US real estate brokerage commissions abnormally high by international standard

Because here the seller pays it all, so buyers think they're getting a deal. But in reality, since the seller pays the cost, there is no such thing as a "buyer's agent." It's an inherent conflict of interest that should be outlawed.

Agree definitely too high. Although not much different from Canada and a bunch of other countries as you say. What's the deal with outlawing? That's what this country needs, a bunch of regulations and laws restricting everyone's freedom.

> That's what this country needs, a bunch of regulations and laws restricting everyone's freedom.

Yes, because the Real Estate market is just doing AWESOME right now with all that "freedom".

"That's what this country needs, a bunch of regulations and laws restricting everyone's freedom."

You must be a supply-sider. Regulations are implemented for a reason: to prevent excesses, to protect consumers, to bring transparency to the market. How much better off are we if we have enough information to prevent ourselves from being swindled?

Ask anybody who took out a subprime mortgage, get back to me. I have an Ivory League education; I don't expect someone with a GED to be able to make the same decisions as I do, or be subject to the same rules.

What is the Ivory League?

Ivory League. Yeah, he studied elephants in Africa. lol.

I had actually thought for a minute it had something to do with HBCs...

Surdy,
God, I have tears in my eyes from laughing.

elena
(broker)

P.S.
There is no such thing as Internatiopnal Standards in brockerage commision. Even in US all fees ARE NEGOTIABLE, by law, and there is no such thing as "standard" commision.

I saw my name come across on my RSS reader filter from stevejhx.

He still doesn't understand basics, but that isn't important.

What I did think was nicely deceptive was steve's claim to have an Ivy League education.

Steve does not have an Ivy League education. Steve went to George Washington University as an undergraduate, which is, you know ...
He then was admitted to Columbia University's PhD program in some languages or another (Latin or Romance languages or something) but couldn't get through it and left with a mere Masters in course. Although, not to completely short change Steve, he also has and is proud of his graduate certificate in creative writing which comes in quite handy on this site and on his other posts on Marketwatch.com.

"Even in US all fees ARE NEGOTIABLE, by law, and there is no such thing as "standard" commision."

Actually, there is little room for negotiation and the National Association of Realtors had to be sued to open its multiple-listing service up to discount brokerages. It does good work forcing people to used licensed real-estate brokers through laws, it has gotten some states to specify fees, and it acts like a cartel through its fee structure, wherein sellers pay nothing.

Indeed, it is the only industry anywhere where one's "representative" is actually paid by the adversary. That should be illegal - then the entire real-estate pyramid would fall, and the world would be a better place.

So stop the crap.

Oh - and I'm glad that people laughed at "Ivory League." I think it's pretty funny myself.

Seriously, you let some guy just question your academic credentials, and you simply ignore that and post about how you misspell Ivory and then post on other links on this?? Did you only go to Columbia for a liberal arts MA? Or what is the story? Help me out, you seem to think the real estate market is going down, so down it should go to help buy the biggest pad I can. If some guy questioned me, he'd be laughed in a second when I pull out my AB from Princeton, unless of course he can't read the Latin inscription.

Steve probably ignored the post about his bullshit "ivory league" education because what was said was true and he's a faker and has no ability to give a comeback.

I wonder if "Ivory league" is a subconscious cross of "Ivy League" and "Ivory Tower", a synonym for academia.

Anyway, brokers just make money off an existing problem: the real estate market is not a free market. Limiting commissions won't make it any more free. It'll just make brokers poorer. Or, more likely, brokers would find some other way to make money from the wildly inefficient and cumbersome real estate game.

Go Lions! (C.U.)

Nitany Lions?

Steve,
In NY State fees are always specified (how much and who pays it) and always disclosed to both parties. And on top of that nobody stopping anybody from negotiation up until contract is signed.

As for the world being a better place, here is an example of regulation that, as you noted, "implemented for a reason: to prevent excesses, to protect consumers, to bring transparency to the market."
There is a mandatory Disclosure Form in NY State - just in case buyer desides to enter transaction without representation (buyer's broker). Listing broker becomes dual agent, he/she has to ask all parties involved in transaction to sign this form.

Form states that " A real estate broker may represent both the buyer and seller if both the buyer and seller give informed consent in writing. In such a dual agency situation, the agent will not be able to provide the full range of fiduciary duties to the buyer and seller. Broker acting as a dual agent must explain carefully to both the buyer and seller that the agent is acting for the other party as well. The agent should also explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are giving up their right to undivided loyalty."

elena
(broker)

elena, I know those forms, I've signed a few.

They do nothing to prevent the inherent conflict of interest in the "buyer's agent" being paid by the seller - meaning the seller is the one actually being represented - and the % commission structure meaning that the salesperson - aka real-estate agent - has an incentive to work against the interest of his or her constituent. The higher the sale price, the more the "buyer's agent" makes.

There is no such thing as a "buyer's agent."

$1mm apartment, 3% for the buyer's broker + brokerage firm... $30,000
$1.1mm = $33K

hardly worth it to mess with your buyer client

Steve,
I don't see it as inherent conflict; it’s more about structuring financial part of the deal. Would it be more convenient to the buyer if he/she pays lump sum to the agent out of this own pocket, or if he allowed to finance his commission to the agent and spread payments over the time? If you take to consideration that in Manhattan people stay in purchased apartment approx 7 years, which pass would you take?

As of "buyer's agent" -- Real estate is a referral business.
1. it's not worth losing your license over couple of grands.
2. it's not worth losing potential referrals from the deal, because you didn't do great job for your buyer.
3. it's not worth losing potential resale of the property when your satisfied buyer becomes seller.

elena
(broker)

"I don't see it as inherent conflict."

I know you don't, because you are a broker.

You cannot effectively represent someone - which is what "buyer's agents" claim to do - if you have an interest in direct conflict with his. It is in my interest to pay the lowest price possible; it is in the agent's interest to have me pay the highest price possible because the agent makes more money that way.

That would be like being represented by a lawyer who had an interest in losing your case.

I don't understand this: "it's not worth losing your license over couple of grand."

A couple of grand may not be much to a Manhattan broker, but it sure is to one in Omaha.

"$1.1mm = $33K hardly worth it to mess with your buyer client."

Really? $33k isn't a lot of money to a Manhattan real estate agent?

"getting" a client to pay $100K more is only worth $3K to the buyer's broker-looks like the point being made, not that $33K total isn't significant.

It's getting the $100k discount that's not worth the broker's time. It's worth the principal's time, but not the broker's.

That's the point.

Freakonomics does a study on brokers - comparing what they do for clients to what they do for *themselves* (when they sell their own places)... the short story is that they hold out longer and for more for their own places, they'd rather see an client's apartment sell for less and make it quick...

ok guys

NOt that it matters what our rates are vs. any other country, as every country has their own markets and supply and demand, but 6% is a big chunk of the transaction.

One other matter, I went to Princeton, although that is quite a while ago now. Steve you mentioned you were an Ivy League graduate and then someone basically called you a liar (non-professional Liberal Arts Masters don't entitle you to wear Ivy stripes on a graduation robe) and you had nothing to say in response?

It doesn't change a point of view on real estate, but it certainly puts credibility at stake, and you certainly have been one of the ones who, to your extra credit, hasn't made attempts at anonymity.

You guys are missing the point by not looking at what makes it easier for a real estate transaction to click (close). Lower price from the seller and higher price from the buyer. So it is always in the best interest of the 'buyer's agent' to prod the buyer for a higher offer as to bridge the price gap between the asking price and the buyer's offer. For this reason alone a 'buyer's agent' cannot work or lookout for the best interest of the buyer. I have yet to hear a 'buyer's agent' tell his client that the offer price is too high and the offer should be lower. As a matter of fact, it's almost always just the opposite.

I have an undergraduate degree in economics from George Washington, a masters in Spanish literature from Columbia, worked as a bank auditor for Bank of America and as a senior audit manager / managing consultant with Price Waterhouse in London and Madrid focusing on financial companies (banks, Visa, SWIFT, among others) and telecommunications and data security. I've run my own company for the past 15 years, translating from Spanish, Portuguese, and Italian the documents that I used to write - did a prospectus this morning, now doing crop dusting in Colombia and Ecuador. If they want to compare what they know to what I know, it will take them a lot longer to learn how to do what I do than it will take me to learn how to do what they do. Languages have a steep learning curve.

Specifically, right now I'm translating a document on spraying glyphosate on coca plants. Tomorrow it will be on a lawsuit regarding spraying dibromochloropropane on banana plants, causing sterility in workers. Last year at this time it was on Venezuela's expropriation of foreign oil companies' assets, and the taxation schemes of the national oil company.

If you know what all these things are you can do my job; if not, you're out of luck. That's why I make the big bucks: 12 cents per word typed, 2,000 words an hour. Do the math.

I'm not right about everything and I'm the first to admit it when I'm wrong, but no one - no one - has posted more detail about the housing market than I have. They can insult me all they want; they can't do what I do.

"You cannot effectively represent someone - which is what "buyer's agents" claim to do - if you have an interest in direct conflict with his. It is in my interest to pay the lowest price possible; it is in the agent's interest to have me pay the highest price possible because the agent makes more money that way."

- Just last two deals I dropped asking price from $850K to $750K, and from $870K to $820K, I guess because I don't have any conflicts with buyers I represent. For buyer I always try to get lowest possible price, because buyers are not idiots, they can sense right away who are you working for, and since buyer are not attached to a broker by a written agreement, he/she can walk away anytime. If a buyer walks away how much would a broker make? He would make $0. Therefore on a boutlux example you shouldn't compare $30K to $33K, you should compare $30K to $0.
Negotiation is art not a science; you are getting kick from the process. It's about feeling of satisfaction from doing great job (I hope you accustomed with Maslow's concepts on motivation); it's not your last deal... And it pays in the future to have a loyal customer.

"So it is always in the best interest of the 'buyer's agent' to prod the buyer for a higher offer as to bridge the price gap between the asking price and the buyer's offer. For this reason alone a 'buyer's agent' cannot work or lookout for the best interest of the buyer. "

Surdy, you are talking about negotiation tactics. Each negotiation depends on many variables: knowledge about seller's and listing broker’s situation, market volatility, comps, how attached your buyer to the apartment, timing and many other details. I never make decisions for buyers, because you can’t make someone to buy an apartment; all broker can do is to educate his client, so he/she can make their own decision (this I believe is the best interest of the buyr - make educated desisions). And if I ask my buyer weather or not it is worth for him to raise his offer, I have legitimate facts that back up my question.

“I have yet to hear a 'buyer's agent' tell his client that the offer price is too high and the offer should be lower. As a matter of fact, it's almost always just the opposite.”

Hm, if you are making your assumption based on facts, how many buyers' agents or buyers did you interviewed?
Amount of the offer comes from processing a lot of information, it's not just poking finger into sky saying-- O! Let's do 5% below or over asking.

elena
(broker)

Barskaya

Ok. Now here is the buyer' side of the equation.

Having dealt with 3 buyer's agent and having looked at properties in different cities in the last 2 years, I can tell you from personal experience that all the properties I looked at were priced right, as per the agent(s) - the market was coming back up/hot, and that my offer price should be about 0-7% below asking price to have a realistic chance of making a deal.

Move forward to today and a reality check. At least two of the properties I looked at are still on the market and one of them had a 15%+ price reduction and the other is now into foreclosure.

Unfortunately, I have seen that most information and reinforcement of "facts" provided by the agent(s) is based on making sure the deal gets done rather than if the buyer is getting a deal.

I run my own company for the past 15 years, translating from Spanish, Portuguese, and Italian the documents that I used to write - did a prospectus this morning, now doing crop dusting in Colombia and Ecuador. If they want to compare what they know to what I know, it will take them a lot longer to learn how to do what I do than it will take me to learn how to do what they do. Languages have a steep learning curve.

What a joke. My great grandmother spoke 8 languages and my grandmother spoke 6.

Whatever, its nice to post a lot, as you say, you get paid by the word so you think volume is all that matters.

But those of us who have a clue about the world know that quality rules over quantity.

People are misunderstanding the role of a broker.

My role as a buyer's broker is to find quality properties meeting the criteria of my clients.

stevejhx
1 day ago
I have an Ivory League education

stevejhx
about 3 hours ago
I have an undergraduate degree in economics from George Washington, a masters in Spanish literature from Columbia

Anyone else see a bit of exaggeration?

6% is very high

But really, who thinks the buyer's broker is primarly there to negotiate 10% off or whatever?

OMG will you people stop. Its expensive, yes everyone agrees.

Liars too if that is what they are.

My last transaction as a "buyers broker" was to advise my client to NOT bid up on an apartment that we had made a first offer on.

When we saw the seller's counter, we agreed, after running comps, that the apartment was overpriced. I placed the client in a rental instead.

There is no question but that what I did was in the client's best economic interest and not mine, at least short-term.

ali r.
{downtown broker}

Frontporch

I have followed your posts and if I have to use a broker in NY, you would be on the top of my list. They don't make them like you anymore.

MOST Real Estate brokers are in this for the long term - not the quick buck. What better way to develop a loyal client (and referral) base than for the buyer broker to work hard getting the best deal for the buyer. Repeat business and referrals are the largest source of broker business - often greater than office leads and Open House opportunities.

BUT - assume an SOB broker who is either (according to a previous post) too lazy or too greedy to aggressively negotiate for his buyer client. Consider this:

- Many (certainly most of my customers) don't have unlimited resources. The largest obstacle to a successful Co-op sale is passing the Board. Negotiating a better price might shave a % or two off the buyer's income ratio. Wouldn't even a selfish agent want to improve the chances of his client passing the Co-op Board?

- Sellers want the best sales price and buyers want a bargain. But don't forget the lender. If the appraisal doesn't come in AT LEAST at the sales price, the deal could tank (at worst), or the buyer will be p****d (at best) - neither a good situation.

As barskaya alludes to, buyers are not "lemmings", who blindly follow the dictates of their brokers. A good broker will leave the decision-making in the hands of the client, but all the while providing an informed opinion on what the likely outcome will be.

This is probably why you need to work with reputable broker firms like Corcoran, Elliman, Halstead, Warburg, Brown Harriss, Stribling and not places like Nestseekers.

Possibly. But it's more about the individual broker than the company.

I'll mention that I see separate (but related) themes developing re buyer brokers questions:

- What does a buyer broker do for me?

- Do I, as a first time buyer / intelligent person / savvy Real Estate expert need / want a buyer broker?

- Regardless of whether a buyer broker is paid by the seller / or paid by the $$$ provided by the buyer, are the services provided worth the cost?

helps you find a place and determine it and the market

My experience with buyer brokers has been similar to surdy, although not as extreme. I've dealt with several buyer brokers over time, and in each case respected their integrity, knowledge and value-add. They have given me advice that would contradict their immediate short term interest - i.e. this apartment we just looked at is overpriced. However, no matter what their best intentions, incentives matter, and our incentives are opposed. Theirs are to close a deal. Mine are to get the best apt at the best price (which may mean holding out).

All brokers I've dealt with clearly demonstrated a desire close a deal (and quickly, if possible). This included trying to get me to raise my max, relax my requirements, etc., convince me that what I was looking for is unrealistic at my price range, encouraging me to put in an offer, etc. I don't blame them for this, they're reacting to their incentives, which is human nature. But to suggest that this mis-alignment of interests doesn't exist is naive.

For a good, honest broker (including some of the posters on this thread), the long-term arguments and the duty to do right by your client can mitigate this mis-alignment, but not eliminate it.

surdy, thank you for the compliment, I just found it.(*blushing*)

Newbuyer99 -- of course brokers are incentivized to close deals - just as surgeons are incentivized to operate. Generally with the case of buyer representation this works fine, because most people who seek buyer representation want to buy SOMETHING -- they are generally looking for advice as to what.

I think this is one place where the Internet has hurt communication in the real estate business, however. In the modern age, there are a lot of people who start shopping -- because shopping is as easy as hitting your keyboard, and it's kind of fun -- who don't want a buyers' broker to necessarily push them to transact.

That's fine -- I think people who don't want to use brokers shouldn't -- but I think that for this class of people to think of themselves as "buyers" might perhaps be a misnomer.

People who have the option of transacting in a year, or two, in my mind aren't "buyers" yet -- they're "shoppers."

ali r.
{downtown broker}

newbuyer99 - I would hold that the interests of a "serious" buyer and a buyer broker are not as misaligned as you might think. Each party has the same goal - to successfully close on an apartment that meets the requirements of the buyer at a fair or better price.

By a serious buyer, I don't mean someone who's willing to buy the first apartment he / she sees, or blindly offers the "ask" price. But it should be someone, who, based on the financial profile and the budget, has a genuine interest in and a likely expectation of finding a suitable apartment in a "reasonable" timeframe. I've had situations where the buyer client found the "right" apartment early in the process. I've had other situations where the search process lasted six months or more. But in all cases, my personal assessment was that the buyer was serious - and realistic. If a buyer wants a million $$$ apartment for 500K, there's really not much I can do.

I've mentioned on other threads that our goals are the same - why else would a buyer opt to work with a buyer broker? And while all parties would like the search to lead to an eventual sale, a buyer broker has no allegiance to any one, particular seller. I never "try to get buyers to raise their max", or "encourage them to put in an offer". All I do is lay out the various price / negotiating options, provide my candid assessment of what I believe the seller's response will likely be, and then let the buyer tell me what he wants to do.

Let me give a simple hypothetical example, even assuming a serious buyer.

I see an apartment for $2MM that I like. But there are 10 more, all for $2MM I'd like to see before I make my decision, of which I am almost certain to like at least one more than the first. My incentive is to see all of the apartments to find the best one for me. Your incentive (as buyer broker) is for me to make an offer on the first one and be done, since it "works", and since you get the same 3% fee with 1/10th the work.

An honest broker might advise me to see the other apartments anyway, but against their incentives, not because of them. And my point is that even the most honest broker, on the margin, is affected by incentives - i.e. after we've seen 7, he/she is tired and wants me to skip the last 3, whereas my incentives are still to see the max.

As an aside, your whole concept of a serious buyer is flawed. In any negotiation/decision, one should always have an alternative. That alternative is renting. If I don't find what I want for a price I am willing to pay, I will wait. That does not make me a "not-serious" buyer, it just makes me rational.

As to your question - why else would a buyer opt to work with a buyer broker - that's precisely the discussion here. Many people, myself included, think it's unnatural and usually shouldn't happen. But it does, in large part because the 6% usually gets paid anyway, with or without a buyer broker. I promise you if there was an explicit system, where not using a buyer broker would save the buyer money, a lot fewer would use them.

newbuyer99 - I'll differ with you to this extent. While it might be "nice" if every buyer client decided to buy the first apartment they were shown, it would be an unreasonable expectation on the part of the buyer broker. If I were asked the "average" number of apartments I'd shown prior to a buyer committing, I'd estimate 20. If asked the number of separate days / afternoons / evenings spent on appointments, I'd guess 7 or 8. And then there are all the apartments shown and afternoons / evenings spent that never lead to anything. Complaining? No. Just stating the facts. Is that atypical? I honestly don't know, because I don't compare notes with other brokers. But I probably wouldn't buy the first washing machine I see - why should I expect a buyer to buy the first apartment?

Re alternatives, renting is always an alternative. As is staying in the apartment you already own. As is buying in New Jersey or Westchester. But these are discussions I always have with a prospective buyer at the outset. You probably don't need to see 50 apartments before you decide you're better off renting.

You're right. The full commission usually gets paid anyway, whether a buyer broker is involved or whether it's a "direct" sale. And sophisticated buyers have less (or no) need for a buyer broker than a neophyte does. But you have to realize there will always be buyers out there that don't know a Co-op from a Condo, need help understanding the qualifying process, want the research done, the appointments made, the comps studied, the negotiating done, the transaction managed, all the parties kept abreast of what's happening, and the Board package professionally done for them. I fully understand you're not one of those people.

I am confused by the broker's fee. If you buy a $1.9 million dollar condo and sell it 4 years latter for 4 million then why should the broker's fee be 6 %? You are paying him again (that is if he is the same broker who sold the condo to you) . Why pay 6 or 4 or 3 % for the total amount of the sale. Even the government does not claim the entire sale but only what you made on the sale.
Am I missing something here!

What does the real estate brokerage industry have to do with the government?

The brokers are charging you a transaction fee - a vig, not a value added tax.

They are also not an equity partner in your investment, if the house goes down, should they be involved in selling it the second time and pay you to have the sale completed?

newbuyer99,

I understand your psychology of wanting to see all ten apartments -- in my book I called it "the bachelor's dilemma -- have I seen absolutely everything?"

and certainly any decent broker who is working for you will honor your wishes. Sometimes clients want/need to look at a lot of properties before they are comfortable buying -- the buyer I put in the Laurel I must have gone through 100 apartments with.

But that much shopping is not actually "necessary."

The first time I bought -- using the best broker in New York, my current boss -- I saw two apartments. The second time, I believe was either four or five.

Why? Because I knew my broker knew the inventory and wasn't leaving anything good out.

If you are considering 10 apartments and a good broker sees three of them with you -- and I mean actually walking through the physical space with you and watching your reactions -- he/she ought to be able, based on their knowledge of the inventory and your reactions, to show you two or three more and throw four or five out with confidence.

If you want for your own piece of mind to see all ten, fine, but some of what a broker can offer a client is the ability to focus the search.

ali r.
{downtown broker}

Neither of you is refuting my simple point that the incentives are mis-aligned, and I don't think any/many others are paying attention anyway. So there's not much of a point debating the matter any further.

has anyone figured out that EddieWilson and Stevejhx are the identical person?

Same positions
Same style of posting a negative article as worthy of its own discussion topic
Same argument style
Same style of rebuttal, interspersing the original quote and his response
Same claim to have worked at an investment bank, but seemingly not in the investment banking group itself
Same language style and pedantry related to language
Same self-corrections of their own posting
Same imperfect ability to do math
Same level of anger
Same reference to "they" and "them" as out to get people who don't think real estate is going up

what else is the same ... anyone care to point it out?

To everybody:

I've been reading Steve's posts for a couple of years now and to all you doubters: STEVE HAS BEEN RIGHT so far. He's been predicting market down big time (and I completely agree with his 40-50% down predictions from the top).

My few cents is that brokers are scumbags that deserve far less than 6% they charge. What needs to happen is what happened to the brokerage industry: more automation, less market participants and .. and yes.. LOVER FEES. Every broker I have dealt with was worse than used car salesmen I've dealt with.

I know, I know.. good brokers do exist and may be.. just may be worth their fee. So to all of you who consider themselves good brokers, why don't you start an online service (like this one) with a personalized tough and far lower fees. Your biz will go great, I guarantee you.

In fact, Steve, why don't we start it together? :)

As a disclaimer. I do not know Steve, never met him, never spoke with him, never exchanged anything with him.