction is unknowable, because there is no absolute Platonic "price" from which variances can be measured. Even if there were such an objective measure of a property's value, it would still be non-trivial to isolate the one independent variable of co-brokerage in order to measure its effect on execution price.

Mikev: "And yes you can start with the sell on your own, but we all know why most people will not do it and that is the exposure"

and you've answered your own question - seller's aren't paying for the work done, they are paying for the higher likelihood of getting the deal done at the best possible price. That's why you can have a place on the market for 9 months with 12 open houses and 50 showings and constant advertising, but if you don't close, you don't pay. In that case, the broker has 'worked for free'. But in actuality the broker hasn't worked at all, which is why he/she doesn't get paid.

I have not answered my question, I have pointed out the problem. Why does everyone want to ignore that the problem is that there is no way to get yourself really listed in the system to bring in buyers without having the broker.

It is not that i do not have the exposure it is that it is not in the interest of a buyers broker to send them to my apartment if they are not sure what they get out of it.

I thought it was about the exposure? Didn't you just above say in your last sentence boil it down to exposure.

Also, here while you are stating that a buyer's broker has no incentive to bring a buyer to you, we have a simultaneous discussion about people wanting to work without a buyers' broker so they can save a couple percent.

(I'm sure people can read through the mistyping in my first sentence above)

Mikev - realdirect.com offers a service to get a listing into the sharing system, without hiring a sell side broker

Urbandigs: Is realdirect related to Century21/Clickit? I have seen a few successful FSBOs through that channel as well.

Mikev: There is a system, NY Times, Streeteasy,Trulia and Zillow. I had a FSBO hybrid customer that sold to a couple from Boston via a lead from Zillow.

If you price right, have the time and don't mind investing a few thousand dollars for advertising over 3-5 months you can do it or at least try to.

I can tell you as a broker trying to find alternatives to current RE models in NYC, there are not a lot of sellers looking to go the FSBO route. I put the word out that I was offering them a model, it's on our website, used facebook ads and google ads, Twitter, NYT's and various forums to get the word out that I was offering assistance to people wanting to sell on their own or engage a buyers broker; crickets.

My take on this is that the majority of Manhattanites are not interested in selling their own apartments.And they are also more comfortable having a buyer broker that they can trust, assist them with their purchase. The complaints are usually they just want competent assistance and imo most of the brokers that are successful at this are competent. I also think that it's inevitable that the current system will change, but like all things in NYC they will change very slowly. There are people like Noah, Rutenberg and myself who are offering alternatives and I think this is a start and ultimately good for all the players involved.

We offer a rebate of up to 2% to our buyers, pretty significant, we just cut a buyer a check for $103,000 dollars last week, better than a bottle of wine or a gift basket (; In some cases this makes the deal, makes the transaction affordable, pays the transfer taxes on a condo or helps with a new kitchen or bath.

That said you will always have a large majority of buyers (and sellers) that want to engage a big name brokerage. We tend to attract the real estate "quant", the very active and educated buyer who pours through SE data and knows what ACRIS is. It's sort of a sub-market and we offer this type of buyer an alternative brokerage model to compensate them for all their work. What we wind up with is a true collaboration, most of my buyers earn a bigger commission than I do on the deal...

Anyway I wish you all a happy and peaceful Thanksgiving!

Keith Burkhardt
The Burkhardt Group

Agreed Mikev - the seller is paying primarily for exposure and access to buyers, much more so than the convenience of having someone else handle the legwork. That's why the argument that brokers make X per hr, and that's too much has no impact - because that work intrinsically just a small part of the fee.
But we are making progress - SE, NYTimes, etc. have made a huge impact on the ability of buyers to see everything that is out there. ACRIS data give them historical price info. And now UD's work is opening up another area where a buyer's broker had an information imbalance vs. the buyer - and that is the current state of the market. A remaining gap, and I'm not sure how we will be able to bridge it, is to know what price a property has gone into contract for. We can surmise based on current listing/closing discount averages, but you don't know for sure unless you are one of the involved parties. So for now buyer's brokers hold on to that piece.
I suppose a final piece relevant for Manhattan in particular is what the co-op's standards are, and the likelihood of a buyer to get approved, but I don't know that a seller shouldn't be able to get that info himself, and I don't know how accurate brokers are at that either, so maybe its not that big a deal.
Once a buyer has all that info, a buyer's broker adds little value beyond the legwork. Perhaps a negotiating advantage, but there is an inherent bias there too, so you could argue it is not a particular advantage. And once buyer's determine they are not getting much value from a broker, there is no reason to pay a premium for the property vs. buying direct. The implicit key, of course, is that a seller has to share that discount with the buyer to make it a financially advantageous decision to go w/out the buyer's broker.

So when you hire a broker you are selling to a pre-established client list?
I'm sure that's the case some of the time, and I can agree that brings value, but I don't see that as a truism.

So if you were selling the following apartment, do you think the neighborhood/smaller inventory would make it possible to sell without a broker easily? We are not expecting a big profit. We would just like to recoup our money and not paying a broker 6% would make a big difference.

2 bedroom, 2 bath CO OP in west village.
1400-1500 square feet
200 square foot covered balcony terrace
corner unit with lots of windows, good light, but views are not spectacular
Building is well maintained, part time doormen
Nice Roofdeck
Maint is about $2K/month

Just gut renovated with high end finishes. We did not cut corners on renovation, since we planned on living there for a while. We did keep things pretty nuetral, in case plans changed.

What price range are we talking about?

Where are you planning on moving?

Not sure of the market price at this point. Based on comps.... around $1.75 - $2 million? Not a well researched figure. Move date is flexible. I would think it makes sense to wait a couple of months to list in the new year.

Sorry, you asked "where". We plan on moving out of the city.

I paid my broker a commission on two properties that I bought from him. If I sell one or two with him as my broker then I have to pay 6% on the total amount I earn from the sale of the property. I only pay taxes on what I made on the property over the years I had the property . Why should the broker obtain 6% on the entire sale of the condo . It does not make sense to me that brokers should get a % of the entire sale of the property.

What do brokers have to do with taxes?

What happens in your preferred scenario if you bought in 2007 and had to sell now, at a loss?

What I am concerned about is the cartel like nature of pricing. When I owned property in London, there appeared to be a thriving competitive marketplace where realtors competed to sell your property with price being a negotiable. 2% or 3% deals were commonplace and have also sold property for 1.5%. Buyers brokers were rare in the extreme. It was assumed that most buyers were completely capable of using the internet. Total cost to seller = max 3.0%.

Also, certain brokers would agree profit sharing or would be willing to entertain a cap on their brokers fee for particularly expensive property.

Is there any rationale for the discrepancy between London and New York?

Interesting, Oxy. We'd need to know much more about London to answer the question, methinks.

By law commissions are always negotiable in New York State, but of course a brokerage/agent can refuse to take a listing, and they do. Any seller who wants fee for service brokering or minimal percentages can get it now, no problem. Some buyers seem to think brokers are conspiring to keep them out of their dream home, which is why I think there is so much vitriol toward brokers on SE, but the reality is just a whole lot more complex than that.

Will Rodgers, who was an American humorist, had a nice line that's relevant: "I know a lot of tremendously rich people that should share their wealth with me, but they just don't see it that way. And I know folks that ain't got as much as I have that think I ought to share it with them. Well, I just can't hardly see it their way either. That is, even if I can see it that way, I'm not doing it." Radio, April 21, 1935.

There are so many companies other there, I honestly don't think it's cartel-like, certainly not now. To me it's more like what we see in tuition at universities--people are willing to pay a premium for what they perceive to be a better service, whether or not it can be "proven" that a degree from one university is worth more (in lifetime earnings? In happiness? In friendships? Bragging rights??) than a degree from another university. Studies have shown that raising tuition can actually increase application rates at some institutions, a finding that has generated a few economics papers.

It's true, also, that the perfect experiment cannot be run. The closest we can get is a FSBO who gives up after awhile and then lists with a broker. But that's not the perfect experiment.

Karla Harby
Rutenberg Realty
kharby@crrnyc.com

It's not the broker who turns it down, but the brokerage. The Elliman's ,Corcoran's, etc will not tolerate a 3% commission. The brokerages have drawn a Maginot line.

Back when I was a freelance writer--an independent contractor--I wouldn't work for less than $1 a word (and no, big words were not more expensive than small words. I've been asked this so often I'll just address it now).

So, if somebody wanted a cheaper writer, they hired somebody else. Simple as that. But if they wanted me, that's what they had to pay. Nothing evil, no grand conspiracy. New York was and remains full of writers, go get yourself a different one if I cost too much for you, that was my attitude.

I got to that place because I knew what it cost me to do my work, and what I needed to get paid to make it worthwhile for me to write, instead of doing something else, and what my services were worth at that time on the marketplace.

Real estate certainly has some unique aspects to it as a product (unless you aspire to live in your car). But the market still functions as a market pretty well, most of the time, in most ways, in my opinion.

So if X brokerage won't do what you want it to do at the price you want, go to Y brokerage. It is funny that there's so much angst about this. Nobody shakes their fist to the sky because they can't get a new BMW for $10,000.

Oxy: I know the SW London mkt well and it is very different from New York. Ownership structure, for one! No condos or co-ops. Few highrise flats, many more houses. Flats in houses treated much like houses for purpose of buying and selling. Less turnover, esp. in SW13 which I know very well.