You guys have no idea

Success is a seductress my friend.
Don't worry, things are picking up, you've got a premium product on your hands.

Please disperse, nothing to see here.

Nycman, actually I do have an idea- Noah's urbandigs.com

http://www.urbandigs.com/2008/06/enough_commission_incentives_j.html

Great source for "on the foot" feedback of what's really going on in the business. The fact that I trust Noah makes the information that much more valuable.

Nycman: Actually, most brokers work for the seller's benefit. Who do you think pays the brokers' commissions? Higher selling price = higher commission. Maybe that's why if you ask any broker (urbandigs notwithstanding), they will always tell you "Now is a great time to buy a home."

True story: A professor at Stanford was looking to by a new home closer to campus. During the search, his broker kept telling him "You'd better buy soon. The market is rising and if you wait too long, prices will only be higher." He eventually found a home and at the closing, the very same broker asked him if he needed help selling his old home. When he said no and that he was going to sell it on his own, the broker replied "What? In this weak market, you need a broker to help you get top-dollar!"

"Guys like stevejhx and others just don't understand how THEY are making this market more difficult for all legit buyers and sellers out there. Yes, THEM."

You're out of your mind. I have no such power. Like, it's the media's fault, too.

I actually don't care about brokers, however. In 10 years prices went up fivefold. If it weren't a rigged market, that should have caused broker percentages to fall. It didn't. Brokers don't work for buyers, they all work for themselves. The higher the sale price the more money they make. Case closed.

Ha - reminds me of the broker in "Wall Street" which was based on Linda Stein.

i can't believe i'm going to say this, but i actually agree with steve on this one. the only thing i can think of that explains the fact that competitive forces have not brought broker commissions closer to zero is collusion; a rigged market.

"Guys like stevejhx and others just don't understand how THEY are making this market more difficult for all legit buyers and sellers out there. Yes, THEM."

...sorta sounds like incredibly stupid statements that senior management at Lehman Brothers made when they complained that their problems were the short sellers faults and not their own...

MMAfia,

what's really going on in the business -- naive "brokers" think that it’s a developer’s job to make sure that their buyers get fair market price.

elena
(broker)

first off, who DOESNT WORK FOR THEMSELVES TO MAKE A LIVING? I mean honestly now. We all have to eat, live, and pay our bills. What makes a real estate agent's way of living worse than say an attorney who charges $400/hour for legal counsel, or a CEO who earns $10 million as their shareholders lose everything, or a car salesman, mortgage broker who quotes a higher rate to get a higher commission or a risky loan product to make the deal work, etc...

Brokers have an AWFUL reputation and I certainly will NOT defend them here; as I have my issues with brokers out there preying on unsuspecting and uneducated buyers/sellers. But to fault them for working for themselves is ridiculous because everybody works for themselves. Who else are you going to spend your time working for to earn salary?

Now, this is very different than saying a broker has a misguided agenda and in providing SERVICE, does NOT take into account their client's best interests. TOTALLY DIFFERENT THAN WHAT I STATED ABOVE! There are certainly plenty of brokers out there who care about nothing less than their collected commission and in brokering the deal, they do whatever they have to convince the buyer to sign that contract, even if that means saying things like:

1) the market is great, very active, only going higher
2) flip tax of 3% of purchase price is very normal, and buyer always pays
3) views are not that important, whats important is that you are happy
4) comparables only tell you so much, they don't tell you how your unit should be priced
5) better act fast, because this unit will be gone in a week if you dont sign

etc etc..

Buyers should be savvy enough these days to know when they are being conned and pressured into a deal. They should also know what market value is for their purchase, with the tools online at their disposal. Greater fool theory should be harder these days. But to blame it on agents because they work for themselves, is kind of foolish. Everyone has a job, everyone wants to earn a good salary, and certainly, many think that GOOD SERVICE is GOOD BUSINESS and should be rewarded with future business.

"first off, who DOESNT WORK FOR THEMSELVES TO MAKE A LIVING?"

UD, you're getting more and more defensive! Because of the fee structure, brokers never represent the buyer because the buyer doesn't pay the fee, and the higher the price of the property, the more the broker makes. It's an inherent conflict of interest that if NAR didn't have so much power would be outlawed, as it's been outlawed in mutual fund management, money management, etc. Remember "churn," the more transactions a client makes, the more the financial advisor makes? Well, it's similar with real estate: the higher the price, the more the broker makes. It's irrespective of good service.

Sort of like dentists who con people into replacing perfectly good fillings solely because they're old, or advising them to get their teeth cleaned every 3 months instead of every 6. The more service, the more money.

Not to go off topic -

But could someone explain what "flip tax" is and why 3% of it is good or bad. And, does the buyer pay it, or the seller, or someone else?

A little history of recent attempts to un-rig markets: Wall Street takes a 7% from any IPO. David's Bridal tried to cut out this expense and launch an internet IPO back in the 90's. The result was failure. Ticket Master charges a hefty fee, Pearl Jam tried to cut them out of the equation, the result was also failure. And then we have FSBO.

Without an efficient mechanism to bring buyers together with sellers, without price transparency, we will be stuck in this 5,000 year old system of brokering transactions.

Go, digs, go!

The other thing I'd like to point out is that broker commissions DID fall in the boom. I think that some of that was partly as a result of the Internet revolution, which changed some of the ways we do marketing, and even as commissions are rising now, I don't think they'll get back to the levels of twenty years ago.

oh, but you won't believe me, so here's a news article from our friends at The Real Deal, a real estate trade magazine:

http://ny.therealdeal.com/articles/brokers-find-a-silver-lining-with-commissions

However, commissions are never going to go to zero, because there is work and time involved in marketing an apartment -- even with the addition of Internet magic -- and those costs need to be compensated.

If property owners believe that established professionals charge too much for their work and time, they have the option of doing it themselves. Don't want to hire a lawyer? Represent yourself in court.

But that's not a route that everyone wants to take.

Another true story: when the founder of craigslist moved, he hired a broker.

ali r.
{downtown broker}

Steve - stop interpreting a simple comment response as defensive. Its my opinion. I have many times stated that Manhattan fee structure is antiquated and that it would likely change, but most of these comments are with broker friends and at lectures I speak on with other agents. I try not to dicuss commissions on urbandigs. However, I always explain to my buyer clients that my fee is paid by the seller beforehand. They come to me for unbiased consulting on the market, products, comps analysis, market value, bidding and negotiating up until closing. Some buyers find these services very valuable. In addition, many buyers find the use of a seller broker, whose fiduciary responsibility is to the seller, as a conflict of interest as well; and decide to get their own representation. You said that agents work for themselves, I think that is kind of a foolish statement. Now go defend yourself with your defensive ways.

Memnonhi - I would estimate that 50%-60% or so of co-ops employ a flip tax, which is simply a revenue generator by the corporation; typically paid for by the buyer. It varies either as a fee paid as a percentage of the purchase price, or a dollar amount per share. Typically its about 1% or so of purchase price overall. 3%, or say $18K for a $600,000 1BR purchase is VERY HIGH! And to say that the building has the buyer pay that yet the seller broker not bring that up until after a deal is accepted and contracts out, is highly unusual. I advised my buyer to strongly consider re-negotiating or back out completely unless he feels the price we got is a steal, which it is very close to being. Flip taxes sometimes are attempted to be passed down from seller to buyer, but in the end, is typically a sell side closing cost that sellers try to negotiate out of paying.

OOPS Mistake - Flip tax is typically paid for by seller, not buyer as I said above in that 2nd sentence. Sorry.

Steve do me a favor. Go work the remainder of 2008 and send your pay checks to me. That way, you are not working for yourself.

Nycman - these boards don't influence anything. Maybe 10-12 regular posters, and what, at best 100-200 readers? Bears and bulls can post all they want, I really doubt it will change anyone's personal decision whether or not to enter into a million dollar-plus contract.

My issue is that the actual usefulness of ths site - navigating the purchase/renting process, dealing with issues with landlords or co-op/condo boards, etc, has been dwarfed by people just spewing their opinions.

urbandigs - agreed with your thoughts completely. I don't get why stevejhx is getting on you for sounding "defensive." There are bad brokers out there (many, in my experience), but that's got no bearing on you and your livelihood. It's a job, not charity.

evillage - thank you. I truly miss the usefulness of this site as well. It's been polluted by people who seem content to bash each other incessantly or just spout useless commentary. It's become a little too much like Curbed.

Thanks Urban - I was confused for a sec about who pays!

"According to Janice Silver, manager at Bellmarc Realty's East Side location, occasionally the firm will discount from its normal 6 percent commission for large sales to 5 percent, but it will rarely go below that. The difference is split between the company and the broker, she said. She also indicated that in certain categories, such as the $2 million to $4 million price point, apartments are "selling pretty fast, and there are bidding wars."

Well, there are 2055 Manhattan listings in the $2 to $4 million range, of which 299 have lowered their price in the last 60 days.

AKA 15%.

More broker garbage.

"working for yourself" has two interpretation. One is that you are self-employed. The other is that you are working as a fiduciary - for the benefit of someone else. Some real-estate agents are self-employed. Buyers' agents are NOT working as fiduciaries though they claim to be, because 1) their commissions are paid by the seller; and 2) the higher the price their "principal" pays, the more they make.

Those are impossible-to-resolve conflicts of interest. That is what I meant, I stand by it. It is what keeps rates artificially high.

"The other thing I'd like to point out is that broker commissions DID fall in the boom."

A 1% decrease during a time when property prices tripled. That's a real fall. Sure it is.

Remember NAR just settled an antitrust case with the Justice Department, to open up the MLS service to discount brokers. Telling that Manhattan doesn't have a real MLS.

Commissions being paid by the seller is not a conflict of interest and makes no difference at the end of the day - it's just optics/logistics. A) Commission is theoretically incorporated into the apt price so the buyer always pays and B) a broker is just as incented (or incentivized?) to close a deal regardless of who pays. You have to find a broker who is relationship-oriented vs. transaction-oriented.

"You guys have no idea how much a broker actually works for your benefit."

Generalizations about brokers are quite ridiculous actually. A few are real good and many are usless. I've dealt with my share of the latter and not nearly enough of the former, but those types tend to stick to the upper end of the market.

most brokers are scum

"Commissions being paid by the seller is not a conflict of interest."

Of course it's a conflict of interest. Would you say that if you paid my lawyer to sue you, that it wouldn't be a conflict of interest? Who is the lawyer going to work for? The one who pays the bills.

Just like drug trials: the drug companies pay for them. Don't you think that changes the results?

It's been proven to.

+1

A monkey could do what a real estate broker could do - generally with more honesty and integrity though

Being paid 3-6% for the small amount of work a broker does is rediculous.

Furthermore, brokers drive up the cost of housing for everyone
What would the cost of bread be if bakers worked through a broker before selling you that essential need? What if firemen worked via a broker before putting out your house fire? How about 3-6% of the value of your home or I won't put out the fire?

I don't know if brokers who show rentals fall under this thread, but here's the flip side of the story: clients who screw their brokers. A friend of mine went to a broker to find a rental on the UES years ago. He was new to NYC, didn't know much. They let this guy show them all these places he had made appointments with, having picked them for price range, location, etc. At the end of the day my friend said, thanks a lot, we'll call you. He then said to his fiancee, why should we pay this broker all that money just to rent those apartments when we *****could have***** walked into those buildings ourselves an gone to the rental offices? So they told the broker no thanks on any of the above and promptly walked back into the renting office of a building the broker had shown them. His rationalization for this was that, well, after all, brokers are scum and any monkey can do what they did. So don't waste the nice little monkey's time and energy.....

"What would the cost of bread be if bakers worked through a broker before selling you that essential need?"

They do. They're called the wholesalers and the retailers.

Lowery: I see nothing wrong with that. Frankly, its shameful that a broker would with a straight face trot someone into a rockrose or similar rental building and demand a fee.

I rented in a condo a year ago, the broker was with Corcoran, agreed to cut his fee from 15% to 1 month (8.25%).

Brokers aren't scum. Scummy brokers are scummy.

ps - many many relationships have conflicts of interest; conflict of interest doesn't mean bad

"conflict of interest doesn't mean bad"

when it costs you a lot of money it does.

I used to live in a big rental building which I rented through the management office. When I told the couple across the hall that I didn't pay a broker fee and that they didn't have to rent through a broker they looked at me as if I just molested their daughter. No joke. You'd have thought I was the one who stole their money. This stuff goes on all the time. Now, if a broker has an exclusive and turns someone on to a rent control or some other unique property for which they did some actual legwork, thats different.

"conflict of interest doesn't mean bad"

when it costs you a lot of money it does.

ok, but conflict of interest can be something disclosed and not problematic. So calling something a conflict of interest shouldn't be akin to saying something is wrong, right? If there is something wrong, say there is something wrong.

by the way totallyanonymous, maybe that couple came to NYC and didn't have much time to find a place, so the broker found them the building they didn't otherwise know about, confirmed an apartment of the right size, specs were available, made an appointment at a convenient time for both the building and them, guided them through the paperwork, etc....

maybe those services are worth more to some than others. Maybe those services weren't even worth that much to them and the services were expensive no matter how you cut it. But there are costs to information, and obviously that couple didn't have the information they needed to rent in nyc without paying a fee.

"If there is something wrong, say there is something wrong."

Okay. Let's say I buy a house for $100,000, my broker (assuming a 50% split) gets $3,000. If I could buy that house for $97,000:

a) I would save $3,000, but
b) my broker would lose $90, and
c) it's not in my broker's interest to do a lot of extra work to save me $3,000, because it costs them $90 to do it.

It's an incurable conflict. What is in my interest is NEVER in the interest of the person "representing" me.

There is something wrong.

Happy?

Very short term jaundiced thinking buddy.

"so the broker found them the building they didn't otherwise know about, confirmed an apartment of the right size, specs were available, made an appointment at a convenient time for both the building and them, guided them through the paperwork, etc...."

Thats not what they told me guy. They told me the broker gave them like 2 minutes of face time and pretty much just collected the check. I always hear the story of the diligent hard working broker who help out the downtrodden. This mythical broker, like the Yeti, seems to exist only in corporate advertisement fairy tales.

ootin's a broker.

"This mythical broker, like the Yeti, seems to exist only in corporate advertisement fairy tales."

Or the Sith.

Totallyanonymous, that is all fine.

When I hire someone, I check references, check my gut feel, etc. Those folks were too lazy to do proper research on their apartment and too lazy to do any research on who they were paying to help them find their apartment. So they lose out. Information is at a premium and those who have better access to information, who do more homework, who work hard will always beat those who are lazy, save for the effects of luck and randomness.

Last time I had a broker show me a dump on Pine Street last year where the seller was laughably overpricing the place. I was visibly disgusted by the unit commenting on its lack of this, lack of that. As we left the building, broker turns to me and says, "So, are you gonna make an offer?". Yes, broker was not Dolly Lenz but she wasn't Dolly the Sheep either.

But you weren't Totallyanonymous the Sheep and therefore you didn't buy. Good for you.

Stevejhx is an angry man who charges by the word.

I have dealt with good brokers too I must admit. Mark Kennedy was good. Not pushy, not a dick. Knew his area and knew it well and sends out that useful chart thingy he does. But lets face it. Even Pru and Corcoran has their share of crappy brokers. I mean, they have like 10,000 brokers working for them. You're bound to have a few good ones when you have those kinds of numbers.

Steve - please explain to me how the situation you laid out ($100k house) would change if the buyer paid his portion of the broker fee (or even the entire thing). Both brokers have an incentive to close the deal regardless of who pays the fee (and the buyer always pays the fee even if the seller writes the check). The only situation where you would get good advice is if you paid a broker a flat fee regardless of a) price and b) whether or not you bought a place. I'm sure you would love that.

I get the feeling that Steve is an idealist.

buster2056, you're assuming that commissions need to be paid as percentages of sale prices. They do not. Stock brokers were forced to switch to percentage of assets under management or a fixed fee from a per-transaction charge because it engendered "churning," the process of recommending a lot of transactions to drive up the fees.

"The only situation where you would get good advice is if you paid a broker a flat fee."

Yup. And I would not mind it would cause me not to waste their time.

In fact, it might get rid of real estate agents entirely, since they are pretty unnecessary. Anybody can put an ad on the Internet, and anybody can house-sit while people are viewing. Yes I've heard they "vet potential clients," but no realtor has ever asked me to prove my income before looking.

Stevejhx is an angry man who charges by the word --> I get the feeling that Steve is an idealist.

I must be extremely complex then: an angry idealist.

Idealism leads to disappointment. The world is not ideal. Life is a journey, not a destination. But for some, failure to reach a destination can be angering.

lawton, yes, a something like that but a bit less complex. Angry. Idealist.

lawton is channeling Anton Checkov. Nice!

"Idealism leads to disappointment."

It didn't when Plato was discussing it in The Republic.

But who am I?