brokers' 3% commission -- collusion?

Others can argue (or likely just agree) with 3% being a lot for a buy-side broker. As for the 3% being fixed, it isn't always. If shaving a percentage point off the commission of the buyer's and seller's agent will close a deal, some agents are willing to do it. similarly, some seller's agents agree in the listing agreement to a lower than 6% commission if a sale is made to a buyer who has no agent.

Foxtons tried a 2% commission before and they are now out of the business.

http://money.cnn.com/2007/10/01/smbusiness/Foxtons.fsb/index.htm
http://money.cnn.com/2007/10/01/smbusiness/Foxtons_update.fsb/index.htm

This commission based model make BOTH buyer and seller's brokers wants as high a price as possible. No one is thinking on behalf of the poor buyer but him/herself.

I had a friend who bought with the help of a broker in a new development in 2006. When he put his old place on the market with the same broker after he moved, he found that the broker was negotiable on total fee. He also put into place an incentive structure based on two factors - selling price and speed to sale. When one buyer fell through after being rejected by the Co-op board, he negotiated that the broker pay part of his mortgage on the old place for the additional time on the market. This was with a name firm. The property acquired was about $1.8MM and the property sold was about $800K.

Read Freakonomics -- there is a great chapter about RE Brokers and how little incentive they have to get the best price for your home. Basically the study scientifically proves that brokers are much more willling to negotiate down the value of your place to get a deal done, vs. their own place (i.e. that $15K means nothing to them, unless it is their own place they are selling)!

Thanks for the tip. I am trying to buy a 2nd apt. Let's see if both brokers are on my side, pushing the seller to hit my low-ball bid :)

I am a real estate agent -- and my response to people who think buy-side brokers are overpriced is, "don't use one."

Some people prefer to skip service professionals and do the work themselves -- maybe the posters on this thread are the kind of people who do their own taxes and draft their own wills.

However, other people want professional service. The people who hire me to do buy-side work know how much my services cost, and they think I'm worth it. They might hire me because they're relocating to a city they don't know, and a misstep would cost them a lot more than $40K, or perhaps because they have incredibly involved jobs, and it's worth it to them to outsource for help on a major financial decision rather than miss a couple of board meetings because they're shopping. (That is also why these people have, say, attorneys... there is a lot in Manhattan that is not do-it-yourself.)

In addition, sometimes the shopping process takes time. The last buy-side client I took to contract spent two years with me deciding on just the right place to live. Per hour, my fee on that deal sure isn't exorbitant.

As far as the Freakonomics argument, it's funny that that post -- when selling, RE Brokers trade speed for price -- is directly below a post complaining that a broker did not sell an apartment quickly enough!

Good service costs money. If you want your service to be fast and cheap, heaven bless you, but don't act surprised when it's lousy.

ali r.
{downtown broker}